Each year, the Miles Franklin Blog publishes its forecast of key trends for the coming 12 months. Note the word trends; as we long ago gave up on predicting specific market levels. To wit, paper financial markets have become so hopelessly, relentlessly rigged, that the factors we’ve spent a lifetime analyzing – i.e., fundamental and technical – have become useless over short-term periods such as a year; let alone, a month. In fact, technical analysis may have been permanently disabled by government intervention; which frankly, utilizes’ traders “chart reading” as a weapon against them. Conversely, we feel more confident than ever about discussing the PHYSICAL markets that underlie them; specifically, gold and silver.
Again, such predictions will not involve specific numbers or timeframes. Instead, they will simply focus on the projected “top economic stories” of 2014, particularly as they relate to Precious Metals. And thus, away we go!
1. Worldwide interest rates will continue to rise, led by the United States. This trend commenced when “taper talk” commenced in mid-2013; in effect, validating the worst bond market fundamentals of our lifetimes. And if rates do indeed rise, NOTHING will be spared from the ensuing financial nuclear destruction. Nothing, that is, but real money. As we wrote in September, the entire world is irreversibly addicted to ultra-low interest rates; and thus, even the tiniest rate increase will be catastrophic.
In the U.S. alone, a miniscule increase in the benchmark 10-year Treasury yield – from 1.6% to 3.0% – has already caused new mortgage applications to plunge to a 13-year low; and given the government itself admits “housing” accounts for roughly half of all GDP growth these days, no amount of BLS, BEA, or other statistical lies will be able to mask the fact that the economy is in the verge of freefall. To illustrate just how distortive the Fed’s “QE” program has been, today’s 10-year Treasury of yield, amidst a $17.3 trillion, rapidly expanding national debt, is still more than 50% below the 60+ year average of 6.57%.
Federal debt alone is up more than $7 trillion since the Fed went berserk printing money post-2008; and sadly, the same trajectory has been witnessed at the municipal and individual levels. And don’t forget the hundreds of trillions of derivatives created by Wall Street to suppress such rates; which inevitably, will blow up in a far more devastating manner than 2008 if rates are not held down.
Overseas, the ECB’s “whatever it takes policy” may well be tested – in unprecedented fashion. Now that the Fed has (theoretically) slowed QE, the “trickle-down effect” on international bond markets could be dramatic. Most likely, Draghi’s OMT, or “Outright Monetary Transaction” program, will be tested in 2014; as the combination of rising rates and an already morbid continental economy could be devastating, particularly amongst the PIFIGS (PIIGS plus France). And don’t forget Japan, which may well expand its plan to double the money supply over a two-year period. Maintaining low rates amidst surging money printing and multi-year high inflation will truly be a challenge to behold.
2. Central banks will do “whatever it takes” to suppress rates. I don’t think we could put this any more bluntly; that is, that not only will global “QE” not be tapered, but eventually, must be increased. Last week, we wrote of how the Fed have actually been monetizing far more than publicized; and given that fiat currency – and the debt growth it fosters – defines a Ponzi scheme, there is no way the printing presses can be materially slowed. Globally, the “final currency war” started in earnest five years ago; and hence, there is little, if any, doubt that the U.S., Europe, Japan, and others will be “forced” to accelerate the printing presses – particularly when it becomes obvious that economic “recovery” is but a myth. Heck, with European unemployment at an all-time low and the U.S. Labor Participation rate at a 35-year low – en route to far lower levels – it’s difficult to see how anyone purporting recovery can be taken seriously. Even China’s comical “economic data” is bordering on depicting a contraction, while Japan’s government is crowing about 0.4% GDP growth, amidst multi-year high inflation readings.
3. Obamacare’s initial economic impact will be devastating. Already, employers have been laying off workers en masse to avoid the upcoming health insurance mandate for full-time employees. The Obama Administration wisely put this mandate’s enforcement off until after this Fall’s mid-term elections; but irrespective, employers will continue to prepare for its arrival. Moreover, the depressing economic impact of higher health insurance premiums will cause already weak consumer spending to plunge further; and if the disastrous 2013 holiday shopping season is considered the “base level,” it terrifies us to consider 2014. FYI, I finally received my “golden ticket” in the mail this weekend; i.e., a 15% increase in my health insurance policy, solely due to Obamacare-related fees; and worse yet, it is being implemented amidst three months before the plan’s renewal date in April. At that point, I shudder to think how much my plan provider will charge for re-upping; let alone, the horrific alternatives available from “competing” providers.
4. Gasoline prices will resume their historic march to record levels. For all the media hype about declining U.S. gasoline prices in the second half of 2013, prices have NEVER been this high at this time of year. In fact, even I was shocked to see prices increased by an incredible $0.31/gallon Sunday morning at our local service station – despite having watched WTI crude prices rise from $92/bbl. last month to $100/bbl. today.
And oh yeah, European and Japanese gasoline prices have been surging as well; with little hope for relief in sight, particularly if the exported inflation the Fed’s “QE” program is causing worsens.
