There are two separate subjects to talk about today, one is oil and the other copper. Oil has been cut by more than half in just six months. As I speculated last week, I believe someone, somewhere “is already dead”. For all intents and purposes, the shale businesses across the globe have been rendered upside down. Along with the business models of course is all of the debt taken on to create the businesses. The debt is estimated in North America alone to be greater than $500 billion and has provided much of what little growth GDP has recorded the past few years.
Regarding “who may have won” with collapsing oil prices, Ann Barnhardt wrote “How could trillions of dollars be laundered from the Wash DC regime to Saudi Arabia? Why, through Citigroup, of course.” This is a very interesting and timely speculation on her part. After pondering this for quite a while I have several questions but no real hard answers. We do however have some hard data to work from. We know the largest shareholder in Citi is Prince Alaweed of Saudi Arabia. We also know Citi has increased the size of their derivatives book by nearly $20 billion over the last two quarters but we don’t know “what” derivatives these are. Another fact in the know is Saudi Arabia “wants” lower oil prices as judged by their actions. Whether this was to blow up the shale business and put other competitors out of business, or a deal cut between them and Washington or even possibly China, we do not know.
Another piece to this puzzle came amazingly from the Republican held House of Representatives. If you recall, the banks (and even Mr. Obama himself) lobbied Congress to attach a rider to this year’s spending bill. The rider allows the banks to include their derivatives exposure under FDIC coverage should the bank fail. In effect, the American taxpayer now has $303 trillion worth of derivatives exposure via the FDIC (which has direct borrowing privileges from the Treasury). The American taxpayer in my opinion had a knife stuck squarely in their back, yet few even have the slightest clue this has happened and written into law.
The questions we do not have answers to are as follows: has Saudi Arabia actually been short the oil market and either fully hedged or even more than fully hedged and actually making money on the drop in oil price? What derivatives have Citi been taking on to expand their book so much…and why? Are any of these derivatives oil or energy related? A peculiar thought would be this, is Citi actually the “long” to a Saudi “short”? The question raised by Ms. Barnhardt is a good one, is Saudi Arabia “hedged” and being paid by “their bank”, Citi?
The drop in oil prices has now been confirmed by copper. Copper has broken below a 5 year wedge and broken down with other “commodities”. You will or have already heard this breakdown described as a “collapse of the copper roof”. This concept has gone back well over 100 years. Whenever copper prices collapsed, it was a sure sign the real economy itself was slowing. The current world’s economy is a global one, no longer is the U.S. the big player when it comes to commodities like copper, steel or even cement (China has used more cement in the last 3 years than the U.S. did in the entire 20th Century!). Clearly, China and the rest of the world is slowing down. You can see this not only in the prices of commodities but also in the credit markets.
If you recall, just before year end, China made a move within the financial system to only accept AA and AAA rated corporate bonds as collateral, this was very significant as it shrunk the collateral pool greatly. While speaking of collateral, we have yet to see the fallout from the Chinese warehouses with either missing collateral or multiple pledged collateral (copper, nickel, zinc), this will be very interesting to see! Fast forward just a couple of weeks and the PBOC blinked, they performed a mini QE of their own. In order to keep their economy moving, they are stuck in the same mud the Federal Reserve is in, it is either inflate or die. For now, commodities are saying the “die” part is overwhelming the “inflate” part.
I see this as very significant, you should too! Why? Because there is one more piece to the puzzle, gold and silver have bottomed and are not going down during this commodity meltdown. Gold (and silver to a different degree) are money, NOT commodities. China has accumulated massive quantities of gold as they understand its monetary qualities in a debt ridden world. They also understand the dollar will not survive a credit collapse as the dollar is credit itself. They are avid students of history. Think back to the last credit collapse in the 1930’s, what exactly happened and what policy was used in an effort to “reflate”? Yes, you are correct, gold was revalued overnight 69.33%! Some will say “but that was in a world where gold was money” … I will tell you, gold has ALWAYS been money, we have simply lived through an era where governments did not “want” it to be money and did not want people to “believe” it was money. They tried as hard as they could to “de monetize” gold, it worked for many years until 2001 …on the American psyche …(not so much on foreigners though).
The credit markets lately have done a Dr. Jekyll and Mr. Hyde performance. Many sovereign credits have moved to all time high levels and low yields. This has been seen as a “no” vote on the reflation efforts and capital has moved in to this space for “safety”. Lesser rated credits (including anything to do with commodities) have been trashed and yields have exploded out of fear. I ask you this, how “safe” do you believe Italian or Spanish or even Japanese government bonds are? The markets are labeling them as “pristine” with incredibly low yields, but are they really? Just two years ago, several of these lower rated sovereigns were discussed in the same sentence with the words “default, bankruptcy and insolvency”, now they are considered “safe havens”?
