The revelation over this past weekend by Hypo Alpe-Adria has been called by some as Austria’s “Lehman moment”. This may very well be on a micro scale, I believe it to be the Credit-Anstalt moment on a macro scale. If you recall history, Austrian bank Credit-Anstalt was the first domino to fall in 1931 which spread across the globe and tipped the banking system into default mode.
There are many similarities to the world today as compared to that world of 1931. Debt had become prevalent leading into the stock market panics of 1929. Margin debt had exploded and caught many offside just as it did in 2007-2009. The more recent episode had even more leverage via the use of derivatives, I point this out because the “leverage ratios” are far higher today than they were 80 years ago.
The world was also in the midst of currency wars. Back in the 1930′s, the global economy had slowed (just as it has today) and consumption was not keeping up with production. This same anomaly exists today in the zones (think China and Asia) where production has been moved to lower costs. What happened in the 1930′s was considered a time of “beggar thy neighbor”. Countries purposely weakened their own currencies in order to undercut the sales price of goods produced by other countries. This morphed into trade wars and ultimately WW II. Other similarities were the fact that after 1929, unemployment rose, economic activity slowed and the financial sector was being squeezed with weakening and defaulting loans. Current day by no means is a carbon copy to where it was back in 1931, but there is a definite “rhyme” to it.
So, what exactly does the current “Hypo moment” mean? For one thing, it means that nothing was really fixed from the last episode. If “things” were good and getting better, how could a bank which was recapitalized (at the bottom) …fall even further? The answer of course is the economy and financial systems are not “better”. As I have tried to write all along, the problems were glossed over and dead bodies swept under the rug. Hypo, is simply the tip of the iceberg and a harbinger of more, similar things to come.
I would be remiss if I did not mention one major difference between the 1930′s, the days of Lehman collapsing …and now. The most dangerous “cure” undertaken in 2008 and onward is governments and their central banks putting their own balance sheets on the line. You see, this did not happen in the 1930′s, if a bank went bad …it went under. Yes, captains of industry did make efforts to save things but the federal government largely stayed out of it. Not so today. Almost nothing was allowed to go under up and until Lehman was “allowed” to fail. No one (very few) dreamed how quickly and completely credit dried up after Lehman failed. THIS is the reason nothing else was allowed to fail afterward, fear of a domino effect taking everything with it.
Last year, the U.S., Europe, Britain, Canada and others all figured out they could not go another round of bailouts. It is not that they had a come to Jesus moment and decided to let losers, lose. No, these governments ALL figured out the simple math they could no longer AFFORD to bailout insolvent institutions, especially the behemoths. This is why the legislation of “bail ins” came forth. But, there is still a big problem with governments allowing market forces to cleanse bad debt and bad banks … the size and scope of the losses involved!
I am not just talking about the size of the losses although this is certainly important. No, I am speaking of the “number” of losses and what “investors” will then decide to do. Allowing bail ins to occur will mobilize investors in a hurry. Once people figure out they are creditors of their bank, they will begin to move. Even though the bail in laws were passed last year, publicized and known about …no one cared because it hadn’t happened to anyone. This will now most likely change with Hypo and people will see a real case of real losses!
A move to “safety” is what we should begin to see shortly. The previous moves had been that of moving to yield because very little was available. Safety, or “risk” did not matter because no one was ever allowed to lose. This of course has changed with the Hypo moment. If made to wager, the Hypo moment may be very much like the Lehman moment in that it may be the last insolvency allowed. This is a very hard one to call because both choices lead to the very same “death” though by different means. We can go the route of bail ins where depositors are spooked into bank runs all over the world …or, resume more bailouts and fund them with QE.
In reality, the original questions back in 2008-09 have not been answered nor really even addressed. Nothing has been fixed, nothing has improved and truth is, nothing has changed. The question, or more to the point the reality of “inflate or die” is still there. Though we watched this fade into the background by the “inflations” of the various and global QE undertakings, the choice must be again made …inflate (again) or die… which poison will be chosen?!
This is a very interesting crossroads because given the choice, inflation will be chosen and thus further currency debasement and destruction. The problem is deflation continues to gnaw away at bank “assets”, Hypo being the first admission. If there are losses taken and “creditors” made to pay, masses will decide they do not want to be in “creditor status”. Bank runs will (and the sale of all sorts of financial credits) follow. The global banking system will become unfunded so to speak in very rapid fashion. All this boils down to is one very simple choice, “choosing your poison”. The only question remaining is whether the choice is allowed or do market forces rule and decide for the central bankers?
What does this mean to you? It means you need to decide whether you want to be a creditor, or whether you want to be an asset holder. Currencies, and the institutions that “hold them” for you will be weakened and “run”. Your obvious alternative is to become your own bank …holding real money that cannot default. The key to this game is not to be defaulted upon. The only way to do this is by having no counterparty risk to your account nor your currency. Gold in hand is your obvious solution, this decision will be obvious very soon.
It’s Monday morning, and a slew of things are on my mind; as the pitched battle between the “unstoppable tsunami of reality” meets headlong with the most relentless, all-encompassing market manipulation in the history of mankind. More on that in a moment; but first, some thoughts about random, but integrally connected topics from the wide world of “horrible headlines” – starting with Andrew Maguire’s weekend comments about the new “Beijing Fix” and associated physical exchanges, which appear likely to commence within weeks.
I briefly touched on this topic in yesterday’s article; but following several emails from readers, wanted to clarify my view further. Which is to say, that unlike the 2012 failure of the proposed Pan Asian Gold Exchange, these developments will decidedly go forward; and unquestionably, will make it more difficult for the paper gold Cartel to hold down physical prices. However, despite the fact said reality must eventually win the day, it is difficult to say just how much impact these new institutions will have, or how long it will take until they “matter.” Thus, we would advise readers to simply “watch and wait” for the “Beijing Fix’s” impact; knowing, of course, that “in due time” the world’s largest gold buyer (and producer) must set global prices.
