URGENT UPDATE WHILE EDITING – THE U.S. MINT JUST SUSPENDED U.S. SILVER EAGLE SALES, DUE TO MASSIVE DEMAND INSPIRED BY THIS MORNING’S DISGUSTINGLY BLATANT, 2008-like CARTEL RAID
It’s Tuesday morning, and even I’m in awe of the blatancy of government efforts to “calm” Greek – not to mention, Chinese and Puerto Rican – contagion fears by covertly (and in China’s case, overtly) manipulating “last to go” financial markets like stocks and paper Precious Metals. All around “them,” other markets are in FREEFALL; clearly caught up in the “unstoppable tsunami of reality” that was “turbo-charged” by Sunday’s historic – LOL, “unexpected” – Greek “OXI” vote. I mean geez, the price of WTI crude is down more than $5/bbl since Thursday night; and as I write, just took out $51/bbl, down an incredible 18% from a week ago – with the additional, hideously ominous prospect of an Iranian “peace agreement” by week’s end.
Which, if it occurs, will swamp on already massively oversupplied market for years to come – at one fell swoop, destroying an industry that not only generates one-third of all U.S. corporate capex, but which has been financed by $500 billion of junk bonds and leveraged loans, which were already in dramatic decline. And just wait until the above-market hedges that enabled many shale producers to survive this long expire this Fall, just as the Iranian oil likely hits the market; the global economic collapse accelerates; global currency volatility goes stratospheric; and the U.S. driving season ends! In other words, what I wrote in January, in perhaps one of my most important articles ever – of the horrific oversupply that will likely destroy commodity markets for years to come – appears set to blast the world like the meteor in Armageddon; which frankly, couldn’t be a more apt description of what I expect the global economy to experience.
I mean, look at the copper price this morning! You know, “Dr. Copper” – or as I deemed it last year, “Dr. Death,” which is widely considered the most industrially-sensitive commodity in the entire world. Not only is it in freefall – down a whopping 9% in the past 24 hours, to $2.39/lb – but the entire base metal complex is as well, 2008-style (heck, nickel is down 10% today alone, and 50% since last Fall). Miles Franklin Blog readers are well aware of my claims that the January-May copper price surge – whilst the global economy collapsed, and LME copper inventories doubled – were due to a newly-formed “copper PPT”; which clearly, was charged with instilling “confidence” in the global economy, just as the equally blatant “oil PPT” took WTI crude from $42 to $62. In oil’s case, whilst global production hit record highs, inventories surged, and the Iranian peace talks took center stage.
Well, as of this morning, said “copper PPT” has fully round tripped those gains, and then some; whilst the parallel “oil PPT” is halfway there. And now that the Greek crisis has gone nuclear, the odds of global economic activity going anywhere but straight down are as “slim to none” as were those of the Greek people kowtowing to the people most responsible for destroying them. In other words, the likely “next stop” for the most important indicators of global economic activity – and sovereign solvency; i.e. the CRB Commodity Index, is likely not only below the early 2009 spike bottom low (now, less than 2% away, amidst the CRB’s WORST DAY SINCE 2008), but the 40-year support level just 4% below that. And this, amidst a cost environment “40 years higher” than the early 1970s – when the gold standard had just given way to the hyperinflationary regime that has skyrocketed production costs by untold multiples!
And by the way, for those worried – by “deflationists” like Harry Dent, for example – that physical Precious Metals will decline in parallel with the rest of the commodity universe (and by the way, not all commodities are declining), we would vociferously argue that gold and silver’s timeless monetary characteristics decidedly differentiate them from other “commodities” – which is why, hideous Cartel attacks notwithstanding, gold was one of the only asset classes to rise in 2008; and why physical silver, despite it’s paper price being driven down by similar Cartel viciousness, completely sold out worldwide, with premiums over the fraudulent “spot” price reaching nearly 100%, with delivery delays of months on end.
