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Saturday October 25th 2014

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Brink’s Montreal – The World’s Best Precious Metals Storage Program

Following the 2008 financial crisis, Miles Franklin sought to create a unique storage program, encompassing all the positive aspects one’s “storage checklist” would require, whilst excluding the myriad negatives.  To that end, we pursued a situation where one could be 100% confident their metal was not just a “paper entry” on a computer; but alternatively…

  1. a real, fully segregated stash,
  2. within a non-financial institution,
  3. easily retrievable or saleable,
  4. amenable to American investors,
  5. verified by not just third party auditors, but Miles Franklin officers themselves,
  6. and priced not via the industry standard of percentage of bullion value, but fixed cost per ounce

It took several years of diligent research and negotiating; but finally, in late 2011, we found what we were looking for.  In our view, our Precious Metals storage solution with Brink’s Canada Limited in Montreal, Canada is the world’s best; and certainly, in the Western Hemisphere.  I wrote this article upon my initial visit to the facility in December 2011; and since then, we have diligently updated readers of the program’s progress, which has been significant.  To wit, we wrote this article when I sent my personal metal there in October 2012; this one in March 2013, when I visited the vault with our independent auditors; and this one in April 2014, when Bill Holter visited the facility.  The program has experienced substantial growth in its first three years, and we are proud to announce several new, highly incremental features that will not only improve the product for existing clients, but make it accessible to numerous others.

Previously, it was very difficult for non-Canadian clients to have their metal returned to them in Canada.  If an American had an account at a Canadian bank, the metal could be shipped to that bank for personal retrieval.  However, most Canadian banks no longer accept Americans clients – care of FATCA, FBAR, and other onerous U.S. government regulations.  Thus, for the average American (and other non-Canadian) client, the only way to retrieve one’s metal would be via shipment to their own country.  As one of the primary reasons foreigners send metal to Canada is the fear of future U.S. capital controls (myself included), we diligently sought a process for foreign clients traveling to Canada to retrieve their metal.  And as of now, we are happy to say we have found the solution!

To that end, one of Canada’s largest overnight shipping services has agreed to ship client goods to either clients or designated third parties (friends, family, etc.), anywhere in Canada.  Moreover, the metal is not only deliverable to personal residences, but hotels, businesses, and other addresses.

Additionally, we have an exciting new option for Canadian citizens, enabling utilization of the Montreal facility at a reasonable cost and convenience; as Brink’s has agreed to offer Miles Franklin Vault Clients yet another industry first in Canada – the acceptance of client metal at its drop off window near the Toronto airport, where it can be reviewed on site and promptly shipped to Montreal.  Moreover, Brink’s security personnel will attend you at the Toronto drop off location; and under specific circumstances, it can be arranged for a Miles Franklin employee to be present while utilizing the viewing room.  Moreover, through Brinks’ vast global network, clients can send metal to our Montreal vault from nearly anywhere in the world.

Conversely, Brinks’ “Toronto window” can be used to retrieve metal from the Montreal vault, upon prior request to Miles Franklin’s storage program administrators.  Furthermore, you can request to view your Montreal-stored product personally; as it can now be arranged for your product to be shipped directly to the Toronto shipping room, where a Miles Franklin employee can meet you to review your inventory, before having it shipped back to Montreal (additional expenses paid by client).

Finally, we are happy to announce the aforementioned fixed cost per ounce agreement has been extended to our clients through 2017 – for gold, silver, platinum, and palladium.  We are not aware of any other program in the industry offering this, and cannot overemphasize how valuable it may be.  As essentially all clients anticipate higher prices in the coming years – certainly by 2017 – the cost savings of static pricing could be substantial relative to the prevailing industry standard of percentage of bullion value.

The main reason to store one’s gold is protection, and we believe our Brink’s program provides as strong a level of protection as one can find anywhere.  And given that Miles Franklin’s principals not only keep their own metal there, but personally participate in audits, you can be sure that every effort is being taken to protect your assets, too.  On a personal basis, the reason I chose to ship my metal to Brink’s Montreal was that unlike other programs, I had not a shadow of a doubt that my metal was being safely stored, properly segregated, and regularly audited – not just by one of the world’s leading third party inspectors, but Miles Franklin officers themselves.  Frankly, given these enormously value-added factors, its unique pricing structure was just “icing on the cake.”

If you have any questions, please call us at 877-685-4705, or email me personally at ahoffman@milesfranklin.com.  And please listen to the fantastic interview I taped with Miles Franklin’s President and co-founder, Andy Schectman this week, in which we discuss the exciting new features of “the world’s best Precious Metals storage program.”

Manipulation of Gold And Silver In The Futures Market

Relying on information from other people, I inadvertently published incorrect information on precious metals reporting requirements. We at Miles Franklin are not providing tax advice. What I am providing is what we (or any Precious Metals Broker) are required to report on as of today’s IRS regulations. Each Individual is responsible for their own tax reporting obligations and should seek advice from a licensed tax professional.

Here is what We are required to report and file a 1099, per ICTA and our primary wholesalers.

