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Pater Tenebrarum

Pater Tenebrarum

Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.

Articles by Pater Tenebrarum

Repo Quake – A Primer

11 days ago

Chaos in Overnight Funding Markets
Most of our readers are probably aware that there were recently quite large spikes in repo rates. The events were inter alia chronicled at Zerohedge here and here. The issue is fairly complex, as there are many different drivers at play, but we will try to provide a brief explanation.
There have been two spikes in the overnight general collateral rate – one at the end of 2018, which was a first warning shot, and the one of last week, which was the biggest such spike on record, exceeding even that seen in the 2008 crisis.
The funding stresses in overnight repo markets were the culmination of a problem that has been simmering in the background for quite some time. It was partly the result of new banking regulations implemented

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Paul Tudor Jones Likes Gold

June 13, 2019

Gold is Paul Tudor Jones’ Favorite Trade Over the Coming 12-24 Months
In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn’t work for you, here is a link to the video on Bloomberg).
This is worth mentioning for the simple reason that Paul Tudor Jones has an outstanding track record as a macro trader. His long term annualized return is close to 20%, although the results of his flagship fund were less spectacular in recent

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A Surprise Move in Gold

June 8, 2019

Traders and Analysts Caught Wrong-Footed
Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:
Back in April the so-called “managed money” category in the disaggregated commitments of traders report went net short gold futures for only the fourth time since 2007 (i.e., since disaggregated reporting was introduced). The recent peak in the net short position of this group of traders was 34,000 contracts and was reached on April 23 with gold trading at $1,273. Since then these traders have

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US Money Supply Growth and the Production Structure – Signs of an Aging Boom

June 1, 2019

Money Supply Growth Continues to Decelerate
Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy’s production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.
Interestingly, we have once again seen a spike in commercial and industrial loan growth just as the growth rate of TMS-2 has slowed to a crawl. We have previously discussed why this tends to happen (see “A Scramble for Capital” for the details).
What is

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In Gold We Trust 2019 

May 29, 2019

The New Annual Gold Report from Incrementum is Here
We are happy to report that the new In Gold We Trust Report for 2019 has been released today (the download link can be found at the end of this post). Ronnie Stoeferle and Mark Valek of Incrementum and numerous guest authors once again bring you what has become the reference work for anyone interested in the gold market.
Gold in the Age of Eroding Trust
This year’s report is entitled “Gold in the Age of Eroding Trust” and has been published in German, English and for the first time in Mandarin as well. The extended English version of the report is quite voluminous this year – it has 325 pages. Trust in once well-respected institutions (see chart above) is

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Two Junior Miners Offering Arbitrage Opportunities – an Interview with Jayant Bhandari

March 31, 2019

Maurice Jackson of Proven and Probable Interviews Jayant Bhandari
Maurice Jackson of Proven & Probable has just conducted another interview with Jayant Bhandari, who is known to long-time readers as a frequent guest author on this site.

Jayant Bhandari
Below is a video of the interview as well as a link for downloading the transcript of the interview in PDF form. But first here is a list of the topics discussed:

The recent confrontation between India and Pakistan.
A reassessment of US president Trump
Should investors speculate in commodities? If so, how to best go about it?
Gold and silver as wealth protectors
Two arbitrage opportunities in junior miners
A brief introduction to Capitalism and Morality (the next

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In Gold We Trust 2019 – The Preview Chart Book

March 22, 2019

The new IGWT report for 2019 will be published at the end of May…
…and for the first time a Mandarin version will be released as well.
In the meantime, our friends at Incrementum have decided to release a comprehensive chart book in advance of the report. The chart book contains updates of the most important charts from the 2018 IGWT report, as well as a preview of charts that will appear in the 2019 report.
A brief summary of the contents:

A Turn of the Tide in Monetary Policy: Events in Q4 clearly showed that a “monetary U-turn” is currently on its way, which means that further large-scale experiments like MMT, GDP targeting and negative interest rates might be expected in the course of the next severe

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Monetary U-Turn: When Will the Fed Start Easing Again? Incrementum Advisory Board Meeting Q1 2019

March 10, 2019

Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy
On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below].

