On his weekly podcast, Andy Hoffman discusses the U.S. dollar is declining, the stock market, gold and silver, oil prices are collapsing, manipulation of all markets and the FOMC statement yesterday.
It is being said today’s FOMC announcement is “the most important of Yellen’s tenure,” I could not disagree more. In the past I have written pieces regarding the potential announcements by the FOMC and come to the conclusion “what can they possibly say?”. This is truer now, Janet Yellen et al cannot “say” anything of substance because they cannot “do” anything of substance. The Fed backed themselves into a corner of their own making several years ago, I believe it is only a matter of time before the markets “test” them.
What options does the Fed have? Can they raise interest rates at all? Can they tighten credit at all? Can they really go the other way and institute truly negative interest rates? The answers are all NO, they are “frozen” of their own making and have only one option (really two in tandem). The Fed can only remain in place with interest rates nonexistent and must continually create (fund) debt and grow money supply while a Treasury arm, the PPT must guide, massage and dampen volatility of markets …ALL markets. The only thing currently being discussed is “when” will the Fed tighten? I would ask, when will QE 4 be instituted? The answer of course is when the markets seriously begin to implode again which may not even be more than a calendar month or two away.
I am sure a part of their statement will include oil and energy prices. This is a market they cannot heal with monetary policy. The volatility has already occurred and the dead bodies already exist though we don’t yet know who they are. The dilemma the Fed has is they have no tools left other than outright support once markets begin to collapse. Their QE policies have already been seen as ineffective at supporting the real economy other than stabilizing decline. My question is this, when QE 4 becomes a necessity, will the markets “buy it” or will the phrase “three strikes and your out” come into play? What once worked to turn the real economy from contraction to recovery to an actual growth phase now has no power. The Fed only has an accelerator so to speak, the brake pedal is off limits. I have written many times on “velocity” and why it continues to decline. This is the sticking point, the money they create is being hoarded by the banks and not reaching Main St…
With regards to velocity, it is worth pointing out what is happening in Russia to illustrate a fallacy of main stream thought. As Jim Sinclair has tried to explain to anyone willing to listen, what comes our way in “dollar land” is a hyperinflation as a result of confidence breaking … a monetary event so to speak but one which results from human emotion. Western economists have incorrectly brainwashed the public into believing a hyperinflation can only be caused by “over printing”. This is ONLY one way, another way is when the currency itself loses confidence or credibility. Or, in the case of the ruble, loses its perceived “funding” (via energy revenues). Russia is in the midst of an early hyperinflation if the ruble continues to decline. Watch as their economy “takes off” …briefly. The Russian people see what is happening and are now in a rush to “exchange” (spend) their devaluing currency for “stuff”. THIS is another cause of hyperinflation, a currency going up in flames because of panicky velocity.
Tying this back to the U.S. and the Fed’s “FRN’s,” velocity is now at record lows …as are interest rates. Neither can turn higher or the game is over. We live in the most leveraged financial and fiscal system in all of history. Interest rates cannot go up as they have in Russia. Velocity on the other hand MUST turn higher but CANNOT, let me explain. For any hope of the real economy moving higher, velocity must bottom and turn higher. The problem is, once velocity turns higher, it cannot (I should say “won’t”) stop because this will mean the mindset or thought process has changed.
Look at it this way, the U.S. (the West) is facing the greatest potential margin call of all time. The entire system is a margin call waiting to happen. Less than 50% of the population supports a majority of the population. Some ungodly number of people in the U.S. live paycheck to paycheck and have no savings whatsoever. Real estate is completely levered, banks and brokers levered with all sorts of derivatives. State and local government finances are in disarray while the federal government is in debt beyond 100% of GDP …with admitted debt, 10 times over with future obligations. The Fed, for their part has become the biggest hedge fund in the world and have quintupled their balance sheet over 5 years …like I said, we await the biggest margin call of all time. Never forget this, the dollar has value ONLY because the debt underlying has “value,” a margin call will erase this in a panicked heartbeat!
When this margin call does come (and it may already be happening as judged by the oil market), “velocity” will turn violently and overnight. The turn in velocity will be a symptom/cause of our currency devaluing. The rush out of dollars and into “stuff” as the Russians are now experiencing will in my opinion be far greater and much more rapid. “Confidence” and “velocity” are inverse of each other. We are currently at the height of confidence and the depths of velocity. Confidence is truly the only piece of chewing gum holding the game together.
In the case of Russia, they have big brother China to stand by their side. China has set up currency hubs all over the world, we will soon see why. They also signed two major trade deals with Russia, the capital from these deals can and will be used to steady Russia. Who will steady the U.S.? Our markets have turned schizophrenic, up and down huge amounts on a daily basis. Who will step up to support the U.S.? In fact, if you look at the “direction” of the rest of the world, they seem to be trying to distance themselves from us. By the time this is over, the world will be operating under a New World Order, just not the one American elites have envisioned. In fact, I can see a world where power has shifted along with trading partners and alliances with the U.S. sitting in a self-inflicted and isolated corner with a tin cup in hand …and a dunce cap on top!
I plan to write just two more pieces for the year. One next week and one the week of New Year’s. Both ends of my mental candle are getting very close together, I need a little down time. Because so many have requested what I think it will look like “the day after,” I plan to write a missive from a hypothetical (but probably not so “fictional”) basis.
