Written by David Schectman
on May 16 2013
This is No Time to Throw in the Towel
Yesterday I received two emails from readers who are worried that the Fed will cut back on QE and they wondered if the bull market in gold is over. They have read all the reasons we present why this isn’t so, but this is a tough market to ride out. Oh, the Wall of Worry – it gets to people when their portfolio is losing value. I have personally spent a lot of time and energy explaining the basics to these two but obviously I am not getting through. But as prices continue to retreat, they really don’t want to hear why it’s happening, they have lost faith. I finally said, “Well, if that’s how you feel, you should bail out now and find greener pastures elsewhere!” This is what happens when people look at gold and silver as “investments,” and discount the “insurance” value gold has, as a hedge against a litany of Black Swans that are ready to come forth, unexpected of course, that will re-ignite the bull market. Gold is money. Gold is insurance. Gold is for portfolio diversification. It is a necessary asset class regardless of price. This really is a time to “think in ounces, not in dollars.” The lower the price, the more ounces you can accumulate. Payday is not that far off!
Like it or not, the price of gold and silver are still being controlled by the bullion banks and the hedge funds, who act like a group of destructive locust, leaving a barren waste land behind, as they move from asset class to asset class with every new Fed pronouncement or headline.
You will never convince me that the bull market is over. It’s re-grouping to make a run on new all-time highs. This should play itself out by the fall and meanwhile, for those of you with the inclination, you are getting a chance to buy gold and silver at really attractive prices.
It was disappointing to see that Bo Polny’s “the bottom is in” charts presented in JSMineset were wrong. Technical Analysis works as long as JPMorgan and friends allow it to. There are no working crystal balls in these markets. As long as naked-shorting, huge leverage and friends in high places (CFTC, Comex, JPM, LBMA) are part of the landscape, short-term moves will defy logic. You either understand that the physical off take will ultimately dictate prices – or you don’t. Regardless of what you think, the physicals WILL dictate the price, especially with the central banks on the buy side, as they are now. Hardly a day goes by without another article on the insatiable appetite for gold in India and China.
And now, a look back at an essay by Andy Hoffman – that makes the point, whatever the government does, it will be the worst for America and the best for precious metals. It is still relevant. This is in regard to the new proposed Sales Tax on Internet and telemarketing sales that has passed the Senate and is up before the House for approval. John Boehner says, “No new taxes,” and let’s hope he can muster the votes to shoot this stupid and harmful legislation down, but if not…
Andy Hoffman with the Republic Broadcasting Network
Andy Hoffman joins the Republic Broadcasting Network once again to discuss the metals market and the current state of the economy. Click on the link below to download the full audio.
Republic Broadcasting Network – May 14 2013: Andy Hoffman
Killer Tax!
Read the Tuesday Afternoon Wrap-Up for 5/14/2013 and the Wednesday Morning Commentary for 5/15/2013
In the Bizarro World we live in, the day is ruled – for now – by MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA. Thus, the gross capital misallocations caused by four decades of central planning are exponentially worsening; care of “record stock prices,” largely ignored by the media and public…
Does a strong market mean a recovering economy?
In other words, the BLARING SIRENS of warning have been discounted by the majority; such as – for example – the PIIGS crisis; MF Global; Cyprus; “Abenomics”; “QE to Infinity”; the fiscal cliff and debt ceiling; and, of course, a dramatically worsening, GLOBAL economic meltdown.
Are we in a Global Recession? More than Half say Yes
Thus, it didn’t surprise me in the slightest when the following news emerged last week, without even a whimper from the media or markets; i.e., a potentially “KILLER TAX” to be imposed amidst an already horrific economic environment. It’s only a matter of time before it becomes law; and from what I hear, it will NOT just incorporate “online sales”; but potentially, ALL retail sales currently exempt from taxation…
Senate Passes Online Sales Tax Bill
U.S. online sales were estimated at $262 billion in 2012; anticipated to rise to $370 billion by 2017, according to internet consultant Forrester Research. Adding an 8% sales tax would reduce consumer purchases by $20-$30 billion over this period; sending said money directly into government coffers – where it will promptly be wasted away. It will further cripple an already dying economy, and deliver a potentially MORTAL BLOW to the burgeoning online retail business; in turn, making the economy less efficient and raising overall infrastructure costs – which, of course, will be passed on to consumers…
According to Forrester, U.S. Online Retail Sales to Rise 10 Percent Annually
Some Congressman say this bill promotes “fairness” in business; when in fact, it simply raises the costs of doing it; and in turn, patronizing it. This “KILLER TAX!” will simply be another nail in the coffin that is collapsing U.S. economy; as usual, hammered in by the government!
