Dusting Off Covid Playbook, $10,000 Gold, Recession Watch
I hope everyone has a great long holiday weekend. I will be silent until Monday or Tuesday.
Canada's Liberals Dust Off Covid-19 Playbook
It's hard for me to believe that a lot of Canadians are getting fooled again, but it's happening this time in a Liberal ploy to get re-elected to spoil the country some more.
The Liberals have created a crisis out of a mediocre issue and pushed out a narrative to convince Canadians of a crisis and if they are elected again, that only they have the vaccine for the crisis.
Here is an example of some of the narrative. A subscriber sent this to me and than several other people brought it up to me and I learned the BS story was pretty wide spread on social media.
It is meant to make it look like Mark Carney is a master to take on Trump.
After the bond market sold off and Trump backed off on tariffs, it was all Mark Carney's doing. So the story goes. The narrative goes along the line that when Carney visited Europe, it was to orchestrate a bond revolt against Trump if he went too far with tariffs. The world's biggest nations all dumped US Treasuries that pushed interest rates up and Canada was a big part, selling $350 billion in Treasuries. As soon as I saw that number, I knew it was BS because Canada does not and never had anywhere near that amount of US Treasuries, in fact just a fraction of that.
You can read the fiction story here.
It is totally false and just election propaganda to make Carney look good. Canada has no where near that amount of US treasuries and you can check the data at the Canadian Finance Dept., they publish it monthly.
End of March Canada has $69 billion in US treasuries and there has been no selling. Possible in April, we won't see that report until early May. The fact the article said Canada had $350 billion of US treasuries, I would give it zero credibility.
Now granted, many CBs have been steady sellers of US debt to buy gold. I did give thought too that. China could be responsible, they have about $750 billion of US debt. Japan holds just over $1 trillion but I doubt they would do this, they are a pretty close ally and rely on the US to help protect the South China Sea.
The fact that bonds sold off in all countries, looks like a liquidity crisis as I pointed out.
The Real Problem in the Bond Market
The media is so strongly focused on Trump bashing, that anything negative that happens, Trump is to blame. It is the same for financial media as well, so the market and investors are not getting real or accurate analysis.
At the same time the bond market tanked, news was coming out that Republicans narrowly approved their budget framework “Biggest Tax Cuts in USA History!!! Getting close,” Trump said. It is looking like a $2 trillion budget deficit but they say that the plan is to find $1.5 trillion in spending cuts over some years. As we all know, governments never do what they say, especially when it comes to less spending. The market has no confidence that these huge deficits will get under control.
This is the main reason that many Central Banks have been selling off US treasuries and buying gold. That has been going on for 2 years and could have easily picked up the pace on the budget news especially as we have had gold spiking to new record highs.
I agree that tariffs take some blame, but they are not the main culprit. And China, in retaliation could have sold off more treasuries, but as I showed, the bond sell off was world wide, looking more like a liquidity problem. Treasuries have recovered but are into a resistance area so we will see where they go from here. Here is a weekly chart of the 10 year treasury bond.
Not so good is the US$, as the US$ index is breaking down on the chart and there has been no recovery since the plunge last week. That happened the day that budget news broke on Thursday and down further Friday.
Back on April 6th, I had a look at a possibility that Trump's plan might work. "I now see a path how Trump's plan could work.”
This was based on a recession causing lower interest rates to better refinance debt, a falling US$ to help balance trade and getting the deficit under control. However, since then the US$ has dropped but interest rates went back up and the deficit looks like it will be a problem. Therefor a set back in the thesis I outlined, but this is just a week and a half so the jury is still out. I am certain we will get a recession and a lower US$ but interest rates might not fall so much if the market shuns bonds because of government excess spending and a high deficit.
$10,000 Gold
However this unfolds, there will be a continued move out of fiat currencies into gold by many Central Banks. And now the US Bullion banks have joined the party and they will start getting their Institutional clients into gold, driving the next leg up. This is a bull market in gold, so how high might it go?
I have a long term chart here and looking at the last gold bull market that really got going in 2005 when gold broke over $400 and ran to a high around $1,850 in 2011. That was about a 360% increase over 6 years. This would equate to a move to around $7,560 in this bull market. I expect the financial crisis from this bubble bursting will be far worse than 2008 so a $8,000 to $10,000 target is quite realistic.
Recession Watch
Both the NY and Philadelphia manufacturing surveys reported this week are screaming recession and that is before tariffs really kicked in much. However, tariff news hype hurt outlooks.
The Empire State Manufacturing survey - Firms turned pessimistic about the outlook, with the future general business conditions index falling to its second lowest reading in the more than twenty-year history of the survey.
The Phily Fed Manufacturing Outlook - The diffusion index for current general activity dropped 39 points to -26.4 in April, its lowest reading since April 2023. Nearly 39% of firms reported decreases in general activity this month, while 13 percent reported increases; 41 percent reported no change. The index for new orders also fell sharply, from 8.7 in March to -34.2 this month, its lowest reading since April 2020.
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