It’s Friday morning, and we have much to cover. Our primary topic is the collapsing Federal Reserve-fostered real estate “echo bubble,” but a case can be made for headlines from all corners of the globe. Thus, I’ll start with a global “horrible headline sampler,” commencing with the following, damning quote from “Goldman Mario” Draghi, from a conference yesterday morning…
The objective here would not be to defend the current stance, but rather to increase meaningfully the degree of monetary accommodation, The Governing Council is committed –- unanimously –- to using both unconventional and conventional instruments to deal effectively with the risks of a too-prolonged period of low inflation.
–Bloomberg, April 24, 2014
And there you have it. As we have warned for months, the ECB is preparing for the inevitable – likely imminent – launch of its OMT, or Outright Monetary Transaction QE program. Back in July 2012, when Draghi infamously said the ECB would “do whatever it takes” to save the Euro – “and believe me, it will be enough,” he probably couldn’t imagine having to overtly do so less than two years later. Not that they haven’t been covertly doing so all along, via “swap agreements” that enable Western Central banks to provide essentially zero cost funding to banks in need, without accounting for such actions as “bailouts” or “money printing.” Furthermore, there’s not a doubt in our minds they have been aiding the Fed in a “tit for tat” arrangement; as now that Belgium – i.e., the “coincidental” headquarters of the European Union – has become the fourth largest U.S. Treasury holder, it couldn’t be more obvious where said funding emanates. And as for the OMT, yet again, we are seeing the time-honored Central bank obfuscation strategy of claiming “deflation” when prior money printing efforts fail, hoping said propaganda smooth the enactment of additional hyper-inflationary endeavors.
Speaking of hyperinflation, China and Japan are well on their way towards initiating it in the Far East. The PBOC, despite “unconventional” communication methods, has clearly been printing more than any Central bank on the planet, for a very long time. Maintaining a dollar peg for two decades has ballooned the Chinese money supply more than tenfold; but in recent months, PBOC printing presses have gone hog wild in not only responding to the collapse of its ill-fated “shadow banking” credit/real estate/construction bubble with exponentially increased “liquidity,” but to expansion of the “final currency war” by further tightening the dollar/Yuan peg.
Not only will such action have a catastrophic global impact on inflation and manufacturing market share; but as we discussed in “Chinese Financial Torture,” $500 billion of “carry trade” derivatives have bet the Yuan will indefinitely strengthen; and thus, the possibility of a 2008-style derivatives collapse – based solely on the Yuan/dollar peg – looms more powerfully each day.
Meanwhile, in Japan – where the “noose begins to tighten” – it was reported last night that its so-called deflation is rapidly “deflating,” as its government-suppressed CPI jumped to 2.9% year-over-year growth, its highest level since 1992 ironically, just after the epic, nation-killing market crashes of 1989. With the Nikkei no longer rising, wages down for 21 straight months, and Shinzo Abe’s approval rating at an all-time low, it’s only a matter before “something gives” in the “Land of the Setting Sun.” Abenomics – i.e., doubling the money supply in two years’ time – still has another year left and during that time; don’t be surprised if the first hints of hyperinflation show themselves.
Next, you have the growing list of “black swans”; any one of which could ignite the worldwide stampede into Precious Metals that permanently destroys the Cartel – and with it, dollar-anchored fiat currency hegemony. For my money, the only more propagandized term than “deflation” and “recovery” is “de-escalation,” as applies to the potential catastrophe ongoing in the Ukraine. Yesterday was clearly the low point, as talks between East and West have broken down, with both sides expanding troop presences at the Ukrainian border, amidst surging violence and heightened rhetoric. Yesterday, Standard & Poor’s downgraded Russia’s credit rating to one notch above junk (LOL, with its energy independence and miniscule 36% debt/GDP ratio); and Russia’s response – a list of 15 West-crippling sanctions it is on the verge of enacting. Yesterday, Ukrainian officials accused Russia of trying to catalyze World War III which sadly, may well be the end result.
And finally, the United States of Financial Decrepitude where, when you cut through the propaganda, misinformation, and “diffusion indices,” this is its true economic condition, per John Williams of Shadow Stats…
– 1Q 2014 Durable Goods Order Contracted at 7.2% Annualized Pace
– 1Q 2014 New-Home Sales Contracted at 9.8% Annualized Pace
– 1Q 2014 Existing-Home Sales Contracted at 24.8% Annualized Pace
–Shadowstats.com, April 24, 2014
We’ll get to the impact of yesterday’s “shocking” 14% plunge in existing home sales -versus expectations of a 4% increase – in a moment but before I do so, want to remind you of the “most important reason to own Precious Metals” – i.e., food inflation. Yesterday, the nation’s second largest supermarket chain – Safeway – announced that after a year of significant losses, it will pass along the inflation in its pipeline that thus far, it has been “eating.” Care of Federal Reserve money printing and potentially catastrophic Californian droughts, U.S. food indices have risen by a shocking 20% since year-end and shortly, will be “passed through” to your wallets. Sadly, such trends are global; and I’m not just speaking of money printing – as currently, Brazilian droughts are endangering the world’s supplies of low cost coffee, soybeans, and sugar cane.