In yesterday’s article, “The Big Apple,” I wrote of how Apple, starting next month, will produce one millions units per month of its new iWatch, which contains two try ounces of gold. Myself a career Windows user, my wife and I recently purchased an iPad and iMac irrespective; and consequently, went to the local Apple store yesterday to ask some technical questions. Not that many reader haven’t experienced this already; but even I was floored to see a tiny retail store with 30 fully engaged employees, whose employer is assuming global technological leadership in a manner matched only by fictional companies in futuristic sci-fi movies. Whether Apple can maintain this momentum is unclear, of course. However, for now it is undeniable that its technology is as cutting edge as it is popular. And thus, when considering that the piddling 12 million iWatches per year Apple intends to initially sell accounts for a whopping 30% of global gold production, it’s mind-boggling to think of the impact it could have on global monetary trends. Ironically, Precious Metal bulls always considered industrial silver demand to be a potential “straw that broke the Cartel’s back”; which it still might be, by the way. However, if the iWatch even comes close to Apple’s expectations, it may well be the world’s most “un-industrial” metal that does the trick!
Next up, we have the ongoing Greek saga; which worsens with each passing day, as the “countdown to Grexit” draws perilously nigh. This weekend, Greek leadership engaged in vicious verbal warfare with its PIIGS counterparts in Portugal and Spain, who are desperately attempting to isolate Greek’s problems from their own, equally dire situations. To that end, the ink isn’t even dry on the so-called “deal” Greece signed with the European “troika” (now called “the institutions”), and Greece and Germany appear to be in their own all-out verbal war. Clearly, Greece has no intention to abide by the so-called “austerity” terms written by the Euro Group itself; and frankly, is more likely run out of cash within weeks, let alone four months. Which is probably why Greek stocks and bonds are plunging; led by, the “world’s most insolvent financial institution,” the National Bank of Greece, whose stock is down from $1.94/share when the aforementioned “deal” was announced last week, to $1.38 this morning.
Meanwhile, per the “revenge of the people” forecast from my “2015 predictions” Audioblog, the Catalonian secession movement is indeed gaining momentum; which is probably why Spanish credit spreads have widened ever more than Greek spreads. Following November’s Catalonian secession referendum – which despite being deemed “unconstitutional” by Spain’s government, passed by a whopping 81% to 4% vote – the Catalonians are moving forward full force toward their goal of seceding; which in doing so, would take 25% of Spanish GDP and tax revenues. Apparently, Catalonia is setting up its own tax system and diplomatic corps, in advance of an expected “snap regional vote” on secession September 27th. And we assure you, if when this motion is decidedly passed, Catalonians won’t care a whit what the Spanish government decrees.
Tying this European tragedy together is this weekend’s developments in Austria; which following last year’s near-collapse of the so-called “conservative” nation’s largest bank; and last month’s ugly, potential bankruptcy-portending plunge in the stocks and bonds of its third largest bank; reported that its equivalent of America’s “Resolution Trust Company” of the 1980s is massively undercapitalized. And if it indeed is – which is most likely the case – Austrians may well get a taste of the new “bail-in” charters written into their law. But don’t worry, we’re told; as clearly, Zero interest bearing deposits; in “bail-in-able” banks; in countries hyper-inflating their currencies – are clearly superior to gold and silver coins and bars.
Next up, one of my “favorite” topics; i.e, the “unspeakable horrors” crashing oil prices portend. To that end, I have vehemently written of how oil prices must significantly decline given the historic, expanding gap between global supply and demand – not to mention, record global inventories that with each passing weak, grow larger. U.S. inventory alone is at an 80-year (all-time) high, and the Gulf of Mexico is literally teeming with tankers full of oil, but no place to go; which is probably why the Baltic Dry Index, which started trading in 1985, is at an all-time low. This weekend alone, we learned that Saudi Arabian production hit a new multi-year high, whilst Iraq forecast significant production increases next month. Meanwhile, the Cushing (Oklahoma) supply terminal is nearly filled to capacity; and with global economic data in freefall, it’s only a matter of time before it’s 100% full.
Moreover, Friday’s catastrophic Chicago PMI report – depicting a February plunge from 59.4 to 45.8 (a level not seen since October 2008) – was nearly equaled by this morning’s Canadian Manufacturing PMI freefall; from 51.0 to 48.7, a level last seen in 2010. Thus, the demand side of the equation is just as ugly as the supply side; And yet, for the fifth straight day, the new “oil PPT” defended the $49/bbl WTI level that has been deemed its “line in the sand” for the past month, causing it to again bounce from EXACTLY $49.00/bbl, at EXACTLY the same 10:00 AM EST period when stocks typically bottom (via the PPT’s “dead ringer algorithm”) and paper PM prices top. Yes, 10:00 AM EST; which despite the “end of QE,” appears to remain “business as usual” for the Fed’s “open market operations.” Which just happens to coincide with the close of global physical gold and silver trading; and lately, the commencement of the “oil PPT’s” goosing operations.
Speaking of which, last night almost broke a streak of 88 “Sunday Night Sentiment” raids in the past 89 weekends. That is, until another “Cartel Herald” showed up at 11 PM EST; followed by another when gold rallied EXACTLY 1.0% into the “2:15 AM” EST open of the London pre-market paper trading session; another at EXACTLY the 8:20 AM COMEX open; and a fourth at exactly 10:00 AM EST, following a slew of horrific economic data. Apparently, China’s surprise weekend rate cut is not bullish for Precious Metals; even when, as I write, nearly every global currency is in freefall, and the “dollar index” on the verge of taking out its 12-year high. And again; NO, said “dollar strength” is not due to U.S. “recovery,” but global fear that the “big one” is upon us – causing capital to flee to liquid assets like the dollar; and oh yeah, gold in essentially every currency but the suppressed U.S. dollar gold market.
