A ‘worst nightmare’ scenario is unfolding for Israel, as its officials have long feared war on two fronts. Following weekend reports of sporadic shelling and missile fire out of south Lebanon into northern Israel, it’s increasingly becoming evident that Lebanese Hezbollah has joined the conflict.

Starting Sunday, Hezbollah confirmed in a statement that it sent “large numbers of rockets and shells” against Israeli positions in solidarity with the “Palestinian resistance.” And on Monday, videos are widely circulating of fresh attacks and retaliatory shelling from the Israeli side. There are reports that Israeli helicopters are active along the border, seeking to thwart Hezbollah “infiltrators”. 

⚡️South Lebanon now pic.twitter.com/ZtirXEjUYU

— War Monitor (@WarMonitors) October 9, 2023

Starting Sunday, Hezbollah officials declared their involvement in fresh hostilities at the Israel-Lebanon border:

“The responsibility obliges all the sons of our nation not to be neutral and we are not neutral,” Safi al-Din said at a pro-Palestinian rally in Beirut, Lebanese news site Naharnet reported.

The Hezbollah official referred to his group’s shelling of Israel, saying: “The resistance sent a message this morning.” He said “it is our right to target the enemy that is still occupying our land and the Israelis must read this message well.”

Much of this initial shelling and missile fire reportedly occurred in the area Syria’s Israeli-occupied Golan Heights, which was annexed by Israel in 1981. Casualties on either side remain unclear and undisclosed.

Below: Times of Israel writes, “A picture taken from southern Lebanon on October 9, 2023, shows an Israeli Merkava tank driving in the border town of Metula, Israel.”

A separate Hezbollah statement being reported in regional media said, “Palestine is not Ukraine. If America intervenes directly, all American locations in the region will become legitimate targets of the resistance axis and will face our attacks. And on this day there will be no red line left.”

Indeed, if a fresh conflict with Hezbollah spirals, there’s an increased likelihood that Israel could begin targeting locations in Iran.

A weekend Wall Street Journal report alleged the Iranians had funded and helped organize the Saturday Hamas incursions into southern Israel, which left hundreds of Israelis dead.

According to regional analyst Samuel Ramani, “Hezbollah has claimed missile and artillery attacks on three parts of Shebaa Farms at the intersection of the Golan Heights and Lebanon-Syria border.” This includes the following:

• Radar
• Zabdin
• Ruwaisat al-Alam

BREAKING — Bursts of rockets have been launched from Sour in South #Lebanon into #Israel, a security source has confirmed. In retaliation, Israel shells areas of Zebqine, Khalila & Thuhayra. IDF spox reports “a number of suspects” infiltrating Israeli territory from Lebanon. pic.twitter.com/MHjdu9V2Nz

— Sally Abou AlJoud | سالي (@JoudSally) October 9, 2023

As for Iran, it has denied that it was behind the Hamas attacks. “Iran’s representation to the United Nations rejected claims that Iran was involved in Hamas attacks on Israel, the semi-official Iranian Students’ News Agency reported, citing Ali Karimi-Maqam, a member of the delegation,” Bloomberg noted.

BREAKING — Israeli helicopters are currently striking in Lebanese territory after infiltration from Lebanon, Israeli military reports pic.twitter.com/iBURhDczUP

— Ragıp Soylu (@ragipsoylu) October 9, 2023

An Iranian government statement said: “We stand at Palestine’s side in firm support out of sympathy. But we have no role in Palestine’s response, because it is done purely by Palestine itself.”

By Benjamin Picton and Michael Every of Rabobank

Last week we described moves in the bond market as chaotic, but the silver lining was a sharp pullback in crude oil prices that saw Brent move from more than $97/bbl at one point to $84.58/bbl by the end of the week. It now looks as though that silver lining could be fleeting, as Hamas’s shocking attack on Israel over the weekend on the 50th anniversary of the Yom Kippur War threatens a fresh major conflict in the Middle East that will almost certainly put further pressure an increasingly dislocated markets. Our Global Strategist Michael Every explains:

“Hamas’s staggering attack –which at time of writing had killed over 700 Israelis, injured over 2,000, left hundreds missing and seen 130 hostages taken into Gaza, including perhaps 20 dual-nationality American citizens, with several hundred dead in Gaza after Israel’s first response– has potentially massive implications.

As Hamas supporters celebrated shocking Israeli suburbia and a dance festival for peace with Mad Max-style violence, Israel experienced its 9/11 or Pearl Harbour, first in terms of the intelligence failure, second in its determination to strike back hard. This is officially war for the first time since 1973, and Israeli PM Netanyahu has stated his intention to topple Hamas entirely.

Yet if Israel starts a ground war in Gaza to do so, Hezbollah in Lebanon says it will start an assault with its large stock of fighters and more dangerous missiles. Israel would find itself in a bloody two front war, three if Iranian militias in Syria and Iraq are activated. If an intifada were also seen in the West Bank, and from Israeli Arabs inside the 1967 Green Line, the country could find itself under “existential threat”, in the words of a former senior security official. That would only increase the severity of Israeli’s military response.

In turn, this could destabilise flailing Lebanon, Jordan, and Egypt, the latter with an election in December: its pro-Palestinian population is already seething about high inflation, and two Israeli tourists were shot dead by an Egyptian policeman in Alexandria yesterday. The Suez Canal runs through Egypt, for those who think goods appear at the click of a digital button. Russia, neck-deep in Syria –where carpet-bombing of civilians in one pocket continues, and Turkish actions against Kurdish forces backed by the US in another– would also be in the thick of things again, with the ability to destabilize things.

