I made it a point to hire two of the most talented and insightful writers in our industry to come and work at Miles Franklin. You get to read Andy Hoffman and Bill Holter every day, for free, because I think they represent what Miles Franklin is all about. They offer insight into our financial future plus a passion to help you to do the right thing, in a world where most everyone else will lead you astray. I don’t intend to step aside, and stop writing, but being as existential and life loving as I am, At age 71, I have decided that it is not necessary for me to write five days a week, every week. I will still write several days a week but if I decide to take a day off, now and then “to smell the flowers,” I think I’ve earned it. You will still have Andy and Bill there five days a week. We won’t abandon you and I promise you that we will provide you with all of the important financial information that you need in this upside down, crazy world that we live in.
There will be extremely important “tipping points” that you need to be aware of, but on a day-to-day basis, much of what goes on is just noise.
For years, I have stressed the importance of the Primary Trends and the Big Picture. If you have been reading us for a while, you already know what we think they are. Nothing much has changed, except we are getting closer to the end game. The end game is all about the US dollar (and its petro-dollar status and reserve currency status) and gold is the antithesis of the dollar. Watch closely what is unfolding in the Middle East. We are living in very interesting times, and the risks are greater to us now than at any time in my life. Everything is coming to a head; it is the perfect storm. Like the psychics say, “Prepare for the worst and hope for the best.”
In today’s newsletter, Bill Holter writes about our “credibility,” and discusses our position on Syria. I’m not sure what Andy Hoffman is writing about, but he did send me an email and said it would be one of his all-time best essays. I look forward to reading it.
I have a few thoughts on Syria. Why is it our responsibility to do anything over there? We allow hundreds of thousands of people in other third world countries to die from starvation and brutal regimes and do nothing. Of course, none of them have oil. The Arab League is up in arms about the chemical weapons attack, but why aren’t they doing something about it? They expect us to act. Doesn’t this sound ridiculous to you? We have to borrow money to pay our bills (a trillion a year) and yet we are expected to foot the cost of an attack on Assad’s government. How about spending the money to rebuild Detroit or provide shelter for the homeless here in America?
On Monday, Sen. John McCain said that he and Sen. Lindsey Graham had “a candid exchange” with President Barack Obama on Syria, and warned that “the consequences would be catastrophic” if Congress voted against a military strike against President Bashar al-Assad for his use of chemical weapons.
The consequences would be catastrophic because it would undermine the credibility of the United States of America and the credibility of the President of the United States. None of us want that. I guess these guys think it is our responsibility to fix all of the world’s problems, and pay for it along the way. I say, let them blow each other to Hell. I don’t give a darn! It is none of our business. This is nothing more than a century’s-old Sunni/Shiite conflict. Let the Arabs take care of this. Let China take care of this. They have the military might and the money to handle it. But God forbid that they should get a foothold in the Middle East. Where would we get our oil? Well, we could use our own. From what I read, we have enough in Alaska and North Dakota to take care of our needs for centuries. But then we would have to admit it wasn’t really about oil; it was about the oil PROFITS that our big corporations have at stake and they are some of the most influential lobbyists in Washington.
And then there is an article, from Zero Hedge below:
Submitted by Tyler Durden on 08/30/2013
As we showed mere days ago, it appears the truth of who the real puppet-master in the Middle East is becoming plainer to see. The incredibly frank discussion between Saudi’s spy-chief Prince Bandar and Russia’s Putin exposed a much deeper plot is afoot and the following details from the actual people on the ground in the chemically-attacked region of Syria suggest Obama is playing right into the Saudi’s plan. While Obama is ‘certain’ that the chemical attacks took place on al-Assad’s orders, as MPN reports, “from numerous interviews with doctors, Ghouta residents, rebel fighters and their families, a different picture emerges. Many believe that certain rebels received chemical weapons via the Saudi intelligence chief, Prince Bandar bin Sultan, and were responsible for carrying out the dealing gas attack.”
Dave Kranzler offers another view that seems plausible. The war in Syria will be a cover to give the Fed a reason not to cut back on QE –
Aug 27 2013
Here’s the #1 reason I still believe there will not be a taper
John Williams: While there has been no significant flow-through to the broad money supply from the expanded monetary base—banks still are not lending normally into the regular flow of commerce—there appears to have been some minor effect. The ShadowStats contention, again, has been that the Fed’s easing activity has been aimed primarily at supporting banking-system solvency and liquidity, not at propping the economy or containing inflation. When the Fed boosts its easing, but money growth does not pick up, or it contracts, as seen at present, there is a potential indication of mounting financial stress within the banking system.