As for said data, it’s hard to believe anyone doesn’t realize the U.S. is deeply mired in recession at this point; as essentially all data – aside from “island of lies” NFP employment reports – are not just weak, but contracting. To wit, this morning’s February personal consumption report came in at negative 0.2% (compared to expectations of unchanged), whilst February construction spending came in massively lower than the predicted, meager 0.3% gain; instead, printing negative 1.1%. Finally, the “PMI” and “ISM” Manufacturing Indices came out simultaneously; in true, “economic data is meaningless fashion,” depicting one rising, and one falling. Of course, the one that rose (the PMI version) reported its lowest employment component in eight months, making one wonder exactly how it could have “risen.” And in the aftermath of this global political, economic, and social misery, how did the “markets” react? Why, oil bottomed at $49 and surged above $50; the “Dow Jones Propaganda Average” surged to an all-time high; all of gold and silver’s overnight gains were erased; and, last but not least, the Fed’s own “PPT” operation of holding the benchmark 10-year Treasury yield above 2.0% (to prevent universal realization of the “most damning proof yet of QE failure“), whilst all other global yields (except Greece) plunged was executed in prototypical fashion. All, of course, at EXACTLY 10:00 AM EST. And don’t forget, the aforementioned, historic dollar surge intensified, yielding instantaneous inflation for billions worldwide, despite the so-called “deflation” major Central banks like the Fed, ECB, BOJ, and PBOC so desperately “tilt” against. And capping the lunacy off; yet another moronic article by the “Fed’s mouthpiece” – Jon Hilsenrath of the leading MSM propaganda outlet, the Wall Street Journal; which, despite Janet Yellen last week delivering the “most unequivocally dovish FOMC statement in memory,” was titled “Fed ushering in New Era of Uncertainty on Rates.”
Which brings me to today’s principal topic; as fittingly, the only propaganda capable of trumping Benedict Arnold Hilsenrath today emanated from the King of crony capitalism himself, Warren Buffett. Yes, Warren Buffett, sold himself out more blatantly than even Maestro Greenspan. The only difference being that Greenspan is 20 years out of office – and consequently, speaking TRUTH; whilst Buffett is still running his government-supported equity operations – and thus, will not only “talk his book,” but the government’s as well. Which is why a man known for “value investing” claiming the “biggest risk is not owning stocks” – amidst the worst economic conditions, and highest equity valuations, of our lifetimes – is such a shameful way to advise countless millions.
Why do I bring up Hilsenrath, Buffett, and the rest of the sellouts that could just as easily have been characters in Atlas Shrugged? Because, just like in Atlas Shrugged, these sociopaths – who at least in Buffett’s case, once had a conscience – are preaching a platform of failure to the handful of “99 percenters” that still have the means to protect themselves, not much differently than the Pied Piper of Hamelin. Frankly, the current definition of hubris needs to be re-defined in light of the relentlessly insane “perma-bullishness” that has engulfed financial market participants in light of the unprecedented money printing, market manipulation, and propaganda scheme that has blanketed the Western world; to the point that everything is spun as bullish for stocks and bearish for Precious Metals; and nothing even the slightest bit worrisome. And this, with the highest equity and fixed income valuations EVER, amidst the weakest global economic environment since the Great Depression, growing exponentially weaker with each passing day.
To that end, it is utterly amazing to look at the nasdaq.com economic calendar each Sunday morning, and see – week after week – “expectations” of improved economic data. Including, I might add, another 230,000 jobs in Friday’s March NFP employment report, despite a second straight month of across the board weak economic – and specifically, employment – data. I wrote of where such “expectations” emanate nearly three years ago; but even I couldn’t imagine the level of economic data – and financial market – manipulation that would ultimately accompany them; in turn, yielding the unprecedented, misplaced “bullishness” destined to destroy the world in an economic conflagration making 1929, 1987, 2000, and 2008 pale in comparison. In other words, the “death of bullishness” is as inevitable as the death of unsustainable financial valuations – no matter how much Central bank “liquidity” is poured on them. And of course, death of the unbacked, worthless currencies underlying history’s largest scheme. And when bullishness finally dies in markets controlled by the world’s largest Central banks – as it already has elsewhere – if you haven’t already protected yourself with real money, Gold and Silver, you may never get the chance.
It’s Saturday afternoon, and I have A LOT to get through in my allotted three pages; which is why it’s amazing that I’m “wasting space” by showing you what showed up as Yahoo! Finance’s “top story” this morning.
To wit, this week featured myriad, hideous economic data and geopolitical developments – including Janet Yellen’s “most unequivocally dovish FOMC statement in memory“; to Congress, no less, where the Fed Chairman NEVER espouses incremental information regarding potential monetary policy. And yet, chief MSM propagandist Yahoo! Finance thought it prudent, and journalistically ethical, to not only post a completely untrue article, but one that was first published two months ago. This is exactly why I have picked on them – and other MSM propagandists – for so long, and why you need to be very careful where you get your information.
While on the topic of fraud, I might as well discuss the ugly, inevitably catastrophic results of TPTB’s unprecedented, three-pronged assault on reality – utilizing money printing, market manipulation, and propaganda to “kick the can” as far as possible; whilst praying, in the words of Rose DeWitt in Titanic, for an “(economic) absolution that will never come.” Starting with the incredible fact that, care of the mega ECB QE program that hasn’t yet started, there are now €1.9 trillion of European sovereign bonds trading at negative yields, with essentially no offers to sell. Worse yet, some of Europe’s worst PIIGS credits – amidst a Greek crisis sure to yield a “Grexit” sooner rather than later – are heading toward the zero bound as well. No, this can’t end badly.