Trey Reik of Sprott USA. – Click to enlarge
Also at the meeting, Jim Rickards, who is inter alia well known as a Fed watcher. The main topic under review was whether Fed policy is likely to actually change, following the verbal about-face on the part of chairman Powell in late December.
Jim Rickards believes that although a pause in

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Watch Europe – Free Pass for the Elliott Wave European Financial Forecast

March 9, 2019

Europe at an Important Juncture
European economic fundamentals have deteriorated rather noticeably over the past year – essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below:

Euro Stoxx 50 and DAX, DailyThe Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks are a hallmark of major turning points. The recent rally has pushed European stocks back up to trendline resistance and they are now severely overbought. – Click to enlarge
According to Elliott Wave

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The Gold Debate – Where Do Things Stand in the Gold Market?

March 1, 2019

A Recurring Pattern
When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating – prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent years.
A number of observers were concerned about the Economist penning a few positive words about gold, as Economist endorsements of market trends are usually the kiss of death for the trend in question. We would point out though that

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The Bear Market Hook

January 3, 2019

Has a Bear Market in Stocks Begun?
The stock market correction into late December was of approximately the same size as the mid 2015/early 2016 twin downturns, so this is not an idle question. Moreover, many bears seem quite confident lately from an anecdotal perspective, which may invite a continuation of the recent upward correction. That said, there is not much confirmation of said confidence in data that can be quantified.

S&P 500 Large Cap Index (see more posts on S&P 500 Large Cap Index, ) – Click to enlarge
Our proposed bearish wave count for the S&P 500 Index, which could easily be completely wrong, so take with a big grain of salt. Let us just note here that this chart looks bearish regardless of the

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A Global Dearth of Liquidity

December 8, 2018

Worldwide Liquidity Drought – Money Supply Growth Slows Everywhere
This is a brief update on money supply growth trends in the most important currency areas outside the US (namely the euro area, Japan and China)  as announced in in our recent update on US money supply growth (see “Federal Punch Bowl Removal Agency” for the details).
The liquidity drought is not confined to the US – it is fair to say that it is a global phenomenon, even though money supply growth rates in the euro area and Japan superficially still look fairly brisk. However, they are in the process of slowing down quite rapidly from much higher levels – and this trend seems set to continue.

Nobody likes a drought. This collage illustrates why. –

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Eastern Monetary Drought

October 26, 2018

Smug Central Planners
Looking back at the past decade, it would be easy to conclude that central planners have good reason to be smug. After all, the Earth is still turning. The “GFC” did not sink us, instead we were promptly gifted the biggest bubble of all time –  in everything, to boot. We like to refer to it as the GBEB (“Great Bernanke Echo Bubble”) in order to make sure its chief architect is not forgotten.

Naturally, we were premature in calling for the pompes funèbres and the grave diggers in order to inter the GBEB in late March, but the revival in US markets was a muted one and the funeral rites certainly continued in numerous emerging markets. Image credit: Sharon Hatley
China is widely considered an

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Is the Canary in the Gold Mine Coming to Life Again?

October 17, 2018

A Chirp from the Deep Level Mines
Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal – and hence highly leveraged to the gold price – South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details).

Mining engineer equipped with bio-sensor

Photo credit: Hulton Archive – Click to enlarge
As we write these words, the HUI Index is well off its intraday highs, apparently in response to the broader stock market attempting to recover. In other words, another short term pullback in the gold sector could easily be in the cards. But something is

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Are Credit Spreads Still a Leading Indicator for the Stock Market?

October 16, 2018

A Well-Established Tradition
Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a chart of US high yield spreads – currently they indicate that nothing is amiss:
It is fair to say that the current level of US high yield spreads is not what one would expect to see prior to a big decline in stock prices. Since we are

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Fed Credit and the US Money Supply – The Liquidity Drain Accelerates

October 11, 2018

Federal Reserve Credit Contracts Further
We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).

The Fed has clearly changed course under Jerome Powell – for now, anyway.
Our friend Michael Pollaro* recently provided us with an update on outstanding Fed credit. As there are no longer any outstanding reverse repos with domestic banks, the liquidity drain is accelerating of late, with growth in net

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In Gold We Trust – Incrementum Chart Book 2018

October 10, 2018

The Most Comprehensive Collection of Charts Relevant to Gold is Here
Our friends from Incrementum (a European asset management company) have just released the annual “In Gold We Trust” chart book, which collects a wealth of statistics and charts relevant to gold, with extensive annotations. Many of these charts cannot be found anywhere else. The chart book is an excellent reference work for anyone interested in the gold market and financial markets in general. A download link for the chart book can be found at the end of this post.

