It’s a special day for me – as a year ago today, I was in Guangzhou, China meeting my adopted daughter for the first time. Below is a picture of wife Diana, myself, and baby Sylvie in July 2013; as well as Sylvie today, age 2½, thriving beyond our wildest expectations. Due to ongoing changes in China’s “one child policy” – which for all intents and purposes is nearly eliminated, a process we expected to take 18 months took more than seven years. We feel blessed in every way and wouldn’t have traded our experience for anything.
When we first walked into the adoption agency in May 2006 – while still living in New York – America was in the final stages of the “echo bubble” created by the Fed’s “emergency response” to the 2000-02 tech wreck; essentially, marking an economic peak unlikely to be recouped for generations. Financial markets were again booming and the PM bull market was in its sixth year. At the time, TPTB hubristically believed “all was well;” and thus, gold and silver’s raids were less frequent and intense – enabling not only steadily rising prices, but surging mining shares. Little did anyone realize what was coming just two years later, when the “end game” of history’s largest Ponzi scheme commenced.
At the 2000 market peak, I was in the heyday of my Wall Street career as a sell-side analyst for an award-winning energy research team at Salomon Smith Barney. From this position, featuring an office a few doors down from soon-to-be vilified telecom analyst Jack Grubman, I was ensconced in the “heart of the bubble.” From my standpoint, it was inconceivable that such a mania could ever be repeated – much less, a few years later. After all, 2000 encompassed not only the peak in global economic activity and expectations, but an historic tulip-like bubble in soon-to-be worthless internet stocks.
In February 2005, I left Wall Street to pursue a career in the mining industry – where I worked from 2006 until joining Miles Franklin in 2011. When the stock market peaked in early 2008, the Cartel’s mining share assault was already in full swing, despite bullion prices remaining strong. As for traditional valuation metrics, the S&P 500 hadn’t quite eclipsed the 2000 peak, but wasn’t far off. This time around, equities were just a sideshow compared to real estate, where speculation was rife following Helicopter Ben taking the Federal Funds rate from 5.25% to 2.00% between June 2006 and April 2008. Yes, he actually took rates down that much during a period when no material economic threat was present! And thus, while equities were historically expensive, real estate was far more so.
What happened next is history, and if you asked me to predict what 2014 would look like, I wouldn’t have come close. Not that my macroeconomic predictions weren’t spot on – as everything from the economic collapse, to exponential money printing, to zero interest rates and surging inflation – were exactly as predicted. However, it was even more inconceivable that the Fed combined with an increasingly vigilant PPT and Cartel could push equity and fixed income prices to all-time highs, whilst viciously attacking gold and silver prices. Frankly, said “emergency responses” of 2000 and 2008 have been put to shame by the level of money printing, market manipulation and propaganda since 2011’s “point of no return” was reached; in our view, “setting the table” for the cataclysmic irreversible financial calamity that’s been inevitable since the gold standard was abandoned in 1971.
Amazingly, history’s largest “liquidity injection” has not only catalyzed all-time highs in both stocks and bonds – which, by the way, conflicts with Economic Mother Nature’s number one rule – but the highest level of complacency in financial market history. To wit, amidst a world where essentially all nations are in dire economic straits, unemployment is at levels not seen since the Great Depression, debt accumulation and the cost of living are at all-time highs, money printing is turning parabolic, social unrest surging, and war omnipresent, the Fed’s “Stress Index” is at an all-time low.
Conversely, precious metal prices have been trashed for three-plus years, whilst the mining industry has been all but permanently destroyed despite record physical demand, razor thin inventories, and the most bullish fundamentals of our lifetime. Essentially, when TPTB realized their post-2008 money printing blitz was failing during the summer of 2011, they decided their only remaining tool was the aforementioned money printing and market manipulation that has created the devastating scenario we are living through today.
Today, gold and silver prices are more “oversold” than at any point in history; and while physical demand is as strong as ever, paper prices have been suppressed below the cost of production, whilst massive amounts of Western gold have permanently emigrated East. Conversely, stock valuations, margin debt and market momentum – has not only exceeded the 2008 peak, but 2000 as well. In this brilliant pieced, David Stockman not only demonstrates these ugly ominous truths, but highlights how Wall Street was saying the exact same things then as now; i.e., all’s well, and nothing can ever stop the equity bull.
Of course, today’s world is far uglier with zero financial “cushion” to fall back on. To wit, not only have individual debts passed “peak saturation,” but so have those of corporations, municipalities, sovereign nations, and the Central banks themselves; i.e., the “buyers of last resort.” With interest rates at record lows, they have nowhere to go but up unless taken that last leg lower by “QE to Infinity” – which we assure you, they will. Currencies – and economies – have been imploding worldwide and the more money is printed, the higher the likelihood of hyperinflation, war, and draconian government response. Not to mention, the inevitable breaking of the Gold Cartel, just as the London Gold Pool in 1968 and countless dozens of attempts to usurp real money over the millennia.
Today alone, as we prepare for tomorrow’s “twin key attack events” of 2Q GDP and the FOMC meeting, the news flashes of plunging PMI service employment, a falling pending home sales index, the largest monthly home price drop in three years, record French unemployment; surging Japanese unemployment, combined with plunging retail spending, surging high yield debt spreads combined with massive fund outflows, rising Chinese QE expectations, imminent Argentinian debt default, raging wars in the Ukraine and Middle East, bond and money market fund “gating,” expanding “Cold War” tensions, the bankruptcy of Portugal’s largest bank, record U.S. entitlements; a 35-year low in the Labor Participation Rate, a 40-year low in median real wages; and last but not least, the IPO of third tier fast food chain El Pollo Loco trading at 20x forward EBITDA!
And yet, with interest rates on the verge of plunging to their lowest levels since the “tapering” propaganda scheme commenced last Spring – in our view, the “most damning proof yet of QE failure” – we’re told “consumer confidence” is at its highest level since October 2007, as PM prices for the umpteenth time are attacked with a vengeance; what a surprise, at 10:00 AM EST, when global physical markets are closed by the fraudulent “London Fix.” In other words, if today’s chart looks “familiar,” it’s because it’s following the same manipulation scheme of the past two decades.
Last month, we wrote of the “Island of Lies” where arbitrary manipulated “paper statistics” are created to whitewash the reality of real “physical statistics,” like retail sales, durable goods orders, and consumer spending. “Consumer confidence” fits this bill perfectly, especially as it contradicts completely what we wrote yesterday, in “Need or Want, Demand Is Dying.” In our view, the “isolation” of this island is not just inevitable, but imminent; as frankly, it’s beyond our comprehension how we’ve come this far without the entire House of Cards coming down.
Perhaps Whirlybird Janet’s comments tomorrow starts the cataclysmic avalanche, no matter how “carefully crafted” they are. And perhaps, it will be one of the myriad topics noted above, or one or more not yet on the world’s “radar screen.” However, as sure as day follows night it’s coming; and when it does, the most overvalued financial markets of all time, combined with the most undervalued precious metals prices in generations will cause the most historic wealth transfer in the history of mankind – perhaps in nominal terms, but certainly in real ones.
In the aftermath, the “world as we have known it” will be gone goodbye, and if you haven’t acted to protect yourself beforehand, it will already be too late. While as the 2000 and 2007 bubble bursts were “backstopped” by Central bank “ammunition,” none such cushion exists today. In other words, the upcoming bubble “tale” has no historic precedent, nor even the remotest chance of a “happy ending.”