Yet there are other large risks. The Saudi-Israeli (anti-Iran) peace deal, and Riyadh boosting oil output in 2024 as a sweetener, is history for now. For those too naïve to join geopolitical dots, the Wall Street Journal claims ‘Iran Helped Plot Attack on Israel Over Several Weeks: The Islamic Revolutionary Guard Corps gave the final go-ahead last Monday in Beirut’. On this basis one cannot rule out an Israeli attack on Tehran, opening the door to Iranian attacks on both Israel and Saudi Arabia, regardless of recent BRICS11 rictus-smiles.

Note that Israel is a nuclear power and Iran is very close to achieving the same status; and that the US “un-froze” $6bn of Iranian oil money last month as part of a prisoner swap deal on the proviso that the money could only be spent on goods not subject to sanctions. Some were critical of the deal, suggesting it would encourage more hostage-taking (as Hamas has now done). The White House refutes this, but experts point out money is fungible: a dollar not spent on food frees up a dollar to be spent on weapons. Even US Secretary of State Blinken just admitted Iran is always ideologically focused on spending any funds it has on “supporting terrorism.”

The USS Gerald Ford is now being diverted towards the Eastern Med to deter Hezbollah/Iran. But what deterrence can it provide ahead of an election year where everyone knows Biden fears another Middle Eastern war? Oil is up 5% this morning, though our energy analyst Joe DeLaura suspects this immediate move will be faded until the full Israeli response becomes clearer.

Meanwhile, there are other uncomfortable implications. This new war comes in a year that already saw Ukraine acknowledged as a long war of attrition; four anti-Western African coups; civil wars in South Sudan and Ethiopia; war in Nagorno-Karabakh; fears of war in Kosovo; and rising tensions in the South China Sea. In short, the global security order is crumbling along with the economic order. A Middle East war now will accelerate countries taking sides between a Russian-Iranian axis and US-Israel. If the West doesn’t back Israel, it will show staggering weakness. If the West backs Israel, the Global South –India and the Philippines aside– will see it as even more hypocritical. If Europe flip-flops from Israel as soon as the latter does what Europe helped the US do in Afghanistan after 9/11, the US will see it as hypocritical. In short, far greater global division lies ahead. (And note the Taliban are in charge of Afghanistan today, and are offering to help Hamas.)

The Economist front cover on Friday already asked ‘Are free markets history?’, talking about “Homeland Economics”. Now we have global headlines and social media images worse than the plot of the TV geopolitical drama Homeland (originally an Israeli production). Do you think Western economies can respond with a mild increase in defence spending? Russia is all in on a war economy; Europe says it cannot help Ukraine without US arms; and now the US might need to dip into its dwindling stocks and shrivelled military-industrial production base to help Israel, even as it wants to try to pivot to Asia, where China can out-produce it on every front. 

To try to get this concept through to more blinkered market thinkers, let me ask them directly: “What do you think Hamas’s Fed call is?” My point is that those who thought Hamas would not open these “gates to hell” did so on the assumption that a regular supply of dollars would buy geopolitical quiet. However, ideology trumps neoliberal philosophy for some, just as we saw with Russia’s invasion of Ukraine, which only lonely voices (like mine) said would happen despite how economically “illogical” it looked. Who might be next, especially if the US is tied down on two fronts?

And within the West, bitterly-polarised social media is filled with takes unable to differentiate the rightness of a political cause with the actions taken to support it: academics argue the ends justify the means, and/or that Hamas is the logical endpoint of “decolonisation”. Markets might want to dwell more on the potential shocks from populism of the far left and far right ahead (as the AfD in Germany just performed very strongly in a regional election).”

The implications of last week’s non-farm payrolls report seem terribly trivial next to this, but since this is a markets note we will examine them anyway. The employment number surprised to the upside in a big way. Payrolls added 336,000, vs expectations of just 170,000 and there were substantial upward revisions for August and July, too. That follows on from strong(ish) jobless claims figures on Thursday and the very strong JOLTS job openings number earlier in the week. The impression is that the labor market has so far proven invincible to Fed tightening.

That said, there is some detail that is worth dissecting. While the overall payrolls figure was 336k, the Household Survey suggested that only 86k people went from being unemployed to employed in the month. The difference between the two figures is explained by people who are already working taking on extra jobs, a lot of them.

That seems to line up with what is going on with average hourly earnings, which recorded tepid growth of 4.2% in the year to September; one tick less than both the prior month and the expectations of the Bloomberg survey. If the jobs market really is so strong, where are the wage gains?

There is also the issue of participation, which at 62.8% has still failed to recapture the pre-Covid level, but if you look at the prime working age participation rate, we are back at levels last seen in the early 2000s! So, unlike many other countries, older workers who took early retirement during the pandemic in the USA haven’t returned, but prime-age workers are back in droves. Those retiring Boomers are more likely to have a paid-for house and a decent 401K nest egg, both of which have been helped along by the Fed’s easy money policies ramping up asset values, and now tighter money ramping up yields on money market accounts!

As we said, payrolls seem terribly trivial right now and may prove to be yesterday’s news if we are now entering another supply-shock driven by realpolitik. If there’s one thing that the events of the weekend should confirm, it’s that central bankers are not bluffing when they say that we have entered a dangerous new world of geopolitical fragmentation and great-power rivalry.

Nearly a year after Costco warned that they’d have to hike membership fees (and didn’t), CFO Richard Galanti told investors “It’s a question of when, not if,“ noting that the last time the company raised its membership fee was in June of 2017.