I wish everyone a Peaceful and Happy Holiday. Merry Christmas! Happy Hanukkah! Happy New Year!
Andy Hoffman joins Rick Wiles of TruNews (21:50) to discuss Black Friday retail sales, plunging oil prices, unemployment, the stock market, gold and silver. To listen to the interview, please click on link below.
Oil has crashed and now trading at roughly half the level it was just 6 months ago. There are winners and losers of course but this is not the point, the point is …this is either the sign of a credit contraction, the cause of a credit contraction or both. Consumers are obviously winners and producers the losers, just as oil importing nations are the winners and exporters the losers. But, as I just mentioned, this is not the point at all.
It is my belief that this was “our” plan to try to bust or at least hamper Mr. Putin and Russia. This type of action worked during Ronald Reagan’s era and the Soviet Union was financially broken. I believe Washington simply opened up the old playbook, started rubbing their palms together in anticipation and then …”let ‘er rip”. This action obviously included the help of our “friends” the Saudis, a glut could not ever develop without their help. Please understand this very important data point, supply and demand were only out of balance by less than 2%, something much bigger is at work here. “What is at work here” as I see it were all the high(est) level meetings held over the last six months between the Saudi royalty and both Russia and China, what do you suppose was discussed?
Has Saudi Arabia “bowed” to U.S. wishes and held or even increased output…BUT with the blessing of China and the knowledge of Russia? Let me explain the thought process. Has China calculated what would happen to the West’s highly levered and “derivatised” system were oil to crash “too far?” Did they have any idea what or how big the derivative time bombs were that are now surely being set off? Yes, it means cheap oil for China who is a huge importer of oil but I only believe this is just icing on the cake. In my opinion, this “U.S. plan” to bankrupt Russia was “PLANNED” (by the East) to boomerang back on the U.S. Yes it has already destroyed our shale industry but more importantly, what is it doing behind the scenes to banks and brokers who are sitting on trillions of $ worth of energy derivatives? We already know Phibro, the 130 year old commodities firm is shutting their doors… but what about the banks and brokers?
I ask the question and again repeat “there are both winners and losers” …but please remember, if the losers lose “so badly” as to make them insolvent …the winners suddenly become losers! The financial system in the West is so intertwined and leveraged, no one can be allowed to lose “so big” that they are bankrupted. But this is exactly what has already in most likelihood happened. Someone is already dead, or better said “someone(s)” plural are already dead! We are talking about 100′s billions or more likely trillions of $ have already changed hands (on P + L statements).
Another set of time bombs are all of the CDS issued and purchased not just on energy companies but on sovereigns themselves. Let’s assume (which I do not), Russia does actually default on their $200 billion of external debt. This is actually quite small when compared with other nations but how many credit default swaps have been written on this? Typically, CDS is insanely written at a 10-1 ration versus the actual credit. My question is this, if Russia were to default on $200 billion and triggered $2 trillion worth of CDS, someone wins and someone loses. “Who” could lose $2 trillion in today’s world? What about others like Iran, Venezuela and on down the line not to even mention the various corporate entities could bankrupt?
The oil crash in my opinion is really about a global credit contraction. Global economies are slowing and yes demand for oil has decreased but this decrease does not account for a 50% drop in price …leverage does. Oil, just like anything else is “commoditized” with levered bets which increases the volatility when it occurs. The leverage works on the upside where the move looks orderly and like it will never end, until it does. Once the trend has ended, “margin calls” force sales and is exactly what we are seeing now.
Switching gears just a little, the world’s monies are all debt or credit based, a credit contraction will also destroy various (all) currencies that are levered into this trap. What will happen if (I believe when) Russia decides to ask for gold in exchange for their oil and gas? Think about this question as it is very real. Were Putin to decide on this strategy, is he dealing from a position of strength or weakness? Does Russia need the revenue as much as the world needs his oil? Before making up your mind, remember, Russia is actually a larger producer than Saudi Arabia.
If Russia were to ask for gold in return for oil, where would things go from there? Oil would whipsaw in price as would the ruble. Gold would then be “remonetized” overnight and its price more than likely explode. But there is one more step to a “demand” of gold for oil. This step would “expose some folks” so to speak. In other words, who really has the gold to pay for oil? Yes I know, at current prices, sovereign gold would run out pretty quickly, a markup of gold prices versus oil which would be a natural from market forces would change this. What I am getting at here is, were Mr. Putin to demand gold in payment for oil, we would pretty quickly find out who actually has gold and who doesn’t.
Before you shut your brain down and call it lunacy … “no one will ever ask for gold as payment for oil” …ask yourself why China and Russia have been accumulating it so fiercely? Russia can certainly say “hey, you crashed the price of oil, but now we want something real for our real product”. This would certainly work for China as they are filling their oil reserves and would like their gold stash to be valued at a level to back their currency for the next 100 years or more. The other side of the coin of course is what will be learned of Western gold reserves. Do we have it or not to pay? Is this why the “core four” of Germany, Holland, Belgium and Austria want their gold back within their borders? Can they see the need to use it for oil and gas purchases or to back a bloc currency?