5. Multiple currencies will experience dramatic declines relative to the dollar. The “final currency war” is clearly underway; in our view, catalyzed by the Fed’s 2012 commencement of QE3, the ECB’s 2012 announcement that if needed, it would engage in open-ended sovereign debt monetization, and the Bank of Japan’s 2013 announcement that it intends to double the money supply in an attempt to dramatically weaken the Yen. Consequently, these “big three” Central banks have exported copious amounts of inflation worldwide – as highlighted in “The most important article I’ve ever written.” “Tapering” notwithstanding, the global trend of increased money printing must continue – and eventually, accelerate – as history’s largest Ponzi scheme plays itself out. Consequently, the “race to debase” will intensify, yielding increased worldwide inflation. In time, this “cancer” will rise to the top of the totem pole, destroying the world’s “reserve currency” itself.
6. Social unrest will expand. What is going on today in Turkey, Thailand and the Ukraine is symptomatic of the aforementioned exported inflation from major central banks – particularly the Fed. In 2013 alone, such “Arab Spring” uprisings not only occurred in MENA – or Middle East, North Africa – nations like Egypt, but Brazil, Argentina, Venezuela, and others. Just last week, Italy’s President said he fears major insurgency during 2014; and sadly, Italy isn’t even close to the worst-off European nation. Heck, France’s economy may be the worst of all, and just this weekend, Francois Hollande’s 75% ‘wealth tax’ was declared constitutional – setting the stage for a mass exodus of productive capital out of the nation. Here in the states, where more than half of citizens require entitlement payments for survival, the only thing standing in the way of widespread unrest is the inevitable surge in inflation heading this way like a speeding locomotive.
7. The gap between PAPER and PHYSICAL gold and silver prices will expand. The reasons for the unmitigated fear that catalyzed the Cartel’s historic 2013 attacks will never be fully known. However, we listed as many as we could recall in this article. Consequently, Physical PM demand shattered essentially all previous records – led by Chinese acquisition of every ounce it could locate, and an exploding Indian smuggling market. Simultaneously, paper gold and silver prices were taken down by roughly 30% in 2013 – continuing the carnage that commenced when “dollar priced gold” reached an all-time high in late 2011. Given the aforementioned issues, there is no reason to believe PHYSICAL demand will be any lower in 2014; and possibly, dramatically higher. With both COMEX and LBMA gold inventories plumbing record lows – with the former in danger of an actual default – we anticipate a further separation of fraudulent PAPER and real PHYSICAL prices in 2014; and potentially, expanded shortages, such as we saw on three separate occasions in the U.S. silver market in 2013.
8. The glaring weakness in true U.S. unemployment will become widely understood. In our view, last month’s NFP “whistleblower” allegations simply highlight the obvious; that is, the true state of U.S. unemployment is not only approaching that of the 1930s, but amidst a permanent weakening that will necessitate dramatically increased entitlement spending. According to John Williams of Shadowstats.com, the true unemployment rate – or as I call it, the underemployment rate – is closer to 23% than the officially reported 7%. Particularly in light of the fact that this weekend, 1.3 million more people officially left the labor force – because their unemployment benefits expired – it should be crystal clear why the Fed eliminated its previous, 6.5% threshold for ending its ZIRP policy. Heck, we may well see 6.5% in next week’s December NFP report; at which point, the understanding of just how structurally damaged the U.S. labor situation has become should significantly expand. Consequently, the Fed will feel increased pressure to not taper, but increase QE; likely, by the middle of the year.
9. Interest in “alternative currencies” will expand, worldwide. The global “powers that be” will do everything in their power – as they have been – to deflect attention from the rapidly devolving Ponzi scheme that is fiat currency. However, the forces of demand will continue to rise, making it more and more difficult to control prices. Will gold and silver hit new highs – in multiple currencies – in 2014? Will Bitcoin break out above $2,000? I don’t know, but the upward PRESSURE on anything challenging the dying dollar, Euro, yen, and other fiat trash will indeed be powerful. And remember, with so many ‘black swans’ circling about, it wouldn’t take much for these forces to gain “terminal velocity.”
10. The gold/silver ratio will decline. At 61:1 as I write, this ratio sits near its all-time high levels – despite ragingly bullish silver fundamentals and perhaps no more than two billion ounces of silver above ground (most of it, like ours, to never see the light of day). Given how ‘oversold’ both metals have become – in terms of fundamentals, technicals, and sentiment – it’s difficult to not envision higher PM prices by year-end. Typically, silver outperforms gold in such environments; and ultimately, we believe this ratio will fall to at least its historical average of roughly 15:1 – and potentially, significantly lower.
Notice that no “price targets” were established for various markets; as with so many variables at play – and so much government intervention – it simply makes no sense to be “cute.” Instead, we simply stated our views as to what the prevailing trends will be; which quite clearly, involve weakening global economic activity, expanding Central bank money printing, and rising demand for REAL MONEY.