It’s Monday morning, and one of those rare times where I’m having trouble focusing on a single topic; or if you will, a single “horrible headline.” Clearly, circumstances dictate further discussions of Greece; which as I write, teeters on the brink of the “Grexit” that must inevitably happen – mathematically, politically, and otherwise. To that end, the only remaining questions – like some many other “black swans” these days – are the how and when. And for those “worried” that a third bailout package will be a boon for Europe, and a death blow tor gold and silver prices; relax, as not only would the associated, exponential increase of toxic debt be as bullish a development as could imagine for gold and silver demand, but it would occur after prices have been slaughtered. Unquestionably, “TPTB” will do their best to paint a Greek deal – if one actually occurs – as bullish for “favored” asset classes, and bearish for un-favored” ones like Precious Metals. However, there’s only so far up a bubble can be inflated, and so far down an “anti-bubble” can be driven.
When considering this morning’s “indecision” regarding today’s article, I looked at my six pages of notes, articles, and links; from which, a single word came to mine – chaos. Then again, chaos suggests a complete lack of cohesion, nearly to the point of randomness. To that end, I don’t think we’re there yet; although many – myself included – believe this point is rapidly approaching. And thus, I reached back to my mind’s deepest recesses for a term more aptly describing today’s crumbling global economy – of all places, from the dreaded college chemistry class that permanently turned me off from my initial interest in medicine, into the waiting arms of economics, finance, and markets. And that term…drum roll please…is entropy. Entropy, as opposed to chaos – which is defined as “behavior so unpredictable as to appear random” – is defined as a “lack of order or predictably, suggesting a gradual decline into disorder.” In other words, a so-called “limbo” between economic “civilization” and “anarchy” – of which, with each passing day, the line betwixt becomes more and more blurred. And don’t forget for a second that the end game of every fiat currency ever created has been the same; i.e., the economic anarchy that defines chaos.
Given that thought process, I found it far easier to explain the nearly random – but not completely so – breadth of the weekend’s “horrible headlines”; starting, of course, with Greece, which accounted for the vast majority of the weekend’s press. Yes, Greece, the subject of yet another “last ditch” meeting of the Europe’s “leaders” this morning. Which, in my view, is scarcely different than each and every meeting of the U.S. Federal Open Markets Committee. In other words, instead of discussing potential solutions to the issues, both the European “Troika” and U.S. Fed devote every second of their meetings to spin, propaganda, and damage control. In other words, coordinating the entirety of their efforts towards the mutual goal of “kicking the can” another mile.
Of course, in this particular case, such activities are far more difficult; as not only is the situation so hopeless, it’s nearly impossible to spin positively, but the Greek side of the table is highly unstable and violently antagonistic. As we speak, Greece is imploding into political, economic, and social oblivion; and no matter what face Alexis Tsipras shows on a given day, he leads a party elected four months ago to rid Greece of the economic albatross of nearly €400 billion of debt, more than half of which was incurred via the 2010 and 2012 Troika “bailouts.” And frankly, how much more evidence does the world need that Tsipras, Yanis Varoufakis, and the rest of Syriza’s ruthless leaders are simply manipulating their creditors to maximum effect; essentially, enacting the immortal, heavy-handed negotiating tactic of former U.S. Treasury Secretary John Connally, who famously threatened Europe – just as his boss, Richard Nixon, was unilaterally abandoning the gold standard – that the widely held U.S. dollar is “our currency, but your problem.”
In other words, confidently attacking the “Goliath” the Troika is to Greece’s “David” – knowing full well, the ramifications of being ignored will be as destructive to Germany and France as Greece and its sister “PIIGS.” And thus, it should surprise no one that this weekend, Greece ignored Europe’s request for a “final” proposal involving the very “austerity” reforms it vowed to never enact – namely, wage and pension cuts. Or, conversely, that the captive media still spun such failure as “success,” through relentless rumors of Greek “capitulation.” And subsequently, suggesting the resulting stock futures surge was “due to” such rumors. Not to mention, the 103rd “Sunday Night Sentiment” raid on Precious Metals of the past 105 weeks; the 460th “2:15 AM” EST attack of the past 525 trading days – again pushing gold below the Carte’s two-year “line in the sand” of $1,200/oz; and of course, a COMEX-opening raid, even as the Chicago Fed National Activity Index “unexpectedly” depicted recession.
As for the accelerating “Greek tragedy” – moving rapidly from entropy to chaos – Greece is a week past defaulting on €1.5 billion of interest payments to the IMF; although somehow, said default is being spun as “irrelevant” because if “bailout #3” can be negotiated by the June 30th termination of “bailout #2,” all will be well. After all, if the IMF can get Greece to commit to owing it another €30-€80 billion of printed money that can never be paid back, the credit default swap community shouldn’t be allowed to enforce legitimate default claims.