Think for a moment, think about the “shorts” in the ruble and now the shorts in oil? Are the “shorts” of Western origin? Who would lose the most from a spiking oil, ruble and gold price? As I mentioned earlier, there are most probably some very dead participants who were caught on the wrong side of oil. What will happen if some Sunday night Mr. Putin said “we will be happy to ship oil, please ship us gold?” The oil, ruble and gold shorts will be destroyed along with the record amount of dollar longs followed by the dollar itself!
Let me add this to the mix. I have written many times just how easy it would be for the COMEX to be broken. It would only take $2 billion to physically take out the registered inventories of gold and silver.
Another $10 billion would probably be enough to include the LBMA and topple their fractional reserve scheme. If this were done, it would be viewed as a declaration of war on the West by the East. Instead, we have declared financial war on Russia, who would blame Russia if they retaliated by asking for real money for their real goods?
I will leave you with a couple of questions. Why did the budget deal just pass in Congress with hugs, kisses and the inclusion of $303 trillion worth of derivatives being “covered” by the FDIC (read; “taxpayer”)? Why did CME expand limits for gold and silver trading to $400 and $12 per day effective next Monday? Why is Russia testing their own clearing alternative to the West’s SWIFT system? Oh, and one more question, is “gold” a part of this clearing alternative?
Before you write to tell me “this can never happen”, please don’t waste your time. It CAN certainly happen! Will Mr. Putin decide on this? I have no idea but if I were in his position I would certainly go this route. Especially since the Western credit edifice has never been more vulnerable than it is now. A credit “wobble” from a self-inflicted oil price implosion would be ironic. I would also do this as a way to move away from the dollar and toward an asset I have been steadily accumulating, gold. I would do this to FORCE a “perestroika” (Russian for “restructuring”) on the West!
Q: One news source projects that due to lower fuel costs consumers will focus on spending more on consumer products while other sources are saying that the savings on gas will be eaten up by soaring insurance premiums such as Obummercare, etc. Which is the truth?
Some are agreeing with the governments’ statistics that unemployment is decreasing; while others are saying that employers are cutting back on 40 hr. employees so they don’t have to buy employee insurance while hiring 2 20-hr. employees both of whom will not be eligible for employer insurance. Which is it?
Your quick and correct answers will be greatly appreciated. R. S., CA. (One of Our Broke, Fiat Money Corrupt States)
David Schectman’s Answer:
Probably some of each. A large number of Americans are living off their credit cards, especially this time of the year. For them, saving $30 bucks on a tank of gas won’t change much, it will just reduce the amount of debt they go into for Christmas. Soaring insurance premiums will affect a large number of Americans. Someone has to pay for the extra benefits extended to those previously un-insurable. It looks to me like the winners will be the insurance companies and those finally able to get insurance. The losers will be the doctors and the rest of us.
As far as I understand it, many firms are cutting back on hours to avoid paying the insurance. More people are getting jobs, but a large percentage of them are low paying and/or part time jobs. Also, there are still far fewer people working today than before the collapse in 2008/09. All in all, not a healthy situation, and it is being “spun” by the mainstream media and Wall Street.
Check out the honest, unaltered statistics presented in the graph, below by John Williams (Shadowstats). By any standard, and he gives you three, there is a higher percentage of unemployed Americans today than six years ago. That says it all. Some improvement, but still awful.
Q: What Do They Know? CME Group Imposes Trading Collars For Precious Metals
Why didn’t they do this when we were at the top of the markets in gold and silver? Are they expecting huge moves in gold and silver? Probably because India’s new government is going to repeal the import tax on gold and the wedding season is coming up and the rupee is going up. As far as china, the Chinese are not allowed to buy foreign stocks and their stock market is crashing. The banks do not pay any interest, and the real estate market is completely in the toilet. What is left for the Chinese but gold and silver? I may be reading too much into this, but I just don’t see any reason to do this now unless you were expecting large moves in the metals. I really don’t think they expecting these large moves to be down. My real question is what other reason would they have to impose these changes other than them anticipating huge moves coming?
Bill Holter’s Answer:
They did not do this at the top because there was no necessity and if they could have hit these circuit breakers to the downside they would have, and loved every minute of it! Yes, demand is swelling in China, India and the rest of the world, gold will be the last man standing when this crisis goes full blown. The “risk” in price is now and has been for a while now, to the upside in huge amounts. Volatility is already increasing and I do believe they know what is coming. The risk which is increasing each day is that Russia asks for gold in exchange for oil and China backs their currency with gold, a one-two punch of sorts. I think the more telling news is how the budget bill was passed with hugs and kisses while dumping the entire derivatives mess on top of FDIC. They obviously know something is coming with both of these actions and neither will be good for Joe and Jane America! The timing of both these actions suggests something will happen quite soon.
Q: My inquiry regards the gold/silver ratio. Impressively, it has been somewhere 50-70/1 over many years now, with recent trend of the ratio going higher.
This is often used as an argument to say that silver is a good price now, as the ratio should be somewhere around 12-17 / 1 to reflect the relative abundance of the metals in our Earth’s crust.
While I do not disagree that the TRUE value of silver is perhaps grossly undervalued at today’s price of $ 16/oz., I see TWO ways to look at the Gold/Silver ratio, not just one.
