Let’s just start with the blindingly obvious at least to anyone who seeks TRUTH, and avoids PROPAGANDA. As we discussed in great detail, yesterday’s ridiculous $0.60/oz. silver smash – and $11/oz. gold “hit” – were executed solely for the purpose of discouraging COMEX longs from taking PHYSICAL delivery between Tuesday’s March option contract closes and tomorrow’s “first notice day.” The news has never been more PM supportive and PM fundamentals – generally speaking – never stronger. Not to mention, the Cartel’s giant, clumsy footprints were all over the move.
That said, its recent “line in the sand” at $1,330/oz. is proving extremely difficult to breach; and thus, the fact that gold remains above that level – as “Whirlybird Janet” completed her weather-delayed “Humphrey Hawkins” Congressional economic testimony – is an extremely positive development. FYI, I took advantage of yesterday’s paper silver raid to add further to my gold Maple/silver Peregrine Falcon swap; which at the gold/silver ratio of 62:1 – with the added kicker of the Peregrines’ low premiums, and scarcity value.
As is the case every night, the Cartel went to work in the thinly traded “Globex” paper trading platform the second it opened at 6:00 PM EST – culminating in the 177th “2:15 AM” attack of the past 200 trading days. However, both metals subsequently rebounded sharply; and despite every attempt to hold them down – whilst the PPT again rescued Dow Futures as European shares fell sharply – gold has rebounded smartly above the aforementioned $1,330/oz., while silver has also regained its footing, well above the Cartel’s prior, eight-month “line in the sand” at $20/oz. More importantly, the metals’ 200 day moving averages of $1,305/oz. and $21.06/oz., respectively, held solidly under the strain of yesterday’s vicious PAPER raids.
FYI, for those trying to “blame” the yesterday’s PM plunge on the comical new home sales surge – i.e., the only strong economic report in recent memory, if one ignores “seasonal adjustments”; the pray tell, why did stocks end the day flat, as the 10-year Treasury yield plunged to a multi-month low of 2.65%? Regarding the latter, enhanced, covert QE could explain part of the recent, explosive move in Treasury bonds. However, given just how bad global economic data – and geopolitics – have been in recent weeks, it’s difficult to believe strong Treasury demand is not related to fears expanding, worldwide economic calamity. Of course, in time, such misguided capital flows will shift from worthless Treasury bonds into the only assets capable of protecting investors from what’s coming – i.e. PHYSICAL gold and silver and when they do, we’re all going to learn exactly what scarcity means!
As for said “news,” let’s start with what’s going on in the Ukraine, where the odds of a bloody civil war – sucking in superpowers like the U.S. and Russia – increase with each passing day. With Obama openly feuding with Putin, one would think demand for true safe haven assets ought to dramatically increase; but then again, what do we know? Not to mention, the demand impact of India reducing – or terminating entirely – the gold and silver import tariffs its government instituted last year? Or how about this morning’s plunge in the Turkish Lira, the Russian Ruble and other emerging market currencies? As well as the CHINESE YUAN – whose recent decline could have more dramatic, global ramifications than all the other declines combined!
As for the economic front, it’s appearing more and more likely that “Draghi’s Reckoning Day” may in fact be next Thursday (at the scheduled ECB meeting); as this morning, it was reported that European private lending remained at its all-time low in January, whilst French joblessness hit yet another all-time high, after rising for the 30th time in the past 32 months.
In the States, initial jobless claims “unexpectedly” surged to their highest level of the year, while durable goods orders were not only down 1.0% in January, but December’s decline was revised from 4.3% to 5.3%. And better yet – under the category of blatant data manipulation, which has recently exploded to unprecedented levels; for the first time in years, if not ever, the so-called January “seasonal adjustment” was not lower, but higher! In other words, durable goods orders were so weak – depicting the first year-over-year capital expenditure decline in two years – the government tried to offset the empirical data with flat-out lies.
In fact, the data is utterly overwhelming, as relates to just how rapidly the U.S. economy is declining – such as this damning graph, depicting how the average U.S. household increased its overall debt load for the first time since 2008’s Global Meltdown. In other words, despite unprecedented money printing – yielding historic stock, bond and real estate bubbles – the average family can no longer afford to “de-leverage” amidst record unemployment, inflation and as of last month, surging foreclosures in supposedly “wealthy” states like New York and New Jersey.
