If You Needed One More Reason to Own Gold, You Now Have It
OPEC's cuts are still not enough... The U.S. shale boom is alive and well... 'NIRP' is back in the headlines... Is it time to prepare for the return of negative interest rates?... If you needed one more reason to own gold, you now have it...
OPEC's cuts are still not enough...
Well, that didn't take long...
Less than three months ago, the International Energy Agency ("IEA") trumpeted the news: Oil cartel OPEC's production cuts had finally brought the petroleum markets back into balance for the first time in years. As financial network CNBC reported on May 16...
The oil market has essentially reached a balance and will continue to accelerate in the near term, the International Energy Agency (IEA) said in its monthly report...
"We think the rebalancing is here and the rebalancing will continue," Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Tuesday.
"In the first quarter of 2017, we might not have seen a resounding return to deficits but this report confirms our recent message that re-balancing is essentially here and, in the short term at least, is accelerating," the IEA report added.
In fact, the IEA believed that should OPEC agree to extend its cuts, global oil inventories could fall to their five-year average – the oil cartel's long-held target – before the end of the year.
Of course, not long after that OPEC did agree to extend these cuts. The deal now extends through March 2018 at least. This must mean the IEA is even more bullish on the oil markets today. Not exactly...
As Bloomberg reported this morning...
OPEC won't clear the global oil glut any time soon... according to the International Energy Agency.
"If they wish to achieve the reduction of oil stocks down to the five-year average, they're going to have to dig in for the long haul," Neil Atkinson, head of the IEA's oil markets and industry division, said Tuesday in a Bloomberg television interview. "Rebalancing is a stubborn process."
OPEC's cuts are reducing global oil supplies, but by much less than anticipated. Global oil inventories shed 500,000 barrels per day in the second quarter, according to IEA data. But they're still 219 million barrels above the five-year average.
How did the IEA get it so wrong?
It seems U.S. shale-oil production has remained much higher than the organization originally believed possible...
"The resilience of the U.S. shale producers and the flexibility, the ability to bring on more oil at relatively low cost and short notice, means any signs of life – as far as the price is concerned – encourages more U.S. shale," Atkinson said. "The price is self-capped."
Hmm... where have we heard that before?
The shale boom is on pace for another new record...
Speaking of U.S. shale production, producers remain in "full steam ahead" mode. They're on pace to produce a record 6.15 million barrels per day in September, according to the U.S. Energy Information Administration ("EIA").
As regular readers might expect, the "king" of U.S. shale regions – the Permian Basin – continues to lead the way. The EIA expects Permian production to rise by another 64,000 barrels to 2.6 million barrels a day next month. And once again, OPEC and the IEA may be surprised by how "resilient" this new production proves to be. As Bloomberg noted last night...
Shale drillers such as Pioneer Natural Resources Co. and Devon Energy Corp. have been taking advantage of price rallies near $50 a barrel to hedge their output for next year and beyond, with some producers locking in prices as far out as 2023, according to data compiled by Bloomberg.
Don't look now... 'NIRP' is back in the headlines...
Longtime readers are familiar with our warnings about negative interest-rate policy (or "NIRP," for short).
NIRP is like capitalism turned upside down... Instead of being paid to save capital, you're charged a fee just to keep the money you've already earned. At its core, NIRP is simply government theft with a complicated name.
A handful of European central banks adopted this perverse form of monetary policy a few years back. It began to gain widespread favor in late 2015.
You may also recall that this was one of the biggest reasons we turned super-bullish on gold – and even launched the precious metals-focused advisory, Stansberry Gold & Silver Investor – early last year. As Porter explained in the April 1, 2016 Digest...
Imagine you're the head of $300 billion reinsurance giant Munich Re. You must hold huge cash reserves so you can pay claims, should they arise. Millions of people around the world depend (and have paid for) the guarantees you've made to protect their homes, businesses, properties, and entire cities.
And now, instead of earning interest on these reserves, your company must pay huge sums of money simply to keep your capital safe. What will the people who run firms like Munich Re... or JPMorgan Chase... or Japan's huge Sumitomo Mitsui Banking do with their capital? How can they keep it safe in an era of negative interest rates?
And what will individuals do? Where would you put your money if Bank of America and Wells Fargo began taxing your wealth and your savings every day, instead of paying you interest? How would you keep your money safe?
The clear answer at the time was gold...
More from that Digest...
Munich Re is responding to negative interest rates by hoarding cash (tens of millions)... and by holding almost 300,000 ounces of gold. Media reports claim the firm has been an active buyer in the gold market...
Think about what that means for a little while... and see if you don't find yourself more than a little worried. NIRP could trigger a massive, global "run on the bank" as everyone begins trying to hoard currency and gold to avoid the penalties being charged by the central banks for using paper money.