1) At a ratio of 70/1, either silver is GROSSLY undervalued in proportion to the price / abundance of Gold, OR the PRICE OF GOLD is grossly OVERVALUED compared to the price of silver. How do you know definitively that silver is undervalued and that gold is not overpriced?
2) Some “cyclical” economist types still see Gold falling from a sky high all time spike in the $ 1900/oz. range, (and on the path to a value of around $ 250/oz.) and I do see their point that the price of Gold “should” be or “will” be much lower as it comes off its “bubble” which topped at $ 1900 an ounce. In this line of reasoning, the Gold bubble has already occurred, and is not on the horizon as you (and many others) portend. Aside from the demand / supply argument (that the price is suppressed but so little out there in supply to deliver that when it cannot be conjured up the price will spike to reflect true market demand, worldwide, for the yellow metal) what else is there to rebute this argument?
How do you respond to these two points? Is the price of gold greatly out of proportion to the price of silver? Aside from the issue of demand/supply, how do we “know” that gold already did not hit a bubble high at $ 1900 an ounce?
Just some thoughts of mine. I am a fan of Ben Franklin and greatly enjoy reading your daily blogs, especially the colorful, yet tactful, use of the English language which is a refreshing change from the drivel pumped out by mainstream economists. Thank you for your insights as always (both you and your colleague Mr. Holter).
I am in the medical profession, and new to economic theory and have been reading with much interest. I appreciate your thoughtful digest of world events. Not that I wish they were true of course. I in fact feel like we are in the process of witnessing the emergence of a horrible economic nightmare of which most are still blissfully oblivious.
Andy Hoffman’s Answer:
As they say in finance, the value ascribed to an asset is simply what people will pay for it. Thus, there is no “rule” as to what something should be worth, particularly when the game is constantly changing. Not to mention, when money is being printed so rapidly!
The gold/silver ratio was historically around 15:1 because that was the rate it came out of the ground. However, silver was once used only as money – whilst now, it is the second most broadly used commodity on the planet, trailing only crude oil. Thus, whilst all the gold ever mined is still above ground, nearly all the silver has been consumed. Plus, silver is only coming out of the ground at a 9:1 rate now, as it is depleting more rapidly (and/or becoming more expensive to mine, relative to gold). Unquestionably, its monetary value is unchanged, as demand hit a record high in 2013, and will easily exceed that level in 2014. And the fact that U.S. Silver Eagle and Canadian Silver Maple sales have sold so rapidly with the weakest Western PM sentiment of the past 15 years shows you it’s mostly Easterners buying it – so just wait until the Westerners re-join the party. In other words, I believe the gold/silver ratio will eventually fall to at least 15:1 – and possibly, significantly lower.
Care of years of price suppression, BOTH metals are grossly undervalued, in my view. Actually, if you simply measure the amount of money printed (that they tell you about) versus the amount of gold the Treasury has (what they say they have, versus actual holdings closer to zero), one gets a “price target” of $15,000-$20,000/oz. That’s simple math, not complex mathematical formulas or hype – and each dollar printed makes that target go higher. Simply apply whatever gold/silver ratio you choose to that, to get your silver “price target.”
As for anyone saying gold will be $250/oz., I doubt even the biggest Cartel propagandists would try that. The cost of production is at least $1,200 for the world’s best mines, and the all-in cost of sustaining the industry at least $1,500. And for silver, those numbers are closer to $20-$25/oz. and $30+/oz., respectively (per our Webinar, taped two months ago). Cartel naked shorting of mining shares for so long has all but destroyed capital investment, to the point that no new discoveries of substance have been made for years. Thus, I believe production of both metals will drop precipitously; and thus, it’s hard to believe either metal has material downside in price – if any. And certainly not to $250/oz. for gold!
I hope this helps. Please feel free to contact me with any further questions.
As John Steinbeck famously wrote, the “best laid plans o’ mice and men often go awry.” Which is exactly the situation the world’s most evil organization, the U.S. Federal Reserve, faces at tomorrow’s FOMC meeting.
Currently chaired by a career banker puppet, the Fed has been so lulled by the “success” of six years of market manipulation, it actually believes it can “guide” the economy to prosperity if it “paints by numbers” the scheme it cooked up, most likely, at an April 11th “closed-door” meeting between President Obama and the top “TBTF” bank CEOs. The day before that meeting – at which Goldman Sachs’ CEO attended, Goldman issued a gold “short sell” recommendation. And lo and behold, on Friday, April 12th and Monday, April 15th, the “alternative currencies destruction” attacks commenced – at the COMEX open, of course, after the day’s top tick occurred at “2:15 AM EST”; taking gold and silver down by 15% and 20%, respectively. The benchmark 10-year Treasury bond yield was trading at 1.7% at the time, bottomed two weeks later at 1.65%; and three weeks later, Ben Bernanke first used the word “taper.”
Since then, a highly choreographed, historically heavy-handed scheme of money printing, market manipulation and propaganda has been utilized to “create” the perception of recovery. Essentially, TPTB have attempted to “engineer” the desired result of stronger economic activity through unrelenting support of “favored” markets like equities and real estate – whilst viciously attacking “unfavored” ones like precious metals. In doing so, they hoped to gradually wean the stock market (and their $4+ trillion balance sheet) off record low interest rates – via the eternal “hope strategy” of praying the economy “grows” into its debt.
