Yes, the U.S. “economy.” I put economy in quotes because each day, it strays further and further from freely-determined capitalism; that is, where supply and demand are catalyzed by natural forces. Sadly, America is now much closer to a socialist business model, as its government has deemed most large companies “too big to fail” – be the banks, insurance companies, automobile manufacturers, or mortgage underwriters. Not to mention, its heavy fascist leanings, now that the vast majority of political contributions emanate from “big business” interests like healthcare (can you say Obamacare?); finance; and military contracting.
Worse yet, the government have – via its “partners” at the Fed – taken over the financial markets themselves. Freely-traded stock, bond, commodity, currency, and Precious Metals markets have traditionally meted out capital efficiently. However, today’s “markets” principally serve TPTB, in their 24/7 efforts to mask the reality of a dying global economy. With “PPT” operations propping stocks, “QE” programs supporting bonds, secretive groups like the “Exchange Stabilization Fund” manipulating currencies and Precious Metals, and “economic data” grossly misrepresented, it has becomes impossible to gauge the true state of the economy; that is, if one gets their information from the “evil troika” of Washington, Wall Street, and the Mainstream Media.
These entities have made MANIPULATION of all aspects of our lives a daily occurrence; and sadly, the trend is worsening, at an exponential pace. However, no matter how intense their efforts, they cannot hide the fact that just 1% of the population is benefitting from such distortions, whilst “the 99%” are experiencing dramatic declines in their standards of living. The “American Dream” is quantifiably plunging; and by far, the Fed’s incessant MONEY PRINTING is the leading cause. And by the way, so is the “European Dream,” the “Japanese Dream,” and essentially any opportunities previously afforded by free-market economies.
Last week is the perfect example of how the aforementioned “evil troika” distort economic activity; creating NOTHING but debt, inflation, and poverty. Coming off last week’s horrific September NFP employment report, we saw plunging pending home sales and Dallas Fed Manufacturing reports on Monday, negative retail sales and collapsing consumer confidence on Tuesday, an abysmal October ADP employment report on Wednesday morning, and the Fed not only maintaining QE4 in its Wednesday afternoon policy statement, but giving absolutely ZERO timetable for eventually “tapering it” (FYI, because it ain’t ever happening!).
At the moment the FOMC statement was issued – on Wednesday afternoon, at 2:00 PM EST – gold was $1,355/oz. and silver $23.10/oz.; in both cases, on the verge of breaking out after seemingly endless, nine-month “corrections” created by maniacal Cartel suppression. Even the Fed’s most ardent “hawks” know the economy requires the life support that only its PRINTING PRESSES can deliver; and frankly, you’d have to be brain-dead to not see the signs. I mean, just one month after the world’s largest private employer – Walmart – said it is cutting purchases due to sharply rising inventories, it announced it is commencing its online holiday sales a full month early. Yes, people, “Black Friday” officially starts today – i.e., November 1st – and when Thanksgiving eventually arrives – on November 28th – you’ll likely be able to shop at nearly ALL major retail chains. Yes, a rock solid “recovery” if I ever saw one!
Anyhow, coinciding with the whole FOMC debacle was the monthly COMEX “First Delivery Day”; in this case, with registered – i.e., deliverable – inventories of both gold and silver near ALL-TIME LOWS, totaling roughly $1 billion apiece. With RECORD worldwide PHYSICAL demand – particularly in China, and even the U.S. Mint itself – TPTB are terrified that the inevitable run on this dwindling inventory will commence NOW. And thus, they viciously attacked PAPER PMs from the second the FOMC statement was released – as signaled by the prior day’s shellacking of the HUI mining stocks; and consequently, as I write less than two days later, gold and silver are, comically, trading at $1,316/oz. and $21.95/oz., respectively. In other words, just below the Cartel’s “lines in the sand” of the past two months, at $1,320/oz. and $22.00/oz.
Oh sure, Thursday’s “Chicago PMI” exploded higher (largely supported by “seasonal adjustments,” of course), in perhaps the most farcical government publication of ALL TIME; particularly, as it coincided with the lowest Bloomberg Consumer Comfort Index reading of the past year. FYI, the entire PM decline yesterday occurred long before the Chicago PMI, in a series of PAPER raids in the wee hours of the morning – as dutifully documented by James McShirley…
Lately the “flash crash” has become key to the cartel’s objective of taking down gold. Flash crashes, by way of high-speed, high-volume algorithm trading minutes has accounted for nearly all of gold’s declines. Today is no different. With average trading volume in the December Comex running around 50-250 contracts per minute, there are a few that suddenly exceeded 20-30 times that volume.
