Long-time readers know I love to incorporate movie clips into articles; and thanks to the internet, I usually find what I’m looking for. However, I cannot find the TV studio scene in Ransom – when Mel Gibson states his intention to use a $2 million ransom demand as a bounty on his son’s kidnapper’s head. Fortunately, I’ve located the dialogue; providing a powerful introduction to today’s topic…
The whole world now knows my son was kidnapped – for ransom – three days ago. This is a recent photograph of him. And this…well, this is what awaits the man that took him. This is your ransom. Two million dollars – in unmarked bills, just like you wanted. But this is as close as you’ll ever get to it. You’ll never see one dollar of this money, because no ransom will ever be paid for my son. Not one dime, not one penny. Instead, I’m offering it as a reward on your head. Dead or alive, it doesn’t matter. So congratulations, you’ve just become a two million dollar lottery ticket… except the odds are much, much better. Do you know anyone that wouldn’t turn you in for two million dollars?
–Mel Gibson, Ransom, 1996
The reason I bring this up is because ransoms are typically associated with kidnappings; and care of poetic license, the parents in movies like Ransom usually get their children back – without paying. Unfortunately, this is not typical in the REAL world; where children are rarely returned – or ransoms, in the rare occasions they are actually paid. I have spent years highlighting the stark difference between REALITY and the MIRAGE the MSM presents for public consumption; and when it comes to the ongoing, terminal phase of the global economic meltdown, no amount of whitewashing can prevent the same collapse that has befallen all 599 previous attempts to decree “money” via government fiat.
If you look back at the tomes I have written over the years – particularly since joining Miles Franklin two years ago – you’ll see I have NEVER forecast an equity market collapse. Certainly in real terms, but not nominally; as quite frankly, there’s no telling how much money the government will PRINT to support equities – or what might occur if HYPERINFLATION occurs. However, I’ve all but guaranteed an historic bond market collapse, as simple math demonstrates its inevitability. And not just U.S. Treasuries – but ALL the world’s Ponzi-supported corporate, municipal, and sovereign bonds. Worse yet, due to the “IRREVERSIBLE, GLOBAL DEBT ADDICTION” caused by four decades of un backed money, the world not only must exponentially increase debt to simply survive, but must do so in an environment of RECORD LOW interest rates. Unfortunately, such an “economic paradox” has NEVER been achieved; and certainly won’t this time around, given the fundamentals, if anything, demand RECORD HIGH rates!
In September 2011, the Fed announced “Operation Twist”; ironically, just weeks after its “Triple-AAA” credit rating was stripped and the “debt ceiling” raised from $14.2 trillion to $16.3 trillion (today, the national debt is roughly $17.0 trillion). Via “Treasury-speak,” the MSM tried to convince the sheeple that such a program was “sterilized” – i.e., not actually printing money; as by their manipulated logic, new purchases of long-term Treasuries were offset by sales of short-term bills and notes. Of course, the Fed’s “ZIRP” policy of maintaining Fed Funds between 0.00% and 0.25% ad infinitum engenders the daily purchase of said short-term bills and notes; and thus, “Operation Twist” was in fact, nothing more than a disguised form of “Quantitative Easing” – i.e. MONEY PRINTING. At the time, QE1 and QE2 had already served to push Treasury yields to all-time low levels – which in the case of the all-important 10-year bond, was 2.1%.
However, despite what TPTB deemed a “recovering” economy, Operation Twist was not considered enough to create a “stable, sustainable” growth path. Moreover, financial markets were in turmoil; and NOTHING destroys confidence more than falling stocks; except – of course – expanding, structural unemployment and inflation. And thus, in June 2012 – with the 10-year yield down to 1.7% – Operation Twist was expanded through year-end; followed by the launches of QE3 in September 2012 and QE4 in December 2012 – in both cases, with the 10-year yield near its ALL-TIME LOW of 1.4%.
Aided by further Wall Street deregulation – or more properly termed, “turning a blind eye” on practices dangerously mirroring those of the mid-2000s real estate bubble, segments of the moribund real estate market were temporarily revived. Not to mention, the fact that Federal Reserve Treasury monetization was aided by the moronic purchases of China and Japan – which cumulatively, increased their Treasury holdings from $1.2 trillion to $2.4 trillion in the four years following the 2008-09 financial crisis. However, only the bankers benefitted from this short-term move; while Joe Six-Pack simply saw higher rental rates and lower housing affordability. But so long as record low rates were maintained, the “eye of the economic hurricane” continued to pass over America and its financial markets.
Unfortunately, housing wasn’t the only area where rank speculation was encouraged; as equity margin lending surged to all-time highs; subprime auto lending again became the rage; and of course, student loan underwriting exploded to unprecedented levels. Subsequently, the government utilized phony accounting to pretend its account deficit was shrinking; and maniacally, started to utilize said record low rates in long-term budget forecasting. And thus, spending was again ratcheted up, yielding increased financial leverage – atop already record levels. As for Joe Six-Pack, the “lower unemployment rate” didn’t match his experience of surging under-employment and plunging real wages; hence, the ongoing explosions of entitlement demand.