Or how about this astonishing chart showing how U.S. stocks, like European bonds, are trading solely on expectations of relentless money printing and market “support.” And this, as U.S. macroeconomic data plunges in falling knife fashion, in an environment featuring collapsing oil prices and a record low Baltic Dry Index, yielding expectations that S&P 500 companies, cumulatively, will actually generate negative sales growth in 2015. But then again, with mis-incentivized, sociopathic CEOs borrowing trillions to finance record stock buybacks – at record equity valuations, no less – what could possibly go wrong? I mean, think about. IBM, one of America’s historically best companies, borrowed an incredible $17 billion between the first quarter of 2012 through the second quarter of 2014 to fund a whopping $40 billion of buybacks, whilst its revenues, margins, earnings, and market plunged. And what have IBM shareholders received as a result? Since this suicidal borrowing spree commenced, IBM stock – which until last year, was the Dow’s most heavily weighted company (Goldman Sachs is now); is down 16% compared to a 38% gain in the PPT-supported “Dow Jones Propaganda Average.” And as for IBM’s financial condition, its net debt to capitalization has surged from an already dangerous 51% to a potentially bankruptcy-yielding 71%.
Yes, the deformations of money printing, market manipulation, and the associated reckless spending gone wild have become boundless, as history’s largest Ponzi scheme enters its terminal stage. To wit, I have spoken numerous times of the insanity of the U.S. government guaranteeing Puerto Rican debt despite it not actually being a part of the United States; and of how this implicit “guarantee” has enabled Puerto Rico’s banana republic government to borrow unlimited capital at ridiculously low rates. Well, just yesterday, Puerto Rico’s third largest bank failed, with a non-performing loan ratio equal to that of Greece’s banking system – forcing the U.S. FDIC to bail them out. Remember, the tiny island of Puerto Rico, with just three million people and a tourism stigma exceeded only by Cuba, has a whopping $165 billion of debt – representing an incredible 1,500% of GDP. Moreover, it has had zero GDP growth for years; and currently sports across-the-board junk ratings; causing, as you can imagine, surging interest rates and credit default swap spreads. In other words, its finances are worse than Greece’s; with no “troika” to lend it money when it defaults, except the U.S. Federal Reserve – i.e, U.S. taxpayers – via said “implicit guarantees.”
Speaking of “bailouts,” just this morning the PBOC (People’s Bank of China) again lowered interest rates, extending a veritable swarm of monetary easing measures that commenced six months ago – like the Fed, following misleading bluster regarding potential tightening measures. And what has been the result of such monetary lunacy? Well, Chinese GDP “growth” has plummeted to its lowest level in 25 years; whilst its historic real estate, construction, and shadow banking bubble has continued to plunge. But have no fear, as the 50% increase in the Shanghai Stock Exchange since such measures commenced must portend economic “recovery,” right? And by the way, it’s funny how no one – aside from the Miles Franklin Blog, and a scant few others – has discussed how the Chinese Yuan continues to be “devalued” by the PBOC, hitting a new 22-month low Friday. Trust us, the maniacal monetary easing measures (i.e, money printing) pre-sage the inevitable de-pegging of the Yuan from the dollar; as due to the relentless dollar surge – due to a fearful world fleeing to its superior liquidity – China’s manufacturing sector is being ravaged by serial currency debauchers like Japan. And when it inevitably does de-peg, the impact on global economics, financial markets, and geo-politics will dwarf that of astrophysics’ Big Bang in terms of its broad, dramatic(ally negative) impact. Not to mention, on Chinese gold demand, as Yuan-priced gold skyrockets.
Speaking of non-U.S. dollar denominated gold, I want to follow up my two-day repudiation of one of the industry’s most notorious flip-floppers, who currently claims gold will fall below $1,000/oz due to “deflation”; whilst, I might add, the Dow surges to 31,000 because – get this – investors have ‘nowhere else to put their money.” And oh yeah, in the typical “short-term bearish, long-term bullish” form characterizing the majority of PM newsletter writers, he then expects gold to surge to $5,000+, due to some sort of ‘mega-deflation.’ Really, I’m not making this up.
In Wednesday’s Audioblog, I discussed how gold and silver have always been the best performing asset classes during “deflationary” periods; although “deflationary” is in quotes, as in today’s global fiat currency regime, currency deflation is impossible. Next, in yesterday’s Audioblog, I showed how, amidst the past six-month’s global commodity crash, U.S. dollar denominated gold prices were unchanged whilst essentially all other “deflation sensitive” asset classes plunged. And today, I’ve taken the analysis one step further – in depicting how gold in other currencies fared during this “deflationary” period; as the aforementioned dollar surge global currency collapse decidedly did not yield “deflating” currencies. To that end, take a look at the chart below, and tell me if you think gold, as priced in currencies that countless billions use each day, “deflated” or “inflated.” And FYI, the only reason I didn’t include Russian Ruble-priced gold was because its 96% gain would have taken the chart so far off scale.
OK, now that such “housekeeping” issues are out of the way – without even mentioning the utter swarm of horrifying Greek headlines this weekend, of its pending political, financial, and social collapse; let’s get to today’s primary topic, regarding the massive demand underpinning gold’s (and silver’s) foreseeable future.
To start, let’s just re-emphasize that the “supply response” we forecast in Precious Metal mining will be historic – given decades of price suppression and capital strangulation in a business becoming dramatically more difficult to execute, ceteris parabus. Which, following the hideous year-end mining earnings reports we discussed last week, is set to commence now. Throw in the equally historic establishment of Far East physical exchanges and “price fixes,” – as discussed in this must hear interview with Andrew Maguire – and you can see how primed Precious Metals are to break the Cartel’s deadly, world-destroying grip.
The only remaining question, thus, is when exploding global physical demand – which in 2014, likely equaled 2013′s record level – will swamp the remaining supply “fumes” surreptitiously fed into the market to support hundreds of billions of naked shorted paper contracts. To start, we know Chinese gold buying in the first six weeks of 2015 – as measured by Shanghai Exchange withdrawals – were 17% ahead of last year’s pace. And undoubtedly, the burgeoning gold bull markets in nearly all currencies but the dollar is fueling expanded buying across the globe. Let alone in India – traditionally, the world’s largest gold consumer – where Rupee-priced gold came within 16% of its all-time high last month. To that end, today’s “disappointing” announcement that the newly elected, supposedly gold-supportive Modi government, has – like Alexis Tsipras’ Syriza party – already forsaken its implicit campaign promises, by not reducing the onerous 10% gold and silver import taxes.
