This morning, I had trouble zoning in on a singular theme. Actually, I had a fantastic one in mind of a very big picture nature – until I was besieged with the morning’s “horrible headlines.” Have no fear, I’ll be writing about said theme in the near future. However, in the short-term, with gold and silver prices at historically low prices due to the unprecedented, soon-to-implode machinations of the “New York Gold Pool” – and technical indicators more oversold than at any time ever – I felt compelled to focus on the litany of potential short-term catalysts.
Fortunately, while amidst the decision process, the great AC/DC song “Hell’s Bell’s” played on the Sirius/XM “Classic Rewind” station and given how the sum total of today’s stories suggest an oncoming, unprecedented economic hell, it seemed the perfect theme for today’s article. Hopefully, the end game of global currency collapse will only yield economic damage. However, if the U.S. and Russian governments continue to act like spoiled brats in the sandbox, history’s typical response to economic calamity will repeat itself to catastrophic effect. To wit, who would have thought that just 25 years after the “Cold War” ended, both the U.S. and Russia would be conducting challenging, full-scale nuclear attack drills? Well, at least we have the comfort of knowing Obama is a recent Nobel Peace Prize recipient and Putin nominated for one last month.
Last week, I spent three days writing of what I believe is the “most damning proof yet of QE failure”; i.e., the Fed’s blatant intervention in the Treasury market to not only cap interest rates but support them as well. Obviously, rising rates will cause a nuclear implosion of the world’s most highly indebted economy; but equally devastating would be a rate plunge, suggesting the Fed’s efforts to “reflate” the economy have unequivocally failed. In other words, once the market starts betting on increased QE – despite Fed “tapering” due to its propagandized “recovery” – all credibility in the Fed and Central banks in general will be lost. Such a horrific predicament is already occurring at the Bank of Japan – as we have documented countless times – and shortly, will encompass all major central banks with the coup de grace being an impotent Federal Reserve unable to cause anything but higher inflation.
Just yesterday, Chinese President Xi Jinping publicly spoke of his expectations of slower economic growth just six months after “third plenum” economists forecast otherwise. Last night alone, April data was weaker across-the-board fueling speculation that not only will the PBOC allow the Yuan to weaken further – yielding increased Chinese inflation and heightened global competition as the “final currency war” accelerates – but that ultimately, it must ramp up monetary stimulus. In our view, China is witnessing the early stages of the bursting of history’s largest and most dangerous, credit, real estate, and construction bubble; as validated by last night’s news that Shanghai real estate transactions were down a whopping 20% in April alone compared to March.
Meanwhile, in Europe, it appears the countdown to “Draghi’s Reckoning Day” can now be measured in mere weeks. This morning, the supposed “growth engine” of Europe – Germany – reported some of the worst “confidence” statistics imaginable. Yes, the widely watched ZEW investor expectations index plunged from 43.2 in March to 33.1 in April representing its lowest point in 16 months. Not surprisingly ECB jawboning was stepped up immediately, with a “person familiar” with the situation telling the Wall Street Journal the Bundesbank is “willing to back an array of stimulus measures from the European Central Bank next month including a negative rate on bank deposits and purchases of packaged bank loans if needed to keep inflation from staying too low.” And the beauty of it all; such “inflation expectations” are set entirely by the ECB itself in creating whatever arbitrary “CPI” figure it wishes. We have long discussed how the “deflation” boogeyman is being used to cover new money printing initiatives; and with the European economy on the verge of turning decidedly negative, “you ain’t seen nothing yet!” By the way, it’s quite ironic that the odds of a June QE announcement stair-stepped dramatically higher just one day after head propagandist Goldman Sachs said such an announcement if at all won’t come until 2015!
And then there’s the United States of Fraud, where the best “deflation” news we can muster is that import prices declined a measly 0.4% last month as measured by government book cookers. Of course, export prices fell by 1.0%, causing a net result of weakened corporate margins – which ironically, are passed on to customers. More importantly, said “smokescreen” masks the reality of the situation i.e., the vast majority of items we “need versus want” have recently surged causing a dramatic increase in the cost of living – even for “the 1%.”
Last night, for example, I walked into Staples to buy copy paper and printer ink. I kid you not, prices are up 50%-100% from year-end so much so, and I actually questioned the staff what was going on. I’m not sure their answer was 100% complete, but in stating that high gasoline prices are yielding surging freight costs, I think you get the picture. And trust me; this is not an “isolated incident.” Yesterday, Dean Foods blamed exploding milk costs for its falling sales earnings and stock price; and as we noted last week, the nation’s second largest supermarket chain – Safeway – made the following ominous statement, after announcing significant first quarter losses.
