As the financial world nears the end of its six-year trek across the Sahara Desert of money printing, market manipulation and propaganda, en route to the same result of all such journeys, when undertaken without water – new “false memes” appear to emerge on a daily basis. From “tapering” to “recovery” to “de-escalation,” new reasons to shun precious metals – and buy financial assets – are fabricated to “kick the can” one last mile. Few such reasons actually make sense, and fewer still are actually true. However, as the “eye of the hurricane” created by history’s most advanced financial engineering scheme passes, many have been lulled into believing nothing can go wrong. At least, not in the commandeered financial markets, as opposed to the reality of cratering global economy activity, surging debt and inflation, and burgeoning social unrest.
At current historically suppressed prices, gold and silver don’t require any specific event to yield dramatic upward revaluations. However, with algorithms programmed to attack prices precisely when specific news items are released, a “false meme” can be created that PMs “need” something to occur for prices to rise. The Cartel has been using this tactic for as long as I can remember, and never mind that following 99% of PM-bullish headlines – like last week’s abysmal U.S. retail sales report – said algorithms sit atop PM prices preventing them from rising. Yesterday was a perfect example, as gold was again capped at $1,300/oz. at the COMEX open, with subsequent weakness blamed on “better than expected” housing starts – and oh yeah, Monday’s “better than expected” NAHB sentiment index. Never mind that NAHB is a trade organization incentivized to promote optimism, or that the past two years’ increased optimism has not coincided with either rising prices or construction activity. Comically, single-family housing starts are still 70% below their 2007 peak, whilst the NAHB’s optimism indicator – er, “housing market index” – has returned to its 2007 highs! Sadly, “optimism” doesn’t pay the bills; and moreover, when one looks at the internals of yesterday’s housing start data it becomes even less evident why one would be optimistic.
Sure, housing starts have risen in recent years. However, the sum total is still 35% lower than 2007’s highs, with the all-important single-family home segment down nearly 50%. In other words, just as the entire growth in post-2008 automobile “sales” have actually been in the leasing segment, nearly the entire growth in post-2008 home construction activity has been in multi-family rental units. In other words, the expansion of an ugly trend, in which U.S. home ownership has fallen to two-decade lows (note today’s new 15-year low in the MBA’s mortgage purchase application index) care of surging consumer debt, chronic underemployment and plunging home affordability care of the Fed’s latest financial bubbles. Consequently, rental rates have surged, further strapping consumers, whilst the enormous influx of rental units will pressure single-family home prices for years to come. Per below, not only is U.S. housing affordability at record low levels, but real wage growth has never been weaker amidst a so-called “recovery.” Worse yet, if inflation were calculated correctly, real wage growth would be significantly negative.
And help us all if what is now being deemed California’s worst drought ever doesn’t reverse course quickly, per this email sent by a concerned Miles Franklin Blog reader.
One thing that nobody is talking about is how long can people live in California before the water stops flowing. To me this is the real black swan. Today, a friend posted an op-Ed from the L.A. Times claiming California has 12-18 months of water storage left. As for me, I am slowly considering that I may have to evacuate to another state, losing my job and home. Consider what would happen if 30+ million people needed to do the same. Not only is the real threat of mass migration possible (although everyone is in denial), but California shutting down would destroy the economy and several foreign nations as well. Without snowfall and rain this winter, we will be seeing this unthinkable scenario come to pass, but first there will be draconian measures of water restrictions.
Worldwide economic activity has not been lower in our lifetimes; other than, perhaps, the “deer in headlights” lows of the post-9/11 and 2008 crises – although frankly, in places like Europe and Japan, it’s debatable that today’s economic environment is any better. China – i.e., the “world’s growth engine” – symbolizes how dire the global situation has become with power consumption down 10%-20% in the past year alone, while Europe is in the grips of a rapidly expanding depression, and with the Japanese Yen plunging anew, the BOJ’s upcoming “re-up” of Abenomics may well push the “Land of the Setting Sun” to the brink of hyperinflation.
Here in the States, we are bombarded with “deflation” fears daily – particularly by Fed governors – despite overt money printing holding near historic highs, and the cost of living rising 5%-10% each year. If I hear one more time how the recent plunge in crude oil prices is somehow a positive for the consumer, I’m going to lose it – as gasoline prices remain the year’s highs, and the all-important diesel fuel price has barely budged. America’s economy is extremely sensitive to diesel fuel prices; as is the global mining industry, whose cost structure has never been higher.
Yes, “false memes” are everywhere, promulgated by Washington, Wall Street and the MSM in a desperate attempt to convince the masses all’s well. By far, the “deflation” meme is one of the most egregiously fallacious, as across-the-board, it is difficult to identify a single “need versus want” item falling in value; let alone, life or death items like healthcare – per below, rising at an 8% annual clip before Obamacare.
As long as Central bank printing presses continue – which they must to maintain the Ponzi scheme they have fostered monetary “deflation” is not possible; and with each printing expansion, the concept of “deflation” becomes more laughable. Whether or not Central bank propped financial assets rise or fall in price – including speculative real estate, or for that matter – the “99%’s” cost of living will continue to rise. Sadly, this is a global phenomenon, as without a monetary anchor, the “final currency war” will only intensify yielding universal cost of living escalations ad infinitum.
Which brings me to the final most comical “false meme” of all; i.e., “deflation” is negative for precious metals. First off, if we truly were amidst “deflation,” we certainly would not be experiencing surging stock prices (remember 2008, or for that matter, the 1930s?). No asset class would be more at risk, and with half of America’s (underfunded) pension funds invested in equities, the sound of the fiscal implosion from a new equity crash would be heard from outer space. And by the way, after the initial Cartel attacks in late 2008 – yielding historic physical metal shortages – gold rocketed higher in early 2009, hitting new all-time highs whilst the Dow plunged to new lows, proving “deflation” is as positive for PM demand as its polar opposite, hyperinflation. And don’t forget, the lower interest rates fall due to QE – and investor anticipation of further QE – the lower real interest rates fall; i.e., the single most bullish factor for precious metals demand.
In other words, Central bank money printing – and Cartel price suppression – has created the rare “perfect storm” of bullish PM fundamentals at a time when plunging supply, burgeoning unrest and expanding government mistrust could yield the inevitable run on gold and silver supply at any time. And thus, never before has Miles Franklin’s “motto” been more relevant; i.e., “protect yourself, and do it now!”