SPR

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The bull steepener in the curve is coinciding with a bunch of...

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BullishBearish

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26/07/24

11:45

Post #: 74929848
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Originally posted by calmbeforestorm: ↑

you may be right about the POG.

I listened to 2 fascinating podcasts today more economics than about gold but one podcaster is bullish on POG, the YEN and VIX trade ie betting VIX goes higher is equities will fall.

Two things came out that I was not aware.

A. US treasury has and is continuing to issue most of its debt (new and refinancing expiring) with terms less than 1 year much lower than in previous years. The proportion of short term debt has apparently gotten to the stage that the only other developing economy with such a high proportion is Turkey which is a bit of a basket case and has no other option as it cannot find buyers for its bonds at a sensible yield.

The apparent reason the US is using such a very high proportion of short term debt is to reduce supply of longer dated bonds to suppress bond yields - they suggest it’s actually QE in disguise and is equivalent to reducing the Fed cash rate by 1%. (I don’t understand this but have seen other references to it). Foreign investors are not buying long dated bonds. They believe it’s political. The ramifications for this are huge going forward. IMO this is a
big red flag (I have been aware of this situation for a number of months but the podcast made me realise how big a red flag this is). It’s worse than just this as the Fed has been doing QT ie selling securities but only shedding short term securities - the FED has actually increased its buying on longer dated bonds (ie QE) not reducing them which is the reverse of what they should be doing under QT - that is they are helping US Treasury suppress longer dated bond yields.

This all looks very bad. Sounds like that the market does not want US longer dated government bonds due to the massive debt, massive budget deficit and huge trade deficit,

B. AI - This explanation makes me realise what a big bubble AI is. Apparently the mag 7 are planning on AI capital expenditure of $US1tr over the next few years which is massive - the big issue is that they are NOT expensing the capital cost through their P&L over inflating current profits - instead capitalising it - the impact is to inflate current profits at the expense of future profits. The podcaster stated the Mag 7 are not making profits from AI yet and if they do not in future then SPs of the mag 7 will dive at soem time in the future, Guess which companies are buying most of the Nividia AI chips - the rest of the Mag 7!. The podcaster contends that the other 493 stocks in the S&P are paying a lot for the AI services from the mag 7 and are not making money from AI.

My summary - AI is looking like a huge ponzi scheme to me which is likely to crash as some point. This is a huge bubble that will burst but when who knows.

Both these are real potential black swans of a type and if they burst then POG will likely go up a lot.

PS AI is based on machine learning which has been around for decades - my own view is that it has uses but is quite limited and is so over hyped (I used to work with people who used machine learning).

I can post the podcasts if your want to listen. I have not checked the facts stated above on AI from the podcasts.

Expand

The bull steepener in the curve is coinciding with a bunch of other macro factors like rising copper inventories in china and the yen getting nuked. If the market is prioritising short dated treasuries it's a leading indicator the bullish scenario is materialising for treasuries (bearish everything else). Given the data coming out of the US bureau of labor has been heavily scrutinised for overstating employment rate the stage is set for an aggressive rate cutting cycle. Also worth noting the Bank of Canada always leads the US and they've now cut...twice. FOMC meeting next week.

Last edited by BullishBearish: 26/07/24

SPR Price at posting: $1.28 Sentiment: Buy Disclosure: Held
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The bull steepener in the curve is coinciding with a bunch of...

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