And on to today’s “happy topic”; i.e., the crippling collapse in U.S. home prices that must occur in the coming years. That is, barring a hyperinflation that destroys real values, no matter what nominal prices achieve.
In January’s “3.0% – Nuff’ Said,” we postulated the Fed can never taper QE let alone, stop or reverse it. In fact, we proved “tapering” is a mirage – similarly propagandized as deflation, recovery, and de-escalation. The premise of the article was that with rapidly escalating debts and deficits; plus, stock, equity, and real estate bubbles of epic proportions – let alone, the dollar itself – the economy, financial markets, and government itself would collapse under the weight of even modest interest rate increases.
In other words, the hyperbolic, Fed-funded Ponzi scheme that has enriched “the 1%” at the expense of the rest sits on a quicksand foundation of record low interest rates in an environment of record high real inflation and thus, must be supported with “QE to Infinity” to avert instantaneous collapse. That will inevitably come later, but we assure you, if the Fed even slows its record QE pace – or, for that matter, any of the world’s major Central banks, the end of the “world as we have known it” will not be later, but NOW.
Everywhere we look, the cancerous effects of QE are prevalent starting with the aforementioned food price explosion, but expanding to all aspects of society; not to mention, the hyperinflationary impact of the government’s “fiscal reaction” – such as enacting massive new taxes on its way to full-blown socialism. But nowhere is it more obvious than the so-called “housing recovery,” which in effect, has been little more than a “dead cat bounce” amidst a multi-decade collapse. And worse yet, the fact that it has been funded solely by Fed printed, Wall Street speculated funny money makes U.S. housing resemble a bubble-like stock market far more than one for real assets.
In this amazing article, some astounding charts are presented, demonstrating how home affordability has been decimated whilst the average American is desperate to make ends meet. Below, for example, it couldn’t be clearer that actual people have not participated in the housing “recovery”; and in fact, more than ever, are selling homes and moving in with mom and dad. Worse yet, when the recent “boom” is put in context, it’s quite obvious little has actually improved – other than returns in selected, depressed markets due to the enormous leverage utilized by Wall Street. However, the scariest aspect of this data is that all it took to cause such a sharp downturn was mortgage rates rising a measly 1% from Fed-created, record low levels.Streettalklive.com Streettalklive.com
Given these factors, we’re starting to think it matters not whether the Fed can manage to hold rates this low – specifically, the benchmark 10-year Treasury yield below 3.0%; as the preponderance of evidence suggests the “diminishing returns” of QE have completely played out. Oh, have no fear – we write facetiously; as per above, the Fed must continue with “QE to Infinity” to prevent an instantaneous financial collapse. However, at this point, it appears the historic, speculative real estate implosion that commenced in 2007 has resumed and likely, NOTHING can stop it now.
As for yesterday’s “trading” activity, how blatant can it have been that Paper PMs were viciously attacked all week, ahead of yesterday’s COMEX options expiration at 1:30 PM EST? Clearly, the key round numbers of $1,300/oz. and “battlefield $20 silver” were defended to the death, so as to cheat as many call option holding traders as possible; in gold’s case, stopping its gain at exactly 1.0%, at exactly the 10:00 AM EST close of the global physical markets, with a prototypical “Cartel Herald” algorithm.
Today, prices are again attempting to rise but wouldn’t you know it, yet another “Cartel Herald” is attempting the same capping, at exactly $1,300/oz. It’s early yet, but methinks the “forces of good” are gaining strength. And given yesterday’s news that Barrick and Newmont will imminently merge, it won’t be long before the entire world realizes prices have been driven to unsustainable low levels.
Putting an explanation point on that sentiment, we learned yesterday that U.S. gold exports to Hong Kong exploded in January, to nearly double the all-time high. This chart perfectly symbolizes the shifting global power structure; and if you fail to heed it, you just may wind up penniless – if not nominally, certainly on a real basis.
To conclude, we cannot emphasize enough just how dire the outlook has become for the dying, global fiat Ponzi scheme. It can’t be long before it implodes of its own weight; and frankly, the “fulcrum” of this world-destroying scheme is the tiny physical gold and silver markets. Once TPTB lose their ability to suppress prices – a la the sudden London Gold Pool collapse in 1968 – your ability to protect yourself will be permanently ended. Consequently, we urge you to give Miles Franklin a call at 800-822-8080!