With escalating fears of possible war with North Korea, debt ceiling debate and fears of a government shutdown, forget the noise as gold and silver are set to take out highs.

Forget The Noise
September 5 (King World News) – Here is what Peter Boockvar noted as the world awaits the next round of monetary madness:  
A lot of what we do every day as analysts, investors, economists, strategists, traders etc… is sift thru the noise and separate what’s important for markets and what is not. I do my best to consistently shift attention to what is most relevant and avoid that which is not market moving. There is plenty of important news that we should all be aware of but many times it doesn’t matter to markets. On this, North Korea, the US debt ceiling and possible government shut down certainly qualify…

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I don’t want to minimize the risk of North Korea dropping bombs but I will continue to assume nothing comes of this. I mean, how can one position for this anyway? I do however ask myself every day, ‘What does North Korea want? What is the point of all of this? Maybe Kim Jong-un just wants to commit suicide?’

With Respect To The Debt Ceiling Debate
With respect to the debt ceiling, instead of constantly debating how and when to raise it we should all be discussing why we have it all. What is dumber than a debt limit that is never adhered to and is always raised. Here is directly from the Treasury web site:

“Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.”

Thus having to talk about this every few years is a complete waste of time because we know it will eventually get raised. I laugh at some of the commentary though surrounding this.

The Treasury Department themselves said:

“Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations.”

Does anyone actually believe that a holder of US government debt will not get paid back, even if its temporarily delayed? Yes, it would be a huge short term inconvenience, but catastrophic? S&P also used the word ‘catastrophic’ when they wrote:

“Failure to raise the debt limit would likely be more catastrophic to the economy than the 2008 failure of Lehman Brothers and would erase many of the gains of the subsequent recovery.”

Does anyone really believe the debt limit won’t get raised? Will this equate to an implosion of the US banking system due to massive overleverage?

Ignore Fears Of A Government Shutdown
Lastly on the possibility of a government shutdown, I can guarantee this: If it closes, it will soon reopen. Move on.

I’ll repeat again, what is most relevant for markets in the last 4 months of the year is the behavior of central bankers. I know you’re shocked at me saying that but how can it be otherwise. Don’t tell me its earnings instead as we’ve priced that in many times over, aka multiple expansion. Tax reform and what the complexion of it is in terms of size and extent is hugely important of course but that would play against where multiples go.

As for where to be invested, I maintain my nearly 2 year bullish stance on emerging markets, both equity and debt (particularly India and Brazil but no longer South Korea). I think agriculture is one of the few areas of value, particularly in the fertilizer space. My bullish stance on the euro since $1.05 is intact but I acknowledge the bear dollar camp has gotten large and a contra rally may be in front of us. I also like still the commodity currencies like the Aussie$, Canadian $ and Brazilian Real. My stance of US stocks remains the same. They are too damn expensive which of course doesn’t matter until it does and the Fed is staring you in the face and saying it now matters because they are no longer your BFF. QT really matters people, just you wait. This said, there are always attractive individual stock stories, themes and values. Always.

Gold & Silver Highs To Be Taken Out
I still love gold and silver and believe the December 2015 lows were the bottom in the 4 year bear market. If correct, the previous highs will be taken out in coming years.

Keep A Close Eye On Inflation
…Lastly, for almost 2 years I’ve been talking about the supply side response to the industrial metal bear market that ended in November 2015 and now the CRB raw industrials index is at the highest level since September 2014 at the same time everyone is so sanguine on inflation. It’s up 11 of the past 13 days.

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