  • 1000 oz. of any size .999 silver bars.
  • A full bag of junk ($1000 Face Value).
  • Any sale of gold bars totaling a kilo (32.15 troy ounces – or more).
  • 25 oz. or more of Gold Canadian Maple Leafs, Gold Austrian Krugerrands, or Gold Mexican Onzas.
  • 25 oz or more of Platinum bars.
  • 100 ounces or more of Palladium bars.

Bill Holter was at the New Orleans Investment Conference this week as the guest of Chris Powell and Bill Murphy. They hope to be able to get Alan Greenspan to answer some of GATA’s questions on the Fed and the manipulation of gold’s price. I’m sure Bill Holter will have much to say about this on Monday.

In today’s newsletter, I suggest that you read the following speech from GATA’s Chris Powell, as presented at the New Orleans Investment Conference yesterday. It should open your eyes “wide” about the Federal Reserve’s participation in the manipulation of gold and silver in the futures market.

I will follow this up on Monday with Bill Murphy’s (LeMetropole Café) speech on the same topic. I hope you find the time to read BOTH Murphy and Holter’s articles on Monday and Powell’s article today.

Also, in harmony with Powell’s presentation, don’t miss today’s presentation by Alasdair Mcleod in the Peak Prosperity article below. Here is a quote from that article:

Key market valuations are totally screwed up in a world of 0% interest rates and manipulated markets. If gold was alone in its extreme undervaluation, without a counterbalancing overvaluation in fiat-currency bond markets, something would probably be wrong with our analysis. The fact that this is not the case offers confirmation that gold is mis-priced and incorrectly valued in markets that have become divorced from reality.

-Peak Prosperity, October 22, 2014

Brink’s Montreal Storage Program – Interview with Miles Franklin’s President, Andy Schectman

Andy Hoffman speaks to Andy Schectman about the Miles Franklin – Brink’s Montreal Storage Program.     To listen to this interview, please click below.

Video: Brink’s Montreal Storage Program – Interview with Miles Franklin’s President, Andy Schectman

Pre-Election/FOMC Drama

On his weekly podcast, Andy Hoffman discusses the stock market, market manipulation of all markets, the 10-year Treasury yield, Obamacare, oil prices and the housing market.  To listen to the audio, please click below.

Download the Audio File: Pre-Election FOMC Drama

Video: Pre-Election FOMC Drama

2.2% Is the New 2.6%

It’s very early Thursday morning, in a historically manipulated financial world that has become an utter vortex of propaganda, ignorance and complacence.  As David Stockman put it yesterday, “there is a PPT, and it is the Federal Reserve.”  More broadly, the world’s “financial leaders” have become addicted to rigging everything from stocks to economic data to media coverage; as often as not, completely oblivious that what they are doing is not only wrong and ill-fated but destroying the lives of millions – if not billions – of people.  Yes, we like to portray “TPTB” consistently as if they are all sociopaths like Jamie Dimon – or for that matter, lesser “VIPs” like Jeffrey Christian.  However, many are simply weak-minded, intellectually-challenged, or too ensconced in a status quo benefitting their interests.  As I wrote three years ago in “Human Nature, Part II”…

Approximately 61% of U.S. murder cases are prosecuted, nearly all with a FINANCIAL motive.  Family, friends, and colleagues are the most likely to be murdered, nearly always with MONEY – either directly or indirectly, as the central issue; and nearly all of the 39% of unsolved murders are drug-related, i.e. due to MONEY.  Ditto for white collar crimes, such as the ones perpetrated by Washington and on Wall Street – as well as civil cases, such as the ones my wife and I watch constantly on “Judge Judy.”  Plain and simple, if financial gain is possible, by hook or crook, the average person will rabidly pursue it, particularly those in the greatest amount of need.

To that end, the only real difference between 2014 and prior eras are the bankers’ “tools” – or better put, “weapons of mass financial destruction.”  It’s far from the first time bankers have commandeered governments via lobbying and illicit “deals,” particularly during fiat currency regimes.  However, never before – in this case, commencing with the 1999 repeal of Glass-Steagall – have they had access to such massively disruptive forces as derivatives, off-balance sheet accounting and high frequency trading algorithms.  Or, for that matter, such a total ability to circumvent not only industry regulations but Federal laws.  In this particular case, as we travel through the terminal stage of history’s largest fiat Ponzi scheme, Central bank machinations have been deemed sacrosanct – not just for the “1%” that benefit from them but in the government’s eyes, the ambiguous, amorphous platform of “national security.”  And while most of what they do is clandestine, much of it – like QE, for instance – is not.