One reader wrote me this morning, claiming this was “disastrous” for Indian gold demand. However, I disagree completely; as now that the public realizes the Modi government is assuming the disgraced Congress Party’s money-printing frenzy (and this, with the Rupee within a stone’s throw of its all-time low), citizens will likely step up purchases significantly; as frankly, a 10% tariff is immaterial when one’s financial health is at stake. Plus, the Indian black market will only grow stronger – likely, exponentially so; as no one on the planet – including the Chinese – are more fearful of fiat currency devaluation than the Indians.
And last, but certainly not least – given today’s article title is based on it – I wanted to bring up the incredible news that Apple, which is taking over the global technology scene in a manner making Microsoft’s meteoric 1980s rise look ordinary, will this week launch its new iWatch product, which it believes will explode in popularity. Starting now, Apple plans on producing a million units per month, each containing two troy ounces of gold; and per this article, simple math demonstrates that this level of demand will take out roughly 30% of global gold mine production. To a man, I have no idea if the iWatch will catch on; but given its unique mix of Apple cache and physical gold, it wouldn’t surprise me if it becomes one of the hottest retail products in China, and who knows where else. And if it does, the “vice” of physical supply will only tighten on a Cartel near the end of its manipulative rope already. To that end, how funny would it be if, in the face of the myriad, massively gold (and silver) bullish factors engulfing the planet each day, it turns out that APPLE turns out to be the straw that breaks the Cartel’s back?
Two pieces of news broke last week, if the first turns out to be true, there will certainly be far ranging consequences. The second revelation was that of the truth being told, now we will await the far ranging consequences.
News last Wednesday regarding Apple’s new proposed smart watch is a head scratcher. The headline was astonishing, “Apple to buy 30% of global gold production”. We should look at this from several different angles because several things do not add up. If this article is true and Apple does plan to purchase 30% of global gold production, this is THE biggest game changer in the gold market since 1849!
One million watches per month using two gold ounces for each watch? It sounds like an aggressive goal but Apple does have an impressive track record with new products. The other side of the equation is the use of two ounces of gold for each watch, if true then the math becomes mind boggling and Apple will require 24 million ounces. This represents 30% of the 80 million ounces the world produces. My guess is you’d probably be looking at a price of close to $4,000 per watch, $2,500 for the gold content alone.
Can Apple really do this? Is it even true? The “math” may add up but something else really does not. First, there was absolutely zero reaction in the gold market. Can you imagine if some builder announced they were going to build 300,000 houses per year on top of what is already being built? What would the price of lumber, gypsum and other building products do? They would explode and there would be front running actions of hoarding product. Did we see anything at all like this on Thursday and Friday with gold? Not even a whiff!
Next, how exactly would Apple be able to procure this amount of gold? We are talking about 746 tons of it. Let’s compare this to what the Germans told us one year ago. They were saying they couldn’t get anymore than five tons from the Federal Reserve because of the “logistics” problems …just too much weight I guess? We of course now know this was false because Germany has received more than 10 times this amount and the Belgians 122 tons (which fits nicely into a Boeing 747 cargo plane).
The real question to the procurement question is this, in a market that only produces 80 million ounces per year while demand has been far in excess of 150 million ounces, where would another 24 million ounces fit in? If this Apple story is true and they really do want to market luxury I watches, they will have a serious production problem! Namely, I think they will have a very hard time putting a “shine” on shares of GLD or COMEX contracts. Steel cannot be delivered, construction cannot be completed nor can a vehicle run on derivatives contracts. Though these contracts are wonderful in “pricing” product (for a while), they cannot and will not create real supply. In fact, when they are used to suppress price, they inevitably will create excess demand and reduce available supply. The only thing I can say about this Apple news is if true, it will blow the physical gold market wide open and expose the reality of just how rare gold truly is.
The next bombshell came out on Friday. The Chinese ambassador to Belgium threw a card or two down on the table . Qu Xing apparently made clear what we were all thinking in the first place. He chided the U.S. for their actions within Ukraine. What he said was not really Earth shattering stuff, but, what he said was blunt and to the point which is highly unusual for diplomats who usually try to say very little while doing it “nicely”. Mr. Xing stated the obvious when he brought up the fact that Ukraine borders Russia and of course Russia would have concerns both geographically and ethnically. This alone was a big step because China in fact has now publicly chosen a side albeit the obvious one.
The truly giant step and one I have waited for, for quite some time, was his warning if you will of U.S. external intervention. Even stronger and more shocking was his quote “The U.S. is unwilling to see its presence in any part of the world being weakened, but the fact its resources are limited, and it will be to some extent hard work to sustain its influence in external affairs”. In case you need this broken down, China just said the U.S. is losing power and control all over the world. A starkly blunt statement from the very polite Chinese, a long time in coming but brutally true. Now, what if any response will come from the U.S.? Sad to say I have seen bar fights start over more gentle words than these.
Before finishing I want to add one other piece of news from Friday afternoon. Russian opposition leader Boris Nemtsov was murdered in Moscow. Zerohedge reports and asks “who” did it? and speculates the Western press will again come down on Mr. Putin “like a ton of bricks”. They also speculate there will surely be another round of sanctions against Russia. Several points here, if this was “official action” and sanctioned by Mr. Putin to silence Nemtsov, wouldn’t it have been done in a manner other than a sloppy drive by shooting? If done by the KGB would there even been a body to be found? Also, with the previous news the Chinese have publicly declared sides, what good will sanctions be? Can’t Russia in essence funnel finance via and be helped by China? Have they both signed long term trade, financial and energy deals only to see Russia hung out to dry by what obviously looks fishy (or false flaggy)?
The above was written Saturday, then HUGE news broke on Sunday.
