It’s early Friday morning, and yet again I am speechless. It’s rare I have trouble generating an article’s title; but hey, when one writes every day, it sometimes happens. And particularly when one’s dealing with an unprecedented, Alice in Wonderland-like world of “deformation” – in which stocks are manipulated to rise contrary to the ugliest fundamentals, and most egregious valuations, of all time. And conversely, Precious Metals decline despite record high demand, record low inventories, and the ominous prospect of irreversible production declines. To that end, Iraq and Iran are decidedly NOT where the world’s “weapons of mass destruction” lie. To the contrary, they not only were invented in London and New York – particularly, on the LBMA and COMEX metals exchanges; but have been continuously deployed for a decade – and nowhere more so than the silver pit, resulting in supply literally running out.
Nearly every morning, no matter how bad the news, “Dow Jones Propaganda Average” futures are higher. And, with equal regularity, following the “2:15 AM” EST open of the London “pre-market” session, gold and silver are called lower. Not to mention, each Sunday night, when the now ubiquitous “Sunday Night Sentiment” raids reinforce negative sentiment amidst Western PM investors, reinforcing the blatant suppressive patterns that dominate the Monday through Friday period when investors are actually awake. Such are the power of derivatives; which unfortunately for TPTB, not only cannot cure economic ills, but make them far worse – and far more likely to instantaneously implode. Which is exactly why the insurance and wealth protection properties physical gold and silver have provided for millennia are more valuable than ever – particularly as said “weapons” have pushed prices not just below, but way below the cost of production. As for the industry’s viability, 15 years of suppression has so badly destroyed miners’ ability to explore for, discover, and develop mines – let alone, in an industry where the “low hanging fruit” was picked decades ago – it has ZERO chance of recovering. And when the Cartel is finally – inevitably – broken, and gold and silver recapture their global monetary dominance, governments will nationalize every mine on the planet, ensuring production will decline no matter how high prices rise.
As for the title I finally came up with, “how do you think this will end?” I simply looked at the day’s news – as you can imagine, dominated by Greece and China – and considered “what would a sane person think?” And not just the financially savvy sane, but economic laymen with not a whit of understanding of the complexities of global finance, economic fundamentals, and market manipulation. To that end, tell me how you think things will turn out in Greece, for example. Or, for that matter, the other PIIGS – and countless “emerging markets” suffering from collapsing economic activity, exploding debt and unemployment, plunging commodity prices, and a record high cost of living caused by unrelenting, exponentially accelerating currency debasement.
In Greece’s case, an historically profligate society was hoodwinked into joining an oppressive political and economic union in which, from day one, it was one of the smallest, weakest participants. Heck, the only reason it was even allowed to join in the first place was because Goldman Sachs bankers colluded with a handful of politicians to hide most of Greece’s debt “off balance sheet.” Barely a decade later, following the collapse of the second financial asset bubble in eight years, Greece needed €110 billion to avoid instantaneous bankruptcy – and three years, another €130 billion. Fast forward three more years – to today – and Greece’s debt/GDP has surged from 90% at the turn of the century to 180%, and its unemployment rate from 11% to 27%; with a banking system devoid of any capital, and social unrest so powerful, neo-Nazis have become an increasingly powerful threat.
Just five months ago, said unrest translated to the “surprise” election of the “anti-austerity” (read, anti-Euro, pro-default) Syriza party into power, led by a charismatic demagogue, Alexis Tsipras, promising to end the pain, enabling Greece to start over with a blank financial slate. Following months of tumultuous, viciously argumentative “negotiations” with Europe’s financial warlords, Tsipras completely and entirely rejected the Troika’s final “bailout” proposal, causing Greece to default on nearly €2 billion of interest payments on June 30th. Moreover, he not only called a national referendum as to whether Greece should consider any such bailout proposal, but as loudly and passionately as possible, called for the people to vote “no” – i.e., “OXI” – which it subsequently did last Sunday. And to the “surprise” of world’s gurus – and if what I am reading is correct, Alexis Tsipras himself – the Greek people, by a stunning 22 percentage point margin, said they would rather default on the national debt than accept another hideous, life-draining, serf-creating bailout.
And yet, just two days later, fearful of the chaos that might ensue when ATMs ran out of money, and supermarkets of food (FYI, the same thing happened in Iceland seven years ago, and the nation survived just fine), Tsipras not only begged the Troika for another bailout, but on the exact same terms the people of Greece voted against – led by his own, passionate pleas – on Sunday! And here we are Friday morning, with stock markets again surging (when are they not?) on the expectation that not only will the Troika accept this deal, but the Syriza-led Greek Parliament as well – to be ratified over a yet another “emergency” Sunday meeting of said European warlords. Whether or not one believes such a deal is “good” (it isn’t, for anyone) is immaterial. However, I am simply asking how you think this will play out – in both the short and (not so long) term.