“You know, it’s a little longer this time around since June of ’17, so we’re six years into it,” Galanti said, accordsing to a transcript of last week’s earnings call. “But you’ll see it happen at some point. We can’t really tell you if it’s in our plans or not.”

Costco has historically raised membership fees every six years or so, however Galanti says it’s not quite time to do so again.

“You’ll see it happen at some point,” he said, adding “We’ll let you know when we know. We can’t really tell you if it’s in our plans or not”

The big box store’s Gold Star membership has cost $60 since 2017, after a $5 increase that occurred that year from $55. “Executive memberships” cost $120.

The comments about a price increase come as Costco topped market estimates for quarterly revenue and profit as consumers flocked to its stores for cheaper groceries and other necessities, helping offset feeble demand for big-ticket discretionary items. The membership-only retailer has driven robust sales growth owing to its ultra-low prices for essential goods and a loyal member base, helping boost its market share despite a tough economic climate.

Although demand for discretionary items like sporting goods and houseware has been under pressure, strong sales gains in consumables like fresh foods and candy have helped Costco, while its cheap gas prices attracted more members. The company saw a nearly 8 percent rise in total paid household members at the end of the reported quarter, while its income from membership fees jumped 13.7 percent, to $1.51 billion. -Epoch Times

“Traffic continues to do very well … and our renewal rates continue to be very strong,” said Galanti.

Gold rush!

Last week the Organic Prepper Blog noted that Costco is selling out of gold bars.

In a quarterly earnings call last week, Costco chief financial officer Richard Galanti told investors that the bars have been flying off the shelves, reported CNBC, saying, “I’ve gotten a couple of calls that people have seen online that we’ve been selling 1 ounce gold bars. Yes, but when we load them on the site, they’re typically gone within a few hours, and we limit two per member.”

And it certainly makes sense to buy gold (or silver) because the banking system is so volatile it really cannot be trusted. I don’t believe for a second that our system as it is right now will last much longer. Sure, there’ll be a new system to replace it, but you can darn well bet that WE will not be the ones who benefit from it. In fact, I strongly suspect that the new system will be CBDCs (Central Bank Digital Currencies) and all the surveillance and control those entail.

Financial risk falls under the limelight during market stress.

In periods of uncertainty, liquidity becomes especially valuable to investors. Assets that are more liquid are convertible into cash without losing much of their value. Consider how investors often flock to U.S. government bonds during economic turmoil thanks to their relative safety.

using an adapted model from TradingView, Visual Capitalist’s Dorothy Neufeld shows in the graphic below how assets become both riskier and greater in size by dollar value as they move up Exter’s pyramid.

The Anatomy of Financial Risk

John Exter, an economist and former member of the Federal Reserve, developed the model of financial risk in the mid-1970s.

While he is most known for this inverted pyramid, he also was a founding governor of the Central Bank of Sri Lanka and was an advisor to Paul Volcker when he was chair of the Fed.

In the table below, some of the riskiest assets are derivatives. These are financial instruments based on the movements of an underlying security, such as currencies or commodities. They are often highly leveraged, meaning investors put very little money down to make these wagers, and in turn, can generate losses quickly.

Derivatives have a stunning $600 trillion in notional market value.

*Represents notional value, the total value of the underlying contract. **Paper Money represents tangible currency including coins and bank notes. Gold is based on a spot price of $1,750 per oz and 205,238 tonnes. Unfunded government liabilities are debt obligations that have insufficient funds to pay for them.

Private business and real estate are also considered to have higher financial risk. Since there is no central marketplace where they can be sold quickly, they present higher operational risk and lower liquidity. Often, they are more difficult to convert into cash.

Moving down the pyramid are the $120 trillion in listed stocks, which have a centralized market, can trade in significant volumes, and disclose financials while adhering to securities regulations.

U.S. government bonds are considered to have some of the least financial risk globally, thanks to the U.S. never having defaulted on its debt, and the U.S. dollar’s role as a reserve currency. Short-term Treasuries are considered safer than longer-term bonds since they have a lower chance of default given the shorter holding period.

In the event of a liquidity squeeze, many consider cash to be king. Yet to Exter, gold was the safest asset thanks to its finite supply. Prior to 1971, most currencies were pegged to gold. In fact, the current era of fiat money—currencies that are not backed by a physical commodity—is a historical exception.

Domino Effects

During a market crisis, assets at the top of the pyramid tend to have the largest drops in value.

In this way, the degree of loss generally gets smaller the lower down you go in the pyramid. Relatively safer assets may rise in value due to higher demand. Here’s an example from the 2020 market crash that shows how asset classes responded:

Source: Nasdaq (Mar 2020), S&P Global (May 2023)

As we can see in the table above, oil fell over 60% as uncertainty increased. Demand for oil typically falls during a weaker economy. By contrast, longer-dated bonds jumped in price.

It’s worth noting that the returns didn’t perfectly follow of the order of the pyramid, but the model can serve as a general guideline for how assets may respond to crisis.

Financial Risk in Today’s Environment

The recent U.S. banking turmoil spurred volatility in some financial assets.

Just as U.S. Treasuries saw extreme volatility since interest rate spikes led them to fall in value, U.S. bonds faced market turbulence. In this way, when safer assets experience uncertainty it can impact levels above in the pyramid.

Interestingly, volatility in bond markets has been higher than volatility in the S&P 500. This can be seen in the difference between the bond market volatility index, known as the MOVE Index, and the VIX Index, which tracks S&P 500 volatility. In April 2023, the difference between the MOVE Index and the VIX Index was near 20-year highs.