Clearly, the “reflation” effort is not working and the carry trades all over the world are blowing up. You are also seeing this with the wild gyrations in stock markets which look ready for a trap door moment at any time. But why? Why now? This is simple, QE 3 was ended. The morphine drip of Fed monetization was shut off and the baton pass to Japan was not enough of a substitute. The credit bubble is losing air from several different directions, the Fed will be required to announce another round of QE in very short order. The only question I have is what the reaction will be. I am sure the first 24-48 hours after an announcement will be “happy days are here again”, but what happens after that? Do we slog through another 12 months or more of markets “recovering” or does the market just outright panic?
I obviously don’t have the answer to this but I cannot believe investors have not figured out after four episodes that QE plain does not nor can ever work. Any future QE announcement from the Fed which is met by markets not “obliging” them will be the obvious sign of an empty gun. I personally believe the damage in oil, copper and other commodities is too far along for another QE to repair. In other words, the derivatives losses are already too great and the losses have been embedded…plus, sovereign treasuries are now too levered to try another reflation. The fact that gold is increasing versus dollars and exploding versus other currencies I believe is giving us a heads up to this thought process because it is money. We are watching a deflation unfold versus gold and dollars, soon to only be versus gold. We are entering a credit implosion or seizure on top of a banking system and sovereign/central bank impairment. Never forget, dollars are 100% based upon credit which is based upon confidence and nothing else. The ability to relate always existed in the past, now this ability is again being tested while debt to GDP levels have never in history been worse. I guess the next and only big question is this, will the next QE bullet be a blank?
Regards, Bill Holter.
He who gets out first? Gets out best! That’s what the Swiss have done this morning. Getting out ahead of??? What?
Could it be the ECB is going to go “all in” with big QE?
How about the upcoming Greek election and retreat from EU?
Strike first before next weeks big Davos World Conference?
Or all of the above? Knee jerk reaction from the CME as they first double, then triple margin collateral on the CHF! I’m sure this will calm the markets! NOT!!!
There will be blood in the gutters of Wall street very soon as those margin calls go out. One word? VOLATILE!
exactly Out, I have already put a piece together about this for tomorrow. This is the opening volley of a global reset!
Thanks Bill, great insight!
thanks Mark, this is it, the Swiss have begun the reset.
You were one of the first people who’s opinion I wanted to hear on this issue.
At the very least it seems we cannot go more than about 12 hours without some news that would have been shocking only a few years ago.
Everyone wants to know when the reset begins, but that assumes there will be news coverage to alert us in real time. It would seem it’s well underway and anyone who doubts this should look at the MSM coverage of the Swiss announcement. No mention of that gold referendum in the coverage, I’ll tell ya that. Most commenters Ive seen are calling it a “smart move” or rambling on about some FX aspect, as if its business as usual, as if it’s a rainstorm.
We will wake up one day and the reset will all have been done. The bail-in provisions will make the wealth transfers required to finally clear the markets all nice and legal too. I guess that’s one upside, no drawn out legal acrimony. You gotta give them props for robbing us out in the open like that. If we don’t object then what did we expect?
OK I’m rambling now, have a good one!
the reset has already begun.
Bill,
It’s my belief that commodities have crashed because they are priced in dollars. The dollar being as strong as it has become, was placing an undue burden as in excessive costs for commodities. Not only copper, but cattle, hogs, corn, sugar, soybean have all been down.
The dollar has strengthened what around 10% in the last 6 months, well for the rest of the world that’s a 10% increase in commodity costs. The rest of the world just started “saying no” we’ll wait for cheaper copper, in the mean time, local scrap copper is more and more being recycled taking up some of the slack.
I’m not placing much of a dr. copper doom this time around, as it’s different, as far as the world economy goes,,,
Keep up the good work.
the move has been greater than 15%, I do not believe “it is different this time”. The only difference is the entire world is now interconnected so the collapse will affect far more.
So many headlines! You and Andy have no shortage of topics to write about!
On a personal note, my dad’s birthday is in early March, so I’m glad I bought him some silver rounds when the price was below $16.
good move and great present!
I think there is agreement at least from us here that this surprise move by Swiss banks is being seeing as a significant development.
Bankruptcies in the retail sector are adding up just 2 weeks into the year. What is next…a banking failure….