If such a bailout is miraculously agreed upon – which according to (manipulated) markets is likely, Greece will add another €54 billion to its national debt next week –taking its debt/GDP ratio above 200%, amidst the weakest global economic environment in generations. I mean, what part of collapsing commodity prices – from oil, to steel, to industrial metals – and debt loads so onerous, there’s not a chance in hell they gets repaid – is anyone in their right mind missing? Or, for that matter, the calamitous ramifications of last weekend’s referendum – which will only embolden other, far more powerful populations, to do the same? In other words, if indeed a new bailout is “agreed” upon this weekend, I’d expect the resulting “can kicking timer” to wind down at a record pace; as not only will nothing have been solved, but the transparency of the effort to buy this time could not be more obvious. And frankly, the only real thing that will have actually happened, will have been the ECB printing another €54 billion Euros; in essence, yet another massive QE operation, putting Europe’s citizenry on the hook for even larger defaults in the (not so distant) future. Very likely, via hyperinflation.
As for China, what part of history’s largest credit, real estate, and construction bubble – amidst the worst economic outlook in generations – could anyone, financial expert or layman alike, not see by now? Much less, care of unprecedented PBOC recklessness, the Shanghai stock exchange replicating the NASDAQ’s late 1990s’ meteoric rise – albeit, with far more margin debt – in just ten months’ time, whilst even China’s rigged economic data depicts its slowest “growth” in 24 years? To that end, the PBOC has been so desperate to avoid the exponential expansion of its – and the world’s – economic ills – that would be caused by the reversal of the last ten months’ 150% stock market surge, it has taken steps so draconian, and violently anti-capitalist, that even U.S. market manipulators are blanching.
To wit, two days ago, more than half of all Chinese stocks were frozen to avoid further declines – whist it became illegal to even speak negatively about the stock market, under penalty of imprisonment. And yesterday, in shades of what the CFTC did in 1980 – in banning silver purchases, to prevent prices from rising – Chinese regulators banned the sale of significant equity positions. And of course, both overtly and covertly, spent countless tens of billions propping up stocks themselves, Bank of Japan style. And yet, the Shanghai exchange is still 23% lower than last month’s high, and China’s economy is still imploding – along with that of the entire world. Adding insult to injury; care of this week’s “Greek deal” and “China fixed” euphoria, U.S. interest rates have surged anew; with each basis point higher, raising the world’s borrowing costs and further threatening an already collapsing economy and record high financial asset valuations. Again, how do you think this will end?
As for Precious Metals, this week’s U.S. Mint suspension of Silver Eagle sales – in this case following what may well be the biggest 2½ day demand surge (at 2.6 million ounces) ever – highlights just how little inventory exists, and just how strong demand is. And yet, just as we’re expected to believe it’s sustainable for stocks to trade at record valuations amidst abysmal fundamentals, we’re supposed to believe silver prices can freely trade at multi-year lows amidst record high demand, record low inventories, and plunging supply. Regarding the latter, all one has to do is observe the utter implosion of the world’s largest PM mining equities to realize that, by early next year at the latest, if prices don’t materially rise (preventing catastrophic balance sheet write-offs, and enabling significant capital infusions), we will unquestionably see not one, but several major bankruptcies. And I do mean major miners, as in some of the world’s largest.
As for silver, this week has easily been Miles Franklin’s best all year – and likely, since the immediate aftermath of the April 2013 Cartel raids; both before – and particularly, after – the Mint sold out of Silver Eagles Tuesday afternoon. And as you can imagine, the vast majority of said business related to direct purchases of physical silver. Consequently, inventories have been dramatically drawn down – in some cases, sold out; delivery times have been extended; and premiums risen significantly – as exemplified by “junk silver,” where premiums surged from roughly spot plus $2.00-$2.50 before last weekend’s Greek referendum, to this morning’s quote of spot plus $6.00-$7.50/ounce. And thus, whilst “paper PM investments” like the SLV ETF; COMEX futures; and particularly, mining stocks, have declined further this week, the actual value of physical silver on hand increased. Back to junk silver, which I continue to deem the “ultimate fear asset,” it is my firm belief that not only must everyone own some in case the “worst case scenario” unfolds; but as it hasn’t been produced in five decades, and never will again, it may well be one of the most valuable silver products when all is said and done. And given this historical chasm between silver (and gold) prices and fundamentals, I again ask, how do you think this will end?
Last but not least, putting an exclamation point on today’s topic, a quote from one of history’s most hyperinflationary Central bank doves; i.e., Narayana Kocherlakota of the Minneapolis Federal Reserve Bank, who claims…
“It would be a good idea for the U.S. government to issue more debt, as this would help lift the economy’s long-run neutral rate of interest.”
A “good idea” to further increase the world’s largest ever debt edifice? Rising interest rates, to boot, a “good idea?” To which, one final time, I ask, how do you think this will end?