It’s Monday morning, and I feel like I’ve been shot out of a cannon. Before I get to one of the most important topics imaginable, I have a handful of “wide world of horrible headlines” to get out of the way. Which, I might add, are integrally entwined in a deadly economic embrace – coiling tighter with each passing day, like a boa constrictor around its prey. That said, what scares me most is not so much the terrifying “forensics” behind the collapse of history’s most destructive fiat Ponzi scheme, but how many people played a part – some due to avarice; some, greed; and for the majority, plain old stupidity and sloth. To wit, I read this weekend that just 9% of 16 to 19 year Americans held jobs this summer – representing not only an all-time low percentage, but less than half the rate of my youth. Heck, I had my first job – delivering the New York Post – when I was just eleven years old!
Such are the ugly times we live in. And yet, the U.S. still remains the “best of the bunch.” Not that it will forever; as once the “end game” of global currency collapse plays out, the America’s political and economic power will be no more “extraordinary” than those of other former reserve currency issuers – like Portugal, Spain, France, and England. Heck, even America’s social leadership is rapidly waning, with its previously world-leading entertainment industry thoroughly dumbed down and diluted by commercialism, “reality,” and social media.
No, America won’t disappear. However, it’s once global dominance will disappear in all but a handful of niche areas. Which sounds not so bad, until one realizes its power stems largely from said “reserve currency”; and more importantly, the rest of the world’s five decade willingness to finance it. In other words, 21st century Americans are living further above their means than any other people ever have – at a time when its finances, economic outlook, and political leadership have never been worse. Which is why, undoubtedly, the “transition” from global dominance to mere ordinariness will be extremely painful – political, socially, and economically. As for “King Dollar” – which in currency terms, trades at the equivalent valuation of a $100,000 hybrid automobile amidst plunging energy prices – all we can say is this. Holding dollars instead of Precious Metals at prices well below their respective costs of production – in a world where Federal Reserve money printing is going parabolic (heck, even Bloomberg admits it) – can only be described as financial suicide.
Back to the horrible headlines, I feel like I’m in the Twilight Zone when trying to convey what should be the simplest point imaginable; i.e., collapsing commodity prices represent the “worst-case scenario” for global economies, financial markets, and social and geopolitical stability. However, thanks to the dumbing down of financial media; the unconscionable conflict of interest between what’s good for Wall Street and Washington, and what’s good for the “99%”; and of course, historically manipulated financial markets; I feel just as much the “Cassandra” for speaking of such a mainstream topic, as pleading for people to consider “taboo” investments like gold and silver. I mean, we’re supposedly in such a powerful “recovery” that Federal Reserve “lift-off” is imminent. And yet, global commodity prices broke through 2008’s spike bottom lows last week; led by the world’s most important revenue producing market, crude oil, whose horrifying plunge is just starting to unleash the “unspeakable horrors” I warned of ten months ago, when prices were nearly twice today’s depressionary levels.
And by the way, am I the only one incredulous as to how gasoline prices are nearly 75% above their January lows – when crude oil prices were higher than today? To that end, I spent ten years as a Wall Street energy analyst – and 20 following energy prices; and to this day, have never seen such a disparity in crude oil and gasoline prices – which “conveniently,” is not only killing oil and gas companies, but “99%” consumers such as ourselves. Trust me, when even “powers that be” cheerleaders like Goldman Sachs are warning of “unprecedentedly” ugly oil fundamentals; not to mention, as they are on the verge of going net long paper gold for the first time in 14 years; and predicting said “lif-off” won’t occur in September, as the rest of Wall Street believes; it’s time to consider the potential for major global changes, decidedly NOT “for the better.”
In Europe, where the days of the unified Euro are counting down like a rocket at Cape Canaveral, we’re now told – seemingly, out of the blue – that not only will Greek “bailout #3” be completed in time to meet its August 20th €3.2 billion cash call from the ECB, but should be done by tomorrow – in roughly the $96 billion amount discussed since Alexis Tsipras betrayed Greece by ignoring the people’s decisive “OXI” vote. Which, by the way, will cause Greece’s “published” debt/GDP ratio to surge from 175% to 200% – amidst an economy in all-out freefall; and its actual debt/GDP ratio, considering its €300 billion of “off balance sheet” debt, to explode above 300% – making it the most highly indebted nation on the planet. Meanwhile, as Alexis Tsipras himself assures us such a deal is imminent, National Bank of Greece stock is trading near its all-time low; and paraphrasing the words of Finnish Finance Minister Timo Soini, who vehemently opposes said “bailout”, “we should admit this isn’t going to work.”
Meanwhile, in the running for the “Chutzpah of the Year” award, Bloomberg writes of how Mario Draghi is excited of how “well” the European economy is doing; as when second quarter GDP figures are released this Friday, (statistically manipulated) Eurozone GDP growth is expected to have risen by…drumroll please…a whopping 0.4%; i.e., the exact same miserable, statistically goosed figure as the first quarter. And this, before Greece’s crisis took to the skies in July, and before commodity prices started really crashing. Not to mention, the Euro currency continues to “gain traction” below 1.1 to the dollar – as it prepares for its inevitable break below parity. Which, by the way, is occurring as all commodity currencies are crashing, and the Yen is knock, knock, knocking on the key round number of 125/dollar, in preparation for a run at a new 13-year low above 133/dollar. Moreover, aside from the dollar-pegged Yuan, the other four “BRICS” currencies are trading at, or near, all-time lows.