What this could point towards is that stocks have become mispriced relative to their true value. As interest rates rise to 16-year highs, borrowing costs have risen and this has hit corporate cash buffers and liquidity.

Overall, how current volatility impacts broader financial risk in the market could take time to materialize. Historically, it has taken roughly 18 months to two years for the true impact of monetary policy to filter through the market.

Authored by Matthew Piepenburg via GoldSwitzerland.com,

The foregoing title may seem a bit sensational, no?

With all the recent hype about a gold-backed BRICS currency emerging from this summer’s South African meet-and-greet vanishing like oar swirls, one can understand the argument that many gold bugs chase (and create) click-bait like teenage bloggers.

And the precious metals space is no stranger to being labeled perma “doom-and-gloomers” to keep the retail trade forever moving.

Fine. Understood. Yep. I get it. We are all “just selling our book.”

The Current Facts are Sensational Enough

But here’s the rub: One doesn’t need to be a doomer or a gloomer to interpret bond signals, basic math, historical lessons, current geopolitics, or openly obvious energy and precious metal flows with common sense.

If so, one sees the writing on the wall of nations going broke, currencies losing faith and sovereign bonds falling like rocks.

In short, one doesn’t need to sensationalize headlines or forecast doom when the current facts and numbers are more than sensational enough.

USTs: Crying Alone in the Corner

Foreigners hold about $18T worth of US assets, of which $7.5T are Uncle Sam’s increasingly embarrassing and unloved IOUs.

But those IOUs are looking a lot less attractive as an increasingly debt-soaked USA ($33T and counting of public debt) seeks to borrow an additional $1.9T (net) into the back-end of 2023 and issue another $5T of USTs into the next year, all of which has even Jamie Dimon pulling at his hair.

But who will buy those IOUs? Be honest.

And if foreigners start simultaneously dumping existing USTs into an already obvious US debt crisis, subsequent pain levels here and abroad, already felt, will only rise exponentially.

This is not fable but fact.

Even American banks, traditionally the biggest buyers of USTs, are now cutting back rather than ramping up their purchases…

And hedge funds, currently marginal buyers of USTs, could easily face liquidity scenarios where they will soon be massive sellers of these unloved IOUs.

Basic Math, Basic Liquidity

Meanwhile, as Powell’s higher-for-longer and (in my opinion) bogus war on inflation pushes the Dollar higher at the same time oil prices are inflating (shale production declining in the Permian, Russia cutting oil exports while US makes deals with Iran?), those foreigners currently holding that $7.5T worth of USTs will need liquidity to buy higher oil and pay-down increasingly more expensive (USD-denominated) debts.

This liquidity crisis mathematically means more dumping (rather than buying) of American sovereign bonds and hence more shark-fin rising yields (as bond prices fall), which, mathematically, will send debt costs fatally higher for companies, individuals, home owners and, yes, governments, already way over their skis in debt.

This is important, because, well… the bond market is important, a theme I’ve been hitting week after week, month after month, and year after year…

Gold Bulls Crying Wolf?

Again, some will still say that such basic math and blunt warnings from boring credit markets are little more than gold bulls crying wolf.

Unfortunately, history confirms that nations spiraling into a debt whirlpool always end with a currency crisis followed by a social crisis followed by increased centralization and less personal and financial freedoms.

Do such centralization trends feel familiar to anyone with their pulse on the current Zeitgeist?

So yeah, desperate bond markets matter, especially when measured in a world reserve currency which, like all currencies marked by unpayable debts, will be the final bubble to pop.

A Broken America Going Broke

The simple, empirical and now increasingly undeniable fact is this: America is writing checks its body can’t cash.

Even the US government is cracking/splitting under the pressure of its debt burdens, as anyone tracking the soap-opera with Kevin McCarthy can attest.

And whatever one thinks of Florida’s Eddie Munster Congressman, Matt Gaetz, it’s hard to disagree with his blunt declaration before a row of cameras outside the nation’s Capital– namely that America, already reeling under de-dollarization and debt woes, is now, as he puts it: “F—ing broke.”

Is he too just crying wolf, or should we consider the foregoing math? You know, basic facts…

No Good Scenarios Left

There are no good scenarios left for a country, currency and sovereign bond which has replaced productivity, balanced budgets, trade surpluses and national income with historically unprecedented debt, twin deficits and a central bank which has become the un-natural and de-facto (yet busted) portfolio manager over our shattered economy and totally centralized markets.

As I’ve been saying/asking for years during this slow and openly-ignored frog-boil toward credit implosion (nod to any lobby-bought politician near you), who will be the final buyer of our fatal debts in a world where no private sector entities have the balance sheets to do so?

The answer is sad, simple and already obvious: The Fed.

And where will the Fed find the money to pay for those increasingly more expensive debts (nod to Powell)?

The answer is sad, simple and already obvious: Out of thin air.

The Inflationary End-Game

Such inevitable monetization (i.e., QE + Yield Curve Controls) of historically unprecedented and drunkenly managed debt levels will, of course, be inherently inflationary despite intermediary disinflationary events (i.e., falling credit and equity markets).

All of this makes me repeat the ironic conclusion (shared by even the St. Louis Fed’s June white paper on Fiscal Dominance) that Powell’s so-called war on inflation (QT + rising rates) will end in historically inevitable inflation in the form of mouse-clicked trillions to “save” our system at the expense of our currency.

Already, the US Treasury Dept (See Josh Frost) is telegraphing its plan to make US bonds more “resilient” (i.e., liquid) via a not-so-clever plan to buy-back its own IOUs.

