A Warning For San Francisco and Silicon Valley

A Warning to San Francisco and Silicon Valley.

In this week’s podcast:

San Francisco and Silicon Valley companies without profits and high valuations will crash, bringing their real estate markets and economies down with them.

The Fed will strongly signal interest rate hikes claiming the economy is strengthening.

The underlying reason for interest rate hikes is to combat de-dollarization initiatives.

The Lowest Cost. Period.

Podcast Summary

0:00-4:19 Introduction

The Federal Reserve and Interest Rates

4:19-9:25 The Fed has been insisting with main stream media support that the economy is recovering and that “underlying strength” will allow the Fed to raise interest rates. The false narrative of a strengthening economy will be used to justify an increase in interest rates. The real reason the Fed needs to raise rates is to protect investment demand for U.S. Treasury Bonds. De-dollarization initiatives have reduced transactional demand for the dollar. Higher interest rates will support sorely needed foreign investment demand for U.S. Treasuries.

The change in the amount of treasury bonds held by foreign governments is discussed.

Russian and Belgian US Treasury holdings chart

Russia and “Belgium” recently sold large amounts of U.S. Treasuries.

The June FOMC Meeting

9:25-16:11 The Federal Reserve upcoming June meeting is discussed. The Fed will claim that the job market is solid and that while other economic data is weak (weather!), the Fed will project accelerating job and wage growth and extrapolate from that an increase in consumer spending that will drive the economy later in the year. On that basis the Fed will indicate strongly that absent data to the contrary they will raise rates in September (if they don’t raise them in June).

Waiting longer will give the economy time to prove that it is not recovering and take away the Fed’s ability to say they are raising rates in a strengthening economy and will damage the Fed’s credibility.

The media continues to provide the cover story for the ‘recovery’ narrative even when there is bad news:

Reuters: “U.S. industrial production unexpectedly fell in May, likely as a strong dollar and energy spending cuts continued to weigh on manufacturing and mining output, bucking signs of an acceleration in the broader economy.”

The media treats bad news as an anomaly when all the economic new other than the jobs numbers are good.

Top Foreign Holders of U.S. Treasuries

The latest U.S. Treasury holdings of China (steady), Belgium (way down after being way up), Japan (down) and Russia (inexorably down) are discussed. The overall decline in US Treasury demand is discussed. Much of the U.S. deficit spending is done from issuing bonds to foreigners and until recently having the Federal Reserve buy them under three quantitative easing programs.

Russia's US Treasury reserves

Russia has been selling their U.S. Treasury Reserves and increasing their gold reserves.

The Fed realizes that they can’t continue to buy US Treasuries lest it undermine the dollar. The Fed has managed to print $4.3 trillion dollars over the past six years and to buy $2.5 trillion of U.S. Treasuries with out a reduction in the value of the dollar vis a vis other currencies. The dollar is strong today than it was when QE started in 2009.

A rate hike is already baked into the bond market and the supposed derivatives bubble won’t burst because the Fed has telegraphed the upcoming rate hike long enough to give traders time to readjust/close out their positions on the basis of higher rates.

The Fed will give strong signals at their June FOMC meeting that, absent data to the contrary, they will raise rates in September.

The Fed and The Real Estate Market

16:11-21:00 the Fed and the status of the real estate market is discussed. The Fed will continue to telegraph their rate hike intentions after the initial rate hike. They won’t, however, raise rates to normal levels-just higher than most other central banks.

QE 4 AFTER Rate Hikes?

21:00-24:50 the possibility of QE4 after rate hikes is discussed. Rate hikes provide the Fed with credibility to enable them to do QE4. The Fed can claim that the US economy was doing really well in 2014 and 2015 by pointing to all the positive media stories written the past couple of years.

Main Stream Media, Wall Street and Alternative Media Views of the Federal Reserve

24:50-27:45 different perceptions of the Federal Reserve are discussed.

Startup Bubble Companies, Home Builders, Auto Sales and Consumer Credit

27:45- 41:06 venture capital startup companies with no profits are discussed and compared to other small businesses. Homebuilder sentiment and home buyer incentives as a way of boosting sales (but not profits) are discussed. Record auto sales and prices are discussed in the context of sub prime auto loans. High consumer debt in the form of credit cards, auto and student loans as well as higher food, energy and insurance expense are putting a lid on home sales and consumer spending (and in turn GDP growth).

Consumers can’t spend what they don’t have.

Is QE just for the rich? Janet Yellen and Ben Bernanke’s comments on this question are discussed.

Home and Stock Prices

41:06-44:06 Home prices of 2004-2005 are compared to today’s home prices and share prices. Home prices are restricted by ability of buyers to pay. Stocks in contrast have no such limitations.

2016 Presidential Elections and Hillary Clinton

44:06 Hillary Clinton’s prospects are discussed. Age of presidential candidates, Ron Paul and the Federal Reserve are discussed.

Dow Jones Industrial Average Chart From Yahoo! Finance

Yahoo finance DJIA chart

The Dow Jones Industrial Average has hit new highs. Will new lows follow?

A Warning For San Francisco and Silicon Valley

47:15- an analysis of the San Francisco Silicon Valley economies and why they are destined to crash.

Get Free Updates From Smaulgld.com

Subscribe to Smaulgld.com and get the free In Case You Missed Itweekly email as well as updates and analysis on gold, silver, real estate and the economy.

Also get the free report “Twelve Key Differences Between Gold and Silver” when you subscribe.

Subscribe to Smaulgld.com to receive free gold and silver updates, news and analysis.

Further Reading

The Fed Will Raise Interest Rates

Does the Fed Need to Raise Rates to Combat De-Dollarization Initiatives?

The Three Legged Economic Recovery Propaganda Stool

Bankruptcy in America

List of Foreign Holders of U.S. Treasuries

How a Stock Market Crash Will End the Economic Recovery

Bankruptcy in America

What Happens After the Next Stock Market Crash (poll)

The Three Legged Propaganda Stool

You can support Smaulgld.com by making all your Amazon purchases through the search widget below and by ordering your gold and silver by clicking on the SD Bullion, Bullion Vault, Gold Broker, Golden Eagle Coin, GoldMoney, and Royal Canadian Mint ads on the site.

DISCLOSURE: Smaulgld provides the content on this site free of charge. If you purchase items though the links on this site, Smaulgld LLC. will be paid a commission. The prices charged are the same as they would be if you were to visit the sites directly. Please do your own research regarding the suitability of making purchases from the merchants featured on this site.

Chart Disclaimer: Information presented here has been obtained from a third party and is presented for information purposes only. Smaulgld can not and does not guarantee the accuracy or timeliness of the data displayed on this site and therefor the data provided should not be used to make actual investment decisions. You should always consult a professional investment adviser before investing in precious metals or any type of investment. You acknowledge that Smaulgld assumes no responsibility for the integrity of data on this site.

The content provided here is for informational purposes only. Making investment decisions based on information published by Smaulgld (SG), or any Internet site, is not a good idea. Accordingly, users agree to hold SG, its owner and affiliates, harmless for all information presented on the site. SG presents no warranties. SG is not responsible for any loss of data, financial loss, interruption in services, claims of libel, damages or loss from the use or inability to access SG, any linked content, or the reliance on any information on the site.

The information contained herein does not constitute investment advice and may be subject to correction, completion and amendment without notice. SG assumes no duty to make any such corrections or updates. As with all investments, there are associated risks and you could lose money investing. Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment. SG disclaims any and all liability relating to any investor reliance on the accuracy of the information contained herein or relating to any omissions or errors and as such disclaims any and all losses that may result.

Post Navigation