2015 could easily become the year that the reset begins.
The next 2 weeks could add a great deal to this story. Greek vote ECB meeting.
the re set HAS already begun!
Mike, I agree with what Bill says.
I have to constantly remind myself that the press is useless.
What sign would you have to see to know that “the process has begun” anyway?
I think psychologically the process of reset will be a bit like how I imagine getting drafted to go to Vietnam would work.
You get a letter one day in the mail and think, “This doesn’t mean anything, Im just getting a letter”.
Then later, “I’m just getting measured for a uniform”. Finally, “I’m just getting on a plane, its not like this definitely means I’m gonna be, like, in a war or something…”
I’m utterly fascinated by the psychological aspects of this. Both in others and in myself. I constantly catch myself looking for the papers to tell me whats happening even though I know better.
“What sign would you have to see to know that “the process has begun” anyway?” Um, how about the Swiss revaluing their currency 15% higher and their stock market 15% lower? Would this qualify as a sledge hammer to the forehead …the reset has already begun.
No argument from me Bill.
I know that my stacking was the right thing to do, even if I had to take much grief when trying to motivate family and friends to consider doing the same.
The swiftness of what comes next will cause panic for some and disbelief in others.
Thanks Bill for speaking the truth. It is dedicated people like you that have enlightened many to the truth.
Our families will be forever grateful to you as time passes.
UR welcome Mike, “it is here and it is now” in the words of James Sinclair.
Mr. Holter,
Do you think the SNB move was an effort to get away from the impending hyperinflation in the Euro? I do remember reading that the Weimar hyperinflation also infected other countries (Austria, Hungary?) and not just Germany.
yes, in a sense. They were forced by market forces.
There will be a great amount of jockeying for position going forward in the FX market, causing greater stress to build in volatility levels.
Lines of people at Swiss currency exchanges that continue out the door and into the street! This is just not seen in Switzerland!
Next week, all the worlds financial ‘big wigs’ meet at the upcoming Davos World Economic Conference. There will be much to (argue?) talk about. Trust amongst the worlds top bankers seems to be at an all time low. Since it seems that the Swiss did not give a heads up to anyone! Least of all to the IMF. Christine is pissed!!!
Look for some earth (wealth?) moving pronouncements coming out of Davos next week. Oh, and Russia has cut off gas supply to the Ukraine, which effectively cuts off six European countries! Getting REALLY cold in Europe now!
correct, on all of it…and there is LOTS of pieces coming together.
Once the Petro dollar system fails, and the Euro fails, the reset will be in full swing mode.
Both of these are likely to fail completely in 2015 in my humble opinion.
Foreign buyers of Western debt are a dying breed.
The balance of economic clout is about to be reset.
the reset has already begun/.
Great article regarding oil, citi and Saudia arabia !
Regarding bonds people just bouy them all because they know central banks with their printing press will purchase them : just preempt them.
this will change and the values also within the reset.
Wow ! What a day already. The CHF & Euro Depegging and Russia turning off the heat to Europe. Things are really getting interesting and the Global Currency Reset draws quickly closer now. I’m thinking Bill that the next QE bullet soon to be fired by the FED, will be like one of those they fire at the start of racing events – You know horses and people and all. But this one will be for Monies – And GOLD will shoot out the gate like a rocket with Silver on his heels. Have good one Bill.
thanks Richard, the reset has already begun.
Hi Bill,
Another nice piece of work on your part, always enjoy reading your essays.
One thing I think that is under appreciated in this currency reset it the timing. Usually this kind of event is scheduled for a Sunday night (or after a Friday close). All those investment pro’s that typically go net neutral going into a weekend just had that strategy blow up on their face. Not that I expect it to be reported, but I’m pretty sure more than a few of these guys are totally out of business. Those doing straddles in other areas to game the markets during the week should, but probably won’t, learn from this example.
I also found it surprising, at least for today, how mild the reaction was. Sure the Swissy moved but gold was held to a bit over 2%, silver got smothered, and major stock exchanges (outside Switzerland) had less than 2% moves. Sure, the powerz were in there working their magic but the herd was not stampeded in any particular direction. A couple of days more and even the general restlessness will probably dissipate.
In Andy’s latest interview he was asked when people will rise up in protest to what the central banks/bankers are doing. Andy basically replied that he doesn’t expect to see protests directed at fiscal policy. I agree because people don’t know what fiscal policy is or what the ramifications are. He does expect protests (ala Ferguson) due to social policy. Again I agree because people do not know enough to protest the cause (fiscal policy) versus the effect (social policy).