Hypo Alpe-Adria bank the 6th largest bank in Austria looks to have a 9 billion euro smoking hole in its balance sheet. Austrian officials as recently as last week claimed there was no problem …they were either wrong or lied. The first thing you need to understand is Hypo was originally packaged with assets from “bad banks”. The funding came from the wealthy province of Carenthina (10.7 billion euros) and Austria herself (1 billion euros). Until now, this bank was rated “AAA” because of the provincial and national backing. …So much for feeling safe in a AAA rated bank eh? Bail ins are now expected to follow. Notice I did not say “bailout”? Depositors accounts will now be targeted to re “fund” the bank.
What does this mean exactly? My take is there will now be depositors in other banks doing some “math” and making some withdrawals. Remember, interest rates are non existent and may very well be negative for depositors, why would anyone want any risk whatsoever if they are getting no return? The question will arise “what bank” is really safe if Hypo was rated AAA and supposedly backed provincially and federally? In my opinion, this could very well be a “rhyme” with CreditAnstalt which failed in 1931 and ushered in bank runs all over the world.
Is “this it”? Is this the trigger or the “big one”? We cannot know for sure yet but it would be foolish and very dangerous to bet it is not. This situation arose as a result of the Swiss actions, the bank had lent in terms of Swiss francs which became harder to pay off as the franc rose in value. People borrowed in francs because of the low yield and are now burned …as is this bank …and it was not the only one lending heavily in francs, others will surely surface shortly. As I have been pounding the table over the last few weeks, I believe we will see “gaps”, market closures and re set action. Hypo could very well kick it all off as investors come to understand there are no more government or central bank “white horses” to ride in and save them. We live in a computerized world, what used to take days or even weeks …now only takes seconds.
One last tidbit, Singapore and China are racing against each other to create a cash gold market and to have their very own “fix” price. A new Asian fix will begin March 12, this will obviously strike at the hearts of both COMEX and LBMA, not to mention London itself which is where the “fix” price has been quoted from for over 100 years. Ask yourself “why” does China want a cash market and to set the fix each day? This is simple, China is THE largest producer of gold and they are also THE biggest consumer, if you own the car, why wouldn’t you want to drive it? “Times they are a changing”!
We live in a world where truth is a scarce commodity, consequences are a different duck. Consequences are many and becoming more plentiful with each passing day. God forbid the potential consequences of this banking situation. The old saying goes “sometimes the truth hurts”, I tend to disagree. It is not the truth that hurts …it is the consequences!
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Before getting to the topic of “all in!”, I have a story for you which may be of interest. All the way back in 2002, I travelled out to Colorado Springs for the shareholder meeting of a very small and obscure royalty company named Golden Cycle Gold. While there, we did a tour of the Cripple Creek mine and its operations. The nearby town, Victor, looked nearly like a ghost town 30 miles off the beaten path. The only industry was the mining operation and a little bit of tourism. During my trip, I met a long time Director of the Golden Cycle Gold Company, “Frank,” he had a different view of economics than almost anyone I knew. He believed the U.S. was bankrupting the country with armaments manufacturing, just as did the old Soviet Union and that the U.S. would eventually meet the same economic fate during a currency collapse of the dollar, as had happened to the ruble. ..
Frank and I spent almost two days together and I furiously picked his brain. He was a fountain of information as I learned more about the mining industry from him than any other source.
He said; ” gold was an immutable object,… it didn’t do anything,… it just sat there….. it was just one ounce of gold,… it was paper money that historically depreciated in terms of the yellow metal.”
Frank was drawn to the Golden Cycle Company by a statement made by famous financier Charles Allen of Allen &Co., who said: “If monetary conditions were right, the Company could make stock market history, “(the Allen family had escaped Europe just prior to the worst of the Holocaust and understood the value of gold money).
As time would have it, the Company was sold. He said; never ever did anyone ever believe the conditions we are witnessing today could have been extended into the hereafter, with printing press money, without a major economic collapse and depression. Symbols for the theft of the public’s buying power by banks, such as QE, were not even part of the financial lexicon. The only analogy he knew had relevance to today’s financial situation was during the days of John Law and Fiat Money in France in the 1700′s… He now says; “Those conditions, or happenstance, so well understood by Charles Allen, exist today, ….. for Gold and Gold shares to make market history,……. (in this poker game of International Finance), he says; ALL IN!
After the first day in the field, we met for dinner and a few beers (where we met a 6′ 9” Australian with long blonde hair who put Rambo’s physique to shame …turned out he was an international (legal) arms dealer!). This is where I first heard of the concept “re set”. He talked about gold demand outstripping supply, manipulation and many other topics which I was aware of but only scratching the surface at that point. The biggest thing he talked about was “collateral”, or lack of it. He posited the system was nearly at full margin in a sane world, the only two outcomes could be some of the debt being cleansed, or exactly what followed. Namely interest rates being crushed with anything and everything not nailed down being used as collateral for margin. In retrospect, he was early but very correct how this would all unfold.
The reason I relate this story is because back then I needed something or someone to “strengthen my knees”. Gold and silver would get smashed when logic said otherwise. Very little information was available on the internet to that point other than a few websites including GATA. Jim Sinclair had just begun posting for another website and had not even gotten his own up and running. Back in those days, the biggest shot of adrenalin was when John Embry who worked for a mainstream Canadian bank wrote publicly about blatant manipulation. John’s writing was sorely needed by the gold community to confirm their thought process. It is in good part this very reason I began to write in 2007, to hold shaky hands and to calm the fearful. Most of all after this trip, many of my thoughts were confirmed and cemented. To Frank, my mentor, I owe a huge debt of gratitude!
As for my topic “all in”, should you be? My answer to this is to be as fully invested in precious metals assets as you are comfortable with. Please understand this, because central banks, sovereign treasuries and behemoth financial institutions are already “all in and then some” with their support of paper assets …when the dam breaks you will most probably not have the chance to go “further in” with precious metals. Bad money will chase good money into hiding and be met with “not for sale” signs.