Day in and day out, “news” is produced to paint a picture conducive to financial markets – often with the day’s “meme” changing 180 degrees from the day before.  For instance, one day “good” economic news is cited for surging stocks and plunging precious metals under the guise that “all’s well”; whilst the next, “bad” economic news is cited for the exact same market moves as weakening economic activity is cited as “deflationary” for commodities, but wildly bullish for financial assets because Central banks will undoubtedly increase stimulus.  Forget for a moment the countless paradoxes incorporated into such reasoning – such as increased stimulus being bad for precious metals or expanding economic activity a negative for silver, the world’s second most widely utilized commodity.  The fact remains that right now, the only difference between 2008 and today is the one “temporary exception” of rigged markets; and all one requires to PROVE this is the knee-jerk reaction of multiple Federal Reserve Governors to last week’s “horrific” 9% decline in the “Dow Jones Propaganda Average” from its all-time high level – as discussed in “manipulation, jawboning, and prayer.”  Yes, they panicked – just as they have following each post-2008 “taper tantrum” – in intimating “moar” money printing; i.e., an Americanized version of Draghi’s “whatever it takes.”  The net effect, of course, will simply be more inflation, debt, and wealth inequality accompanied by weaker economic growth, currency wars, geopolitical tension, social unrest, and draconian government responses.  However, like rats on a sinking ship, they will always seek the high ground of money printing, rather than stand still and instantaneously drown.  At least the Titanic’s rats, in rushing to the upper decks, had hope of avoiding the worst case scenario.

Fortunately for the “99%,” the 1%’s prayers will not – and mathematically cannot – be answered.  Take, for example, the recent collapse in global crude oil prices.  TPTB desperately want to portray it as a result of “positive” factors like the U.S. shale boom.  However, like the paradox-riddled commentary noted above, such an explanation holds no water.  True shale oil has increased materially in the past three years.  However, per this chart, it has simply replaced declines in the rest of the world causing overall production to be relatively unchanged from a decade ago.  And as for demand, not only is it plummeting due to the expanding global recession – particularly in the world’s largest incremental consumer, China – but structural issues, such as the telecommuting trend that caused U.S. consumption to peak a decade ago.

To wit, the PPT may have manipulated stock prices back from last week’s lows; but in the real world, markets like crude oil are telling a decidedly different story.  As I write, WTI crude is trading at $80.50/bbl., down a whopping 25% in the past three months, barely above its pre-QE3 lows of mid-2012.

WTIC 10-22-2014

To that end, we weren’t kidding when we wrote last week that “collapsing oil prices portend unspeakable horrors” – such as the likely collapse of the rapidly depleting, heavily overleveraged shale oil industry.  And lo and behold, take a gander at this morning’s Yahoo! Finance “top story”…

Investors Pulling Money headline

Of course, today’s article is not focused on oil prices, but interest rates – particularly, the world’s most important rate, the benchmark 10-year U.S. Treasury yield.  Nearly six months ago, with the 10-year yield at 2.6%, we presciently warned of the “most damning proof yet of QE failure” – i.e., plunging interest rates despite not only a supposed “recovery,” but Federal Reserve “tapering.”  Simultaneously, we published “2.6% – ‘Nuff Said” – describing the Fed’s blatant, desperately manipulative attempts to support the 2.6% level that had formed a “technical floor” following the initial “taper” surge from the mid-1% range; ironically, mere months after executing the polar opposite strategy; i.e., doing “whatever it takes” to prevent the key round number of 3.0% from being breached to the upside (recall the “mysterious Belgian buyer).  In other words, the Fed simply reacts to each day’s new crisis – cumulatively, running around like chickens with their heads cut off.  This is why they smarmily speak of potential rate increases – albeit, not until a “considerable amount of time” has passed – when PPT supported markets are rising, but shift to panic mode when the PPT loses control, as occurred last week.

TNX 10-22-2014

Anyhow, not only was the Fed’s “war for 2.6%” decidedly lost last month, but we actually touched 1.9% last week before settling around 2.2% – i.e., the Fed’s “new 2.6%.”  Clearly, they have set up a new “line in the sand” at 2.2% level – just as they have at $1,250 gold and $17.50 silver – believing that somehow, if they can just contain these arbitrary levels, the PPT can successfully “do its “job.”  Unfortunately, as we learned last week, the “best laid plans” of manipulators don’t always work (and in the long-term, NEVER); and given the catastrophic, expanding plunge in global economic activity – let alone, commodities and currencies – the odds of manipulative success don’t appear to be too strong.

Holding precious metals this far below their cost of production in a year when clearly global production will end on a par with 2013’s record levels is in and of itself a powder keg waiting to explode.  But also trying to support historically overvalued stocks and bonds simultaneously, is in our view, a potentially catastrophic “recipe for disaster.”

This is why we sit and wait with our insurance against this inevitability – i.e., physical gold and silver; as no matter how hard they try, TPTB will not be able to hold off the forces of “Economic Mother Nature.”  Hopefully, you too will take such precautionary actions – and if you do, we hope you’ll give Miles Franklin the opportunity to earn your business.

The “Volatility” Fallacy

Today’s theme shouldn’t surprise you at all – of the horrific manipulation of every aspect of the U.S. economy and financial markets.  This month it has surged to unprecedented levels; first of all, ahead of the “all-important” mid-term elections; secondly, to “cover” the planned end of overt QE; and last but not least, to prevent what clearly was beginning to look like commencement of the end game.

Let’s start with yesterday’s “miraculous” equity and Treasury yield surge – and capping of gold, as it again sought to breach the Cartel’s $1,250/oz. “line in the sand.”  To that end, recall our commentary of how “conveniently” at the historic “key attack time” of 3:00 AM EST, a “rumor” that the ECB was considering corporate bond monetization emerged to “save the day.”  Throw in a healthy suspension of disbelief – in that not only should stocks and bond yields have divergent reactions to such news but higher than expected QE is the most PM-bullish news one could imagine!