No, gold and silver are as “un-commodity-like” as any assets on the planet; and frankly, are the only assets that experience “waterfall declines” like I just watched a few minutes ago – when the Cartel pulls its bids collusively, and “takes out stops” by initiating limitless naked short orders, as it has been doing for the past 15 years. Yes, following the busiest two days of U.S. Mint Silver Eagle sales all year; and Sunday’s historic Greek vote – which puts the very existence of the Euro in question, we’re to believe the silver price suddenly dropped of its own accord (just after the COMEX opened, of course) by 5% in mere minutes! And this, after being higher (albeit, in blatantly capped manner) from the Asian open Sunday until the COMEX open this morning, 36 hours later, whilst all other commodities were dramatically lower.
Let’s face it. The factors causing “TPTB” to support financial markets and attack their mortal enemy, real money, have never been more powerful. Frankly, far more so than even 2008, given how global currencies have since imploded under the weight of historic Central bank money printing, yielding global economic activity far lower than even the 2008-09 lows. Throw in this year’s catastrophic commodity collapse – which has occurred without a 2008-like crisis, as PPT-supported stock markets hit all-time highs – and you can see how terrified said “powers that be” are of historically overvalued financial markets succumbing to “Economic Mother Nature” – and care of the unprecedented level of speculative leverage underlying them, unleashing the largest “anti-wealth effect” in history. Which, by the way, is exactly what is occurring as we speak in China; where, despite this weekend’s announcement that the PBOC was overtly intervening in the Shanghai Stock Exchange, following an historic 29% plunge in just two weeks (fueled by unprecedented retail margin buying), it has not budged to the upside!
As for Greece, laughably today’s “news” is that Alexis Tsipras, just 36 hours removed from his nation – led by his own vehement pleas – giving Brussels the finger, he is traveling to Brussels to beg for another bailout, given that Greece is but days away from anarchy. UPDATE WHILE EDITING – NOT ONLY WAS NO NEW “BAILOUT” AGREED UPON, BUT NEITHER SIDE EVEN MADE A PROPOSAL!
Of course, care of the referendum, Tsipras – if at all – will demand a “bailout” in which Greece can essentially ignore whatever the “Troika” asks in return, including its desire to have said debts repaid. Then again, at the nearly 200% of debt/(collapsing) GDP ratio such a bailout would engender, the chances of repayment are zero. Unless, of course, Greece takes the same, well-traveled route the Germans took following the onerous, Post World War I Versailles reparation demands – by hyper-inflating their currency. In other words, following Sunday’s referendum – in which, for all intents and purposes, the Greek people elected to default on its debt (likely, all €400 billion of it) and “Grexit” from the Euro – why there was a Troika/Tsipras meeting scheduled at all is beyond me. Let alone, why anyone would expect anything material to come of it, unprecedented propaganda efforts notwithstanding.
In other words, the Euro is doomed, and everyone knows it – which is why commodities and currencies the world round are collapsing, knowing full well that chaos is about to ensue. Not to mention, why U.S.-led “powers that be” are so desperately manipulating gold, silver, and stock markets – just as in 2008, but with 2015’s economic “pathology” a thousand times more savage and terrifying (to quote Hannibal Lechter in Silence of the Lambs). But don’t worry, CNBC trotted out a Merrill Lynch “analyst” this morning to state that don’t worry, the Fed’s “lift-off” date – yes, the self-admitted “data dependent” Fed – will simply be extended from September to December, as the Greek crisis will not be a significant factor in its economic analysis. And this, whilst U.S. Treasury yields are crashing through the floor, down 28 basis points since Thursday morning’s punk NFP report alone. I swear, I’m not making this stuff up!
As for “just like 2008,” there’s no way to guess how a far worse crisis might play out; and not just financially and economically, but politically and socially – as this time around, such considerations will likely be far more dangerous, and all-encompassing. However, the one thing I am sure of, is that – as in 2008 – demand for physical gold and silver will be dramatic – particularly as it is already orders of magnitude higher, without the “benefit” of, until now, a visible crisis. To wit, U.S. Mint Silver Eagle sales in 2008 – as noted above, when the entire world sold out – were just 19.5 million ounces, compared to this year’s record pace of 46 million ounces (before today’s explosive sales, which caused the Mint to SUSPEND SILVER EAGLE SALES); whilst India, the world’s largest silver consumer (China doesn’t report such figures, but may be larger), is on pace to annihilate its record silver import figure, established last year.