Such ominous trends will no doubt worsen in the coming months and years; perhaps, marking the end of the fleeting “benefits” of Central bank efforts to “reflate” the economy with printed money. Even the banks will not survive what’ s coming – free Fed money and all – as there are only so many accounting gimmicks one can rely on to hide insolvency, particularly when the economy is crashing. Lucky you, Janet, the 100-year old fiat Ponzi scheme appears set to end on your watch; but have no worries, everyone knows your printing presses will be cranked to FULL POWER until then.
And now, on to the main event; i.e., the potentially catastrophic impact of what appears to be a dramatic change in PBOC policy – as China plunges headlong into the “final currency war.” Frankly, all the MSM bluster about China potentially “tightening” monetary policy is the most ridiculous of all the propaganda we have been subjected to in recent years; as not only has the PBOC’s easy policy fostered the most epic real estate and speculative lending bubbles in history, but the recent surge in non-performing loans caused it to print nearly three times more money in January than the Bank of Japan and Federal Reserve combined. And oh yeah, there’s that giant pink elephant room called the Yuan’s official peg to the dying dollar; yielding the inexorable, unwavering need to continue printing to keep up with the Fed – now ongoing for 20 years.
But here’s the rub – and consequently, the “Chinese financial torture” that could wind up finishing off the doomed global financial system. Which is, that in the PBOC’s haste to arrest its own cascading corporate and local government defaults, it has apparently decided to “unofficially” alter its peg; in effect, weakening the Yuan in a last ditch effort to offset the crashing Chinese financial system with heightened inflation. You know, like what “Abenomics” and “QE” have miserably failed to do.
The below chart of the Yuan/dollar exchange rate depicts that out of the blue, the so-called “pegged” relationship suddenly collapsed last week – with the Yuan dropping more than a percent against the dollar. One percent may not sound like a lot, but when calculating the impact of such moves on the world’s two largest economies – not to mention, the myriad, global businesses tied to them – the overall impact is enormous. Given the U.S. is already uncompetitive in the global manufacturing sector, if the Chinese choose to devalue the Yuan further – in turn, causing the Japanese, Europeans and others to do the same – it will only put further nails in the American economic “coffin.”
Sadly, the comparison to Abenomics could not be more prescient; as frankly, it appears this draconian move is as much about fostering asset inflation as job creation; as with the Chinese real estate bubble in the process of bursting, and the Shanghai stock exchange nears its 2008 lows, the PBOC is clearly taking the same, misguided tack as the Bank of Japan. No doubt, the PBOC is well aware of the below comparison of the Tokyo Exchange’s 1989 crash – and subsequent “lost decades” – and the Shanghai Exchange’s 2007 crash, with its eerily similar consequences thus far.
However, it’s not just equity and real estate prices – and the balance of the global manufacturing sector – that lies in harm’s way if the PBOC is crazy enough to overtly devalue the Yuan; as – what a shock – world-killing banks have created an utterly monstrous derivatives mountain tied to the supposedly “pegged” Yuan/dollar exchange rate.
According to Morgan Stanley – which understands derivatives more than just about anyone, as pound-for-pound, they are perhaps the world’s largest derivatives dealer; an astonishing $500 BILLION of such instruments are tied to the Yuan/dollar exchange rate, of which nearly three-quarters were instituted last year. Consequently, each 1% increase in the dollar – against the Yuan – could potentially yield $2 BILLION of derivatives losses; and thus, last week’s 1% drop in the Yuan could signal the commencement of an utterly catastrophic chain of bank defaults.
Apparently, the so called “European Kick-In” – or EKI – is the level at which such losses start accelerating; and according to Morgan Stanley, this level is around 6.15 to 6.20 Yuan per dollar, compared to the current rate of 6.12, and last week’s 6.03. In other words, with just one more week like last week, global “derivatives fever” could start spreading like the Ebola virus. I guess this is why the so-called China “crisis gauge” – i.e., the spread between Chinese two-year swaps and government bonds – hit an all-time high last week. No?
Consequently, the “moral of the story” is that the list of financial “black swans” is growing exponentially; and thus, it wouldn’t take much for the END GAME of global currency collapse to accelerate from its current, dire state into all-out chaos. Under such circumstances, how can you not consider at least partially protecting your life’s savings with what has historically been the world’s most sought after assets; i.e., PHYSICAL gold and silver?