By day’s end, the PPT had rocketed stocks higher; again, based solely on said ECB “rumor” on extremely low volume.  Let alone, the catastrophic earnings reports of bellwether stocks McDonalds and Coca-Cola – and widespread fraud allegations against the world’s largest subprime mortgage servicer, Ocwen Financial.  And as for PMs; Viola! Following “Cartel Herald” caps at 6:00 AM and the 8:20 AM COMEX open, and a subsequent raid at the 12:00 PM EST “cap of last resort,” gold was forced back below $1,250.  And wouldn’t you know it – the ECB “rumor,” despite making little if any sense – was refuted right after the close by the head of the Belgian Central bank stating, “We still haven’t had a serious discussion about the purchase of corporate bonds.  There is no concrete proposal for that on the table.”  Long-time PM owners are well-versed in this multi-pronged market manipulation “strategy” – as it has been ongoing for 15 years.

24hr Gold 10-20 10-21

Fast forward to this morning when rates again were falling – in the 10-year Treasury’s case, back below the Fed’s newest upside nemesis to 2.2%.  Lo and behold, just before the COMEX open, rates suddenly rocketed higher for no reason; in yet another example of the now daily “new Hail Mary trade” – i.e., the Fed goosing rates higher to prevent universal realization of the “most damning proof yet of QE failure.”  Irrespective, gold fought through relentless naked shorting to just under the $1,250 “line in the sand” at the COMEX open when the Cartel took more “draconian measures.”

Today was a very light economic news day, so the Cartel didn’t have much to work with in the way of “cover.”  And thus, they said “who cares?” – attacking at the 8:30 AM EST release of the rigged, cooked and generally mocked CPI reading.  Not only has the CPI report NEVER effected markets in any meaningful way (especially PMs, which are NEVER allowed to rise when it comes in hot); but in this case, it came in EXACTLY as expected.  However, as the Cartel has clearly “sold its soul” (and whatever miniscule inventory it still holds) for the short-term goal of defending $1,250, they did this immediately afterwards.

24hr Gold 10-22

Yes, the price plunged from $1,249 to $1,242 in one minute for no reason other than naked shorting to suppress prices.  Base metals, oil, and equities were flat and didn’t budge on the news.  ONLY gold and silver – the latter of which, as I write just before 1130 AM EST, is down a whopping 2%, per what we described in last year’s “irrefutable PM manipulation statistics.”

And this, despite yesterday’s U.S. Mint data depicting enormous Silver Eagle sales on Monday and Tuesday putting it on pace for its third-largest month ever.  In fact, following up on the violently bullish conclusions of last week’s “Miles Franklin All-Star Silver Panel Webinar” our good friends at Smaulgold and Sharelynx published this fantastic article – depicting the relentless explosive growth of global silver demand.

Look good and hard at the downward gold spike above – which frankly is so egregious even “waterfall decline” doesn’t do it justice.  Putting such manipulative blatancy into perspective, gold rose every year from 2001 through 2012, from $250 ounce to a (temporary) peak of $1,920/oz.  And during that time – at least, starting in 2002 when I started watching – I have NEVER seen gold rise in such a manner compared to literally hundreds of such plunges in most cases at the same two or three “key attack times.”

Frankly, there is so much ugly in the world these day it makes me very, very sad.  For example, the fact that 113 Federal Reserve staff members make $250,000 per year for doing nothing but destroy the American (and World) Dream.  Or that America relentlessly bombs the Middle East without a modicum of Congressional debate – in the process, handing $600 million weapon orders to General Dynamics, to be paid for with money printing and propagandized as “GDP” (not real GDP of course).  Or how about the news that Obamacare won’t release its 2015 premium changes until a week after the elections?  Gee, I wonder if they will be higher than 2014.  And finally, how about this ridiculously disingenuine Wall Street Journal headline – claiming the Fed, which is literally owned by the banks, and spends every second of every day supporting them is warning banks to “shape up or risk break-up.”  Yes, and pigs will fly as well.

Fed to Banks Headline

But most of all, I need to vent about the misuse of the word “volatility” – in some ways, butchered more horribly than even “inflation” and “recovery.”  To wit, for 12 years we have listened to “bad guys” like Washington, Wall Street and the MSM; and supposed “good guys” like precious metal trade organizations, newsletter writers and a particularly well known bullion dealer talk about everything from fundamentals to trading activity.  Volatility, by definition, means the odds of a large move in either direction are equal.  However, as noted above, gold and silver NEVER have significant upward movements – and even when sharply rising, they ONLY occur at the same time of day (the COMEX open) ALWAYS capped by the aforementioned “Cartel Herald” algorithm.  Conversely, there are no limits to the amount, depth or viciousness of PM price declines.  As for stocks, the polar opposite is true – as they are NEVER allowed to materially decline; are constantly “goosed” higher, and have a constant backstop of both PPT buying and relentless propaganda.