Central Bank Policies Turn, 2003 – 2019Turn of the tides: monetary expansion becomes monetary contraction – Click to enlarge
The chart book is based on the 2018 In Gold We Trust report

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US Stocks and Bonds Get Clocked in Tandem

October 8, 2018

A Surprise Rout in the Bond Market
At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won’t alter the status of today’s action – it is a typical warning shot. Here is what makes the sell-off unique:

30 Year Bond and 10 Year Note Yields, Nov 2016 – Oct 201830 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as we felt that the large speculative net short position in bonds and notes was prone to trigger a short covering rally. Alas, the opposite has happened. – Click to enlarge
Since the

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Switzerland, Model of Freedom & Wealth Moving East – Interviews with Claudio Grass

October 7, 2018

Sarah Westall Interviews Claudio Grass
Last month our friend Claudio Grass, roving Mises Institute Ambassador and a Switzerland-based investment advisor specializing in precious metals, was interviewed by Sarah Westall for her Business Game Changers channel.

Sarah Westall and Claudio Grass
There are two interviews, both of which are probably of interest to our readers. The first one focuses on Switzerland with its unique, well-developed system of  direct democracy as a model of freedom. These days, models of freedom seem to be increasingly rare, but Switzerland’s democratic traditions remain firmly in place.
The second interview focuses on the global economy, the movement of wealth from West to East, the US dollar

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US Equities – Approaching an Inflection Point

September 19, 2018

A Lengthy Non-Confirmation
As we have frequently pointed out in recent months, since beginning to rise from the lows of the sharp but brief downturn after the late January blow-off high, the US stock market is bereft of uniformity. Instead, an uncommonly lengthy non-confirmation between the the strongest indexes and the broad market has been established.
The chart below illustrates the situation – it compares the performance of the DJIA (still no new high since January, although it has come close), the NDX (one of the best-performing indexes, along with the Russell 2000/ RUT) and the NYA (our proxy for the broad market):
On Monday the NDX pulled back to its 50-day moving average, which has contained all short term

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Jayant Bhandari – The US Dollar vs. Other Currencies and Gold

September 7, 2018

Maurice Jackson Speaks with Jayant Bhandari About Emerging Market Currencies, the Trade War, US Foreign Policy and More
Maurice Jackson of Proven & Probable has recently conducted a new interview with our friend and occasional contributor to this site, Jayant Bhandari, who is inter alia the host of the annual Capitalism and Morality seminar.

Maurice Jackson (left) and Jayant Bhandari (right)
A wide range of topics is discussed, from the strong US dollar and its collapsing counterparts in emerging markets, to the looming threat of trade wars, to US foreign policy and the importance of gold as an insurance policy. As is his wont, Jayant brings a perspective that is often characterized by a refreshing dose of

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Wall Street – Island of the Blessed

August 16, 2018

Which Disturbance in the Farce can be Profitably Ignored Today?
There has been some talk about submerging market turmoil recently and the term “contagion” has seen an unexpected revival in popularity – on Friday that is, which is an eternity ago. As we have pointed out previously, the action is no longer in line with the “synchronized global expansion” narrative, which means with respect to Wall Street that it is best ignored.

Misbehaving EM currencies, 2016-2018 – Click to enlarge
Misbehaving EM currencies – the Turkish lira has become quite unruly of late, which is bad juju for a country with a huge balance of payments deficit and an external debt-to-GDP ratio of well above 50%. Arguably the zaftige move in

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Gold Sector – An Obscure Indicator Provides a Signal

August 14, 2018

The Goldminbi
In recent weeks gold apparently decided it would be a good time to masquerade as an emerging market currency and it started mirroring the Chinese yuan of all things. Since the latter is non-convertible this almost feels like an insult of sorts. As an aside to this, bitcoin seems to be frantically searching for a new position somewhere between the South African rand the Turkish lira. The bears are busy dancing on their graves.
The technical divergences we previously spotted have for the most part given up the ghost rather unceremoniously and quickly, although there are some remnants of technical hope in the form of diminishing momentum of the downtrend in gold and the lack of a new low in the HUI-gold