In other words, the Treasury Dept will be drinking its own (poisoned) Kool Aide with increasingly debased (yet relatively strong) USDs mouse-clicked out of, again…nowhere.

Does this seem like a good plan to any of you already feeling the daily decline of the inherent purchasing power of your greenback?

For Now, The Dumb Gains in Consensus

Yet despite such clear and common-sense signals from the simple math of debt gone wild, consensus still favors the long-duration UST as the relatively safest harbor in an admittedly broken global ocean.

Faith in the TLT today is almost as desperate as faith in Captain John Smith of the unsinkable Titanic.

But if math and history are not altogether ignored, cancelled or forgotten, a 15-point fall in the TLT and subsequent spike in already fatally high rates seems the most probable outcome.

Why?  Because there just aren’t enough natural buyers of Uncle Sam’s criminally negligent bar tab other than a magical (and inflationary) money printer.

That’s just how we see it.

Soft Landing? It’s Already Hard

Meanwhile the Pravda-like efforts by policy makers (and the infantry and artillery support from their vertically integrated media platforms) are still pushing the “soft-landing” narrative despite nearly every indicator (bankruptcies, layoffs, yield-curves, YoY M2 growth, Fitch downgrades, Conference Board of Leading Economic Indicators and Oliver Anthony cries) making it painfully obvious that we are ALREADY in a hard-landing.

(And weren’t these the same soft “experts” who told us inflation was “transitory”?)

Folks: Things are already hard, not soft.

August in America lost 4.1 million days of work due to strikes (think Ford, GM etc.) as the West tries to tell us in one headline after the next that China (with 7 of the world’s 10 largest shipping ports) is the real problem and hence the least investable.

Hmmm.

A Global Problem

If anything, China and the USA suffering together will eventually make 2008 seem like a decent year for capital markets and global economies…

The hard reality is this: All western sovereign bonds are in historically deep trouble at the same time that China is facing real estate and debt bubbles on top of geopolitical shifts and hence supply-chain disruptions which are neon-flashing tailwinds for even greater price inflation in all those American products made in, well: China…

For all of these reasons, we favor assets best positioned to play where the inflationary hockey puck (or polo ball) is heading, not just where it sits today.

China: Changing the Gold Price

One of these assets, of course, is physical gold.

Speaking of China, what it has been doing with this asset is nothing short of extraordinary and foretells a great deal of what we can expect in the months and years ahead in the West when it comes to debt, inflation, rates, currencies and gold.

Or to put it even more simply: China is repricing the gold trade.

Unbeknownst to most who get their market data (and interpretations) from the legacy financial media, China has been quietly evidencing a clear intent (as well as ability) to weaponize gold against a now weaponized USD.

In particular, China’s central bank recently lifted limits on gold imports, whose temporary imposition, according to the Western press, was a failed effort to defend its currency and to curb USD outflows.

But as with most things legacy press-related, the real story is about 180 degrees opposite…

That is, our Google-searching, 30-something “investigative journalists” ignored the fact that: A) gold in China is bought in Yuan not Dollars and B) and that gold premiums in China jumped back to 5%.

In short, it seems that China did not fail to defend their currency but just succeeded in showing the world that their domestic policies can impact gold pricing.

In fact, the import restrictions only caused the gold price to rise within China’s boarders by a spread of over $120 per ounce over London spot.

However, once the import limits ended, the price spread fell to $76/ounce.

Stated more simply, China just proved that it can control gold, and by extension inflation expectations, rates, and even the USD.

This is because there is a clear and obvious correlation between gold flows (West to East) and gold pricing.

In the past, those flows (from London) were greatest when gold was sinking in price. But now, and for the first time in decades, the flow East is happening even as gold is rising.

Why?

The Natural Flow from Worthless Paper to Precious (Monetary) Metals

It was my consistent belief that despite no official gold-backed BRICS currency or explicit arbitrage of gold for oil, gas or other real assets, a more natural and expected trade would be unfolding with nearly the same intent and result, all of which will spur further Chinese gold buying (and Dollar dumping) over time.

Net result? Western gold pricing will be chasing/rising to the levels of domestic Chinese gold.

As the Chairman of the Shanghai Gold Exchange, Xu Luode, said in 2014:

“Shanghai Gold will change the current gold market with its ‘consumed in the East but priced in the West’ arrangement. When China has the right to speak in the international gold market, the true price of gold will be revealed.”

Please read that last line again.

As we warned literally from day-1 of the suicidally myopic sanctionsagainst Russia, the net result would be tighter relations between Russia and China, two countries already openly tired of the USD being the tail that wags the global dog.

If you haven’t noticed, Russia is selling much-needed oil to an openly oil-thirsty China in CNY rather than USD.

As gold, priced in CNY, buys more energy in China than in the west, more of that monetary metal will flow toward Shanghai, whose power over the London pricing of gold is about to ratchet upwards.

This was so easy to foresee, but the Western media likes to hide such foreseeable facts. After all, one of their greatest sins is the sin of omission.

When weaponizing the world reserve currency against Russia, the US-lead West forgot to mention what Luke Gromen described as its “Achilles Heel”—namely, the unallocated gold markets based out of London.

Changing Battle Tactics

By changing the trench lines of the gold-for-energy battlefield, China and Russia are slowly, but predictably, weaponizing gold and energy commodities against a weaponized USD.

In the long run, my bet is on gold and I’m not alone.

Just ask all those central banks stacking the physical metal and dumping America’s paper debt at record levels.