Yesterday, I posted this graph depicting higher “fear” in the markets (as measured by the VIX volatility index) than even the 2008 peak.  The fact that the “Dow Jones Propaganda Average” actually fell for more than one day in a row is a miracle in and of itself – and at its worst, was down 9% from its all-time high (just 5% now); with its worst intraday decline being just 2.7% for a whopping five minutes before the PPT more than halved such losses with a patented “Hail Mary” rally.

Since then, the PPT has staged four straight days of prototypical “dead ringer” algorithms with a fifth currently in the works – so powerfully overwhelming the market with computer programs, volume has dramatically plunged.  Most damning of all, for the first time ever, the VIX had three straight days of double-digit declines!  And don’t forget Treasury bonds, which also benefit from “QE to Infinity,” soaring to record highs despite the poorest fundamentals – and most egregious overvaluation – in fixed income history.

5 Charts

Not so for precious metals, of course; which day after day, week after week are subjected to unrelenting “Cartel Herald” caps, “waterfall declines” and every trick imaginable – such as the relentless mauling of mining shares – to make sure price, or even momentum increases are averted.  And all the while, the gold and silver supply outlook plunges, and demand rockets from record high to record high.

Total Chinese Gold Reserves

Russian Gold Reserves

So please, let’s stop kidding ourselves with the “volatility” fallacy – particularly as relates to silver, which has been so brutal attacked for so long, it has become “common knowledge” that the commodity with perhaps the most bullish (and stable) supply/demand pictures is “wildly volatile.”  My friends, the only reason this is so is because TPTB are so terribly fearful of it – knowing full well it is the “financial world’s Achilles Heel.”  Thus, we cannot be more vehement in our view that its risk/reward trade-off has never in history been more favorable – particularly as at any time, on any day, history’s most maniacal suppression scheme could abruptly end permanently.

Miles Franklin Q & A: Demand for Physical Silver Is Very Strong

Q:  Hey there, I’m a worker in the Alberta oil sands but live on the east coast of Canada, I worry about how the “patch” will be effected by a U.S. currency reset/revaluation as it’s so tied into the US economy as well as the rest of Canada. Also it bothers me being so far away, when I’m out at work, for my family if this were to go down while I’m away. Your thoughts please as I am a long time reader and respect your insight.

Bill Holter’s Answer:

These are different questions from the norm but very good nonetheless.  First, Canada will probably follow economically the fate of the U.S.  The question on oil is a tough one, does it drop in price because demand softens with weaker economies or does it strengthen as an inverse move to weak currencies?  Also, being in the oil sands area, a lot will depend on their breakeven.  Lower prices mean you may be out of work while higher prices may mean you are working when many others (in other professions) are not.

As for you question of “distance” from your family, you are not going to like my answer.  I believe it is very possible for many areas to close outright in the midst of a reset, transportation included for a time.  You are 2,500 miles from your family and cannot stock enough gasoline in a car to make the trip, if airlines, trains and buses are not running for a spell, you will be stuck.  There is no getting around this possibility, you may want to keep a few ounces of gold on hand with you as a way to “pay the fare” back home.  I would have the metal in smaller denominations like quarter ounces and 1/10ths as these may get you 100 to 200 miles at a time.  Don’t laugh at this, Jim Sinclair has said on many occasions he will not travel without gold.  Gold will “spend” when nothing else will, it got many out of Germany and harm’s way when it counted.  A few ounces can probably get you across Canada when nothing else will.  Hope this was helpful.

Q: Why isn’t the price of gold higher? With China purchasing 68 tons last week, Bill mentioned this is evidence of high demand taking advantage of weak prices. My first assumption was that the 2,200 tons of gold mined each year was essentially the same as the FED printing currency. But then I remembered that there is a finite supply of physical gold (I guess there is a finite supply of paper too). According to the USGS there remains 54,000 tons of gold yet to be mined. Assuming the world produces 2,200 tons per year as Bill mentioned, that leaves approximately 25 years until the world’s gold reserves are exhausted. What is keeping the price of gold so low?

Andy Hoffman’s Answer:

Actually, 2700 tonnes are mined each year, but I’m not sure I understand the connection to Fed money printing.

As for “why” gold is not higher, it’s not like China’s 68 tonnes purchase last week was an anomaly.  They have been buying at record amounts for years, as has the world at large.  The “reason” gold prices are lower – albeit, less so in dollar terms than other currencies – is due to manipulation.  Part of this game relates to naked shorting (selling what doesn’t exist) on paper exchanges like the COMEX and LBMA, which we speak and write of each day.  The other part is the secret dishoarding of Western Central bank inventory via leasing, swapping, and unreported sales.  Simple math proves this to be true – much less, the reams of evidence presented by GATA, the Miles Franklin blog and countless others over the years.

Fortunately, as you note, gold (and silver) supply are finite – and all signs point to such “finality” being at the verge of being realized.  Remember, we don’t “invest” in PMs, but “save” in them for the long-term.  Personally, I think the “long-term” will be a lot shorter than most can imagine; but in the meantime, my metal just sits and waits for reality to re-emerge as it always does.

