While wondering what to write about today I remembered seeing something that was shocking even though I was aware of it. I have not paid much attention recently to 10 yr. yields in the Eurozone. The non-logical yields had just slipped through the cracks of my cognitive memory. The story I read pointed out the various countries in Europe where their 10 yr. yields were trading below U.S. rates, in some cases, WELL below. I knew many Eurozone countries were below U.S. rates but the vast majority?
For example, the rates in Germany, Belgium, Italy, Spain, Ireland, Denmark, Sweden, Austria, France and the UK are all trading with yields lower than U.S. Treasuries. The only two with yields higher are Portugal (3/4% higher) and Greece (a basket case). Looking at this from a broad perspective, it should tell you several things. First, either the U.S. is underpriced or the Eurozone is overpriced. Another way to look at this is either market participants are currently making a bet the U.S. is more “risky” or Europe is “safer” by comparison. Of course the same could be said about the currencies themselves, maybe market participants feel the Euro will do better in the future versus the dollar? This really does not add up though as the dollar has been strengthening and the euro weakening. Is it because there is fear of deflation in the Eurozone which theoretically should cause interest rates to drop? Or maybe “growth” estimates? I might be on to something with these two?
Let’s walk this “insanity” through to see why it makes no sense. Let’s assume the market participants are correct and the U.S. will grow faster than Europe (I do not make this assumption personally because both are on the same Titanic). There is one question which is not entering the equation, this question is the one of “solvency.” In other words, will the issuer of the bonds have the ability to pay back the interest and principal? What I am saying here is “risk” has absolutely zero input to the pricing of all of these bonds! Do you really believe Spain will remain solvent? Or Italy? France? Or whomever? Remember, these countries have no ability whatsoever to “print” the euro currency, they can only borrow more to pay current retiring obligations. It is the same thing in the U.S. but at least we know that enough dollars are always readily available via the Fed. Maybe this is it? This is why “deflation” is the expectation in Europe? They can’t print as fast as we can?
But hold on a second, deflation? How would any of these sovereigns be able to pay their outsized debt loads back during an outright deflation? The answer of course is “they can’t,” because individually no Eurozone country has the ability to print, which is a core problem. Let’s look a little further at the “deflation” question as it does pertain to gold and silver. Of course, deflation is the reason put forth by the Harry Dent’s of the world as to why PM prices are down and will collapse … So we assume the deflationists are correct, what happens to the currencies of these countries (including the U.S.) who have such low interest rates because inflation is “too low”? This is THE question, what happens to the currencies? If sovereign after sovereign fall to boogeyman of deflation, they go bust or “restructure” their debt somehow, right? And we are to believe the currencies issued and backed by their “full faith and credit” will remain the same value …or somehow strengthen? Really?
Let’s take Spain for example but it could be anyone. Spain’s economy just plain stinks. Real estate is glutted and has crashed, unemployment, particularly of younger workers is 25% or more. They are already in recession …again. Looking out past the end of your nose, they will default. What sense does it make to invest for 10 years in a piece of paper promising less than 2% per year? Oh, and the promise is …to give you back more pieces of paper which MUST be inflated just to pay current obligations, forget about future ones! This is not even logical.
Let’s compare this situation to that of instead putting your money into ounces of gold. I will do this exercise in dollars for sake of ease (mentally) for me. If you invest $1,200 today into a U.S. Treasury you will get back 2% per year for the next 10 years. Assuming you compound this money into some more “safe” Treasuries along the way, maybe your total return will be 23-25%, so you get back a total of let’s say $1,500. Compare this to purchasing one ounce of gold at $1,200 (even though you cannot purchase gold or silver at paper spot). You have “risk” here as opposed to the Spanish bonds because “gold might go down,” right? You don’t get any contract explaining what you will receive. In fact, you won’t receive anything over the 10 years. So in owning gold instead of Spanish Treasuries, you assume risk your gold “might go down” AND you don’t even get any interest as compensation for your risk! (What I just did by the way is give you the spiel Warren Buffet and the other elite misdirectionists will give you).