Which brings me to today’s all-important topic – which per today’s title, couldn’t be clearer. Not that I haven’t discussed this topic ad nauseum. However, given this weekend’s hideous Chinese economic data, and several mainstream articles that emerged as a result, the timing of a more comprehensive discussion seemed appropriate. Which is, the inevitability of the PBOC de-pegging the Yuan from the dollar, catalyzing a cataclysmic global ripple effect; from economies, to currencies, to financial markets, and – oh yeah, Precious Metals.
To wit, we learned this weekend that not only did Chinese imports plunge in July – confirming the rapid, dramatic collapse within Chinese borders; but Chinese exports imploded even more so, validating not only how rapidly the global economy is weakening, but the sharp reduction in Chinese manufacturing competitiveness caused by the surging dollar; I mean, Yuan. Yes, Chinese exports are down more than 8% from a year ago, and nearly 4% from June, engendering economic fears like the world has never witnessed. Let alone, amidst a collapsing Chinese stock market, which before last night, was down 30% in less than two months – and 13% since mid-July, when the first of 24 overt PBOC market-supporting measures were launched. Last night, the PBOC used the U.S. PPT’s prototypical “dead ringer” algorithm to goose the Shanghai exchange by nearly 5%, with MSM headlines blaring of how Chinese stocks rose due to “hopes for new stimulus measures.” However, given the putrid results of the aforementioned 24 “measures,” I wouldn’t hold my breath hoping for the “bottom”; as not only is the Chinese economy in freefall, but since the last horrifying Chinese equity bubble burst in 2007, the PBOC has fostered the accumulation of an additional $20 trillion of Chinese debts.
To that end, what really caught my attention was Zero Hedge’s subsequent articles titled “Chinese trade crashes, and why a Yuan devaluation is now just a matter of time” and “the case for Yuan devaluation grows, as Chinese factory prices fall most in six years” – where it espoused “as global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalue next.” Which makes me wonder how many people even considered said “global currency war” when I wrote the “final currency war” nearly three years ago. Or, for that matter, the inevitability of a Yuan devaluation, which I emphatically predicted three months ago, in “the ugliest economic data I’ve ever seen”…
“Chinese imports are plunging, and exports utterly imploding. Frankly, it is difficult to find a better measure of global trade activity than Chinese exports; and when combined with ugly Chinese import data, the picture is one of worldwide recession, if not depression. This is why global ZIRP, NIRP, and QE programs are all but guaranteed to accelerate; likely, right now. Moreover, the expanding economic carnage is why the Miles Franklin Blog has loudly predicted a dramatic – perhaps imminent – Yuan devaluation; i.e., the political, economic, and social ‘big bang to end all big bangs.’ To a man, it is difficult to conceive how the most blatant currency manipulators on the planet are not actively planning to de-peg the Yuan from the “helium balloon” the dollar has become; as not only is China’s manufacturing market share being stolen by Japan and other currency immolating nations, but competition is becoming fiercer due to inexorably weakening economic conditions.”
Again, I cannot emphasize enough the most important thing I learned whilst working as a Wall Street sell-side analyst from 1998-2005; which is, the value of concisely repeating broad themes as often as possible, to “drill home” the most important, actionable investment themes. Which, in this case, is our powerful belief that history’s only global fiat currency regime must end in said “final currency war” – as despite reams of empirical evidence proving otherwise, all Central bankers view parabolic currency debasement as not only the most politically expedient “solution”; but, in true, cancerous Keynesian form, actually think it works. Look no further than the staunch beliefs of the world’s most powerful Central bankers if you don’t believe me – from Ben Bernanke and Janet Yellen here in the States; to Mario Draghi in Europe; Shinzo Abe in Japan; and whichever misguided, academically bankrupt Communist currently runs the PBOC.
As they say, “what goes up, must come down” – and “the bigger they come, the harder they fall.” As is the case with the Yuan’s dollar peg, predicated two decades ago on the expectation that a falling dollar would enable China to exponentially grow its manufacturing market share. To wit, from the time the dollar index peaked in 2000 at 120 – until it troughed in 2011 at 73 – China essentially commandeered manufacturing leadership from Japan, which itself had taken it from the U.S. However, with the global economy now crashing – led by China, and the historic mal-investments caused by said peg – the dollar index is back up to 98, looking ready to make a run at its all-time high as the global “liquidity vacuum” I warned of nearly two years ago exponentially broadens…
“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.”
And given this weekend’s horrific Chinese economic data – not to mention, the rapidly expanding deflationary gale I warned of in January’s “direst prediction of all,” not only is an explosive, unprecedented Chinese QE effort inevitable, but so is the “upcoming, cataclysmic, financial big bang to end all big bangs” – of a Yuan de-pegging from the dollar, which ultimately, will mark the beginning of the end of said global Ponzi scheme. And oh yeah, the start of an even faster, louder countdown toward when China inevitably announces it true gold holdings – or at least, an amount far closer to reality than last month’s joke of a “disclosure”. Which, by the way, I had already predicted, in great detail, in May’s “when will be learn of China’s massive gold hoard?”
Well that’s enough for now – other than to say that HALLELUJAH, following this morning’s 40th Cartel capping of gold at the $1,100/oz “line in the sand” drawn during July 19th’s “Sunday Night Gold Massacre”; and eighth capping of silver at the key round number of $15/oz; both levels have finally been breached to the upside this morning! To which we can only say, generational investment opportunities don’t arrive too often; so when they do, don’t waste them!