Headed Toward a Brick Wall
The global economy(s) has decidedly slowed down everywhere you look and at best is treading water. The GDP calculations of course are bolstered by trillions of dollars of new debt so without the “debt growth” we would be in full-fledged depression. Yet, stock markets nearly everywhere are ebullient and making either all time or multi year highs. A disconnect for sure, but is explained because of central bank easy money. Some have even looked at this phenomenon (myself included) and concluded that rising stock markets are a result of easy monetary policy… which hasn’t/won’t kick start the real economies. This is a classic sign that hyperinflation is in the cards. This conclusion is based not on opinion, but on history.
The current situation sees stock markets making new highs, interest rates historically and unjustifiably low, central bank and treasury balance sheets bloated and exponentially expanding… and yes of course “pressure” on paper precious metal prices. If you break this “combo” of pricing down into its parts, something (many/all things) doesn’t make sense. First, if “easy money” has not worked in the 5 years since 2008, why will it work now? If easy money (designed to create inflation and thus avoid deflation) is “good” for stocks because of the inflationary implications… then how do zero percent interest rates make sense if inflation will rise? Who in their right mind would tie up capital at very low fixed rates if they know that inflation will rise? And of course, how does easy money mean anything “bad” to real monies, gold and silver?
What we have here is a bubble. In fact we have a series of bubbles. The world is sitting on more bubbles, bigger bubbles than ever before. If you added together ALL of the bubbles (South Sea, Tulip, 1929, Japan 1980′s, Oil a couple of times, etc. …ALL of them prior) in the history of mankind, they would be a percentage, a VERY small percentage of the bubble(s) we have blown and are living with today. The central banks of course don’t see them (liars, liars pantalones on fire) because they ARE the bubble (or a big part if you don’t include the $1.4 quadrillion derivatives market)!
My point is this; every market is going in the wrong direction in preparation for what is coming. Yes I know, this is always how it works when bubble are being blown. Money is pouring into bonds in particular, stocks are being propped up and margin balances swollen, people are also being prodded into “selling” their gold (paper obligations). As I see it, we are headed directly into a brick wall where everything just stops. “Just stops” as in all markets are closed and you have what you have which will either be marked up… or down on the day that the music starts again.
You can argue many things, what you cannot argue is that the world, including and especially sovereign treasuries, are heavily indebted (more so now than ever in history) while at the same time their central banks increase the size of their balance sheets (print) unlike ever before. In what world does it make any sense at all to own the debt of a bankrupt debtor? In what world does it make sense to hold the currency issued from a central bank that openly admits to monetizing? In what world does it make any sense at all to participate in a Ponzi scheme AFTER the promoters have already spelled out exactly what it is? It doesn’t, but no one (very few) will see this until after the fact. After the markets are closed, after the “bail ins” occur, after currencies don’t and won’t spend.
Yes I know, some (probably many) will say that I’m nuts and none of this will ever happen. I would say that it has ALWAYS happened, ALWAYS. History is rife with examples. Examples of bank runs, examples of hyperinflations, examples of asset bubble and examples of governments that could not “pay their bill” because they borrowed too much. These examples were scattered throughout time and geographical location. Now it is everywhere and all at the same time… so why will “now” be any different from all of the previous historical examples? It won’t be, it will only be worse, affect many more and be concentrated into one hideous financial and societal event all at one time.
So, the crowd is pouring into bonds, stocks, real estate and counting their values in “chits” of colored paper. They are doing this with the “push” from sovereign administrations, central banks, financial institutions and the media. People are also looking toward an exit door with a sign over it that says “scary, SCARY… do not go here” placed there by the above collection. The “brick wall” is out there. You can say that it isn’t but history, math, logic and just plain 3rd grade common sense says that it is. Think this one through, it’s not hard but life after “the wall” will be!
Can Gold Rise During Deflation?
The view that we are in deflation because the money the Fed pours into the banks isn’t making its way out the door in the form of business loans seems logical. Robert Martin-Williams believes that to be the case and I urge you to read his excellent article titled Staring Into the Abyss. But, that viewpoint assumes that inflation has to be caused by increased demand. It’s referred to as demand-driven inflation. Therefore, low demand, no inflation.