While sales met plan in the first quarter, income was slightly below plan, in part as a result of inflation in produce, meat and pharmacy that was not fully passed along for competitive reasons.
–Business Week, April 23, 2014
Regarding food inflation – or as we deem it, the “Most Important Reason to Own Precious Metals” – recall the chart of the U.S. Foodstuffs Index we presented in “Californ-inflation” – which had risen a whopping 19% through the year’s first three months care of money printing, historic California and Brazilian droughts and a host of other factors. Well guess what? The droughts are worse than ever, the money printing at unprecedented levels, and the outlook for both unchanged. And thus, it shouldn’t surprise you that said index is now up more than 22% for the year which is probably why, for the first time, my wife is starting to notice the food price surge highlighted last week by the CEO of Landry’s, one of the world’s largest restaurant chains. But don’t worry; all’s well, as all problems can be blamed on “the weather.” Oh wait, it’s springtime now and as James Turk ominously revealed in a King World News interview last night, the MSM back in early 1980 – when U.S. inflation fears last peaked – nearly universally, like today, blamed the weather! Of course, such excuses were a bit more palatable back then – as the national debt and M2 money supply were just $900 billion and $1.5 trillion, respectively, versus $17.5 trillion (plus $5.0 trillion “off balance sheet) and $11.5 trillion today.
Not to mention, the U.S. was just nine years detached from the gold standard abandonment of 1971; and thus, hadn’t had sufficient time to “max out” its credit card – which it’s in the process of doing right now per this telling chart of the CRB Commodity Index.
Whatever the “cause,” with each passing day the Fed’s last remaining “propaganda weapon” – that of “recovery” – is rapidly wasting away. As John Williams of Shadow Stats demonstrated, the first quarter GDP collapse had little if anything, to do with the weather – as proven by the fact that 1Q retail sales declined significantly more online than at actual retail locations. That said, today’s horrific data puts the first quarter decline to shame, as retail sales were completely flat compared to expectations of a 0.5% increase. And worse yet, it was online sales that again led the charge. Oh well, it looks like Goldman Sachs’ 3.9% second quarter GDP growth estimate will be revised just a tad lower just as its initial first quarter estimate of 3.0% was. Not to mention, it’s soon to be humiliating projection that ECB QE won’t occur until at least 2015, if ever. Remember, Wall Street “analysts” are just a bunch of buffoons with an even weaker “crystal ball” than most, given their relentlessly biased bullishness.
As for the “markets,” how much better can we prove our case that all are rigged? We thought yesterday’s “Cartel Herald” capping at exactly a 1.0% gain at exactly the 8:20 AM EST COMEX open at exactly the $1,300/oz. “line in the sand” took the “manipulation cake,” particularly following the $10/oz. “Sunday Night Sentiment” raid in which “someone” placed a $231 million market order for paper gold in the evening’s wee hours. That is until they did the exact same thing today, amidst the aforementioned flurry of PM-bullish news. Equities, of course, were higher in Japan and Europe – including Germany, where they surged – and for now, the “Dow Jones Propaganda Average” is never allowed to decline.
Better yet, the Cartel is again deploying its DLITG, or “Don’t Let it Turn Green” algorithms to prevent PM increases above the current “lines in the sand” at $1,300/oz. and $19.50/oz., respectively. Of course, they will in time miserably fail as its one thing to suppress paper prices but another to create PHYSICAL out of thin air. Global physical demand is on pace to exceed last year’s record levels and once Narendra Modri is finalized as the new Indian Prime Minister later this week, speculation of the repeal of last year’s moronic, suicidal tariffs will heat up. Better yet, in China, Shanghai Futures Exchange silver prices are trading in backwardation a full year into the future as inventories have plunged by a whopping 57% in less than two months! And of course, U.S. “GOFO,” or Gold Forward Rates, have been in backwardation for an unprecedented four weeks as prices continue to be held well below the cost of production.
But most importantly, interest rates are again plunging, following yesterday’s blatant Fed intervention to start the week “on a good note” – that is, if rising rates in a massively indebted economy can be considered “good news.” Again, it all comes back to what I started today’s article with – i.e., the Fed is desperate to prevent the benchmark 10-year rate from plunging through long-term support at 2.6%; and thus, showing the entire world that ZIRP and QE are unmitigated failures. For that matter, does anyone believe they didn’t know today’s horrible retail sales number was coming?
To conclude, “Hell’s Bell’s couldn’t be louder and not heeding their inflationary call could mean the difference between financial survival and death. For those still on the fence, we hope you are starting to fear what’s coming and if you decide to do something about it, we hope you’ll call Miles Franklin at 800-822-8080 and give us a chance to earn your business!