Today’s theme is the “conflict of interest” marring essentially every aspect of the political, economic and financial world – but decidedly not Miles Franklin, and certainly not the Miles Franklin Blog. I’ll get to the latter shortly; but first Yes, just a week after the U.S. warned the ECB of taking its Euro devaluation “too far” – and thus, “stealing” manufacturing market share; it aggressively demanded that France and Italy rein in their budget deficits more slowly, while deeming it “critical” that Germany and Holland “open their purse strings.” In other words, money printing, deficit spending and debt explosion are under the assumption the resulting “recovery” will “trickle down” to America. Clearly, the U.S. is as fearful of a collapsing Europe as a collapsing Euro, but such a conflict will only be worsened by printing more money – which contrary to Lew’s hopes and dreams will only weaken the Euro further; not to mention, the European economy.
And how about the conundrum OPEC faces? Whilst global oil demand plunges, the fatally flawed U.S. shale industry is desperately overproducing to cover costs as prices plummets below the cost of production. These days, Saudi Arabia is essential the only OPEC nation with material spare capacity; and just two weeks ago, it used such leverage to initiate a price war with U.S. shale producers in reducing U.S. export prices whilst maintaining prices to the rest of the world. Unfortunately, as we highlighted in “collapsing oil prices portend unspeakable horrors,” driving prices down will injure Saudi Arabia just as badly, given the nation’s spending budget is based on nearly $95/bbl oil.
This morning, OPEC reduced its 2015 “call on OPEC,” given the glut of high-cost shale oil flooding the market; while ironically, maintaining its 2015 demand forecast due to “economic indicators pointing to a continued recovery in the global economy.” Really? Are they referring to the same “economic indicators” that prompted the ECB’s “professional panel” to reduce its 2015 European GDP growth expectations today from 1.5% to 1.2%? In other words, OPEC’s “conflict of interest” was obvious in multiple forms, as it deals with a world of plunging demand and increased competition. And mark our words, as prices collapse further (Brent plunged below $80/bbl. this morning as WTI crude is on the cusp of $76/bbl.) Saudi Arabia will do exactly what the beleaguered shale oil producers are doing now, in a desperate effort to PAY THEIR BILLS. Which is dramatically increase supply into a collapsing market, no matter what propaganda they spew at the upcoming, potentially historic OPEC meeting on November 27th.
Speaking of the self-defeating behavior catalyzed by an entire world unprepared for recession – let alone, depression; how about a desperate, flailing Walmart admitting the U.S. retail industry officially abandoned “Black Friday” promotions last year in lieu of moving them up to Thanksgiving Day? Unfortunately, business has gotten so bad, its chief sales executive claimed the entire industry is moving up promotions to the beginning of Thanksgiving Week, enroute to doing so for the entirety of November. In other words, cutting prices on more items, more quickly in a “market share” war that will only destroy the retail business further.
Or how about the Federal Reserve pretending to “taper” QE in a desperate effort to “prove” the U.S. economy is “recovering,” despite the fact that any such “recovery” was entirely due to QE? Anyone with a modicum of analytical ability knows they printed far more than they said this year – particularly when the fabled “Belgian buyer” arrived when China started selling Treasuries en masse. And clearly, the only two business actually boosted by QE – high-end real estate and shale oil production – are rolling over, whilst interest rates creep higher amidst the world’s largest debt edifice. Thus, the Fed’s terrifying “conflict of interest” in purporting a “tightening” stance; which frankly, has not a shred of credibility to start with, given ZIRP will continue for a “considerable time.”
As Goldman Sachs whistleblower Nomi Prins noted yesterday, QE isn’t dying but morphing; which is exactly what we have been saying for some time – i.e., like an iceberg, 95% of QE is hidden from view. In other words, the Fed has learned there’s no reason to do what it says; but instead, “whatever it takes” to make sure markets paint the picture it wants painted. Which, ironically, includes periodic use of the “new Hail Mary trade” – often as the past three days, at 6:00 AM EST – to goose sagging Treasury yields higher; and thus, prevent universal realization of the “most damning proof yet of QE failure”; i.e., plunging rates amidst so-called “recovery.”
