Today is one of those days where I intend to achieve my goal, as there are simply too many important topics to be broached. Frankly, it is awe-inspiring to watch the daily machinations of global money printing, market manipulation, and propaganda destroying the lives of countless billions. Each successive manoeuver materially adds to the cumulative misery we anticipate in the coming decade – such as today’s Bank of England decision to maintain its 0.50% interest rate for the sixth straight year, and its £375 billion QE program.
Let’s start with the Far East, where the Bank of Japan and People’s Bank of China are in a neck-and-neck race to destroy their economies – and citizens’ lives – the fastest. At least the PBOC has thousands of tonnes of gold to backstop the next reserve currency. However, it won’t be the current batch of Communists in charge when this inevitably occurs; as before a new, gold-backed monetary system can be even dreamt of, the entire, global fiat currency regime must collapse – led, no doubt, by implosion of the $23 trillion Chinese “shadow banking” bubble. Regarding the BOJ, it’s ironic that it’s celebrating the infamous 25th anniversary of its stock and real estate crash with the nation-destroying “Abenomics” scheme; as simultaneously, Miles Franklin is celebrating the proud achievement of 25 years in the extremely difficult, universally-despised business of protecting people from Central banking foolishness.
We’ve already noted how Japanese consumer spending collapsed going into last week’s national sales tax increase, yielding an implosion of its trade deficit – alongside a multi-year high in CPI inflation, 21 straight months of falling wages, and oh yeah, record retail gold purchases. Then, we learned that Japan’s largest department store chain suffered a 25% sales plunge in the first week following the tax increase and now, last night’s news that February machine orders collapsed by nearly 9%.
In China, where despite negative PMI readings, the government actually forecasts 7.7% GDP growth, it was reported that March imports and exports plunged by 11.3% and 6.6%, respectively from a year ago; as it, too, is experiencing a dramatic economic slowdown that we assure you, will wreak havoc on global trade. And thus, it shouldn’t surprise anyone that the Baltic Dry Index has started 2014 by plunging an incredible 50%. This is the worst start to a year the BDI has ever had, followed closely by 2012. What a shock, the two worst years ever – just as the global money printing party exploded into the stratosphere, and the Cartel went hog wild suppressing Paper PM prices.
Here in the United States of Decline, Friday’s miserable NFP report highlighted just how bleak the economic outlook has become – particularly if one ignores bogus “headline numbers” and focuses on the abysmal, permanently deteriorating internals; or better yet, actual surveys of real people – like the Bloomberg Consumer Comfort Index (negative for eleven years) and the Gallup Spending Poll (flat for the past year, despite the “so-called recovery”), which can’t scream more loudly that times are tight. To wit, we have long discussed how retail equity market participation died with the 2000-02 “tech wreck” – to be replaced by Fed-funded “ZIRP” and “QE” money supplied to TBTF” banks. And no article says it better than this one – of how head economic cheerleader Goldman Sachs anticipates households will withdraw a whopping $430 billion from equities in 2014; no doubt, to fund the exploding cost of living, in a zero savings environment created by decades of destructive Fed policy. If you want to hear lies about “deflation” and “recovery,” stick with the MSM but if you want truth, read the Miles Franklin Blog – and John Williams of Shadow Stats…
• Economic Reality versus Illusion: No Recovery, Just Plunge, Stagnation and Renewed Plunge
• Re-Intensifying Downturn Already Underway
• Confluence of Negative Surprises, Including New Business and Systemic Woes, Should Hit U.S. Dollar and Spike Inflation
• Hyperinflation to Intensify Unfolding Depression
• Gold as a Store-of-Wealth and Safe-Haven Remains Primary Hedge for Maintaining Purchasing Power of Wealth and Assets
–Shadowstats.com, April 8, 2014
Before broaching today’s primary topic, we’d be remiss to ignore the ridiculous lie published by the BLS this morning i.e., “weekly jobless claims” fell to their lowest level since 2007. Yes, just five days after the weak NFP report – and one day after the March FOMC minutes were decidedly more dovish than anticipated, per the below headline – we’re told the labor outlook has improved to multi-year highs!
Per January 10th’s “3.0% – ‘Nuff Said” – in my view, the most important article we’ve written all year – the Fed cannot allow the benchmark 10-year Treasury yield to rise above the very key round number of 3.0%. And thus, just a week after “post-winter weather recovery hype” reached a fever pitch – and the 10-year yield 2.80% – the combination of Friday’s abysmal NFP report, and yesterday’s uber-dovish FOMC minutes has pushed yields back down to 2.63%, and taken PM prices – non-stop capping and all – right back up.