Benefit Of The Doubt

The argument of “stock versus flow” has been debated from many angles and across many asset classes.  The most heated may be in the gold and silver bullion categories.  I’ve written on this topic before and I’m sure I will again but for this exercise I want to talk about U.S. stocks.

Zero Hedge put out a piece on Monday reporting that JP Morgan says liquidity has dropped 40% in the S+P E mini contract.  The study looks at “depth” of both bids and offers, this is now drying up, in fact, the ramp upwards was performed on continually lower volume.  Not exactly a confidence builder as volumes dried up out of, well, lack of confidence.  Without spending a whole lot of time on this, suffice it to say “liquidity is the blood of life” as far as the markets are concerned.  Without it or when liquidity decreases, accidents tend to happen.  “Accidents” in this case are when the markets move violently which affects a good part of the $1.4 quadrillion in derivatives.  Big moves in either direction can affect the standing of these derivatives as for every winner there is a loser.  The problem arises when a loser is so crippled they cannot perform (pay) on their losses.

The above is a very basic synopsis of the “what,” the important thing right now is the “why.”  Why is volatility increasing?  Why has volume and liquidity decreased so much?  There are two basic reasons, first the global economy is slowing at a time when debt is a bigger percentage of financing than ever.  Debt service must be paid whether good times or bad.  It just happens that right now we are seeing a global slowdown which leaves less free cash flow available whether it be a sovereign, corporation or individual …money is tight so to speak.  Secondly, the Fed has reduced their “free money spigot” called QE by $75 billion per month down to only $10 billion per month.  This is slated to drop to zero next month.

I guess the best way to explain this is the financial system got “used to” an extra $85 billion per month sloshing around.  By no longer providing this, the Fed, even though not actually tightening credit conditions …are tightening credit availability.  What we now see happening is the economy must stand on its own without any help from the Fed, it’s not working very well and this is what the markets are telling us.

Shifting gears just a little bit, we recently saw as a reaction to the lessening QE, a stronger dollar.  Scared capital sought safe haven and did so into the dollar out of “habit” because that’s the way it’s always been.  Fear capital has always (during our lifetimes) fled into the dollar because the U.S. had a history of a strong rule of law and stable politics.  Do we still have a strong rule of law?  Are we politically stable as we once were?  I personally don’t think so but this topic is for another day.

What I think we will soon see is this “fear capital” will soon leapfrog the dollar altogether and arrive as a bid into gold and silver.  Gold and silver have no “politics” and the rule of law is “whoever possesses it holds value.”  Simple right?  Yes, but think this through all the way.  We are headed through the gates of hell if (when) the Fed must announce another round of QE.  QE is pure monetization, deep down everyone knows (and have known all along) that QE will not work and is nothing more than printing money out of thin air.  It hasn’t worked, it won’t work and it can never work.  All it did was buy “cover” or time in the hopes of something coming along to magically fix the mathematically unfixable problem.

The “problem” as I have said all along is one of solvency rather than liquidity.  This I believe will be understood whenever the next QE is announced.  The “solvency” I am talking about here is that of the Fed and the U.S. which is why the “safety” of the dollar will be shunned on the next go round.  I wrote years ago that “all roads will lead to gold and silver.”  This is as true today as when I first wrote it back in 2008 …with the exception the “road” is now much much shorter!.  The road is shorter because every “tool” in Ben Bernanke’s (now Yellen’s) toolbox has already been taken out and used …to no avail.  People “wanted” to believe they would work because of the alternative if they did not.  The Chinese were content to sit back and let us play the paper games while they filled their vaults with our gold, how much do you suppose is left?  You will know the answer when one day our markets do not open for “business as usual.”  No tools, no White Knights, no flight into dollars …no more “benefit of the doubt.”  We have lived in a “benefit of the doubt” world for quite some time, once this runs out, capital will arrive to that last asset standing of no doubt …real money.

Changing Of the Guard

When we wrote the world is “coming apart at the seams” last week, we weren’t kidding!  Watching Western “manipulation mechanisms” blatantly attempt to prevent universal realization that we have arrived at “2008, with one temporary exception,” it could not be clearer how close the end game is to arriving in full force.  Yesterday, for example, as global stocks and sovereign yields plunged to new 52-week lows, the U.S. manipulators came in with a vengeance – at the same 10:00 AM EST “key attack time” as usual; i.e., when physical precious metal markets close and the Fed executes its daily “permanent open market operations.” Subsequently, gold was stopped by a prototypical “Cartel Herald” algorithm at its month-old “line in the sand” at $1,250/oz.; whilst the “Dow Jones Propaganda Average” reversed a 100-point decline via equally prototypical “dead ringer” algorithm; and, last but not least, the Fed instituted its “new Hail Mary trade” – of boosting plunging yields to prevent universal realization of the “most damning proof yet of QE failure.”  Commodities and currencies crashed nonetheless, and not a shred of positive news was to be seen.  Only propaganda as far as the eye can see, such as this horrific sign-of-the-times – of a President lying in Orwellian fashion.

3 Charts 10-21

Clearly, market manipulation has taken an exponential step forward on its inevitable crash course with catastrophic failure.  The moral hazard created is simply astonishing; as just before October’s carnage, the remaining “hedge bombs” were more equity-long that at any time since the 2007 top – at valuations challenging their highest ever, amidst the most dangerous geopolitical, economic and financial environment in decades.