To that end, we have noted how the “dead ringer” algorithm utilized to prop the “Dow Jones Propaganda Average” at 10:00 AM EST – when QE was “executed” via “open market operations” – has been visible every day since QE supposedly “ended” nearly three weeks ago, which is probably why equity “sentiment” has jumped off the rails, even compared to 2000 and 2007. Heck, even Zero Hedge picked up on the “hail mary” algorithm we have written of for years, when it noted stocks have been goosed at the close for 15 straight days; i.e., since QE “ended.” And when noting government intervention, particularly at 10:00 AM EST, one can’t forget the unrelenting attacks on paper precious metals, given 10:00 AM EST also marks the close of physical gold and silver trading. And how do we know such raids are paper-based – aside from the fact that here at Miles Franklin, we rarely receive sell orders at all, let alone at exactly 10:00 AM EST? Because yesterday, the physical market became more deeply backwardated than at any time in the past 15 years!
Of course, such manipulations are now global; at least, in “leading” Western money printers like the U.S., Europe and Japan. And care of this week’s settlements regarding the manipulation of both the precious metals and foreign exchange markets, they’re now public. That said, Europe’s chaotic, soon-to-implode beaurocratic structure makes it more difficult to execute such manipulations as effectively as the U.S., UK or Japan – which is why they receive “help” from “secret loans” and off balance sheet “swaps” form the Federal Reserve, enabling it to avoid all-out implosion so far, if barely so. In Japan, where the BOJ openly admits to buying not only all government bond issuance, but Nikkei equities themselves, Zero Hedge postulates they have unofficially “pegged” gold in a tight range as well, to avoid the buying panic that must occur given the hyperinflationary trends unleashed by Abenomics. We wouldn’t be in the slightest bit surprised; but given that 99% of major price moves occur in Western paper markets – for now – such efforts will ultimately yield nothing more than physical shortages and more wasted, printed money.
Last but not least, in the realm of “conflict of interest,” we discuss the economic curse that is the imploding mining industry; which not only is amongst the world’s most difficult businesses, but unlike the oil industry is subject to a Cartel intent on reducing prices. We cannot be more vocal in our assertions that not only production but the miners themselves are on the verge of collapse – particularly in silver, as discussed on last month’s “Miles Franklin Silver All-Star Panel Webinar.” No one has done finer work on this topic than the great Steve St. Angelo, and in his latest piece, noted how seven of the top 12 primary silver miners are underwater at current prices. Again, these are the world’s lowest cost producers, operating on shoestring budgets after slashing expenses to the bone and sacrificing any remaining hope of industry sustainability. And thus, the broader industry at large is in even worse shape. Even the world’s lowest cost “producer,” Silver Wheaton, is writing off assets like they’re going out of style; and if you think what we saw last year was dramatic, just wait until the reserve downgrades, capex reductions and production declines next year – likely, just as global demand, already at record levels explodes into the stratosphere.
Fortunately, there’s a positive side to this topic, which is the decided lack of a conflict of interest at Miles Franklin. Sure, we sell Precious Metals; and thus, are inclined to be bullish in our commentaries. However, we are not a retailer but a broker; and thus, buy gold and silver as readily as we sell. Moreover, there’s not a thing David Schectman, Bill Holter or myself can say or write that will influence precious metal prices – unlike those in the “paper PM investment” business who in many cases can. Yes, we are certainly “talking our book” in being bullish, but anyone who has read our work – for more than a decade – realizes we were saying the same things in 2002 as today. In fact, Bill and I were writing of such things for FREE way back then on the GATA website for the same reason we have been doing so for Miles Franklin since 2011 – also for FREE. Which is, we care about readers, aiming to empower them to protect themselves from what’s coming. And by the way, how many businesses are you aware of where all the firm’s principals are deeply invested personally in their product?
And thus, to the “trolls” that comment that “you guys sell precious metals; and thus, are subject to conflict of interest,” we respond with our body of work over the past decade; in Bill and I’s case from outside the bullion industry.