This concept of “all in” has been personified, only in reverse by the world’s central banks, treasuries and financial institutions. They have created $ trillions upon $ trillions of new currency, they have borrowed even more $ trillions while the institutions play in over a $1 quadrillion casino. Any thing “marginable” has been used and already borrowed against. Interest rates have been crushed to zero and below by the necessity to be able to pay the interest while stock markets float higher with little to no volume as the HFT algos swap some spit back and forth. Real gold and silver have been sold 100 times over and are fictitious in pricing and availability.
If you did not understand the meaning of the above paragraph, I will spell it out. The world is one giant and collective margin call. “Net worth’s” that are calculated, relied on and believed in today could be seriously cut, wiped out or even become negative overnight. “This can never happen” you say? It already has in many instances for those long euros or short francs on margin …and this was only the tip of the iceberg. Do you suppose some oil traders, or even some drillers and producers have gone belly up? We know they have. EVERYTHING paper has the very same affliction as oil and this FOREX cross, the values are skewed! Not only are they skewed, this has been purposely done. The problem is with the “manner” in how it has been done. Derivatives, or leveraged paper, has been used to paint a picture necessary to retain confidence. As this picture morphs from true realism to more and more abstract, confidence ebbs with it. As more and more financial soldiers fall, other troops begin to worry, drop their arms and turn tail. This is how it works. Panics occur because confidence decreases.
Looking at the real economy, how much more can we expect out of it? Corporations have supplanted small business and in their quest for profits are cutting jobs and expenses to the bone. Can young people afford to buy entry level homes to help push current owners to the next level? Can the working population support a 50% and growing portion who collect benefits? How long can parents support 25 and 30 year old children who cannot afford to provide for themselves? Who will support the parents? It never “was” like this because it could not be, it was not and is not sustainable. What Washington and Wall Street have forgotten is oh so important yet ignored. In order to have truly healthy financial markets, the real economy must function and function well. The real economy is just as far over the cliff as the federal fiscal situation with no one left able to either pass the baton or to save the day.
Let me finish with these thoughts. It used to be the real economy would generate cash flow in excess of what was needed to fund current operations and to pay debt, this is no longer so. The necessary “cash” is now coming from the central banks because the economy is no longer sufficient to do so. This is why it “feels bad” out there, there is little money making it to the streets. Soon it will feel even worse because even with bogus and fudged numbers, an official recession is again arriving. How much further can the central banks go? Further than “all in”?
Q: Hi! When we wake up one morning and discover that we have experienced the great RESET overnight and gold has gone up in multiples, will silver and all other PM’s experience similar outcomes, or will it take them time to catch up? I would love to see JP Morgan and ilk get stuck on their down side in everything or do you think they will be privy before hand and have exited their shorts?
Thank you for all of your priceless educational web site and especially for making it free to all of us who wish to be enlightened to the truth.
David Schectman’s Answer:
The “RESET” will be a reset of the value of the dollar vs. gold and everything else. It is not gold going UP, it is the dollar going DOWN. Down vs. everything. Hard to say whether gold or silver will benefit the most, but you will be happy to have either instead of dollars when that happens.
JPMorgan will not be left holding the bag. They are “the government’s bank,” and will be taken care of. You can bet you bottom dollar that they are doing the government’s bidding with a nod and a wink that they will not be left holding the bag.
“How much” and “when” are unknown but you can count on the inevitability of this happening.
Q: It would be difficult to find better authors than Bill Holter and Andrew Hoffman, and I scour for sources and regularly read from about 30 of my favorites regarding our topics of the day. Hats off to the entire Miles Franklin crew for their great work. My question today is for Bill. I’m not going to ask a question like…when? Or How? We all know that these cannot be answered in real terms. I would like to throw out a sidebar question however, one that has been touched on, but I’ll ask for it to be addressed again as this will directly affect us all in some way. Here goes; with a possible banking shut down and monetary melt down and reset, what in the heck is going to happen with home mortgages? Banks close down, so people will not be paid. Banks close down and nobody can withdraw funds, Banks close down so debit cards stop working. Banks close down, credit drops dead, products stop shipping including food and fuel, etc. I’m not expecting some bank jubilee but will all loan payments go on ice for a period of time? In the meantime I’ll continue to prepare as best I can for my family and friends. All the best, Joel.
Bill Holter’s Answer:
You saved the tough one for me Joel! This is hard to answer because there is very little prior precedent to go by. We do know that after the Weimar collapse, mortgages were rewritten in terms of the new currency. (As a side note, when the new currency arrived, real estate dropped 30% AND THEN started going down. This was because there was little “money on the streets immediately afterward). Assuming a bank holiday and no ability for anyone to pay, I believe the interest will accrue and be tacked on to the balance for whatever time period the banks are closed. If you are hoping a hyperinflation will wash away the debt, don’t. I believe the Weimar precedent will be followed and is actually “fair” because the banks should not be stiffed as they did lend you capital that had value to purchase a real asset of value to begin with.
That said, I do believe holding gold equal to the amount of a mortgage now will work out fine. In a reset scenario, gold will move higher in dollar price than mortgages are altered in any new currency. Also, in the event of a “reset” not happening, I believe you will be able to peel some of your gold off to pay your mortgage with some left over. All of this is hypothetical and my opinion but I do think something along these lines is what we will see.
Q: Considering all we know about paper silver vs. real physical silver, why do those who sell and deliver the real thing base their price on a fictitious determination such as the paper “spot price?” What is the relationship? Why would the physical sellers do this -especially today when the paper price is so far beneath the all in production cost?
Put another way, why do those who have real goods to sell, allow others who have no goods to sell, determine the price? Where is the justice in this?
Or perhaps, is what I am suggesting (real prices for real physical) actually happening for large orders most of the time, behind the scenes, and it is just not reported?
I don’t see how silver miners (those that focus on silver only) can have managed to stay in business as long as they have at these suppressed prices.