Zero Hedge

Median Price Cash Flow Ratio

By early this morning – again, with no news of note – yesterday’s PPT failures were in full view for the world to see.  European and U.S. stock futures were plunging anew, the benchmark 10-year Treasury yield was again down to 2.15%; and gold had again breached $1,250/oz., having avoided the “2:15 AM” raid experienced on 90% of all trading days.  But then, “magically,” another “rumor” saved the day – that the ECB was not only monetizing sovereign and mortgage-backed bonds but considering corporate bonds as well.  Frankly, I could not think of a more insane idea – or moral hazard – particularly as corporate bond yields have already been taken to record lows by Central bank rate repression.   I mean, what are they going to do that hasn’t already been done already – buy bonds of Portugal’s Espirito Santo?  The “rumor” was immediately refuted, of course – but not until the aforementioned trio of “manipulation operatives” did their dirty work.  The chart below of Germany’s DAX index depicts the German time zone; and thus, all three charts equate to 3:00 AM EST – which, FYI, was the Cartel’s standard “key attack time” until it “backed up” to 2:15 AM two years ago.  Yeah, I know, markets can’t possibly be rigged.  So I guess that the estimated $41 billion of bank fines for market manipulation are just a figment of our imagination?

 

3 Charts 2 10-21

Remember, we only go to so much detail in describing such manipulation to educate of the reality of “financial markets” – and of course, that precious metals have never been more undervalued.  The fact is fraudulent “markets” have never been further separated from the real economy or traditional valuation metrics; and given “Economic Mother Nature” never loses, it’s only a matter of time until said reality arrives with a vengeance.  Not that she hasn’t already – in countless, less expertly manipulated markets the world round.  But ultimately – likely, sooner rather than later – her presence will be felt everywhere; particularly at the “epicenters” of global economic destruction – America, Europe and Japan.

Which brings me to today’s very important topic, as memorialized by four side-by-side MSM “top stories” yesterday morning.

Top News Stories

Yes, “deflation” certainly is a problem – but only for the “1%” privy to the Fed’s unfettered free money, as the aforementioned “manipulation operatives” that support the markets they invest in are being overwhelmed by reality.  As for the global cost of living, it has never been higher – particularly in light of multi-decade lows in real income in most Western nations.  And while the clueless MSM spends its time focusing on the “relief” consumers feel that lower gasoline prices are causing – as a tiny sliver of their costs decline; they conveniently ignore the “unspeakable horrors” crashing oil prices portend; much less, the massive unemployment surge it will catalyze here in America – as one of its only booming businesses, fracking implodes.

Which brings us to our main point – that not only is “de-dollarization” rapidly draining the cancerous dollar’s “reserve status” but America’s lack of global competitiveness, declining entrepreneurship, and socialistic embrace has accelerated this inevitability exponentially.  To wit, it’s one thing when its largest most iconic technology company – IBM – impales itself on the altar of financial engineering (MUST READ article by David Stockman).  However, we are talking about a “parade of failure” from a broad list of America’s top companies, including last month’s earnings horror from Amazon.com, last week’s from eBay and Wal-Mart, and today’s from McDonalds and Coca-Cola.

In July’s “need versus want, demand is dying,” we wrote of how not only are “want” vendors like Amazon.com are suffering dramatic sales declines, but “need” purveyors like McDonalds and Wal-Mart – the latter of which, sadly, actually cites government reductions in food stamp payments as a significant contributor to revenue weakness.  However, given the ongoing parade of corporate titan’s falling off the wagon, even the most jaded propagandists are having trouble citing “non-recurring issues” – like food stamp reductions, “the weather” and others.

Clearly, a slew of coalescing factors are contributing to the American corporate decline – not the least of which, as directly cited by Coke this morning, is the “strong dollar” we have screamed for months about.  As we predicted, the Fed itself warned of the ramifications of a strong dollar in their (retroactively doctored) FOMC minutes last week as it strives to “win” the unwinnable “final currency war.”  Effectively, multi-national corporations are negatively impacted by both “strong” and “weak” dollar movements, in what we deem the “single most precious metals bullish factor imaginable.”  In other words, extreme currency volatility – the hallmark of fiat currency regimes – is catastrophic to corporate earnings (and planning).  And thus, until real money returns, they will continue to be enveloped by this horrifying financial storm.

The fact that WMT, MCD and KO are all components of the Dow Jones Propaganda Average only increases PPT stress – stacking the odds further against their ill-begotten, world-destroying plans.  As noted yesterday, the world’s greatest debt enabler – Visa and most notorious financial mobster – Goldman Sachs are now the two largest representatives of America’s most prestigious equity index.  And if that doesn’t describe how rapidly the “guard” is changing – for the worse – we don’t know what does.

Actually, we do – as the global secession movements resultant of decades of financial repression gain momentum.  Last month’s Scotland independence referendum was just a “shot across the bow” – to be revisited November 9th when Catalonia, Spain votes whether to secede from Spain, taking with it a quarter of the hopelessly socialist nation’s tax revenue.  And don’t forget the rapidly approaching date of potential destiny, November 30th – when Swiss citizens vote whether the Franc should be re-linked to gold to the tune of nearly $100 billion worth at current prices.