Like an army amassing troops, cannons, horses and supply wagons at the border, these central bank gold movements are obvious signs of a coming battle for a new trading system with less focus on Uncle Sam’s debt-based trading model and debt-soaked currency.

Needless to say, this is bullish for gold, which unlike the US markets and economy, is the true “resilient” asset, holding its price power despite positive (though manipulated) real rates and spiking UST yields.

This may further explain why the downside volatility for long-duration USTs is now higher than the downside for physical gold, something not seen in almost half a century.

Just saying…

As Rudy Giuliani drowns under millions of dollars in unpaid legal bills which have resulted in his attorneys withdrawing from his Georgia 2020 election case, the IRS has placed a tax lien of nearly $500,000 on his Florida condo located three miles north of Mar-a-Lago.

The lien, while just recently surfaced, was filed on Sept. 1, 2023 at the County Courthouse in Palm Beach County, in West Palm Beach, Florida.

The agency says Giuliani, 79, owes $549,435.26 in unpaid income taxes for 2021.

The condo is worth roughly $3 million according to the Palm Beach County Property Appraiser, according to the Epoch Times.

Giuliani’s political adviser, Ted Goodman, told several media outlets that his client has “a formal agreement with the IRS to pay off the liability.”

More via the Epoch Times;

Mounting Legal Troubles

In September, Mr. Giuliani’s former lawyers sued him over allegations that he failed to pay roughly $1.36 million in legal fees. Mr. Giuliani has said he believes the amount being sought is too much.

In the face of Mr. Giuliani’s legal woes, President Trump hosted a fundraiser for him in September at one of his golf clubs to help the former mayor with his mounting legal bills.

In addition to his legal and financial woes, Mr. Giuliani is facing calls by a District of Columbia disciplinary panel for him to be disbarred.

During an appearance on Steve Bannon’s “War Room” podcast, Mr. Lindell said IRS auditors are looking into earnings for call center contract workers. Mr. Lindell said the agency has carried out five audits targeting his company, which he alleged to be politically motivated.

“We do not have a call center overseas where you can’t understand the language—these are hardworking moms … these audits are targeting.”

He said he believes that the audits are being carried out because of his ardent support for President Donald Trump and his claims that the 2020 election was rigged.

“This is something that hasn’t happened in 15 years, and all of a sudden there’s IRS audits against MyPillow in three different years,” Mr. Lindell told Mr. Bannon.

The Epoch Times contacted the IRS for comment on Oct. 5 but didn’t receive a reply by press time and couldn’t verify Mr. Lindell’s claims.

In a recent development in the work of the weaponization subcommittee, the panel asked the Department of Justice (DOJ) to turn over a series of documents related to two IRS whistleblower claims that the DOJ’s investigation into President Joe Biden’s son, Hunter Biden, was being mismanaged.

That request, made in late September, came after the two whistleblowers—IRS agents Gary Shapley and Joseph Ziegler—alleged that the investigation into Hunter Biden and his alleged tax crimes had been obstructed.

The DOJ confirmed it received the request from the weaponization subcommittee but otherwise declined comment.

Authored by Mike Shedlock via MishTalk.com,

The mad rush to deal with climate change, even if it works (it won’t), has a nasty tradeoff (more global poverty)…

The Wall Street Journal asks Will the World Bank Choose Climate Change Over Poverty?

That should not be a statement, not a question.

Well-off nations seem to have forgotten that while they’re no longer plagued by poverty-related ills such as hunger and illiteracy, most people in the world still are. Increasingly, the Biden administration and leaders of other high-income countries are putting climate policy ahead of these core development issues.

It’s easy to treat reducing carbon output as the world’s priority when your life is comfortable. Things can still be tough for people in high-income countries, but the 16% of the global population who live in those countries don’t routinely go hungry or see their children die.

Much of the rest of the world, however, is still struggling. While conditions vary, across poorer countries five million children die each year before their fifth birthdays and almost a billion people don’t get enough to eat. More than two billion have to cook and keep warm with polluting fuels such as dung and wood, which shortens their lifespans. Although most young kids are in school, education is so dismal that most children in low- and lower-middle-income countries will remain functionally illiterate.

Opportunity is restricted in particular by a lack of the cheap and plentiful energy that allowed rich nations to develop. In Africa, electricity is so rare that total monthly consumption per person is often less than what a single refrigerator uses during that time. This absence of energy access hampers industrialization and growth. Case in point: The rich world on average has 530 tractors per 10,000 acres, while the impoverished parts of Africa have fewer than one.

Efforts to divert development aid to climate policy also smack of hypocrisy. Though rich nations refuse to fund fossil-fuel-related projects abroad—either directly or through international financial institutions—high-income countries still get almost 80% of their energy from fossil fuels. This is in large part because solar and wind power remain intermittent. To make them reliable is expensive, as they require massive backup from batteries or fossil fuels.

A Step in the Right Direction

On September 21, 2023, I commented A Step in the Right Direction: UK Prime Minister Trashes Climate Change Goals

Cheers to UK PM Rishi Sunak for pushing back climate change goals from 2030 to 2035.

The reaction was swift by jet-setter hypocrites like Al Gore and John Kerry.

Gore, now one of the world’s foremost advocates for swift action to avert the climate crisis, told CNN: “I find it shocking and really disappointing … I think he’s done the wrong thing. I’ve heard from many of my friends in the UK including a lot of Conservative party members who have used the phrase, ‘utter disgust’.

Global Elites Took 150+ Private Jets to Fight Climate Change in Davos

Fox News reports Global Elites Took 150+ Private Jets to Fight Climate Change in Davos

Klara Maria Schenk, a campaigner for environmental group Greenpeace International, said in a statement ahead of the conference: “The rich and powerful flock to Davos in ultra-polluting, socially inequitable private jets to discuss climate and inequality behind closed doors.”