*SEVERAL FED OFFICIALS SAID FORECASTS OVERSTATED RATE RISE PACE
We have long written of how highly politicized employment data is by far the most “cooked” of anything the government publishes; although frankly, the BEA’s inflation and GDP data run close to second and third. Particularly, the use of “seasonal adjustments” and recalculations utilizing “new methodologies” have rendered all such data useless – just as when the “Dow Jones Propaganda Average” is recalculated when dogs like Citigroup, AIG, Eastman Kodak, and General Motors are deleted, or the Nigerian economy suddenly becomes the largest in Africa “with the stroke of a pen.”
Per the below chart, we once again put the question to you, our educated readers. Do you believe it’s possible the Labor Participation rate could have fallen by 3.5% from the depths of the 2008 financial crisis – equivalent to roughly 5.5 million job losses – whilst “weekly jobless claims” simultaneously plunged all the way back to the pre-crisis levels? Not to mention, the fact that real wages have continued to plummet and oh yeah, between 1.3 and 2.0 million additional Americans have lost their long-term unemployment benefits in the last five months, but have “somehow” not been reflected in what should be an additional 1.0% participation rate decline?
As for “Battlefield $20 Silver,” we cannot overemphasize just how important control of the tiny silver market is to TPTB. With no more than two billion ounces above ground worldwide – the large majority of which sit in private vaults and jewelry boxes, to never see the light of day – the Cartel is terrified of the “ultimate quadruple top breakout” that will inevitably occur, when silver finally breaks above $50/oz. for good.
As you can see below, it first breached $20/oz. – that is, its first breach since the 1979 spike – in March 2008; ironically, amidst the fever of the PDAC conference in Toronto, the world’s largest mining trade show. Since that time, global money printing, debt, unemployment, inflation, and social unrest has skyrocketed; whilst currencies have collapsed, PHYSICAL demand exploded, and mining costs reached the stratosphere. Not un-coincidentally, this was precisely when JP Morgan acquired Bear Stearns’ company-killing silver short position, yielding commencement of the “Blythe Masters Era”; which, of course, ended last week.
Since March 2008, the only time silver fell below the high teens was November of that year, when the Cartel desperately attempted to paint PMs as “non-safe havens” during Global Meltdown I. Of course, those holding physical silver at the time – instead of “Paper PM Investments” like futures, options, ETFs, closed-end bullion funds, and mining shares – know full well that the physical price never fell below $17/oz. In other words, a floor has been built in the high teens over a six-year period; which frankly, we don’t see a chance of ever being challenged.
As discussed in last year’s “(End of) the Manipulation Timeline,” the Cartel has fought through every imaginable PM-bullish headline to keep paper silver in check but in the process, created severe supply/demand tightness that must eventually explode to the upside. Starting with May 2011’’s “Sunday Night Paper Silver Massacre” – when a ridiculous story of Bin Laden being captured was trotted out on a thinly-traded Sunday night, with China closed for a holiday, to calm a physical silver market that had gone no offer – price suppression has become so pervasive, utterly comical “manipulation statistics” have been racked up, of the “sixth sigma” order.
And thus, whilst the global mining industry crumbles into oblivion – in our view, to never recover – the Cartel has inadvertently created perhaps the most bullish long-term technical situation in financial market history – as discussed in our January 2nd article, “Charts Even We Can Appreciate.” Production has turned dramatically lower; the marginal cost of production is clearly above $25/oz. – with “industry-sustaining” prices well above $30/oz.; and at the current, severely depressed, generationally low levels (adjusted for inflation), the odds of the inevitable Cartel-destroying product shortage grow stronger with each passing day. Hence, our description of silver as TPTB’s “Achilles Heel.”
Recently, we have spoken at length of how gold’s “golden cross” occurred last week, pushing its 50 DMA above its 200 DMA for the first time since last April’s “Alternative Currency Destruction.” Given how maniacal the Cartel has been in suppressing prices, this is a monumental, extremely bullish technical achievement – sure to reverse multitudes of “black box” paper short positions and turn them into longs. In fact, said cross occurred at $1,300/oz. – and just two weeks later, the still maniacally capped price is up to $1,320/oz. In silver’s case, as you can imagine, the “battlefield” is that much more intense; as inadvertently, the Cartel has not only pushed prices well below the cost of production, and created a six-year technical floor in the high teens, but set up silver for its own “golden cross” – likely within two weeks, if prices remain above $20/oz. – at just above the $20/oz. “battlefield” level. With every conceivable variable on silver’s side – from a dying global economy, to flaring Ukrainian tensions, plunging physical supply and inventories, a sub-80 dollar index, plummeting real interest rates and speculative technology stocks and uber-dovish commentary (and actions) from essentially all major Central banks, it’s just a matter of time before – once and for all – $20 silver is permanently left in the dust.
Long-time PM holders have fought through countless “battlefields” over the past 15 years; but indisputably, none come close to the financial WAR at $20 over the past six years. The fundamentals were exceedingly strong then; but comparatively speaking, don’t hold a candle to where they stand today. There is essentially no material supply left – certainly not anywhere near the current, ridiculously underpriced levels; and the longer paper prices are held this low, the more explosive the inevitable breakout will be.
