Last week was a trip back to the good old days of the Panic of ‘08.
The New York Federal Reserve Bank injected $203 billion into the U.S. financial system to alleviate funding pressures caused by a sudden scarcity of cash in the “repo market.”
It was the largest monetary methadone injection of this scale since the ’08 Panic.
Repos (repurchase agreements) are short-term borrowing transactions that are a vital part of the financial system because they give companies access to cash overnight.
Suddenly, last Monday afternoon and Tuesday morning, the cost of borrowing cash overnight in exchange for U.S. Treasuries in the repo market skyrocketed from 2.00-2.25 percent to as high as 10 percent.
“When things like this happen it increases the uncertainty and leaves fixed income markets jittery. And that is the job of central banks to avoid,” was how Goldman Sachs Asset Management, described the repo market turmoil.
In an effort to restore market confidence, the New York Federal Reserve said it would inject up to $75 billion a day in repurchase agreements through October 10.
“For all intents and purposes, this will be equivalent to QE, with scheduled purchases of securities. We estimate that over the first year, the Fed would need to buy roughly $400bn of Treasury securities to achieve an appropriate level of reserves, plus a buffer,” said the Bank of America.
Yes, QE is back and so too will the U.S. Federal Reserve continue to lower interest. While the Fed cut the overnight rate by 25 basis points last week as expected, we forecast they will go to near zero next year and negative in 2021 as the U.S. economy sinks into the “Greatest Depression.”
Global Slowdown Speeding Up
Last week in your Trends Journal we detailed hard evidence of a major slowdown in China, the world’s second largest economy.
Now updated figures from last week show China’s industrial output fell to a new low last month, up 4.4 percent rise in August, down from 4.8 percent in July… its worst since 2002.
And while President Trump accuses China of purposely devaluing its currency to increase exports, a cheaper renminbi did not boost exports which fell 1 percent in August year-to-date.
Japan, the world’s third largest economy saw its manufacturing activity shrink at the fastest pace in seven months in September, putting more pressure on its government and central bankster to step up stimulus.
The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 48.9 from a final 49.3 in the previous month… its fastest pace of deterioration since February.
Germany, the world’s fourth largest economy showed factory activity shrinking at the fastest pace since the depths of the Great Recession 10 years ago.
France’s private sector hit the lowest level in the past four months, according IHS Markit. And for the eurozone, business expansion sank to the lowest level since June 2013.
In the U.K., manufacturing orders keep slumping with demand for exports matched the lowest since 2011.
Yes, the “Greatest Depression” has begun.
Rich and poor, they feel it in their pocketbooks and they feel it in their bones.
In the U.S. consumer confidence fell sharply in September. It was the biggest drop in nine months and the reading marks the largest shortfall relative to economists’ expectations since 2010, according to Reuters.
And as for the wealthy of the wealthiest, a majority of the richest of the richest, 55 percent, expect a recession next year… and they’re hunkering down, according to a UBS survey.
“We are very cautious, even now with the market we don’t feel very comfortable,” said a survey respondent.
TREND FORECAST: As Trends Journal subscribers well know, in my 6 June Trend Alert, when gold was at $1,332 per ounce, I forecast The Gold Bull Run.
As of yesterday the price per ounce was up over $200. The Gold Bull is Running.
In part, I made this forecast because I had forecast aggressive Central Bankster policy of continuing to lower interest rates to keep the cheap money addicted Bull running and the artificially propped up economies from sinking lower.
Gold prices will continue to rise as interest rates around the world continue to go lower because it has less competition from yield bearing securities such as government bonds.
And, as the “Greatest Depression” worsens, interest rates will continue to hit new lows, bond yields will tumble and gold prices will spike higher.
Also, as overvalued equity markets crash, such as the Dow with a Price to Earnings ratio over 25 (the average P/E ratio is about 16.8), investors will seek gold as a primary safe haven asset.
Thus, my forecast is that gold prices will spike well above $2,000 per ounce even before the “Greatest Depression” strikes.