There is another viewpoint to consider – it’s called the currency-induced-cost-push inflation. That is what Jim Sinclair says will power gold up in the next two to three years. The fate of the dollar is the issue here. Sinclair says the dollar will lose its petro-dollar, reserve currency status and plunge below .72 (on the USDX). This will push up the price of our imports. “Demand” and strength of our economy will not be what pulls up prices; it will be the loss of the dollar’s purchasing power. The yuan will move front and center and will partly back their currency with gold. A new reserve currency will be implemented, and it will prominently feature the (gold backed) yuan and physical gold will be part of the new currency too.
Remember, we don’t need a strong economy to have inflation. John Williams would be the first to point out that our economy is weak and getting worse and yet he is still resolute that hyperinflation is only a year and a half down the road. This is an interesting debate – you get to choose which way you think it will go. You can embrace Jim Sinclair’s “currency-induced-cost-push-inflation,” or you can go with Martin-Williams’ “demand-pull-inflation,” which in this case will turn out to be deflation. But Martin-Williams is still pro gold in spite of the deflation, and concludes, “Rising inflation would force capital out of equities, junk bonds and government bonds (all of which are at all-time highs) and ultimately into precious metals and commodities.”
In April, a friend of mine in Miami asked me if I thought the yen would fall to 100.00. It was in the low 90s at the time. I said absolutely. As of today, the yen has fallen another 3% against the dollar to 102.195. If you think the dollar is rising, think again. The yen is (deliberately) falling and that makes the dollar LOOK like its rising. The fashionable trade is short-yen, long dollar! The Euro and the Swiss franc are holding up reasonably well – it’s all about the yen. Could it be that the Fed convinced Japan to devalue the yen to keep the dollar rising – which supports our bond market and helps to hold back gold and silver? This is not a stretch of the imagination. Imagine what will happen when this short-yen, long dollar trade reverses and the hedge funds have to sell dollars to buy yen to close out their positions. It will happen, you know.
Debt Ceiling ‘Suspension’ Expires May 19th
Read the Monday Afternoon Wrap-Up for 5/13/2013 and the Tuesday Morning Commentary for 5/14/2013
The old saying is that “things don’t matter – until they do”; which is EXACTLY what we’re dealing with in regards to the soaring, parabolic debt growth the ENTIRE WORLD has endured since Nixon closed the “gold window” in August 1971. Think I’m exaggerating? Then feast your eyes on this!
For those that think such a TOWERING EDIFICE is sustainable, think of how much interest is required to service it. Each 1% increase in Treasury yields adds $170 billion of annual interest expense at the current debt level of $16.84 trillion; excluding roughly $5 trillion of “off-balance sheet” debt owed by government-owned parasites Fannie Mae and Freddie Mac. Thus, for anyone that actually believes the PROPAGANDA of a potential “end to QE”; all I can say is, ROFLMAO…
If you recall August 2011’s Global Meltdown II; when S&P stripped the U.S. of its AAA rating – as its debt surged through the then $14.294 trillion debt ceiling…
S&P downgrades U.S. credit rating for first time – 8/5/11
…Congress’ makeshift solution was the ill-fated Budget Control Act of 2011; in which, the debt ceiling was raised to $16.394 trillion in exchange for just $185 billion of “sequestration” cuts in January 2013. Those cuts have since been whittled below $80 billion – back-end weighted, of course – and the “debt ceiling” was BLOWN AWAY just 16 months later…
It’s official: U.S. hits $16.394 trillion debt ceiling – 1/2/13
…causing the government to form a rare bipartisan coalition to “suspend” the debt ceiling until May 19th; ironically titled “No Budget, No Pay”…
Obama signs debt ceiling suspension, ‘No Budget, No Pay’ into law
…as we still don’t have a signed budget – after four years (but don’t worry, Congress is discussing it over golf)…
Chambliss’ Hole-in-One Puts Obama in Play on Budget Talks
So here we are on May 14th – with U.S. debt up to $16.84 trillion, and rising rapidly…
…to the point it’s becoming a farce…
Debt Ceiling visualized – Demonocracy
…and – of course – the government will try to further delay the ceiling with shady “extraordinary measures”…
It’s Debt-Ceiling Madness Again. Why You Should Stay Calm (Sort Of)
…perhaps until Labor Day (but WAIT, how can you “delay” a debt ceiling from being hit when you’re already $500 BILLION above it?!?!)…
U.S. won’t hit debt ceiling until at least Labor Day, says Treasury secretary
However, they ultimately will be forced to make a decision; to either implement the 16th “debt ceiling” increase since 1996…
…or eliminate it altogether…
Amazingly, the ENTIRE WORLD is ignoring this gargantuan issue; just like EVERY OTHER issue, care of the massive stock and bond market gains generated by the most shocking MONEY PRINTING and MARKET MANIPULATION scheme of all time. I.e., no one currently cares that other rating agencies are likely to downgrade the U.S. as well…
Moody’s May Cut U.S. Rating in Absence of Budget Deal – 9/11/12
Fitch warns U.S. risks losing AAA debt rating – 2/27/13
…and that according to S&P’s own language in its August 2011 downgrade, it is essentially guaranteed to do so…
“We could lower the long-term rating to ‘AA’ within the next two years if we see less
reduction in spending than agreed to; higher interest rates; or new fiscal pressures resulting in a higher general government debt trajectory than we currently assume in our base case.”