Unfortunately, the global economy is far too complex to control; particularly when the very act of trying to do so causes horrific unintended consequences – such as, for instance, the explosive currency volatility we four months ago deemed “the single most precious metals factor imaginable.” Moreover, as the global economy reached debt saturation long ago, no amount of new credit can positively impact economic activity; and worse yet, five years of massive, unfettered credit creation has created such massive economic dislocations – like shale oil, for instance – that the resultant bubbles could only be deflated via dramatic price declines.
Frankly, it didn’t take long for this “scheme” to go awry; as not only has global economic activity dramatically contracted, but by the end of 2013, U.S. interest rates had already peaked – commencing a year-long plunge that has the benchmark 10-year on the verge of having a “one-handle” this morning; as indisputably, the entire world is becoming aware of the “most damning proof yet of QE failure”; i.e., plunging interest rates despite the Fed-purported, economic data-cooked assertion of “recovery.” And sadly, as ugly as the U.S. economy has gotten, the “non-reserve currency” nations of the world – i.e., all others – are in far worse shape as the “flight to safety” resulting from fears of a “2008 redux” has caused the dollar to explode higher; and consequently, global economic activity to collapse. Thus, this Fall’s historic oil price collapse – to $54/bbl. as I write Tuesday morning – is but a symptom of all the aforementioned issues. And thus, to believe it will resolve any time soon – that is, before an economic cataclysm equivalent to 2008’s mortgage crisis – is just wishful thinking, we’re afraid. And sadly, it seems, the Fed has “used up” all its wishes.
This past week has been perhaps my busiest since joining Miles Franklin in October 2011. Demand for podcasts is growing exponentially – I’m taping six this week alone – and just trying to keep up with the unrelenting explosion of global “horrible headlines” has been a 24/7 job. Plus, even I have never seen such relentless, merciless Cartel, PPT, Fed and ESF market manipulations; as clearly, TPTB are well aware their aforementioned “scheme” is collapsing. Tomorrow alone, they must “counter” the potentially scheme-destroying impact of the FOMC meeting and Greek snap elections; let alone, a host of other “black swan” candidates – from the inexorable oil price plunge; to the collapse of the Russian Ruble; to the aforementioned historic currency volatility that is destroying lives at a rate not seen since World War II.
As for PMs themselves, I thought I had “seen it all” when witnessing the epic paper raids heading into last month’s Swiss referendum; which not only caused historic physical uptake, but turned both gold and silver forward rates “upside down.” The “pinnacle” of such raids took place in the ultra-thinly traded half-day following Thanksgiving – gee, what a “coincidence” that the referendum was scheduled that weekend – when gold, silver and mining shares were mercilessly “bombed into the stone age.” However, when I saw yesterday afternoon’s “repeat performance,” it couldn’t be clearer how desperate the Fed was to prevent the “Yellen Reversal” we predicted three months ago from being necessary at Wednesday’s FOMC meeting.
In fact, per last week’s “desperation tutorial” and “supplemental Cartel manipulation proof” articles, the past four days’ attempts to prevent PMs from re-asserting their historic “safe-haven” status have been as “2008-like” as we can recall. However, yesterday’s farce literally “took the cake” – as the morning’s strong PM out performance suddenly became a PM bloodbath at EXACTLY the 12:00 PM EST “cap of last resort time”; despite, as was the case Wednesday, Thursday and Friday, oil and equities closing at the days’ lows. And speaking of “unintended consequences,” to watch mining stocks collapse like Fannie Mae, Lehman Brothers and AIG is truly breathtaking. This is why I started screaming to avoid them like the plague nearly four years ago, and why the PM production collapse we have long forecast is as “set in stone” as “QE to Infinity.” And talk about a “perfect storm” hitting the Federal Reserve like a ton of bricks – of record physical demand, and collapsing supply!
Anyhow, as I write at 9:00 AM EST Tuesday morning, the 10-year Treasury yield has collapsed to 2.04%, after having touched 2.02% earlier. Stock futures are down sharply, although of course the PPT has brought them back from the lows despite, as I write, WTI oil sitting at its low print of the day, at $53.68/bbl. Gold and silver have been “Cartel Heralded” multiple times already, but both are up sharply. Would it surprise you that gold’s high trade thus far was at exactly Friday’s closing level of $1,221/oz.; achieved at exactly the COMEX open; via the aforementioned Cartel Herald algorithm, – which, thus, also doubled as a prototypical DLITG or “don’t let it turn green” algorithm?
And by the way, not only are currencies the world round crashing – particularly the Russian Ruble and other “commodity currencies,” in epic fashion – but so are industrial commodities, from crude oil to iron ore to base metals. As you can see below, the CRB commodity index is down an astounding 25% this Fall alone, within “earshot” of the 2008 lows that nearly destroyed the entire world. And we assure you, outside of hyper-inflation, there’s not a thing Central banks will be able to do this time around. Fortunately, gold and silver are decidedly not “commodities”; and thus, when the “New York Gold Pool” is inevitably destroyed, the entire world will understand what we wrote of in yesterday’s “re-emergence of real money.”