2:32 AM: 1,344 Dec. contracts
4:05 AM: 1,562 Dec. contracts
7:57 AM: 1,958 Dec. contracts
8:26 AM: 3,858 Dec. contracts
9:52 AM: 2,325 Dec. contracts
9:53 AM: 2,034 Dec. contracts
Just those 6 minutes accounted for 13,081 of trading volume, and knocked $17.60 off of the POG. You’d have to wonder WHO would be so dumb to dump a whopping 3,858 contracts just 4 minutes before the more liquid Comex pit trade opened up. In fact after the Comex pit trade opened trading volume was only a fraction of that amount.
–Le Metropole Café, October 31, 2013
Today, we were greeted by the 106th visit from the 2:15 AM suppressing algorithm in the past 118 trading days, taking PAPER PMs down whilst not another global market so much as budged; except for the “dollar index,” which I’ll speak of momentarily. After the COMEX opened, the “PMI Manufacturing Index” reported an unexpected decline, from 52.8 to 51.8; in other words, barely depicting economic growth at all. This report validated the myriad, miserable reports noted above; in the process, making a mockery of yesterday’s ridiculous “Chicago PMI.” In fact, the qualitative statements disseminated were as dire as they could be, such as “only modest improvement in business conditions,” “output growth weakest in over four years,” and “new orders increasing at the slowest pace since April.” When this report was published at 9:00 AM EST, PMs didn’t budge; but conversely, when the “ISM Manufacturing Index” was published at 10:00 AM EST – i.e. “KEY ATTACK TIME #1” – depicting a slightly “better than expected” number, PAPER PMs were WATERFALL DECLINED. In other words, manipulation at its best; further distorting global economic conditions and – worse yet – hammering additional nails into the coffin of the dead and buried mining industry.
Which reminds me of what I predicted last month; i.e., that third quarter mining earnings would be an utter catastrophe. Not to mention, my March commentary that Barrick Gold – i.e., the world’s largest gold miner – was careening towards bankruptcy. Each day the Cartel holds prices below the cost of production, future production estimates will fall further; and today’s news that Barrick is not only mothballing Pascua Lama – i.e., the world’s largest PM mining project – only emphasizes that point further. Better yet, Barrick announced a $1 billion capital expenditure cut, and is raising $3 billion in equity to stave off bankruptcy. This deal, which will dilute the company’s share base by a whopping 16%. Further tarnishes an industry that has been DESTROYED by a “can-kicking” Cartel. FYI, here a chart of the triple-leveraged mining shares ETF, in just the three years since it was created. WOW, down 98%! And yet, EVERY TIME one clicks on the vile Kitco website, a pop-up promoting “NUGT” pops up.
Meanwhile, less than two days after the Fed its “QE to Infinity” destiny, the 10-year Treasury yield is on the move higher; up to 2.61% as I write, from 2.49% Wednesday morning. And hence, the ongoing “Catch-22” of trumpeting a “so-called recovery” too loudly. In an environment of plunging home sales, non-existent mortgage activity, and employment trends – much less, exploding healthcare costs – higher rates will only compound the economy’s issues; and oh yeah, cause further, enormous portfolio losses in the world’s largest asset class. How long can QE4 keep rates at HISTORIC LOWS whilst debt surges to HISTORIC HIGHS is anyone’s guess; but as for me, I continue to anticipate QE5 in the near future, perhaps as soon as the first quarter of 2014. In other words, the “new economy” described at the beginning of today’s commentary MUST be supported by endless Fed capital; and any liquidity-driven “green shoots” that attempt to take root will immediately be killed by the POISON that is higher rates. Of course, higher rates will inevitably come anyway; and thus, it’s just a matter of how long the Fed’s tightrope act can continue before the GLOBAL economy comes crashing down.