Trust me when I tell you... Policymakers in the U.S. are cognizant of this risk. This isn't a doomsday scenario... It's happening right now. These risks are exactly why gold has seen its biggest quarterly move higher in more than 30 years.
Fortunately, it didn't come to that...
Donald Trump's unexpected victory gave the U.S. economy a reprieve, and central bankers in Europe and Japan appeared to soften their stance on negative rates.
And while short-term rates remain at zero or below in much of the developed world, most folks believe the NIRP "experiment" is largely in the past.
But that may not be the case... There's a small but growing chorus of economists and government officials who believe NIRP will be – even should be – the preferred tool of central bankers when the next slowdown arrives. As Bloomberg reported on Monday...
In a new paper published in the Journal of Economic Perspectives, Harvard professor Kenneth Rogoff makes a case for negative rates, exhorting policy makers to develop the market infrastructure now for their widespread adoption before the next downturn strikes.
Rogoff notes the Federal Reserve cut borrowing costs by an average of 5.5 percentage points in the nine recessions since the mid-1950s – an impossibility today without negative rates. "The growth of electronic payment systems and the increasing marginalization of cash in legal transactions creates a much smoother path to negative-rate policy today than even two decades ago," Rogoff writes. He adds that other stimulus tools, such as quantitative easing and forward guidance on policies, have been deployed for several years and are now likely to be less effective...
Negative interest rates have loosened financial conditions with no major side effects on banks, but more work is needed on the practical limits of cutting ever-deeper into negative territory, the [International Monetary Fund] wrote in a paper published this month.
Regular readers know we believe it is only a matter of time – likely 12 to 18 months at the most – before the "Melt Up" ends and the "Melt Down" begins. This suggests that when it does, NIRP could resume its spread almost immediately.
If you needed one more reason to own gold and silver, you now have it.
Of course, the threat of negative interest rates isn't the only reason to be bullish on gold...
Negative rates or not, central banks already "printed" trillions and trillions of new dollars to buy unprecedented amounts stocks and bonds. This is the definition of inflation, even if it hasn't shown up in the consumer prices the central banks follow. And there's no way to know what could finally cause this inflation to spill over to the real economy.
In other words, while we suspect the "Melt Down" – the massive credit-default cycle Porter has warned about – will arrive first, the "fuse" for an inflationary panic has already been lit.
No matter what happens, you'll be glad to own some financial disaster "insurance," in the form of physical gold and silver.
We also recommend a small allocation to the very best precious metals stocks. When gold and silver move higher, these stocks can absolutely soar.
In fact, the all-time best-performing recommendation in Stansberry Research history was one of these stocks. Steve Sjuggerud recommended shares of Seabridge Gold (SA) at less than $5 back in 2005... and folks who took his advice made nearly 10 times their money over the next few years.
As we mentioned yesterday, if you missed out on that recommendation, you're in luck. Our colleague Bill Shaw, senior analyst for Stansberry Gold & Silver Investor, says he's found a small gold stock that shares an uncanny resemblance to Seabridge 12 years ago. And he'll be revealing all the details to Stansberry Gold & Silver Investor subscribers during a special conference call tomorrow.
If you're not yet a subscriber, it's not too late to join and be among the first to hear about this promising small gold firm. Click here to learn more.
New 52-week highs (as of 8/14/17): National Beverage (FIZZ), iShares U.S. Aerospace and Defense Fund (ITA), KraneShares E Fund China Commercial Paper Fund (KCNY), Lockheed Martin (LMT), NVR (NVR), and Weight Watchers (WTW)
In today's mailbag, a question about potential conflict with North Korea... and some confusion about our recommendations. Send your questions, comments, and concerns to feedback@stansberryresearch.com. As always, we can't respond to every email, but we read them all.
"Hello, I'm wondering if you guys put out any articles regarding the Korea 'matter?' I would really like to know what your thoughts are regarding how this will affect the market and melt up. Thank you." – Paid-up subscriber Gerard
Brill comment: Steve Sjuggerud addressed this question in this morning's edition of our free DailyWealth e-letter. If you missed it, you can read it right here.
In short, while "matters" like this are a reason to worry, the vast majority of the time they're not a reason to worry about the markets. Of course, we also recommend holding some financial disaster "insurance" just in case.
"Are your 'open recommendations' still considered 'buys' as they have all gone up in value. Thank you!" – Paid-up subscriber Lester Hammar
Brill comment: We assume you're referring to the Stansberry Research "Top 10" you'll find below (and at the bottom of every Digest.) To be clear, this is a current list of our 10 best-performing open recommendations across all our publications. It is NOT necessarily a list of buy recommendations.
Instead, you can always find all of our current recommendations in the model portfolios of the services to which you've subscribed. Simply to log in to our subscribers-only website right here, and click on the publication you're interested in. From there, just scroll down to the "Portfolio" section, and click on "View Full Portfolio."
Regards,
Justin Brill
Baltimore, Maryland
August 15, 2017