As Zero Hedge noted yesterday, “you can only fool reality for so long.” And now that the historic manipulation scheme cooked up by TPTB in April 2013 is imploding, it’s just a matter of time before the aforementioned “Yellen Reversal” not only ushers in universal realization of global Federal Reserve led “QE to Infinity,” but permanently ends the Cartel orchestrated, maddening three-year precious metals “bear market.”
And thus, we ask, how can anyone not consider protecting their financial assets with physical precious metals – given an historic supply/demand imbalance on the verge of going nuclear? In our view, once “gold fever” takes hold – as undoubtedly, is occurring in Russia, Japan and other hyper-inflating nations as we speak – Miles Franklin will no longer be able to supply any metal to hopeful buyers.
To say that events are now taking place at the speed of light is an understatement. It was just last Monday, I wrote a missive entitled “The Mother of all Bank Runs“. In it I wrote about the German and Dutch repatriations of gold which was then followed by the Belgians beginning discussions on the same topic. As a final speculation, I mentioned that “logically the Austrians would be next.” There was no way you could have told me it would be less than one week until the same news would actually come out of Austria! Unlike the Germans, Dutch and Belgians who have gold held in N.Y., Paris and London, Austria holds 80% of their 280 tons of gold concentrated in London. This is truly big news for several reasons which we will explore and it certainly brings up a few more questions.
These four countries represent the core of the European Union. The EU is located in Brussels and the ECB is located in Frankfurt so the “power centers” (or financial centers) if you will are located within this “block” of countries, let’s call them the “Nordic bloc”. These four are the strength of the euro, they are the highest rated credits and for the most part they alone dictate policy. …And now, ALL of them will be asking for their gold to be returned to them. The same questions I asked last week still apply, even more so now because of the addition of Austria. Why do they want their gold returned and why now? There are other questions which we can look at shortly.
First, “why?” Why is there all of a sudden this rush by Holland, Belgium and Austria to follow Germany’s lead in asking for their gold back? The obvious answer is trust, or better said, lack of trust. For years there have been questions as to whether or not “official gold” has been leased into the markets. These questions have arisen because of the simple math of supply and demand. If China, India and Russia have been gobbling up 100% of current mine supply… then where is the supply coming from to meet the demand from the rest of the world? If there was no trust issue whatsoever, these central banks would not “bother” with where this gold is being held because it brings up questions central banks would prefer you not think about. These questions would obviously include “why” move the gold if it is already “safe?” It also brings up the question of why bother if gold is really not important in today’s financial world …as many central banks will have you believe.
You see, for central banks to ask for their gold must mean it has some importance to them, right? For that matter, why have these countries not asked for dollars, pounds or euro’s (from France) for the values of the gold held? Why are these central banks asking for the actual metal? The answer of course is because they know gold is real money and there is no substitute… in other words, there is nothing “as good as gold” when it comes to money. I cannot stress enough how big these actions are because these are central banks bringing publicity to gold in a manner showing just how important the gold really is to them! Let’s move on to other questions rather than rehash last week’s missive.
Why and why now are the main questions but I believe these two are wrapped up by “why these four countries?” What this obviously leads us to is the very real potential that the Eurozone which is an imperfect union, will now be “split table!” These four countries are the center of the “have’s” with the rest of Europe being “have nots” for the most part. These four country’s gold reserves amount to roughly 4,000 tons. Officially they would be number two in the world behind the U.S., assuming the U.S. has not already divested their gold (I believe we have), “unofficially” this 4,000 tons would make them number two behind China if you believe they 8,000 tons of gold or more (which I do).
These four countries with reserves of 4,000 tons will have the ability to set up a northern or “Nordic euro” …especially if China revalues gold and re sets the world’s financial system which looks very probable in my eyes. Repatriating their gold also does something else which few have thought of so far. Actually having their gold in hand may just allow them to purchase energy from Russia. Remember, Russia is testing their own clearing system to bypass the West’s SWIFT system. Would Russia possibly refuse Western currencies for their energy exports if they had a system up and running which could clear rubles and yuan? You bet they would, especially during a time of financial war. Is gold a western currency? Is it an eastern currency? No, gold is the ULTIMATE currency, even Alan Greenspan concedes this!
This theory of a possible European breakup into northern and southern euros has more legs if Russia were to accept the new Nordic” for trade but refuse the “southern euro.” Would Russia have more “confidence” and thus be more likely to accept the northern euro …if it is supported by gold? Gold that is actually accounted for and held within these countries own vaults as opposed to vaults controlled by N.Y. and London?
The answer of course is “yes” but it also brings up another question which has a very humorous answer! For a little background before I ask the question, do you remember why all of this gold was moved to London and New York all those years ago? That’s right, there was a fear Stalin or one of his successors would roll tanks across Europe and take the gold …so the further away from Russia this gold was …the better! Fast forward to present day, isn’t Mr. Putin and Russia the “scary and aggressive” potential invaders of Europe? Why would these countries want their gold within their borders at this EXACT point in time if they have any worries of an aggressive neighbor called Russia? Does this make any sense at all? It does, and the humor is that these four countries apparently trust Mr. Putin and Moscow more than they do the U.S., Britain and the West!