Now for the reality. Gold doesn’t pay interest, it isn’t “FDIC” insured, it is not legal tender (except at foolish face values), and it isn’t guaranteed …but the Spanish bonds ARE all of these. They pay interest, backed by the sovereign government of Spain, any bank will accept them as deposit, payment or collateral. …But who guarantees Spain? Germany? Who guarantees Germany? The U.S.? Because we have all these reserves of gold which we can’t give back to Germany? Sorry for the rant, I hope you get my point?
What I am trying to say here is the “sovereign bond” markets don’t make any sense at all. The various yield curves are out of whack and don’t make sense. This market is now larger than $100 trillion! The principal can never be repaid in current currency values and if interest rates ever normalize to 6%, neither can the interest. Think about it, can the world’s sovereigns really support over $6 trillion of interest payments annually? The problem in a nutshell is this; the global bond market is now THE biggest bubble in the history of history. It was so much fun “spending” the borrowed money, it always is …but the hard part is paying it back! …And this is exactly where we are now.
We have been at a crossroads for several years now as to “how” will all of this be paid back. In Europe there was (past tense) waffling between austerity and (U.S./Japan) “pedal to the metal” policy, this is no longer because each effort at austerity was met by “oops” market temper tantrums. None of the current Western sovereign debt can or will be paid back in current currency values, this is mathematically so. What we are watching now is nothing but “dancing”.
Think about this for a moment, have you ever had anyone who owed you money, “dance” while explaining they’ll “have it next week?” This is where we are today. Yes, sovereigns have borrowed to pay interest and roll debt over for years, and it worked …but we have hit the ceiling so to speak twice now. First, we hit the ceiling prior to 2000 when debt built up to unsustainable levels…the answer of course was lower rates. Then another reflation (debt party) took place and we are again at unsustainable levels but rates can go no lower. The answer? Hyper inflate and devalue currencies as there are no other options. The only way to “pay” is to not pay …in current values.
Let me finish by mentioning the “deflation” option which is no option at all. If by “mistake” deflation does take hold, all fiat currencies will be deemed worthless because the issuing sovereign will have bankrupted. In other words, the currencies will still end up busted and we will experience hyperinflation by another road. With either inflation (printing) or deflation (defaults), all fiat currencies will bust. Do you hold or save these? As the advertisement says, “what’s in your wallet?”
Bill, I’m so tired of this shit show. The black swans flying around are so numerous I can’t even see the sun anymore. You can’t taper a ponzi. I think your on point with all your daily writings. You’ll either have it (PMs)or you won’t. You either get it or you don’t. Just blows me away how long they’ve been able to maintain the lillusion.
I was thinking about this early today, the vast majority (95%) just don’t even think correctly. Then I had the funny thought that maybe they do and we don’t …just kidding!
Or the stackers can ask, “What’s in your vault?”
whatever it is, it’s damn heavy!
Bill,
You’re right on point. It’s clear most people just don’t understand the fundamentals of the bond bubble ponzi. It’s that simple! They haven’t spent the energy to educate themselves. When this bond bubble blows it will be the biggest crash and tranfer of wealth in human history. I’m afraid it will be a veru dark period in human history. On top of all this bad economic news this century we are quickly approaching peak resources to include peak human growth. Very scary in deed…
Gold-Silver gives no interest return because of zero counter party risk. It is money in the purest form which will transfer wealth from one financial ponzi scheme to another regardless who is in charge. That’s why it is so barbaric to the .01%.
Happy Holidays
thanks Colonel, when the bubble does go, it will be lightning speed.
Hi Bill, my thoughts exactly. Thank you. I just read an article on kwn by Richard Russell. Here’s his wise quote: “I have sat with physical gold over recent months and have never suffered anxiety or lost a night of sleep. I never planned to create profits from my gold position, I simply wanted to retain my purchase power.”
he obviously doesn’t sleep with it under his pillow, too uncomfortable.
I will never understand guys like Russell. He buys and sits with Gold to maintain his “purchasing power”. I do the same thing and my purchasing power goes down >40%. I wish I knew where he buys his magical Gold.
you don’t really “get it” then. Did you maintain your purchasing power if you bought 10 years ago? 20? 30?
