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As I alluded to a couple of days ago, “look around, what do you see?”. People who own precious metals are quaking in their boots at EXACTLY THE PRECISE TIME they should be comfortable. We have gotten many “scared” e-mails recently, some from people I would have never guessed. Even a $10 move down in gold has sparked fearful e-mails … but why?

It should be clear to you now, the “unwind” has begun. Jim and I tried to tell you this a couple of months back, now there is absolute evidence. Look at real estate in many parts of the world. Australia, China, London, Vancouver, New York and now even San Francisco. The most important thing to look at is “volume”, as price always follows. Pricing, as it did back in 2006 has gotten to unaffordable levels …and banks have begun to pull back on lending. Ask yourself this simple question, where would pricing be if everyone had to pay cash for new purchases? I am not sure the answer but it would surely be less than 50% of current pricing. “Credit” is the reason real estate attained the values they did, lack of credit is now reducing sales volume …and thus pricing.

Then we can look at autos all over the world. Asia, Europe and North America, all markets are soft and the build up in “sub prime” auto loans has exploded. Any discussion of credit and sub prime in the same sentence should certainly not leave out “student loans”. This sector is now well over $1 trillion. Yes, for a good cause I suppose you could say, but we now have an entire generation in hock before they even leave the starting gate? Not to mention, college grads today are not exactly what their parents expected when they first wrote their checks, rather they tend to melt under pressure. Is this a “solid credit”?

We can also look at the corporate sector. There is a $3 trillion “junk” time bomb sitting here, especially the fracking sector. Even supposed good credits have recently tarnished, how about GE being shut out of the commercial paper market ? Or banks? Can anyone say Monte de Paschi? Or Deutsche Bank? Or look at pensions, anywhere on the planet …how is it possible they are underfunded after pushing interest rates to zero and blowing asset bubbles across the board? What will these look like in just a garden variety bear market?

“Asset values” were (are) the crux to the whole scheme. If you can get asset values “up”, the populace will believe anything you tell them. This is the key tenet to MOPE. Never mind that industrial production has yet (10 years later) to eclipse the previous high back in 2006, none of that mattered as long as stocks. bonds, and real estate marched higher. The entire game was bet on reflating asset values, it worked and the can was kicked down the road …until today.

Now, there are no entities on the planet that can step in and play the role of white knight. All central banks and sovereign treasuries are up to their eyeballs in balance sheet debt. Interest rates are now moving higher, at a time when debt ratios and gross debt has never been higher. And don’t forget “globalism”, everyone is in bed with everyone else financially. Never mind six degrees of separation, we are at the point where stress is appearing everywhere in a world where NO ONE can fail …or we all fail.

I assume you originally purchased your gold/silver assets as “protection” from some sort of financial/economic/social mishap? If you bought gold because it would “go up”, (I am ashamed you are reading this). To this point, pretty much everything the precious metals community expected to happen …is in the process of happening right before your very eyes! The blunt reason to own gold is because it is money with no attached liability in a world awash in liabilities. Asset values across the board have reached untenable levels because the bidding process was aided by leverage. Currencies themselves are “debt instruments”.

The danger (a mathematical certainty at this point) is a scenario of cascading defaults of debt. We are already seeing high stress levels in global credit markets due to higher interest rates and a “stronger” dollar. Other than gold and silver, there are exactly zero other monetary alternatives with no liability. THIS is why you own gold! In a world where everything has been bid up by debt …or is a debt asset itself, getting as far away from debt is the obvious choice. I might add, “leverage” in gold and silver is massively on the short side but this is a story for another day…

As I started with, “look around you”. There cannot be infinite growth in a finite world. It may seem like this on the way up as credit fuels the expansion but both credit and growth have limits. Growth due to limited resources and credit due to the inability systemically to incur more debt at some point. I termed this “debt saturation” in 2007, we have arrived again! Quite simply, all Ponzi schemes require continual and eventually exponential new investors. Debt has been the “new investor” for many years. This source of funds has been over used and is in the exhaustion phase.
To finish, the teeth gnashing in the gold community makes no sense at all.

Nearly all the conditions are firmly and maturely in place to demand financial caution and extremely defensive positioning. The experiment is failing and the “wall” is clearly in sight. Worrying about gold holdings now is like wondering whether you should have your seatbelt on just moments before a head on collision!

Standing Watch,
Bill Holter
Holter-Sinclair collaboration