The most important thing I learned in my three years on the Wall Street buy-side, and seven on the sell-side, was the importance of establishing the “key themes” of my overarching “investment mosaic” – and continually reinforcing them in the context of incoming data and analysis. Clearly, the manipulation of all things financial – from the President’s Working Group on Financial Markets (stocks); to the Federal Reserve (bonds); and the Exchange Stabilization Fund – i.e., “the Cartel” (foreign exchange and Precious Metals) here in the States, has been one of my key themes since my first public missive on the GATA website, circa 2004.
To which, the “manipulation mantra” I muttered to myself around that time – i.e., “each day worse than the last” – has never been more relevant. For the simple reason, of course, that the implosion of the global economy; dramatic, across-the-board financial instability; and rapidly tottering fiat currency regime have never been closer to culminating in the “end game” of all-out economic collapse; currency “reset”; and the ensuing political, geopolitical, and social uprisings. In other words, the need to whitewash reality with manipulated markets has never been so powerful; as in our view, a mere “day off” by the aforementioned “manipulation organizations” would be enough to implode what’s left of the rapidly dissipating level of so-called “stability.” And given that global commodity and currency markets are, irrespective, at multi-decade lows; with the level of economic activity at multi-generational lows; and debt at all-time highs, the prognosis is grim on all fronts.
Which is why it’s so incredible that any “impetus” still remains for a Fed rate hike next week – no matter how infinitesimal it might be – particularly, if it’s meant to be a “one and done” phenomena with the sole, hollow goal of “proving” QE “worked.” Which of course, it decidedly didn’t; which is why German Finance Minister Wolfgang Schaeuble – after Mario Draghi, the second most powerful financial figure in Europe – espoused yesterday “too much growth in credit does not solve any structural problems, but leads to financial and debt crises” and “Central banks’ monetary policy can do little to change this in the long run.”
And yet, Schaeuble, who has held his position since 2009, has voted for every money-printing scheme he has railed against; from “swap agreements” with the Fed; to NIRP; QE; three Greek “bailouts”; and generally speaking, “whatever it takes.” Which in sum total, have plunged the European economy into its worst political, economic, and social crisis in generations. Not to mention, the Euro currency to a 12-year low – which has not only destroyed the purchasing power of hundreds of millions of citizens, but taken the global, “final currency war” nuclear. And once the Euro currency comes under enough pressure, its inevitable collapse will start in earnest – perhaps, catalyzed by the September 20th “snap elections” in Greece; the December 20th Presidential election in Spain; or, what’s this, as I edit? It appears that Catalonia – you know, the wealthiest province in Spain, which last year voted overwhelmingly (in a non-binding election) to secede, is on the verge of “stepping up” said secession campaign.
Regarding the Fed, and its “all-important” meeting next Thursday, I continue to maintain “only one financial event could be as cataclysmic as a significant Yuan devaluation.” Which, of course, would be the horrific, globally rippling impact of raising interest rates – even if by a mere eighth of a point – for myriad reasons I have discussed at length. Record high debts and financial market valuations, for one. Secondly, an already surging dollar, care of the “liquidity vacuum” drawing capital to the dollar’s “reserve currency,” no matter how misguided such theory is. Third, the catastrophic impact on the aforementioned, multi-generationally weak global economy. And last but not least, the Fed’s own, gargantuan $4.5 trillion portfolio of toxic, high duration mortgage and Treasury bonds – and who knows what else, “off balance sheet?”
And no, it’s not just the Miles Franklin Blog making such claims, but “mainstream” analysts from all walks of life. To wit, last week, IMF head Christine Lagarde all but begged the Fed to hold off on raising rates, in claiming…
“The IMF thinks that it is better to make sure the data are absolutely confirmed, that there is no uncertainty, neither on the front of price stability, nor on the front of employment and unemployment, before it actually makes that move.”
Next, World Bank Chief Economist Kaushik Basu, in a speech yesterday, espoused…
“The Fed risks triggering panic and turmoil in emerging markets if it opts to raise rates at its September meeting, and should hold fire until the global economy is on a surer footing” – lest a “shock” could arise, and “a new crisis in emerging markets.”
And last but not least, Wall Street itself, per the extremely astute comments of, surprisingly, a Deutsche Bank analyst…
“The Fed is in danger of committing policy error. And not because one and done is a non-issue but because the market will initially struggle to price ‘done’ after ‘one.’ And the Fed’s communication skills hardly lend themselves to over achievement. More likely in our view, is that ‘one’ in September will lead to (markets pricing additional rate hikes) in December and 2016. Surely, Yellen and company realize that a rate hike – a contraction in liquidity – will result in a further steep decline in forward inflation expectations, and the associated negative implications for risk assets – coupled with lower real and nominal yields, leading to further deflation and an even greater need for “unorthodox” policy measures, i.e., QE4.”
Not that “policy error” is anything new for the world’s most destructive financial entity, but this would take such lunacy to a whole new level. Begging the question, even to “non-conspiratorialists” like myself, are they actually trying to destroy the fragile, already-on-its-last-legs financial system on purpose?