What About John Kerry?

I’m glad you asked. Please note John Kerry’s Family Private Jet Emitted Over 300 Metric Tons of Carbon Since Biden Took Office.

Also note John Kerry Says We Need “Money, Money, Money, Money” to Combat 1.5 Degrees of Climate Change

JUST IN — WEF2023: John Kerry Says the Only Way to Get to 1.5 Degrees of Global Warming is “Money, Money, Money, Money, Money, Money, Money” pic.twitter.com/60qCo1hVsq

— Chief Nerd (@TheChiefNerd) January 17, 2023

CBAM Tax the Poor

To save the world from climate change, the EU Imposes the World’s Largest Carbon Tax Scheme as Inflationary Madness Sets In

An EU Carbon Border Adjustment Mechanism (CBAM) will be set up to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This will be achieved by obliging companies that import into the EU to purchase so-called CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.

CBAM will cover iron and steel, cement, aluminum, fertilizers and electricity, as proposed by the Commission, and extended to hydrogen, indirect emissions under certain conditions, certain precursors as well as to some downstream products such as screws and bolts and similar articles of iron or steel.

Spotlight Africa

Let’s tune into a Tweet Thread by Faten Aggad Senior Advisor Climate Diplomacy @AfricanClimateF.

African countries most exposed are both middle-income and low-income countries. #Mozambique, which accounts for 7% of EU’s aluminium imports but for which EU exports represent 25% of its export earnings, may lose up to 1% of its GDP according to @CGDev https://t.co/CVw11UyEgb

— Faten Aggad (@fatenaggad) December 13, 2022

The Shocking Truth About Biden’s Proposed Energy Fuel Standards

In case you missed it, please consider The Shocking Truth About Biden’s Proposed Energy Fuel Standards

The National Highway Traffic Safety Administration NHTSA did an impact assessment of 4 fuel standard proposals and compared them to the cost of doing nothing. Guess what.

The NHTSA conclude: “Net benefits [of stricter mile standards] for passenger cars remain negative across alternatives” vs doing nothing at all.

The National Highway Traffic Safety Administration has concluded Biden’s mileage standards have “Net benefits for passenger cars remain negative across alternatives” vs doing nothing at all.

And to top it EVs don’t do a damn thing for the environment. See Biden’s Solar Push Is Destroying the Desert and Releasing Stored Carbon

It’s easy for hypocrites to trot the world in their jets preaching the world will end if nothing is done.

Meanwhile, Germany has turned to coal while getting rid of nuclear and the US is heavily subsidizing offshore wind farms that are are economically unfeasible even with subsidies. In addition, wind farms kill whales in the process.

Countries in Africa don’t stand a chance. They have no money for anything let alone subsidized wind farms that make no economic sense.

But that is what Biden, AOC, Kerry, Gore, demand.

Geopolitical shifts are rejiggering top trade routes and capital flows worldwide. China’s exports are shifting away from Western countries while Mexico is gaining more market share of US imports. A de-globalization theme continues to reshape global trade, driven mainly by Washington’s economic policies to protect strategic industries and supply chains via reshoring. 

Bloomberg data shows the number of times corporate executives mentioned “nearshoring,” “reshoring,” and “onshoring” in third-quarter earnings calls jumped an average of 216% year-over-year since the start of 2022.  

Already, private companies have announced $516 billion of investments in domestic projects since President Biden took office, according to the latest figures from the White House. And this comes as former President Trump’s trade war kicked off the entire movement to ‘make manufacturing great again’ in the US. 

“The trade war [with China] was the first big shock,” said Bloomberg Senior Geo-Economics Analyst Gerard DiPippo. 

“But it was the pandemic that crystallized the fragility of the globalized supply chain, spurring companies to accelerate their nearshoring plans in earnest. Backlogged ports and high-profile shipping blockages in the all-important Suez and Panama canals illustrated the risks of relying on cheap production in Latin America and Asia, while advances in automation and rising freight costs have made it more economically attractive to move production back to the US,” Bloomberg wrote in a report. 

A recent note via Goldman showed most of the manufacturing investment has been in semiconductor plants – thanks mainly to the CHIPS and Science Act to reshore the semiconductor supply chain in America. 

The Biden administration can only take some of the credit and must remember the trend to reshore began with Trump. Also, “These trends were happening with or without government stimulus,” Emcor CEO Tony Guzzi told Bloomberg. He added, “The government stimulus solidifies demand or elongates demand.”

Authored by ‘Metal Miner’ via OilPrice.com,

• Myanmar’s Kachin State, supplying 38% of China’s rare earth imports, halted mining, causing an immediate spike in global prices.

• The long-term effects of this suspension might lead to scarcity, illicit mining, and environmental issues in the region.

• China’s economic slowdown combined with geopolitical risks highlights the need for diversified sourcing in the rare earth market.

The Rare Earths MMI (Monthly Metals Index) witnessed yet another steep increase month-over-month. Indeed, supply disruptions remain a massive concern in the rare earths industry, so rare earth magnets and other materials witnessed renewed bullish strength across the board over recent months.

In August, market worries arose prior to a planned environmental inspection of China’s Jiangxi province. The Chinese region serves as a major location for Chinese rare earth supplies. Along with this, Chinese stimulus efforts managed to boost rare earth production (although this cannot add long-term support to the index).