Speaking of cataclysm, I’m sure the title of today’s topic has sparked at least a wee bit of curiosity. Actually, long-time readers know I have used it before, but never in a dedicated piece. Today, I thought it was relevant to re-introduce, as the recent decline of “the dollar” has brought about much misleading commentary. As you know, the “dollar index” has fallen from its May high of 84 to 79 last week; albeit, rebounding to nearly 81 this Friday morning. In my view, the dollar index is among the most useless, immaterial metrics in finance; as given that it is comprised of 58% Euro, 14% Yen, and 12% Pound, all it really measures is what the world’s largest pieces of fiat trash can buy of each other. And with the Fed, ECB, BOJ, and BOE all embarking on historic money printing operations – with an explicit goal of devaluing their currencies – how can one possibly believe the “dollar index” measures anything material?
As you can see below, the dollar index has traded in a tight range, of 75 to 85, for the past seven years; with this Fall’s dollar “plunge” barely registering on one of the world’s most boring charts. Clearly, the dollar’s influence peaked at the turn of the Century; but since then, the “dollar index” has barely budged. More importantly, ALL the world’s currencies have lost purchasing power against REAL ITEMS of value; at differing rates, inversely proportional to how widespread their usage. In the past two years alone, we have seen MASSIVE currency collapses – from major nations like the “Fragile Five” to minor nations the world round; care of Fed-exported inflation. And oh yeah, until this year’s equally MASSIVE Cartel attacks – which will backfire dramatically as the world’s scarce PHYSICAL supply is drained – gold and silver prices have dramatically increased as well.
I have a great deal of respect for Jim Sinclair, who I have idolized for years. However, his call that the dollar index will eventually fall to 53 seems not just far-fetched, but impossible. And not because the dollar won’t lose purchasing power, but because I cannot envision a scenario of significant Euro, Yen, and Pound appreciation. In other words, if confidence in the American financial outlook plunged that significantly, it would probably translate to a WORLDWIDE economic crisis akin to 2008; in all likelihood, dramatically worse. In my view, there is NO WAY another Global Meltdown could occur without taking down lesser currencies first; per what I wrote two months ago, in “The most important article I’ve ever written.”
Such a decline in the dollar index’s value would likely be so traumatic; it would immediately shut down the entire global financial system. And don’t forget that amidst the “final currency war,” the immediate response of the ECB, BOJ, and BOE – among others – would be to devalue their own currencies further. The end result, of course, would be HYPERINFLATION; but from a Central bank’s point of view, this is the lesser of two evils. Amidst the Ponzi scheme that is the current, global fiat currency regime, “deflation” cannot be tolerated for even a second. No matter that centuries of history tell us how virulent hyperinflation is, they will still opt to print rather than “take their medicine.” Either way, they will lose; but with hyperinflation, they may stay in power a few months – or even years – longer. Darn the consequences, and darn “the 99%!”
As for today’s title, it provides an not-so-comical retort to those claiming the dollar is “strong” whenever the dollar index rises; such as its counterintuitive rise from 79 to 81 since the Fed, just last week, announced it is indefinitely continuing QE4. Just the facts that it rose upon such news – notwithstanding the usual “buy the rumor, sell the news” dogma – should demonstrate just how meaningless the dollar index is. However, putting such a “non-bullish” scenario to the extreme, consider what the “dollar index” would do if a nuclear bomb destroyed Europe. Sure, with no more people, Europe’s currencies would collapse against the dollar. However, global economic CHAOS would ensue; and I assure you, the resulting debt defaults would cause a catastrophic collapse in the dollar’s purchasing power as well – except against the Euro, Pound, and Swiss Franc of course, in what could only be described as the ultimate “pyrrhic victory.” REAL ITEMS OF VALUE would be the only “winners”; and on the currency front, only REAL MONEY would retain its purchasing power – i.e., PHYSICAL gold and silver.
In other words, the “moral of the story” is that under a global fiat currency regime, short-term currency exchange movements are immaterial; particularly after the final stage of competitive currency devaluation has commenced, which it decidedly has. Ultimately, to sustain the role of “money,” a currency must maintain its purchasing power against REAL ITEMS OF VALUE over long periods of time, which no fiat currency has EVER done; as opposed to PHYSICAL gold and silver, which have done so for more than 5,000 years. As for which you plan to hold, the time to make your choice is running out; as sometime VERY soon, you will have no choices.