Of course, whether they have a “plan” or not regarding monetary policy, they decidedly have one as regards to market manipulation. Which, of course, is to go “all-in” with manipulating every market imaginable, on a 24/7 basis. The fact that, QE, ZIRP, and all other economic manipulations have decidedly failed is somehow ignored, of course. And, for that matter, the large majority of market manipulations – as frankly, aside from a handful of “last to go” markets like the “Dow Jones Propaganda Average” and paper gold and silver, they’ve lost control of essentially everything. And particularly, the all-important commodity and currency markets – with most stock markets, too, now in bear markets; high yield bonds of all kinds imploding; and rapidly tightening physical gold and silver markets threatening to blow the aforementioned “Cartel” sky high.
That said, this has been a particularly important week for “the powers that be” – given that not only have thousands of traders, politicians, and bankers returned from their summer vacations; but markets significantly weakened during the typically calm month of August, threatening yet another September/October financial crisis. Throw in the upcoming Sunday’s “Shemitah” – or end of the “seventh year” of the Hebrew Calendar, which prophesizes significant financial chaos directly thereafter – and you can see how obvious it was that “they” would come out swinging from the second the “bell” rang Tuesday morning. And equally important, Monday morning in Asia – starting in China, where yet another “Hail Mary” rally reversed what would likely have been a Western market opening bloodbath. But conversely, was “converted” to a low volume, PPT-orchestrated short squeeze. As you can imagine, the MSM just ate it up, “attributing” the violent, completely nonsensical rally on Monday to – just hours after China reported horrifying collapses in August imports and exports on Monday – “slightly more optimism about China”; and on Tuesday, “the prospect of more stimulus from China.” Funny, by the way, how they claimed said “optimism” and “prospects” buoyed both oil and stocks – when in reality, oil was down Friday and Monday – and is again this morning!
Back to said “key investment themes,” I often refer to the mid-2011 “point of no return” – when, following the post-2008 money printing orgy, Central banks realized their cumulative efforts “weren’t enough” to stem the explosive, exponentially growing global economic crisis. To wit, Europe was on the verge of collapse; the Nikkei was plumbing multi-decade lows; the U.S. lost its triple-A credit rating; and last but not least, “dollar-priced gold” and silver hit new all-time highs, due to fear of the inevitable collapse of the ill-fated global fiat currency regime. Consequently, said powers that be went all-in with 24/7 money printing, market manipulation, and propaganda campaigns; overtly, when required, but for the most part, covertly.
Since then, the “deformations” to global economic and financial activity have been dramatically multiplied – as well as the massively deflationary impact of the resulting oversupply of everything imaginable, from copper, to oil, to government spending. And no region has felt it more than the East; and particularly, China, as it is by far the world’s largest manufacturer. And consequently, the largest “overproducer.”
Unfortunately, as I have recounted numerous times before, Eastern efforts at market manipulation have been clumsy at best, and miserably inadequate at worst. Which is why, despite having by far the world’s largest currency reserves; and control over institutions like stock exchanges; the Chinese market crash was “allowed” to occur so rapidly – or at that matter, at all. And thus, the emergence of said “Hail Mary” rallies on the Shanghai Exchange essentially every day of the past two weeks; along with as many “extreme measures” as they could add to the “manipulation cake” – like last night’s pathetic propaganda “calling on the U.S. to, with China, jointly ensure economic stability,” particularly because “China’s economic outlook is very bright.” Still clumsy? Well, yes. But now, far more coordinated with Western manipulation schemes; as quite obviously, the East has now joined the West in going past said “point of no return.”
And for those that believe this will mean endless stock gains – be they nominal or real; and further Precious Metals declines; we ask you this? How has the global economy – and most markets – performed since the West passed its “point of no return” four years ago? And what makes you think Eastern governments’ equally suicidal policies will make things any better? Let alone, if said “suicide” is intentional; which, from my perspective, would be the only reason the Fed could be stupid enough to anything but attempt to “kick the can” as far as possible.
As for Precious Metals, all one has to do is look at physical supply and demand to realize why gold and silver have long been the “Achilles Heel of the Financial World.” Unquestionably, 2015 will set new global records for gold and silver consumption; and new lows for above ground inventories. Such as, for instance, the COMEX exchange in New York, where “prices” are set despite no real rules against naked shorting, and no inventory to speak of. To wit, just last night, a whopping 122,000 ounces were delivered from the COMEX’s registered inventory, or 38% of the 324,000 ounces of inventory the prior evening. In other words, there are now just 202,000 ounces of deliverable gold – worth a measly $230 million on the entire COMEX. And this, compared to not only the $230 billion the Chinese have spent supporting the Shanghai Stock exchange and Yuan in the past two months; but, ironically, the $560 million worth of gold they were buying in August alone! No, I’m not making this stuff up. And by the way, where do you think they got all of that gold, now that Central banks, like individuals, are net buyers?
And as for future mine supply, look no further than the collapsing mining stocks to see what’s coming. TRUST ME, at prices anywhere near current levels, the annual year-end reserve and “resource” reviews will yield catastrophic write-offs, mine shutdowns, and bankruptcies – or possibly, as soon as the end of the third quarter. And certainly, production-crippling mergers like the one I essentially guaranteed will occur between the world’s two largest producers, Newmont and Barrick. Consequently, I have never been surer of “peak gold” – and shortly thereafter, peak silver. And given that, in the latter’s case, we are already seeing product shortages threatening to “turn 2008” in a hurry, it should be a blaring red siren to all, that the “end game” of currency collapse is approaching; hyperinflation coming; and the window to PROTECT YOURSELF closing.