…that is, unless it kowtows to government strong-arming…
S&P Lawsuit: U.S. Accuses Ratings Agency of Fraud in lead up to Financial Crisis
I ASSURE you that every effort imaginable – legal and illegal – will be utilized to “kick the can” further down the road. However, it is a mathematical certainty that U.S. debt will rise parabolically – and eventually, hyper-parabolically, Thus, no matter how much money is PRINTED to keep rates low – yielding accelerating INFLATION, of course; the debt ceiling issue WILL eventually matter; likely, much sooner than you can imagine…
But… But it’s Manipulated
While reading a reader’s comment I came across someone who said, “You don’t buy Gold or Silver because they are manipulated.” Let’s look at this from a couple of standpoints. First, maybe they mean that you “shouldn’t” buy metals because they are price manipulated. Or maybe they meant that “manipulation” is a reason not to buy. Conversely, maybe what they meant was that you “shouldn’t play in a rigged casino.” I can only guess because the comment was stand alone at the bottom of an article debating “manipulation.”
First off, I have zero thoughts that gold (and silver) are not manipulated as I have written many many times before. There is reason or motive for price suppression, there is the ability and tools to do so, there is obvious price action and “tons” (pun intended) of anecdotal (and paper trail) evidence proving the manipulation. I will assume that if you are reading this piece that you know about the manipulation and price suppression that has gone on for more years than I have fingers and toes to count with. If you don’t know this or disagree with it, please do some real research for yourself and don’t bother sending me any irritating e-mails as you will only be exposing either your ignorance or lack of being genuine.
That said, “manipulation” is EXACTLY the reason WHY you should purchase the precious metals! If prices are lower (far and multiples lower) than where they would be if left alone to free markets and Mother Nature then you can acquire assets at “subsidized” prices. For example, if a gas station were to offer gasoline for 29.9 cents per gallon you would buy all you could right? I personally would ask the station owner if he made a mistake because I don’t like to see anyone get “beat” but if the owner told me, “No, the price is correct and in fact a market price,” then I would fill up all of my cars and probably install a holding tank in my backyard to be filled. My point is this, if you know that something is too cheap then you will purchase as much of it as you can… which is exactly what people the world over are doing and have created a demand which is overwhelming physical supply.
Then you have another question to answer. Should you not buy the metals “because” they are manipulated and basically have sign hanging over the door “don’t go there?” The answer I think is pretty obvious. NOTHING can be priced incorrectly forever no matter WHO it is behind the mispricing. One day, sooner or later (I personally believe that it is “later” already and maybe even 1 minute past midnight) the market forces will overwhelm the manipulation and as my Dad used to say, “Water will seek its own level and cream rises to the top.” In other words, one day you will be paid for seeing through the smokescreen.
I must say that I understand the frustration of many readers and clients at the price action and “how” it has been done. People are pissed because gold should be higher in fiat price yet it’s not. Human nature is such that even if you KNOW something, the reasons behind it and how it’s done… if you are shown a “reality” that doesn’t add up humans tend to forget what they actually KNOW. Human nature has also evolved into a “I want it and I want it now” culture. Truth doesn’t work like this. The truth is always the truth no matter what common thought or perception is and no matter what your “rulers” want you to believe nor how long the misconception prevails.
I don’t want to get too long winded here so I’ll wrap up with this. “Manipulation” lower of the price of any asset is THE REASON and EVERY REASON to buy it. No matter from what angle you are looking, the fact that gold and silver are price suppressed is every and all reasons why you need to own them. They are worth more than you are being “told.” There is a reason why you are being told that they are priced where they are. There are multiple reasons why you have and are being discouraged to own silver and gold. Understand this train of thought and relax. The manipulators will ultimately destroy themselves through illogic, faulty math and trying to piss on Mother Nature’s shoes. A new currency system must and will arise from the ashes of the current one that is failing. Having real wealth and real money will allow you a place at the newly cleared and cleaned monetary table.