All the best,
Andy Hoffman’s Answer:
The physical price is always higher than the paper price, due to a variety of factors. Aside from “shortage factors,” said “spread” will always be anywhere from a couple of percent to 10-15%, incorporating commission, marketing, transportation, and other operational costs. Moreover, this spread can widen or narrow depending on said “shortage factors”; meaning, if supply is plentiful it can contract; and if scarce, it can widen. Sometimes, dramatically so, as in 2008, 2011, and parts of 2013 and 2014.
Additionally, nations were supply is particularly constrained by an inefficient supply chain, government regulation, or otherwise, can have extremely wide “spreads” regularly – as is typically the case in India.
As for miners, they have always been dumb enough to price their “off take agreements” with buyers at or near spot; which in some cases, is justified economically – by say, transportation logistics, low purity, etc.. Sometimes, they have more negotiating leverage – but from my experience, the buyers are far larger, more powerful entities. This is why the silver miners are in dire straits right now; and, for that matter, many gold miners.
Of course, this will all be moot when the surreptitious sources supplying demand run out – which assuredly, is coming sooner or later.
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In case you had not noticed, we live in a crazy upside down sort of world. We could go into the social aspect of this but it would only make our collective blood pressures go up. The same thing goes for politics, religion and let’s not forget an entire industry that used to pride itself on digging for the truth, the media. Nothing, and I do mean NOTHING “is” really as it seems today. Everything is spun, everything is either glossed over or not even discussed (reported on) and nothing is real anymore. Somehow, I think Goebbels is blushing in his grave and Orwell kicking himself for not being outrageous enough when he wrote 1984.
Now would be a good time to revisit something we’ve looked at many times before, namely which is the better deal? Is one ounce of gold better than 1,200 one dollar bills? Or euros, yen, pounds or what have you? The reason this has come to my mind in this fashion is because our world of fiat money now has negative interest rates for about 15% of all sovereign debt (and growing quickly). Zerohedge just released an article talking about 20 central banks already in this new year cutting their interest rates.
The obvious takeaway from this is investors are being forced to scramble for yield, any yield no matter how dangerous. Savers have been and now even more so, are being forced to do things (invest) they would never in their wildest dreams have done 10 years ago. As mentioned a few weeks back, there are now even negative interest rates on mortgages in Denmark. This means your mortgage will get paid down by your institution over time as long as you can make the monthly amortization payment. Who in their right mind would not borrow as much as they could to buy as big a property as possible? Think about it, you get to borrow in a paper currency where the central bank WANTS inflation (a debasing currency) and the issuing bank will help you pay down the principle. This is a no brainer!
On the other side of the ledger however are “savers”. Who in their right mind would “lend” currency at negative interest rates? Your prospects in the real world and in black and white are ridiculous. You are lending money where your “balance” decreases each year and then, what will you receive upon maturity? You will receive “currency” the central banks are telling you ahead of time …they wish to, plan to and will do everything they can …to devalue! Does this make any sense? Locking in a shrinking balance in a currency the issuer wishes to “shrink”? Which then is better? An ounce of gold which is unshrinkable or 1,200 one dollar bills which shrink every time you do your laundry.
So the world’s central banks are continuing to lower interest rates and “zero percent” is no longer a lower bound, why? Why are central banks pushing so hard for lower interest rates? Yes I know, they say “lower rates will help the economy” … blah blah blah. Really? Has it worked? Would you like to know the REAL reason interest rates have been pushed down? Because if they were not, sovereigns from A-Z would already be seen to be insolvent. A large and growing percentage of the world’s sovereign nations now have a debt to GDP ratio of 100% or more. Big deal right? Well, yes it really is but for “now” it isn’t “seen” as one. Historically, whenever a nation went beyond 100% debt to GDP ratio …they soon became a banana republic where their issued currency collapsed and sovereign bonds offloaded in panic fashion. This of course meant that interest rates exploded higher and more currency was needed to be issued to support the debt market …setting off a cycle of hyperinflation. Not an isolated problem, the globe is on the verge of becoming one big unhappy banana republic!
Globally, banana republic status is the crossroads the world now stands at. Yes, we currently live in a world with deflationary tendencies because the giant sized debt loads are crushing everything …including the sovereigns themselves. With little to no warning at all, this will turn on a dime because of human nature. Human’s are a funny animal. Greed is a powerful emotion, fear is even greater. In the monetary world, once “fear” becomes the predominant notion then another factor will kick in. Just as a dog with a bowl full of food wants the other dogs food, man always craves what he cannot have. When, not if, gold and silver go into hiding, “man” will want them even more. It is this emotion which will collide with a mine supply which has already peaked while Western vaults are substantially empty.
I decided to write this because I believe hyperinflation is broadly misunderstood by most. Most believe hyperinflation can only happen when a central bank creates too much “money”. The over creation of money is certainly one necessary condition but alone will not spark hyperinflation. It is a break in confidence which ignites the fire. We stand today in a world where all of the conditions exist for a massive fire which will destroy much of the accumulated paper wealth of the last 100 years or more. The only thing lacking to get this bonfire raging is a break in confidence.
Looking back to the very dark fourth quarter of 2008, you can see nearly ALL official actions aimed squarely at keeping confidence high. Bogus economic reports, the cancellation of mark to market, central banks propping up brain dead banks and financial institutions …and on down the line to rigging all markets from supporting stocks and bonds to suppressing gold and silver. Everything is and has been about perception, once this perception shifts, hyperinflation can literally begin overnight. In case you have not noticed or followed, the rest of the world has already “moved” or is “moving” away from the dollar as they have already figured this out. Hyperinflation of the dollar will not be “cost push” or the inflation we WERE used to. It will be a currency event caused by a break in confidence where dollars are massively sold and refused for acceptance,… as the “printing part” is already in place. THIS is what “policy”, ALL policy has been about since 2008 …retaining confidence in the dollar! Understand this and you understand 90%+ of the entire game.