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We posted this article over the weekend …and they call us the crazies? Let’s look at this from a very broad standpoint because if anything displays where we are as a world, financial and otherwise is captured right here!

So, a bond offering with “the worst ever” covenants is three times oversubscribed causing a repricing with less discount and lower yield than originally offered? Is this important? Is it company or industry specific? Or, is it an illustration of something far larger and systemic? I would argue the problem is definitely systemic and certainly a symptom of “mob madness”.

Forget about company or industry specific because as it stands now, over $9 trillion worth of debt all over the world sits with negative yields! We won’t go over the topic of negative interest rates again (as we have several times in the past), because even a 6 year old understands it makes no sense and is untenable from a systemic standpoint. Suffice it to say, a snake can never eat its own tail and live to talk about it.

“$9 trillion”! Not a typo, but proof of financial insanity by those who own this debt. One should simply ask, “who” (with an actual brain in their head) would invest for a specific term where they are GUARANTEED a loss if they hold to maturity? This on its own should tell you some screws are loose in collective thought. But an offering with THE worst covenants ever, three times oversubscribed is a leap in stupidity. Why? Because we are talking about a weak credit to begin with, with almost no recourse for creditors … when TSHF.

Think of it this way, debt with negative yield is predominantly reserved for “better” credits (is there such a thing today?). But weak credits are still sought after like they will never be offered again. Not only will they be offered, they will be dumped like vomit in huge quantities! What we are witnessing has in the past been termed the “madness of crowds”. It has happened many times throughout history but mostly on a regional basis, this is global. Another illustration would be Argentina. They have defaulted four times in the last 100 years, yet they recently had an oversubscribed debt offering for …wait for it … yes you got it … A 100 YEAR TERM DEBT OFFERING! Which if I am not mistaken now yields over 50% because the original clamorous buyers turned into voracious sellers …

My point in writing this topic is simple, the financial (and world in general) world has lost its mind in totality. You as a reader, probably already understood this but I hope you feel “stronger” after finishing your read. You might be a value investor, or a precious metals investor and have been punished for your thought process. I might add, and probably branded a crazy by your so called friends and family. You are not. We live in a world where stupidity is mainstream and “news” as fake as it has become is believed without question.

Before finishing, I want to relay a recent conversation I had with a Merrill Lynch broker with nearly 40 years experience. While playing golf with him we talked about what we each did. I asked him if he had ANY precious metal exposure for his clients. He said no and I asked him why not? His response was amazing. Paraphrasing, he sold any and all gold/silver and has no plans on ever repurchasing because he was “right” about a strong dollar and it will remain king during the rest of his life … I asked him one question, but isn’t the US Treasury mathematically broke because there is no way interest, principal, and all the additional promises can be paid back in current dollar terms? He told me the Fed will print whatever is needed and not debase the currency because all the past printing since 2008 has shown no signs of debasement! And there you have it, here was a veteran broker who’s lost complete sense of history and logic.

Hopefully after reading this very uncomplicated piece, you have a better sense or feeling of your correct thought process. Just because the world has lost its mind, and call you the crazy one … does not mean they are correct… it only means they are in the majority. Idiocy will not rule in perpetuity because it cannot, either logically or mathematically. We live in the largest credit bubble in all of history and more engulfing by multiples than anything we have seen prior. The bubble, as ALL bubbles do will eventually end. In fact, we already hear air hissing from several puncture wounds. And with history as our guide, it will end badly as ALL previous bubbles have.

To finish, do not fret. We looked only at “buyers” of credit here and left out “asset values” created by the use of this credit which has created the EVERYTHING BUBBLE. I would simply ask, would you rather pay nothing for an ounce of gold (less than nothing for silver) which is a non liability asset ..or, grossly overpay for a steaming pile of liability shit as far as the eye can see? Your friends and family do not yet understand this question, but they surely will. I am also quite sure they will ask why no one ever warned them …!

Standing watch,
Bill Holter
Holter-Sinclair collaboration