Robert, I don’t see any value in currencies that depend on ZIRP. The entire world is on strike. The people ask for more “easing”. Sovereigns are asking their gold back. I think we got sold out by the criminal bankers. They sold all our gold to “these guys in the East”. And exactly these guys are now lauging at us. As a proud Western man, it is my duty to keep some of that precious metal in the West. Our time wil come.
“our” time has unfortunately already passed, it’s just that no one see’s it yet.
Bill, Good read, your perception of markets are amazing, what i am most baffled by is we have been in bubble markets its seems like now forever and nobody can see them, has the powers to be dumbed them down ?
yes Bob, for much of our adult lives.
Bill,
Thank you so much for your insight into the metals, markets, and currencies. I have used your writings to help educate family members who don’t understand much of anything economic, let alone my proclivity to acquire hard assets.
Not being formally educated in economics, which is likely a benefit keeping me from trying to understand the Keynesians, I have a deficit in my understanding as to how the bond market is reported and what it means. (Maybe a topic to explore in the future for some of us?)
I follow the 10 year treasury yields and can’t figure out why the Italian and Spanish yields are so low compared to the US yield. I understand that the price and yield are inverse. I was led to believe that yield reflects risk. Your missive above points out some of the lapse of logic with the current situation of low yields. But why is it that as the situation worsens the yield goes down and not up in these European and US markets, while we see the opposite in Venezuela and Argentina? They seem to operate on a different set of rules. Also, are not these insolvent European economies demonstrably less likely to be able to respond to bad news than the insolvent US economy since they can’t print currency? Why is the US yield higher? What factors would indicate the trending direction of yields in Europe and the US versus South America?
Thanks for all you do.
thanks Lynn, yes you are correct on most all of your thoughts here. The answer is: Argentina and Venezuela are not members of “the club”. Simple as that.
Let’s assume Dent is correct and Gold goes to the low of 2008 $686 or so.
Chart analysis indicates it could as the ‘price’ is still going south.
So if you buy today and you still have your gold in (a years time? which you should ) you just paid more then than you (possibly) can in the future.
Personally I am happy to wait and see if a low like that eventuates, after all I will buy more kilos.
I just disagree with BH on the need to buy at this present time.
Bill, I have a suggestion for a future article.
How about taking on the concept that China/Russia are infiltrated by the western/Rothschild agents and now are merely proxies.
Yes, it does appear the future is moving to the east. However the question is was this by design from the western elite.
Today silverdoctors posted an article that actually was a repost from Micheal Noonan (edgetraderplus).
And of course, Kens blog and Brandon Smith have numerous articles covering this angle as well.
Perhaps you are too busy to peruse the web and investigate other analysts. Well I am free & read many opinions.
Far as I can see you’ve exhausted your current train of thought. The Comex open interest collapse is inexplicable to you and so you fall back to the so called “fundamentals”.
Here’s a question: …. why have the powerful western interests, with a proven (and continuing) ability to move all markets …. why have they turned the other cheek to Gold flowing east? They can make the USD go up, they can make the stock market go up, they can make PMs go down. they can surreptitiously overthrow governments, they can and have installed their own executive,legislative,judicial,regulator,bureaucratic puppets to governments in a multitude of countries.
And having done all this, the Powers Behind Western Governments are in decline and folding before the oncoming BRICs? This would be a China with its commodity/export based economy now contracting? , a Russia with a falling oil price,falling Ruble, and pending western Euro/USD denominated loans to deal with? A Brazil with a major drought and falling oil prices?
Are ANY of the BRICS so critical of the IMF and SDR as future reserve currency such that they completely dismiss their continuance?
Is the western money power really in retreat?
Why not spend an article considering this train of thought.
Vern, I have read many articles which espouse this opinion, the reason I do write about it is because I do not believe it. The Chinese are not being run by the Rothschilds et al in my opinion. I have trained martial arts for 27 years and met hundreds of Asians over the years, I do not see this as their mindset. I believe they can be your best friend or worst enemy and “honorable” as a core value. If they don’t agree with you, they will still smile. While the collapse of the U.S. may be a planned event by the elites and treason from within, I do not believe the Chinese or Russians would ever cede their sovereignty to bankers. Maybe I am wrong but it is my opinion. You sound like “they” can control markets forever? If this is the case, you should sell any metal you might own and buy U.S. stocks and hold everything in dollars …the game will end and end very UGLY. Hopefully not in a world war.