Following this, Myanmar’s Kachin State suspended mining activities. Myanmar (formerly Burma) is a pinnacle producer of global rare earths and rare earth magnets, and any change in Burmese mining activity can significantly alter the market. Therefore, the mining suspension led to stockpiling ahead of peak consumption and caused Chinese rare earth prices to hit their highest point in over 20 months.

As a result of all of this, the index jumped up by 6.62%

How Will the Burmese Mining Suspension Impact Rare Earth Prices Globally?

From January to July 2023, Myanmar’s Kachin State supplied 38% of rare earth materials imported by China. Despite this, mines in the Burmese state shut down in early September to prepare for inspections. This shutdown raised anxiety about supply interruptions and prompted the hoarding of rare earth materials worldwide.

For now, analysts expect the recent mining restriction in Myanmar’s Kachin State to have the most impact in the short term. However, it could also affect long-term rare earth pricing.

Short-Term:

• Pricing has already factored in the immediate effects of the mining ban. Still, rare earth prices will continue to see support from the long-term supply disruption and stable demand outlook. 

• Fear of higher prices will also drive increased demand in the fourth quarter of 2023, as rare earth consumers stockpile cargo for use during China’s public holiday from September 29 to October 6.

Long-Term:

• While the long-term effects of the mining restriction remain unknown, it could result in a scarcity of rare earth minerals, further increasing costs.  

• The restriction might also lead to increased illicit mining, which is already a significant problem due to China’s control over rare earth mining in Myanmar. Over time, this could exacerbate environmental issues in the region and lead to political unrest. 

• Additionally, the restriction could eventually cause harm to Myanmar’s economy and its mining sector workforce.

Global Rare Earth Trading Dynamics Changing

China’s sluggish economy has negatively impacted rare earth prices for months, even without the Burmese mining ban. Therefore, a rise in Chinese economic activity could benefit the market. However, recent predictions indicate that China’s economy will slow down in 2024 due to ongoing domestic challenges and a lackluster property sector.

While China’s property sector does not directly influence the production of rare earth magnets, a potential “domino effect” could continue to harm the pricing of industrial metals that rely on Chinese imports.

China’s rare earth policies have long affected the market power and pricing of rare earth metals. Private Chinese enterprises engaging in intense rivalry lowered rare earth prices during the first two decades of their worldwide availability. China then started reducing rare earth shipments in 2006, citing the need for resource conservation and environmental concerns, which resulted in a sharp increase in rare earth prices.

Geopolitical Risks Heavily Tied into Supplies of Rare Earth Magnets

China’s current economic slowdown has substantially impacted the rare earth elements market. It has also emphasized the necessity of diversifying sourcing and the risks associated with excessive dependence on a single country for essential raw materials. Indeed, as China’s domestic demand for rare earths increases, the nation will rely more and more on imports from countries like Myanmar to meet its resource requirements.

Interestingly, a recent study utilizing the wavelet decomposition method established a link between rare earth price fluctuations, geopolitical risk, and global economic activity. According to this study, there is a positive correlation between rare earth pricing and global economic activity. This implies that a slowdown in China’s economy may lead to a drop in rare earth prices. However, the study also found an inverse relationship between the price of rare earth magnets and geopolitical risk, suggesting that political unrest in China could instead cause rare earth prices to rise even more.

In a harsh blow to the leftist coalition led by Chancellor Olaf Scholz, Sunday elections in the German states of Bavaria and Hesse brought victories for center-right opposition parties, along with gains for a right-wing populist party.  

Scholz is a member of the Social Democrat Party (SDP), and leads a coalition that also includes the Greens and the Free Democrats Party (FDP). As final tallies were still underway, the FDP was in peril of not making the 5% cutoff required for seats in both states, which represent close to 25% of Germany’s population. 

Growing unease about migration and the economy factored heavily in the outcome, with the Christian Democratic Union (CDU) grabbing 34.6% in Hesse, while its sister party, the Christian Social Union (CSU) scored 36.4% in Bavaria. 

Perhaps the biggest story, however, is the performance of the populist Alternative for Germany (AfD) party. Its strength has hitherto been observed in post-industrial, eastern cities. On Sunday, it managed to finish second in both Bavaria and Hesse, where Munich and Frankfort are respectively found.

“Rarely has it been so clear: whether on migration, the economy or climate policy, people want a different politics,” Jens Spahn of the conservative Christian Democrats told Reuters.  

Founded in 2013, AfD saw its tallies surge from 2018. In Hesse, it had about 18.6% of the votes compared to 13.1% five years ago. In Bavaria, support climbed from 11.6% to 16%. Polls find even stronger support nationally, with the party placing second among all Germans. 

Germany’s anti-immigrant AfD party has stormed above the Greens and the SPD and is on pace to become the country’s largest political party. pic.twitter.com/7jpyPOv0yx

— zerohedge (@zerohedge) October 1, 2023

The larger AfD grows, the more difficult it will be to form ruling coalitions, as other parties have refused to partner with a party they condemn as “anti-immigrant” and “nationalist.” Omid Nouripour, co-leader of the Greens, told AP that “AfD’s results are alarming.” 

AfD’s unpopularity isn’t confined to the left: Recently, many politicians of the center-right CDU have called for AfD to be banned altogether. In Orwellian fashion, one CDU legislator said banning the party is necessary to save democracy.  

Scholz’s national interior minister, Nancy Faeser, who’s responsible for managing immigration, lost badly as she vied to become governor of Hesse — only earning 15% of votes in a three-way race. Voters are also increasingly weary of government-forced transition away from fossil fuels, which has been accompanied by infighting within the ruling coalition about how to accomplish it.