To that end, given this morning’s headline – while simultaneously, the GLD ETF’s inventory plunges to a multi-year low – you can bet TPTB are in near panic mode.

Swiss Gold Poll

Yes, friends, a “changing of the guard” is indeed at hand.  If the Swiss do in fact vote “yes”; mark our words, the big bad “New York Gold Pool” will immediately suffer the fate of London Gold Pool in 1968, and all other efforts to suppress real money throughout the centuries.  And thus, we ask, do you want to be on the right side of this generational trade – or the wrong side of history?

The Fed “IS” the Problem!

As I wrote yesterday, markets have become schizophrenic and volatility has exploded.  It is obvious the uncertainty regarding “QE” (monetization) is at the heart of this renewed volatility.  I do want to mention and remind you of past crashes and vicious bear markets, they ALL have seen big volatility (in both directions) prior to the collapse.  1929, 1987, 2000, 2008 …they all experienced big swings in the market prior to the big declines, this is what I believe we are experiencing now.

Before getting to my topic “the Fed IS the problem,” I want to remind you how we have gotten here.  Back in 2008, we had both fiscal and monetary stimulus as the policy response to dysfunctional markets and a shrinking economy.  You might remember Hank Paulson talking about his “bazooka” TARP plan while the Fed was lowering rates furiously and even lending $16 trillion secretly.  They threw the proverbial kitchen sink at the problems.  The problems did not go away nor were they fixed, they were only postponed.  The postponement date now seems to be upon us as the end of another QE nears …or another round must begin.  Can the U.S. Treasury pump more fiscal stimulus without spooking the bond market and exposing insolvency?  Who will buy another “1 off” stimulus plan?  If the answer is “no one” then it will fall solely on the shoulders of the Fed.  Do you see where this goes?

The Fed is literally backed into a corner.  They have to reflate the system yet they themselves are stretched more than any monetary entity in history.  They are levered at nearly 80 to 1.  This means the Fed can only withstand a 1.25% loss on total assets before their capital is wiped out.  I have a question for you, do you really believe the Fed has not ALREADY lost 1.25% on total assets?  Please remember, they “absorbed” the “crappy” assets after the 2008 debacle.  They were buying bonds from banks in order to get the assets off of the books of the banking system …so that the system itself could pretend to still be solvent.  Do you remember when some of these assets were offered for sale and the auctions immediately pulled because the bids were coming in UNDER .20 cents on the dollar?  Do you suppose on their entire book of business there actually is any equity left?

The answer of course is no, the Fed is most probably already insolvent and has been since their last white knight, “lender of last resort” exercise.  What I am trying to point at here is there cannot be another crisis like 2008 because there is no longer anything left big enough to reflate the system.  The Treasury doesn’t have the might and neither does the Fed.  Herein lies the problem, everyone has looked to the Fed since 2008 to save the system.  Everyone has relied on the Fed to create “the bid” so to speak, the saying “the Fed’s got your back” comes to mind.  But here they are with a severely crippled balance sheet, a history of 4 rounds of QE (plus the secretive $16 trillion) and …the markets are beginning to test them again.

Understand what I mean by “testing.”  The markets are throwing a temper tantrum and want “more” liquidity, can the Fed really do it?  Yes, technically yes they can but only by wrecking an already wrecked balance sheet.  The next question is what happens if it doesn’t work?  What happens if the selling does not abate?  What happens if the markets actually realize that QE has done very little to reflate the real economy and all of the accounting tricks have been used up?  What happens if speculators go on the attack and call the Fed’s bluff?  Who will step up and save the Fed?

No one of course will or is able to rescue the Fed.  Possibly the Chinese “could” rescue the Fed, but would they?  I believe you already have your answer by Chinese actions over the last 5 years.  They have set up currency swaps all over the world and signed trade deals directly with U.S. friends and foes alike, they have been preparing for this for a very long time.  There are of course even bigger problems for the Fed than just what happens here in the U.S., they must support all banks far and wide within the “dollar system.”  Immediately, 4 German banks currently come to mind.  The European stress test out at the end of this week will be an interesting whitewash.

I mentioned above that there cannot be another crisis like 2008 …which is why you have seen markets do things over the last 3 years they have never before done in history.  The entire game has been rigged and the charts painted to preach the picture of “control.”  This is now changing, “something” is and already has obviously changed.  “Control” is definitely beginning to slip away, otherwise you would not see this much volatility.  You see, volatility is now a very VERY bad thing because of the amount of derivatives outstanding.  Outsized volatility can very easily turn a (so called) solvent bank today …insolvent by tomorrow morning.

The main point I am trying to make here is that the solvency of the Fed itself will be questioned during the next crisis …which looks to already have begun.  Either the Fed gets these markets calmed down or “under control” …or, I believe the markets will begin to question the Fed’s “all-encompassing power.”  The Fed “IS” the problem, my only question is when will speculators take them on?  Another announcement of further QE will probably do the trick.

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