Let me wrap this up and speculate a little as to what I believe is happening because it is clear something IS happening. It can be no coincidence these four core European countries want to repatriate their gold. It is also clear this action signals a change of some sort in their “relations”. For this “block” of countries (which is exactly what I believe they will be seen to be) to remove gold from the West and placing it within marching distance from Moscow tells me they trust “us” less than they fear Russia. I also believe they know where this whole game is headed and who is leading it. I believe China will back their currency with a “re marked” price of gold with Russia as their right hand energy man. The game is going toward gold, not away, this Nordic group is simply positioning themselves for when the starting gun is fired.
While the West has tried to “isolate” Russia, we will have succeeded only in isolating ourselves and creating the “cause” for a run on our own banking system. I am not talking about the paper Ponzi scheme banking system as this will also fall, I am talking about an old fashioned and REAL run on the bank! This “run” started slowly and ran for years as China accumulated what we foolishly “gave away”. Now, it looks like the “run” is accelerating and the “core four” are taking the attitude “he who panics first panics best!” None of this had to happen but it has and is, simply because the West has done dirty business and ruined credibility. There is absolutely no rationale whatsoever for these banks to ask for their gold back if it is truly safe and they have full and complete faith in the U.S. as custodian and enforcer of the rule of law.
Please understand, the “core four” IS Europe. Other than Britain, Europe is supposed to be America’s number one ally. It is obvious allegiances all over the world are changing. It is also obvious what is considered as “important” as far as money and currencies are concerned is also changing, otherwise these countries would accept dollars in lieu of their gold. The West has bled gold, trust and thus credibility while the East (and new northern Europe partners?) has accumulated gold, trust and thus also credibility. “Power” has always followed gold wherever it went. If gold is leaving London and New York, it is for a very good reason. I believe we may very well see a “Nordic euro” that trades primarily with Russia and China as opposed to the U.S. and Japan. No one has ever run their bank “just for fun,” there has to be a reason. I can see no reason for these four countries to act in unison on this issue unless trust is being questioned and/or a break away from the other deadbeat EU nations is planned …we will see shortly.
The beauty of the Miles Franklin blog is one never knows how it might start. In fact, I often don’t know myself, until I sit down and start typing. Moreover, now that the world is rapidly devolving to 2008-style crisis mode, there are so many “horrible headlines” to address, it sometimes becomes difficult to determine what’s most urgent.
To that end, you probably expected me to start with this week’s horrifying, expanding oil price crash; which, quite obviously, has jumped to the “head of the list” of potential black swan candidates. In other words, the odds that six years of can-kicking will be overwhelmed by the collapse of the high-cost energy production bubble appear higher than all other issues – at least for now. And have no worry, I’ll get to it momentarily.
However, another topic has just as much potential to destroy “history’s greatest fraud” in short order; but if it does, it would be difficult to deem it a “black swan,” as it has been lurking “in plain sight” for nearly four years. Which is, of course, this month’s Greek “snap elections” – which per the below passage from our April 2013 article, “Greek Tragedy” could catalyze all-out destruction of the Euro, irrespective of Draghi’s promise to do “whatever it takes.”
The majority of Greek citizens would likely vote for “GrExit” (i.e, Greek secession from the Eurozone and Euro currency) if a referendum were held today.
-Miles Franklin, April 10, 2013
In fact, that quote was gleaned from a September 2012 article, just as Draghi was making the aforementioned infamous “whatever it takes” speech. Of course, those were the “good old days” compared to today; as by all objective measures, Greece’s economic and social backdrop has dramatically weakened. Thus, the most likely outcome of the “snap election” process – commencing Wednesday, but incorporating three separate votes, the most important of which occurs December 29th; is the “anti-austerity” Syriza party achieving its goal of dissolving Parliament, yielding comprehensive 2015 elections that would likely put them in power. And as we wrote earlier this week, “anti-austerity” is a euphemism for “pro-default” and “anti-Euro.” In other words, the reason the Greek stock market plunged 20% in the past three days, and the Greek bond market nearly 30% is anticipation of an imminent “GrExit.”
However, what really gets my goat is this article – of how the Vampire Squid itself, Goldman Sachs is “warning” Greeks of the potential for a “Cyprus-style” prolonged bank holiday if they “vote wrong.” In other words, Goldman is playing its role as protector of the fiat Ponzi scheme it helped to create; in this case, particularly intimately, as it was their own accounting chicanery that enabled Greece’s debt to explode to unsustainable levels over the past decade. To us, such propaganda rings eerily similar to last month’s rhetoric from the modern-day “Lady Macbeth” herself – Thomas Jordan of the Swiss National Bank – in “protesting too much” the evils of linking the Swiss Franc to gold. Only this time around, it will fall on deaf ears; as unlike Switzerland, where a wealthy population of stock holders were led to believe the record-high Zurich stock market would crash if the referendum passed, Greece is one of the most impoverished “first world” nations, with a stock market down 82% from its September 2007 highs – and 38% this year alone!
Adding insult to injury, European banks are enormous swaths of Greece’s €400+ billion of sovereign debt, putting the entire European monetary system at risk. And thus, given that French banks have the most exposure to Greek debt, does it surprise anyone that Fitch downgraded France yesterday (Friday) afternoon from AA+ to AA?