And this, with global supply barely higher, and set for what will likely be a stunning decline; particularly given the aforementioned, likely long-term base metal price plunge – as roughly two-thirds of silver production is a byproduct of (largely copper, lead, and zinc) mines. Not to mention, this time around, global currencies are in freefall (on average, down more than 40% since 2008, with the fate of the Euro itself in doubt), yielding the potential for an historically unprecedented surge in monetary demand – in silver’s case, with worldwide “available for sale” bullion of no more than a few hundred million ounces. And have I mentioned that the mining industry – which peaked in its financing capacity around 2008 – has been in such a dramatic freefall since, it has likely been permanently destroyed? And no, I don’t believe the inevitable price surge will save it; as when it occurs, and the Cartel is broken, it will likely be due to a catastrophic monetary crisis that causes gold and silver mines the world round to be nationalized.
I mean, just look at today’s carnage, taking the HUI a whopping 25% below its 2008 lows – when gold and silver prices, at their 2008 lows, were 33% and 40% lower, respectively. Not to mention, as the Canadian Revenue Agency, in true suicidal fashion, this morning accused Silver Wheaton of tax evasion – pulling the legs out from one of the last remaining bastions of mining investor “hope,” and, for all intents and purposes, eliminating one of the few remaining financing sources for an industry already within months of all-out collapse. In other words, a more powerful “perfect storm” for Precious Metals fundamentals than even in 2008 – frankly, by many multiples; from which, paper gold and silver prices rose by 150% and 450%, respectively, from their Cartel-orchestrated bottoms within three years’ time.
As for said shortages, the defining characteristic of 2008 hideous “gold and silver aren’t safe haven” Cartel raids – which as I watch today’s carnage, in all markets, I am more and more reminded of – was the complete sell out of physical silver, worldwide. Gold, too, sold out, but the premiums and delivery times were dwarfed by those of silver – which is a far smaller market, with far less available for sale inventory. Physical silver premiums rocketed to nearly 100%, whilst physical gold premiums reached closer to 40%. And thus, those holding coins and bars slept the “sleep of the just,” knowing their “insurance policy” was paying out as all other asset classes crashed; particularly, “paper PM investments” like PM futures, mining shares, ETFs, and closed-end funds – which care of the Cartel, were among the “market’s” worst performers.
Here at Miles Franklin, despite rock bottom sentiment, and multi-year low prices, demand has slowly but steadily risen; particularly in silver, where many clients have been executing gold for silver swaps to take advantage of the dramatically stretched gold/silver ratio (77, vs. the 40-year average of 58), at a time when silver supply is more challenged than ever, and demand never higher. Moreover, “junk silver” – which everyone “must own” a bit of in case the “worst-case scenario” unfolds” – has seen premiums surge in the past week, just as it did in 2008. And of course, the global political and economic crisis has clearly reached “game on” status; assuring that all the aforementioned trends – from rising PM demand, to plunging supply, and a collapsing mining industry – will likely be accelerated for the foreseeable future. Which is why the time to PROTECT YOURSELF from what’s coming may be limited.
To conclude, keep in mind that since 2008, Miles Franklin’s President, Andy Schectman (who I will be interviewing this week regarding the current state of the bullion business) has been pleading that investors take heed of what occurred then; as clearly, it is his belief (and mine) that a lack of supply will be what defines the coming years. In other words, either you have your gold and silver when “the big one” hits, or you don’t.
And geez, under the category of “how good am I?”, as I write Andy called me to tell me the U.S. Mint just suspended Silver Eagle sales – again – due to exploding demand, in this case the result of one of the most blatant Cartel raids since…drum roll please…2008. PLEASE take this “first warning sign” of an upcoming “2008-style silver shortage” seriously; as this time, it will likely be far worse.