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An Inquiry into Austrian Investing: Profits, Protection and Pitfalls

August 11, 2018

Incrementum Advisory Board Discussion Q3 2018 with Special Guest Kevin Duffy
“From a marketing perspective it pays to be overconfident, especially in the short term. The higher your conviction the easier it will be to market your investment ideas. I think the Austrian School is at a disadvantage here because it’s more difficult to be confident about your qualitative predictions and even in terms of investment advice it is particularly difficult to be confident in these times because we don’t really have any historical precedents we can analyze and draw conclusions from.
Rahim Taghizadegan
As always, the discussion at the Incrementum Q3 Advisory Board meeting covered a wide range of subjects, with a special focus on

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Stock Market Manias of the Past vs the Echo Bubble

August 6, 2018

The Big Picture
The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.

Who’s who in the zoo in 2018 – Click to enlarge
The above combination is consistent with a market close to a major peak – although one must always keep in mind that divergences can become even more pronounced – as was for instance demonstrated on occasion of

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TARGET-2 Revisited

August 3, 2018

Capital Flight vs. The Effect of QE
Mish recently discussed the ever increasing imbalances of the euro zone’s TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.
TARGET-2 is a settlement system without a settlement mechanism – which is a major difference between the euro-system and the Federal Reserve system, which settles internal payment imbalances by transferring gold certificates. In our comment posted by

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A Scramble for Capital

July 26, 2018

A Spike in Bank Lending to Corporations – Sign of a Dying Boom?
As we have mentioned on several occasions in these pages, when a boom nears its end, one often sees a sudden scramble for capital. This happens when investors and companies that have invested in large-scale long-term projects in the higher stages of the production structure suddenly realize that capital may not be as plentiful as they have previously assumed. The wake-up call usually involves a surge in market interest rates and subtle shifts in relative prices in  the economy (consider for instance the recent decline in new home prices amid declining sales). Interest rates have certainly provided a signal lately.
We last mentioned this phenomenon in a

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US Money Supply and Fed Credit – the Liquidity Drain Becomes Serious

July 18, 2018

US Money Supply Growth Stalls
Our good friend Michael Pollaro, who keeps a close eye on global “Austrian” money supply measures and their components, has recently provided us with a very interesting update concerning two particular drivers of money supply growth. But first, here is a chart of our latest update of the y/y growth rate of the US broad true money supply aggregate TMS-2 until the end of June 2018 with a 12-month moving average.
Bank credit expansion in the US has recently recovered a little further, with commercial and industrial loans growing at 5.33% y/y as of the end of June and total US bank lending growth reaching 3.91% y/y (which is still nothing to write home about). The rise in C&I lending is

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The Gold Sector Remains at an Interesting Juncture

July 11, 2018

Technical Divergence Successfully Maintained
In an update on gold and gold stocks in mid June, we pointed out that a number of interesting divergences had emerged which traditionally represent a heads-up indicating a trend change is close (see: Divergences Emerge for the details). We did so after a big down day in the gold price, which actually helped set up the bullish divergence; this may have felt counter-intuitive, but these set-ups always do. Consider now the updated chart below (we have added the HUI-gold ratio in the third panel of the chart, as it provides additional clarity).

Everybody has different reasons for wanting to buy or hold gold – this is actually a fairly good one… 🙂
As the chart illustrates,

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Gold – Macroeconomic Fundamentals Improve

July 10, 2018

A Beginning Shift in Gold Fundamentals
A previously outright bearish fundamental backdrop for gold has recently become slightly more favorable. Ironically, the arrival of this somewhat more favorable situation was greeted by a pullback in physical demand and a decline in the gold price, after both had defied bearish fundamentals for many months by remaining stubbornly firm.

The eternal popularity contest… – Click to enlarge
The list of gold fundamentals that have improved is short, but at least there is now such a list:

credit spreads: European high yield spreads have broken out to the upside. In the US, high yield spreads are better behaved (we suppose mainly on account of the fortunes of the energy sector),

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