As for the oil price crash, what more can we say except “2008 is back, with one temporary exception?” And even that “exception” – of PPT-supported stock markets – is becoming decidedly less exceptional; certainly in Greece and major energy-producing nations – and even the U.S., where following Friday’s bloodbath, the Russell 2000 is down for the year. Objectively, it’s pretty safe to say global stock markets have rarely, if ever been more overvalued; and now that the economy is in freefall, there’s no telling how “undervalued” they might become.
Incredibly, $550 billion of “high-yield” (read junk) bonds and “leveraged loans” lie beneath the quicksand foundation of the U.S. shale oil industry – in our view, catalyzed by six years of unprecedented Federal Reserve monetary policy. At Friday’s closing WTI crude price of $57.50/bbl., it’s estimated that less than 20% of all shale plays are economic – and likely, once sunk costs are factored in, less yet. Even the International Energy Agency knows it’s “game over” for the global economy, in averring that “oil price drops are sometimes described of as a tax cut and boon for the economy – but this time round, their stimulus effect may be modest.”
“Modest” indeed, as when all is said and done, our thesis that “2015 shale oil equals 2008 subprime mortgages” may, if anything, understate the carnage. And worse yet, this time around it’s not principally an American phenomenon, but one encompassing all high-cost oil production. Thus, when considering that just days from now, with sovereign bond yields crashing; “inflation expectations” down to 2008 lows; and the potentially devastating Greek elections; the fact that anyone believes the Fed will espouse “hawkishness” is beyond us. Heck, an incredible 80% of S&P 500 companies reduced their earnings guidance in the third quarter; and that was before oil prices plunged 25%, which will substantially reduce employment and earnings expectations in the sector accounting for a third of all U.S. capital expenditures.
Japan, too, faces “snap elections” this weekend – amidst Shinzo Abe’s record low approval ratings. But don’t worry, Abenomics lovers – as like the Swiss, Japanese investors have been “threatened” with falling stock markets if they don’t solidify Abe’s mandate – which I’m sure they’ll kowtow to, guaranteed hyperinflation notwithstanding.
Moreover, I don’t have time to discuss the ugly nation-destroying “Cromnibus” spending bill – which not only puts American taxpayers on the hook for hundreds of trillions of inevitable derivative failures, but was literally written by Wall Street. Or Austria joining the ranks of nations considering repatriation of the “barbarous relic” that is their overseas-held gold reserves. Or Andrew Maguire claiming “the paper and physical gold markets have fully broken apart…irreversibly.” Or the U.S. “economic lie machine” having the gall to publish the highest “consumer confidence” report in eight years – whilst not only U.S., but global economic activity and equity markets plunge. Or despite yesterday’s ugly market results, the fact that the blatant rigging of Wednesday’s trading activity – as described in Wednesday afternoon’s “desperation tutorial” – didn’t hold a candle to that of Thursday’s rigging; which, in turn, was dwarfed by Friday’s. Gold and silver DLITG – or “Don’t Let it Turn Green” algorithms, anyone?
I’ll eventually address all these topics in greater detail – assuming other more urgent ones don’t displace them. However, in the meantime, I want to focus on the end of the gold “bear market” – which I put in quotes, as global physical demand is at an all-time high, and the only reason prices have declined is unprecedented, illegal naked shorting by a Cartel desperate to maintain a dying status quo. By now, it should be crystal clear they’d sell their mothers to kick the can one last mile; and thankfully, that can has finally reached “the wall.”
Here in the States, where the collapsing global economy has yielded a liquidity surge to the zombified dollar, even history’s most vicious paper raids have not been able to push gold down. To that point, as of Friday afternoon, dollar-priced gold was up 1% for the year, having bounced off the “quadruple-bottom” level of roughly $1,180/oz. Reading the MSM or Wall Street research reports, one would believe gold was not only down, but miserably so. However, its 1% gain is barely below the 4% gain of the perpetually green “Dow Jones Propaganda Average” – and above the Russell 2000’s 1% loss. By the way, the average mining stock is down 20%-30% – but hey, how much more vehemently can we warn you of the dangers of “paper PM investments?”
Back to gold, we have for years written of how more than 95% of the world’s population views gold in currencies other than the U.S. dollar. And thus, when gauging gold’s progress, it’s important to do so through the eyes of the world’s 7.2 billion denizens – as opposed to just 300 million Americans. As you can see below, gold is not only higher in nearly all currencies this year, but in many cases, significantly so. The weighted average gold change of nations encompassing 75% of the world’s population is a positive 5% – with only one nation, Pakistan, in the red at all. And no, that’s not a typo; as Russian Ruble priced gold is in fact up 79% year-to-date – as you can imagine, to an all-time high.
In other words, the three-year Cartel orchestrated “bear market” representing its final desperate attempt to kick the fiat can is OVER. And given gold’s unique price inelasticity – i.e., demand increases with price – the odds of rapidly increasing demand from levels already at an all-time high have never been higher. Trust us, you do not want to live through what Russians are dealing with now. However, the odds are you will – at least, to some extent. And thus, the time is NOW to protect yourself in kind.