Of course, the most insane aspect of the whole situation is that if somehow, such a “deal” is made, the whole world will see the Greece/Troika Ponzi scheme in its full glory. I.e., a full-blown money printing orgy, saddling a violently angry society with hundreds of billions of debt it has no intention of repaying, even if it had the ability to do so – which at nearly 200% of a still-plunging GDP, it decidedly doesn’t (despite the fact Greece is blatantly counterfeiting Euros, putting an exclamation point on the worthlessness of fiat currency). Not to mention, such financial tyranny is being imposed on Greece amidst the worst economic environment of not only Greece’s modern history, but the world’s at large. Which is why it’s so incredible to again watch European and U.S. stocks surge this morning, whilst commodities plunge – i.e., the ultimate contrast between imploding economic reality and manipulated markets “painted” to tell a fraudulent story.
Of course, the propaganda, lies, and rot underlying stock and bond markets don’t hold a candle to the disaster in waiting that is the “New York Gold Pool’s” current, vice-like grip on paper gold and silver prices. Frankly, it’s astounding to watch even visible indicators of the largely opaque PM industry’s inventories plunging to record lows – such as the GLD ETF and COMEX registered gold – whilst paper prices are relentless suppressed. I mean heck, gold deliveries on the Shanghai Exchange – by far, the world’s largest physical delivery mechanism – are up 20% from a year ago, to a new record level. In fact, per this telling graphic, if every ounce of gold ever mined was compared to every dollar printed, prices would need to be $34,000/oz to “balance” their monetary value. Of course, “precious” little of this gold will be ever available for sale, whilst the amount of actual money printed, undoubtedly, is dramatically higher than reported. And oh yeah, rising far more rapidly than the amount of gold mined – which, in my view, has unequivocally peaked.
Which brings me to the near chaos the mining sector has become – no less, since the “copper PPT’s” recent, blatant attempt to “rescue” the world’s most widely watched industrial commodity from its late January lows brutally failed; taking with it, fellow silver byproduct producers lead and zinc. In other words, setting up a silver industry already devoid of material inventories for an unprecedented, Cartel-created production collapse. Remember, nearly two-thirds of global silver production is byproduct of copper and lead/zine mines; and given the unprecedented collapse of global industrial activity – particularly in the world’s “growth engine,” China – the odds of copper, lead, and zinc plunging to their 2009 lows of $1.50/lb for copper, and roughly $0.50/lb for lead and zinc are increasing with each passing day.
As for PM miners themselves, they have unquestionably been the worst performing market sector of the past four years; and for the TSX-Venture Index, that represents the bulk of junior miners and explorers, an incredible eight years. Per this hideous graphic, the TSX-V has been in free fall mode since peaking at roughly 3,400 in April 2007, yielding an 80% plunge to today’s nearly all-time low of 690. The average “junior,” by the way, is down more than this amount, as not all of the TSX-V is PM miners. Plus, countless dozens have already gone bankrupt, with the vast majority of the rest within 12 months of the same fate, no matter what PM prices do.
As for the “majors,” whose stocks have been bludgeoned below their 2008 lows despite gold prices more than $400/oz higher, the race to the bottom of fraudulent “reserves” and “cash costs” is no contest; as “costs,” no matter how one defines them, are no longer declining – whilst both reserve reductions and financial losses continue to mount. As I predicted earlier this year, prices are so far below the cost of production, it’s just a matter of time before a massive consolidation wave commences – causing further, dramatic declines in reserves, capex, and production that could reverberate for years to come. And scariest of all is watching the names I have deemed “most likely” to be consumed, either by bankruptcy or shareholder-destroying merger; such as, in gold specifically, Kinross Gold and essentially the entire South African PM mining industry – which cumulatively, produces 8% of the entire global gold supply.
Why so scary, you ask? Well, let’s just use our calculators and common sense to get an idea – you know, the kind of things nearly extinct in today’s age of madness. To start, take a look at the stocks of – for example – Kinross (the world’s largest fifth largest miner), Goldfields (the sixth largest), and Harmony (the ninth largest). These stocks, on average, have plunged 90% from their highs – all of them sitting at all-time lows, despite gold prices having been largely unchanged for the past two years. Moreover, such declines have recently shifted from merely “entropic” to borderline “chaotic, despite balance sheets sporting “healthy” net debt/total capitalization (debt plus equity) ratios of 16%, 29%, and 3%, respectively. Of course, the big “bugaboo” to such calculations is that they immediately surge when write-offs are announced – which anyone following the mining industry understands to be the norm for the past two years (particularly at Kinross), flat gold prices notwithstanding. In other words, the cost of production continues to rise, no matter what “cash costs” are reported; let alone, the cost of industry sustainability that two years ago, Goldfields’ CEO claimed to be $1,500/oz. Watching the current mining stock price plunges, it doesn’t take rocket science to realize the PM mining industry – for both gold and silver miners – is on the verge of a new, massive round of write-offs; likely during the annual reserve/resource review at year-end, but potentially sooner. And when it inevitably comes – barring a massive, near-term PM price surge – the only way the aftermath will be able to be properly described as is chaotic.
To that end, I’m sorry if today’s article appears entropic; but hey, I’m doing my best to describe an economic and financial world with nearly identical character traits. And trust me, it won’t get any easier when entropy turns to chaos; at which point, if you haven’t already protected yourself from what’s coming, it will already be too late.