Art Cashin on gold and chaos…
Gold & Chaos
February 5 (King World News) – Art Cashin: On this day in 1895, America was in a funny financial spot. Well, it was a bit over a hundred and twenty-one years ago today – so – I guess you deserve an explanation. Let me see….if I remember what Sister Herman Joseph taught me – that different America of a century ago looked something like this:
The economy appeared to be struggling. There was a Democrat in the White House. Congress was divided and squabbling, hostily and uncivilly. Some thought the debates were so coarse and rude they spoke of forming a new political party. Technology was the new mantra even after a bumpy start and telecommunications were exploding (in use if not profitability). Much of the country was in the grip of unusual and extreme weather. And…oh yeah….I almost forgot….suddenly folks had begun talking about gold….can you imagine “gold!”
Anyway, despite what pundits of the day thought, gold had begun to rise. Now, in 1895, the old U.S. was on the old “gold exchange standard.” That meant, whether citizen or foreigner, if you thought public policy was not to your liking, you could hand in your green pictures of dead presidents and get gold – real, glistening, bite into it to check it, gold.
As hard as it is for us to believe today, a goodly number of those citizens distrusted what they saw in Washington. Gold rose and soon began to bubble and the dollar began to slide. The rush to exchange dollars might deplete the gold of the U.S. Treasury and cause a default. Imagine – a time when the government wrestled with the question of default.
So – to avoid chaos – the President sought the help of the one man who could control the banks, who could calm Wall Street, who – in short – could find a way to halt the run on the dollar and government reserves. (No Virginia, it was not Jerome Powell – there was no Federal Reserve.)
Thus, on this day in 1895, the President of the U.S. sat down with a certain J.P. Morgan seeking the latter’s help in saving the country.
Morgan allowed as how he might just happen to know one fellow who could put the government into default that very afternoon. (The President never asked if it was Morgan, himself.) Morgan conveniently recalled some obscure Civil War legislation that allowed the President to issue bonds to buy gold.
The same law said the bonds could be sold secretly (without bidding). But who would buy them. Well, Morgan allowed as how it was probably his civic duty (along with that of his syndicate) to not only buy the new secret bonds but to buy up some gold and recycle it to the Treasury for the dollars he paid for the bonds. And all this for just a small commission.
To mark this anniversary recall the words of Warren Buffett – There’s always a silver lining – or was that Jimmy Buffett.
The bulls found more than a silver lining Tuesday as an upside reversal in Shanghai seemed to inspire the bulls in markets around the globe. Led by the tech sector, U.S. stocks had their best one day performance since August.
Stocks gapped higher on the opening and never looked back.
The bulls added to the opening gains throughout the morning and on into late afternoon. The strength in the tech sector helped the Nasdaq rally to a new record less than two weeks after the virus scare first erupted.
While the techs were the clear leader, there was broad buying in sectors that had been seen as vulnerable to the consequences of the virus. Apple, United Airlines and Carnival Cruise Lines all rebounded smartly.
There was a slight fade in the final hour as fear of market on close sellers and overnight risks prompted some traders to lighten up a bit.
Behind The Scenes In The Bond Market – The folks over at Bannockburn are calling our attention to the Treasury’s upcoming refunding announcement.
Here’s a bit of what they wrote:
The Treasury’s refunding announcement may draw attention. Actually, it is not the refunding announcement itself. After all, it is well understood that the US is running around a trillion fiscal deficit in a non-recessionary (relatively) peacetime economy. Instead, the focus may be on three other elements of the announcement. First, some more insight into the resumption of the 20-year bond sales. Many expect them to resume in May. Another dimension of the issue is whether the new issue will reduce the amount raised in the other note and bond sales.
Second, is to help facilitate a shift from LIBOR, the Treasury will issue some floating-rate debt linked to the secured overnight financing rate (SOFR). This will help create a term structure for the overnight rate and make it more operational for lenders and borrowers. Third, the US Treasury is running its highest cash balances since 2008, and this needs to be taken into account when assessing financial conditions. At the same time, the Fed is buying $60 bln of T-bills a month, and these will continue into Q2. They will likely last longer, even as the Fed retreats from the repo market, though a slower pace is possible.
Keep an eye on the interrelationship of the floating rate notes, T-bill purchases and the repo retreat. Complicated but very important to the economy.
Overnight And Overseas – Asian equity markets rallied for the second straight day. Helping the rally were reports of progress toward a potential vaccine for the Coronavirus and signs that regional central banks may ease their banking systems to offset virus-related economic slowing. Hong Kong rose moderately, while Shanghai rallied the equivalent of 360 Dow points. Japan and India both closed with robust rebounds.
Stocks in London, Paris and Frankfurt are all trading moderately higher.
Among other assets, Bitcoin has firmed and is trading just above $9400. Gold is a bit firmer and crude has rallied on OPEC overtures. WTI is trading just under $51. The euro is a shade weaker against the dollar and yields are a few ticks higher.
Consensus – Sanders looks to be in good shape in New Hampshire so look for his opponents to go for the jugular in Friday night’s debate.
Stick with the drill – stay wary, alert and very, very nimble.
Danger For Stocks
ALSO RELEASED: DANGER FOR STOCKS: Despite Rally, Major Warning Signs Are Clustering CLICK HERE TO READ.
KWN has released a great interview where Bill Fleckenstein discusses what to expect in the gold market, the stock market, bond market, commodities and much more and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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