That diminishing number of people (in the West anyway) with money, supposedly the brightest ones, are just as clueless to this cause and effect. Using economic ignorance as their excuse they have farmed out responsibility in this area to experts. Said experts only know stocks, bonds, real estate and perhaps other currencies (non metallic) as available options and all options which are at varying degrees of risk for losses.
From Greece bail-ins to Cyprus haircuts to Swissy re-pegging each event is treated like a one off item, unconnected to the others and while unfortunate for some it’s now in the past and will not repeat elsewhere. That the ratcheting effects of these events are getting larger is just plain discounted (reference the muted reaction today). I wonder if these ratcheting type events can keep getting bigger and more frequent with people just sitting there until the entire reset process is complete.
Sure, they don’t like the effect but they don’t know the cause, so what’s a sheeple to do? Sometimes I just picture them sitting in the house watching TV until they freeze or starve to death.
So thanks again for your insights as this great experiment in stupidity plays out.
thanks Perspective, the reset has begun and what we saw today was miniscule as to what is coming. And yes, someone definitely blew up today, and more tomorrow. This was a fracture of the central banking system similar to Humpty Dumpty.
WHheeee! Isn’t this fun? Liquidity crunch in Greece. The Greeks are on a bank run, emptying accounts. The EUR/CHF just crashed below one after hours and is now in free fall. Tomorrow is option expiry. Is it not? This at the start of a three day long weekend. Events are now speeding up considerably. Asia will awake in a few hours and pour still more volatility into this mixture! Tomorrow is shaping up to be a day to remember. Thanks Bill, for the information and platform.
The reset has already begun …thanks Out, I had forgotten tomorrow is an expiration. Guess I had a momentary brain freeze?
Hi Bill,
You have mentioned six times now “The Reset Has Already Begun” …. Excuse my language … FUCKING YEH, It’s about time!
We are all so lucky to be alive today!
The reset has already begun! Yes, it has and I am trying to make a point to the very few who will read these comments. Don’t worry about the language ST, “it don’t make you no bad boy!”.
The reset has already begun!
I read your comments Bill!
The ride is about to get bumpy!(er)
yes.
Bill, check out the movie clip below. Its from the movie, “Jack Ryan: Shadow Recruit”, based on the character created by Tom Clancy. It’ll give you an uneasy feeling in respect to the USD’s rapid rise over the last several months, among other things.
The movie is filled with coincidental tidbits such as a fall in oil prices hurting Russia financially, a pipeline thru Turkey, etc., although cause/effects are questionable. Of course, the movie is also designed to make Russia look like the bad guy.
Keep in mind that this movie came out a year ago and the script was written 2 about years ago. In regards to the overall uncanny content, however imperfect, it makes one wonder with whom did the writers secretly consult and the ulterior motives for doing so?
http://youtu.be/qq0ykF2mHgQ
https://www.youtube.com/watch?v=qq0ykF2mHgQ
… or, “who” watched the film?
Bill, were you aware of this news that came out yesterday, as it certainly wasn’t covered by the MSM? Do you think they ought to hurry up or does it matter at this point?
http://www.ibtimes.co.uk/russia-china-setting-universal-credit-rating-group-rival-wests-big-three-credit-raters-1483341
“Russia and China setting up Universal Credit Rating Group to rival West’s ‘Big Three’ credit raters”
I had not seen this, they don’t need to hurry, this will be a rating system for the future in my opinion.
This runaway train has gathered massive momentum in the first two weeks of this year. It used to be a eye opening event every few weeks in 2014 but we are getting far more significant larger issues occurring every day or so now.
The unintended consequences of earlier decisions are beginning to pile up so I agree that the reset has begun.
I would love to be a fly on the wall in certain offices around the world, as I am sure that the great unwind is causing some interesting conversations !
Great stuff Mr H.
(why are your articles no longer on silver seek?)
they carry on goldseek, ask them to post my work on silverseek if you would.
Bill, you type in caps. I’m a conspiray theorist (lol), so what are you telling us here. btw, I remain astounded by the short time delays in between every article. I need to mention it.
I don’t type in CAPS, the editor does for the titles. I write 4 pieces per week, more if necessary and it looks like we are moving to rapid fire events, I may write every day soon.
That’s what I was referring to, the titles. Didn’t know about the editor. Anyway, thank for the reply.
Bill, you always write and speak in a way that is clear and understandable and I appreciate it.
thanks Nirvanix, I was always admonished in school for writing like I spoke, in the end, not such a bad thing?