Sadly, it will likely accompany a major change in our lifestyles; as when it occurs, it may well catalyze – or be catalyzed by – the next 2008-style crisis. However, for those that have PROTECTED themselves beforehand, by trading worthless scrip for priceless metal, they will have a fighting chance to survive what’s coming; and possibly, be a member of the “next 1%” when the global currency system inevitably resets.
And if you believe this to be the case, as we strongly do, we hope you’ll give Miles Franklin the chance to earn your business!
The golden cross in Oct 12 did not lead to much. Why would this technical indicator matter? Is the history of this indicator significant in monetary metals? The other fundamental grounds you cite for an increase in silver prices seem a much sounder basis than the “technical indicators.”
The only reason Japanese sales “collapsed” in the first week after the sales tax hike and gold sales ( and everything else) soared before is just because people went on a buying spree before the price went up, that’s all, it was to be expected. The record gold sales in Japan in the month of march, 500% more than usual! is directly related to the tax hike. I can guess with 99% certainty that April will be one of the worst gold sales months in history in Japan, but you won’t hear that here. Wonder why…?
Your analysis of Chinese economy demonstrates an extreme myopic thinking. China’s Yuan is not a debt based fiat currency. It has been backed and convertible by gold for at least 5 years. I have had a gold account based on grams/rmb at the ICBC bank for the last 5 years. I can withdraw/deposit physical gold from/to my gold account 7 days/week.
The “current batch of Communists” were selected and nominated by China’s Board of Directors. The only way they can be removed is by any of the 7 members misbehaves financially against the Chinese citizens. After a thorough investigation into their scandal, they will have a court hearing, and if proven guilty there is a high probability that they would be executed.
Many of the “shadow banking” founders and officers have already moved to Canada and the U.S. because of their financial misbehavior. Fortunately, the majority of the founding investors were Chinese billionaires. The Peoples Bank of China and its member banks are not responsible for the debts and defaults of these “loan-shark” private trusts. The losers are their investors. The fixed assets like the “ghost cities” were funded by these trusts, and they will most likely be given to their respective Providence for rental property.
If you broaden your worldwide scope, you will notice that many Chinese companies are expanding their investments in many different countries, which will increase their own income. Therefore, I believe that the 7.7% GDP growth is conservative. I would not be surprised to see China’s final GDP for 2014 to be 8% or more.
China is a Communist country by name only. Their economy is not Communistic. China has greater freedom of religion than the U.S. The individual Providences have more control of their internal matters than any State in the U.S. China’s approx. 3,000 member civilian Congress is nonpartisan. The Communist Party has 84,000 registered members, and the U.S. Democratic party has 70,000 register members. China also has the highest percentage of entrepreneurs in the world.
If you count investments of Chinese companies in other countries you are then referring to their GNP (Gross National Product) and not their GDP (Gross Domestic Product).
I think the Chinese GDP will see deteriorating growth in the foreseeable future but their GNP may in fact continue to grow as China diversifies into other countries.
As far as their economy not being communistic, I would agree that their economy is far more driven by free markets than in this country where EVERYTHING is controlled by our Central Planners.
I agree with your reference to the GNP, but the Chinese are very pragmatic and invest in companies that will reduce the domestic expenses, and improve on their productivity. Those statistics are almost impossible to separate between GDP and GNP.
The Chinese management style is opposite to the West. When they acquire a company, they do not change its management, unless it is corrupt. Even then, they promote from within the company. You never see a Chinese management, outside of China. The only exception is within the construction industry, all management are Chinese, and most workers are Chinese. The Chinese classify these as short-term contracts.
When they invest in a company that supplies products or other resources, they gain by reduced costs and preferred delivery, and they require management to be effective and efficient.
I want to apologize that I should have stated the membership of the Chinese Communist and the Democratic parties incorrectly, they should have been 84 million and 70 million registered members.
Every morning I shave and brush my teeth.
Then I pucker my butt for the day because I am sick and tired of all the smoke being blown up from the Federal Reserve and all government agencies.
Excellent post Andy. I read you and Bill Holter all the time. Thanks for the credible analysis.
Gentlemen: IMHO all of these gold and silver valuation theories are worthless. The simple fact of the matter is that the ETFs have now evacuated the precious metals sector in favor of QE funny-money driven BUBBLe of the US and Canadian stock markets, a situation further enhanced by increasing numbers of retirees looking for dividend yields to life off of. Gold and silver are pretty much trading at the cost of production, considering the major input cost is diesel fuel which has been ramping up with oil prices lately. There is no rationale behind the arguments for the “historical gold/silver” ratio. The Chinese economics figures are questionable and the bigger concern is if the massive housing bubble in China collapses taking down the Chinese banks. That’s when you’ll really see the smelly brown stuff hit the fan worldwide….Buy gold bullion before the ETF speculator manipulators get in on it (again).