The Yen Bomb
Andy Hoffman further discussed the Yen Bomb in Japan with Rahul of AltInvestors. This is a particularly “hot blooded” podcast. Viewers beware:
The Tapering of QE3
The Fed’s new term for the withdrawal from Quantitative Easing: Tapering. What does it really mean? No outline has been presented for when and if they’re going to reduce bond purchases. Andy Hoffman joins Kerry Lutz of the Financial Survival Network to discuss “tapering.”
Ranting Andy Hoffman – The Tapering Of QE3
NIRP VS. Gold, Part II
Read the Friday Afternoon Wrap-Up for 5/10/2013 and the Monday Morning Commentary for 5/13/2013
Last summer, yet another European crisis prompted short-term interest rates to plunge BELOW ZERO. Several nations even mandated short-term “NIRP” – or Negative Interest Rate Policy – to force investors to pull funds from banks and spend them; as discussed in my July 18, 2012 RANT, “NIRP VS. GOLD”
Two days later – on July 20th – the ECB printed €100 billion to (temporarily) bail out the Spanish banking system…
Eurozone OKs bailout of up to €100 billion for Spanish banks
…and eight days later – on July 26th – “Goldman Mario” Draghi infamously stated the ECB would do “whatever it takes” to save the Euro…
Debt crisis: Mario Draghi pledges to do ‘whatever it takes’ to save euro
…yielding the September 6th launch of the OMT, or “Outright Monetary Transaction” program; to PRINT UNLIMITED MONEY to “stabilize” the European financial system…
At last, the ECB announces unlimited intervention!
Eight months later, the Eurozone has decidedly NOT been “saved”…
Mario Draghi and the ECB haven’t saved the Eurozone
…as not only is the ENTIRE CONTINENT in recession…
Euro recession deepens: So what can the ECB do now?
…but unemployment is at an ALL-TIME HIGH…
Euro-Area Unemployment Increases to Record 12.1% amid Recession
…amidst continued collapse of the Spanish banking system…
Spain bad loan ratio resumes upward spiral
…prompting Swiss investors to again push two-year interest rates BELOW ZERO…
…at the behest of the EVIL, MORONIC IMF…
SNB Should Use Negative Rates If Franc Rises, IMF says
…and the TRAITOROUS, DESTRUCTIVE SNB…
Swiss Bank May Impose Negative Rates on Franc Deposits
Consequently, on May 1st, the ECB reduced its already ridiculously low benchmark rate from 0.75% to 0.50%…
ECB cuts interest rate to record low of 0.5pc
…immediately stating its intention to go still lower if needed…
ECB’s Coeure says Rates can go Even Lower
ECB Tumbles on more Draghi Verbal Intervention
…ultimately, to the 0.00%-0.25% “range” the Fed has been at for the past four-and-a-half years…
…which, by the way, has caused yields to fall below 0.10% on U.S. Treasury Bills; not to mention, YOUR BANK ACCOUNTS and CDs…
The premise behind “NIRP VS. GOLD” was that such foolish; inflationary monetary policies permanently dispel the PROPAGANDA that gold is worthless because it “doesn’t pay interest.” Aside from the lunacy of stating that the ONLY asset that has maintained its historical purchasing power should be sold amidst the most widespread MONEY PRINTING orgy of all time; gold is the HIGHEST YIELDING ASSET in a NIRP environment…
Are Negative Interest Rates in Europe’s Future?
…and as of last week, such a MANDATE appears eminently possible for the ENTIRE Eurozone; as hinted by “Goldman Mario” at the ECB’s May 1st press conference…
ECB “Technically Ready” to Ask Depositors to Pay Banks for Holding Their Money
As the European economy worsens, Draghi won’t even need to enact such a policy; as rates will do EXACTLY what they did last summer; not to mention around the world – no matter how hard Central banks try to ignite HYPERINFLATION…
…that is, until they actually succeed in destroying their currencies…
German Weimar Republic in the early 1920s and the U.S. – Troubling similarities
…which they ALWAYS do…
Research Shows ALL Paper Money Systems Failed
Keep your eyes on short-term interest rates – WORLDWIDE; as no matter how much money Central banks PRINT, investors FEAR will inevitably return. And when it does, EVERYONE will realize government bonds are not only unsafe, but amongst the most dangerous investments on the planet; and I’m sure you can guess where all that PAPER money will ultimately go…
Why is gold considered a “safe-haven”?
GOLD PRICE
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