With all due respect, instead of giving personal anecdote stories like martial arts or whatever; please take time to examine concrete facts in following detailed documentation of muddled story about China:
http://www.youtube.com/watch?v=5M1KD7Dnq4s
About India: There is (and has been for a very long time) deep Rothschilds infestation in India. Past ruling Congress party and Gandhi family dynasty (Sonia Gandhi, Rahul Gandhi) are agents of Rothschilds. Their economic adviser is (Nobel Prize winner!!) Amartya Sen, a dyed in the wool Keynesian who is married into the Rothschild family! Past PM Manmahon Singh, and finance minister Chidambaram were Rothschild puppets. Current chief for Reserve Bank of India, Raghuram Rajan is a Rothschild snake. He used to work for JPMorgan in the US and comes from semi-Keynesian University of Chicago background. This is the same snake, who imposed gold import curb in India last year, on instructions from Bernanke. With the newly elected Modi govt, gold tariffs have now been lifted. But watch-and-see attitude needs to be taken to see how background tussle between Modi gang versus Rothschild agent Raghuram Rajan goes.
About Russia: Picture is very murky and unclear there as well. It is very poorly understood who really owns Bank of Russia, especially if residual Rothschild infiltration still exists. Background tussle between Putin/Gazprom gang versus central bankers is still there, despite Rothschild agents like Khodorkovsky having been kicked out of Russia and their related Yukos saga. Putin is on very close friendly terms with Henry Kissinger, and they communicate very frequently. This is a very concerning, eyebrow raising fact.
This story is most likely true to some extent in India as they were part od the British empire. I watched the video but am unconvinced on China and Russia. Would the new world orderists like it to be so? Of course.
Please don’t be so unconvinced about China. Hong Kong was long a British colony. HSBC was founded with Rothschild support, and as you know, spells “Hong Kong and Shanghai Banking Corporation”. 😉 Although now it’s headquartered in London. HSBC and Rothschild have a very sordid history in China. They controlled Opium wars with opium grown in India. The original “War on Drugs” and dirty drug-dealing money laundering scumbags. Opium wars brought in silver crisis, civil warfare and destitution in China. The Chinese silver crisis was engineered by Rothschilds. They used FDR as their puppet forcing re-monetization of silver, which plunged China into darkness.
The big question is about crossover of Chinese communist Politburo today with these HSBC/Rothschild types. The video I posted attempts to scratch surface of this.
What’s clear is, you want to have control over your physical metals, ammunition, water filters and what have you…regardless of (or by how much) Rothschilds have infested in BRICS nations.
Bill… thanks for your insightful comments.
I have just spend the last hour reading a report titled “Long Nikkei/Short Gold” and it can be found at http://www.tfmetalsreport.com/blog/6425/new-paul-mylchreest as well as on Zero Hedge.
This is a most fascinating perspective and opens up some very interesting ideas into the precious metals market actions we have seen for the last 3 years or so… and if anywhere true, clearly states that the fuel for the exploding in price is even greater than we have believed possible.
I, and I am sure others would like to have your insight into this fascinating correlation between the Nikkei/Gold divergence and by the potential to the parallel in the NYSE performance over these same past three years.
yes Jack, a very important commentary and one I do believe has merit. The BIGGEST news however is Belgium repatriating their gold, this will lead to the Mother of al Bank Runs!
The other big news(ignored by our media)was the passing of H.Res.758! Good coverage by Global Research/Chossudovsky & picked up by Mineset.
Hi Bill,
Japan has much higher (twice) debt / GDP than western nations and they are very weak but still alive.
Long term bonds can go to 0,1% or even lower who knows…
They can kick the can down the road for much longer even if not eternally as you explained above, except if BRICS decide that enough is enough !
I don’t think “much longer”.