In the big picture, the Fed’s plan worked “too well”; as combined with the successful efforts of a maniacal PPT that simply does NOT allow the Dow Jones Propaganda Average to decline, MSM discussion of the “expanding recovery” became louder than ever. And thus, with a Fed Chairman at the end of his career – desperate to avoid a legacy of NON-STOP MONEY PRINTING, discussions of the potential to “taper” QE seeped into the media…
Unfortunately, the masses – and Fed governors alike – didn’t realize the obvious; i.e., the “recovery” was nothing more than the masking of reality by record doses of MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA. Perhaps if they looked at the numbers, they’d realize QE was but a Ponzi scheme in its final, terminal phase. To wit, maintaining the temporary appearance of recovery required the Fed to purchase 70% of the Treasury’s 2012 bond issuance; and an incredible 120% in the first seven months of 2013. Yes, they have purchased significantly more than the Treasury has issued; as oh yeah, China and Japan have become NET SELLERS of the aforementioned $1.2 trillion stash they accumulated – in most cases, at the highs.
We are supposed to have “recovered” from 2008’s Global Meltdown I; but here we are, “FIVE YEARS LATER,” and all I see is higher global inflation, surging unemployment, lower GDP growth, and collapsing fiat currencies. Moreover, the most important market on the planet – U.S. Treasury bonds – is now supported solely by the Federal Reserve; and with it, the ENTIRE, DEBT-ADDICTED GLOBAL ECONOMY. Frankly, the concept of “tapering” is beyond laughable; and if Bennie is stupid enough to announce even a “token” $10 billion/month reduction of the $85 billion/month QE4 program, I’d anticipate an all-out stampede from the already collapsing Treasury market.
As for the impact of rates having more than doubled from the September 2012 lows – as exemplified by the 10-year yield rising from 1.4% to 3.0% – “you ain’t seen nothing yet.” Remember, it was 1.6% as recently as May 2013; planting the foolish idea in Bennie’s pea-brain that self-sustaining Treasury demand might substitute for reduced QE buying. And thus, the aforementioned, bastardized U.S. “economic activity” – particularly the housing “echo-bubble” – peaked this Spring. Even the BEA admitted half of 1H13 GDP was attributed to housing; which since May, has literally cliff-dived. How the government has the nerve to try and fool the public with expanding “diffusion indices” this summer is beyond me; as the very sector it describes as the nation’s ‘growth engine’ has literally gone dark.
Today’s mortgage applications data reads more like a horror movie than an economic report; but don’t worry, the Dow is higher – LOL. To wit, the Mortgage Banker Association’s “Composite Index” plunged by a whopping 13.5% last week alone; and its “Refinance Index” by an ungodly 20.0%. Consequently, the latter is down an incredible 70% since May, to levels last seen in mid-2009. In other words, four years of “QE-fostered” real estate growth has already been erased; and the “party’s just starting”…
No matter how hard the Fed attempts to cap the 10-year yield – which serves as the basis for the majority of mortgage rates – it will shortly breach the 3.0% level to the upside; very likely, in violent fashion. It has now been stopped at EXACTLY 3.0% on four separate occasions this week; and comically, CNBC’s interest rate feed magically “wasn’t working” when the 10-year traded at 3.0% yesterday morning. This is what I call “turboQEing”; or as those that watch the PAPER PM market as I do, “DLITG” – or Don’t Let it Turn Green – algorithms (on the 10-year yield). Unfortunately for these monsters, attempts to goose Treasuries higher MISERABLY FAILED on both Monday and Tuesday; and as I write mid-day Wednesday, are on the verge of failing again.
And thus, we come to next week’s FOMC meeting; more specifically, on September 18th. The Fed has aggressively talked down “tapering” since that fateful day in June when they initially hinted it might be engaged if economic data indicated sufficient upward momentum. The REAL economy is, if anything, worse off than in June; however, the recent, moronic publications of expanding “diffusion indices” have all but painted the Fed into a corner. That is, if they DON’T taper QE, it will indicate the government was lying about the “SO-CALLED RECOVERY”; and if they do, god help us – as a global panic to dispose of soon-to-be-worthless toilet paper may well commence. And by toilet paper, I’m not just referring to Treasuries – but ALL dollar-denominated debt.
And thus, we have “A NATION HELD HOSTAGE – WITH NO CHANCE OF RANSOM.” The Chinese and Japanese cumulatively hold $2.4 TRILLION of rapidly depreciating Treasuries; and in June, sold more than during any month in their respective histories. Not to mention, the other $12+ trillion owned by entities other than the Fed; who no doubt, sense an impending game of “Treasury musical chairs” in which no one wants to be the “last man standing.” Perhaps someone will even bring up the fact that the Fed itself has lost more than $300 billion on its Treasury positions this summer alone; with prospects of perhaps a trillion of additional losses once the “QE game” breaks down.
By the way, that “flight capital” will flow somewhere; and since bonds and real estate are officially in bear markets, that leaves only stocks and Precious Metals for those looking to PROTECT their net worth. Unfortunately, stocks are trading at RECORD HIGH valuations based on a host of historic metrics; and oh yeah, they have had a nearly 100% positive correlation with bonds. But lo and behold, gold and silver are trading at RECORD LOW valuations relative to the cost of production, the level of global MONEY PRINTING, and the outlooks for both.
Only you can decide how to PROTECT YOURSELF; as the best I can do is present you with facts. I have had 100% of my liquid net worth in Precious Metals for the past eleven years – much of its stored at Miles Franklin’s Brink’s vault in Montreal – which is why I sleep the “SLEEP OF THE JUST.” As for you, time is running out to make your decision; so make it a good one. And remember; only the TRUTH can set you free!