Negative Rates Extend Markets

We learned this week that Ray Dalio’s Bridgewater fund has a $1.5 billion short position against the S&P 500, even as the U.S. equity market defied gravity one more week. That news came out from a Wall Street Journal article, after which Dalio tried to dismiss it by saying the $1.5 billion short was simply a hedge. Okay, but why place a large bet like that unless you were worried about an equity bear market?

It seems to me the move higher in the T-Bond market is consistent with Dalio’s worries even though stocks rose a bit more this week.  Of course, as long as the central banks of the world continue to flood the markets with money, driving rates below zero, making the cost of capital negative, it’s hard to see how stocks won’t continue to rise. Except, it is also true that central bankers can’t completely control where the money they create out of thin air will go. It may well be possible that much of the money creation will eventually go into “stuff,” causing the actual cost of everything to begin to rise, which in turn could lead to interest rates actually rising despite central bank efforts to suppress rates even lower. That may be especially true as rates decline in the world’s reserve currency since all commodities are priced in dollars. Why accept negative interest rates when you can buy gold, which provides a 1.5% to 2.25% annual yield, which you can actually gain now via Monetary Metals http://goldyield.monetary-metals.com/jtm? By the way, the rates you can get for leasing out your gold bullion through Monetary Metals are more or less what the forward lease rate for gold is on the exchanges. My good friend at Monetary Metals, Addison Quale, who has been on my radio show, would certainly walk you through a transaction. The point I am making is why would anyone in their right mind pay someone to borrow money from them when in fact a dollar or an ounce of gold or a pound of copper in your hands NOW is worth more than at some time in the future. The world has gone mad in many ways, whether in the area of sexuality or climate change or what have you. But nothing makes less sense than negative rates and as Alasdair Macleod pointed out on my radio show, negative rates, especially in the world’s reserve currency, are bound to set off a scramble to exchange dollars for “stuff.” As Michael Oliver pointed out on my show last week, the one major market that looks most vulnerable to him right now is the U.S. dollar. Of course any kind of major decline in the dollar would also be a trigger for rising metals prices.

Michael Oliver on Novo Resources (www.OliverMSA.com) 

The star performer among stocks covered in this letter last week was Novo Resources, which gained 17% to C$3.16. In U.S. dollars it closed at US$2.39. That’s important because on November 18, Michael Oliver provided an MSA analysis on Novo Resources that suggested that any weekly high above US$2.26 or higher will close above the red line (momentum chart) suggesting the probability of a breakout in price. A breakout in Novo’s price? We shall see. But check out the strength in Michael’s momentum chart, which has this week broken through the ceiling dating back to December of 2017—the year when Novo became a household name in the junior gold share space. No matter what market he is tracking, more often than not, momentum leads price in Michael’s work. From a fundamental point of view I think of a host of reasons why Novo could be ready for a major breakout, not the least of which is the breakthrough technology that Quinton Hennigh spoke of here, https://tinyurl.com/rg9qqzs, and Bob Moriarty here, https://tinyurl.com/veouasd.