That’s been my contention all along – that the Fed is primarily using QE to keep the banks from going insolvent. Why would the banks be in danger of that? Mounting pressure to post collateral from credit default swaps and interest rate swap derivatives. I have no doubt that just the Greece and Cyprus events triggered massive counterparty risk problems and the rapid spike up in interest rates in May triggered interest rate derivative problems. Secondarily, the banks are still sitting on billions in non-performing mortgage paper and empty foreclosed homes (REO), i.e. a portion of the banks’ capital base is not providing any income to offset the cash outflows demanded by the liabilities which correspond with the non-performing assets. With mortgages that would be the interest payments owed to investors on the other side of the mortgages and with empty REO that would be maintenance, HOA dues and property taxes.
This is the key issue that is not understood by the media, analysts and Zerohedge, who all believe QE, will be tapered. The Syrian “crisis” will give the Fed cover to avoid tapering. A taper will never happen as the economy collapses starting this fall.
As long as we are on the topic of tapering, here is another short article worth your attention by Brendan Conway below:
By Brendan Conway
August 29, 2013
And now we bring you the outlier forecasts. First it was Marc Faber calling for a 20% correction in the S&P 500 and gold to set a fresh high as it resumes its “haven” status.
Now we’ve got Societe Generale über-bear Albert Edwards repeating a call for 450 on the S&P 500 — a 73% drop — plus a six-fold rise in gold’s price, to above $10,000. And sub-1% yield on U.S. Treasury bonds.
The key to this mayhem, as Edwards calls it, will be turmoil in emerging markets:
I see the current EM FX turbulence leading to a renewed global recession, with waves of deflation flowing to the west from Asia as China is ultimately forced to devalue in the face of an unrelenting loss of competitiveness, most especially against its EM rivals. The structural US equity valuation bear market will then embrace the third major leg in its long and volatile Ice Age journey. With fiscal firepower essentially spent, QE will be ramped up exponentially as the Fed doves coo in universal reassurance that they can still save the world. In fact, as Marc Faber says, they will destroy it. Ultimately I expect a new phase of aggressive QE will lead to inflation that is unlikely to be containable. Policymakers have no idea how much QE is too much, other than by looking in the rear-view mirror.
Capitalist Exploits published an excellent article on gold below. What affect will the war in Syria have on gold? What will it take for gold to really surge ahead?
August 29, 2013
Without sifting through the rotting underbelly of the political machine to determine the real reasons why the US needs to go to war in Syria, I’d like to look at what the coming war means for real money. Yes, the shiny stuff.
There are a few common misconceptions that surround war and gold:
War is in fact good for the economy
War is good for gold
Lets deal with the first supposition.
Destroying infrastructure, goods, buildings and then killing people and subsequently removing their skills from the labor force can never be good for an economy. It’s an asinine assumption trumpeted by social scientists such as the MMT crowd, which I dealt with in my recent article This Company’s Burn Rate Should Scare The Hell out of You!
Now, let’s deal with the second supposition that war is good for gold and look at what happens when a war breaks out.
Firstly, people in the affected area attempt to secure what assets they can and get the heck out of Dodge.
Money flows from the region of conflict to safer jurisdictions. Joe Six-pack, if he’s unfortunate enough to find himself in Dodge, looks around and thinks to himself “ruh roh, time to bail”. Mr. fancy overpriced Brooks Brothers suit wearing hedgie in London or NY thinks to himself, “ruh roh, time to get out or get short”. Humans are predictable creatures.
The currency of the affected region or regions experiences net outflows – natural market effects taking place – notably collapsing currencies.
Gold being a stable “money” performs well relative to the collapsing currency, but so do alternative currencies.
What is important is that market participant’s focus is NOT on overall currency debasement, but on singular currency debasement. As such, don’t attribute value to gold over that of competing currencies that can provide rapid execution, liquidity and preservation of capital. (Note: I’m not suggesting the USD or Yen offer preservation of capital, I’m simply suggesting that this is what market participants believe, and until they believe otherwise the outcome is likely to be as suggested.)
This is therefore not an environment, which portends a long and sustained bull market in gold, since most eyes are on the trees and not the forest. One tree is on fire (Syria), or maybe a few trees are on fire (Egypt, Libya and Syria), but the forest still holds safety, especially on the other side of the lake, or river (United States and Japan).
So, when WILL gold get its legs again?
I think Gold will move when the realization that deficits do matter becomes apparent to a sufficient number of market participants. What is that sufficient number? I wrote a post entitled Changes at the Margin – How to Prepare for a Disorderly Move, in which I discussed this very topic. The takeaway from that post was that a market needs only to change at the margin.
Numerous examples exist. One need only to look at any of the historic stock market crashes, where one day the birds are singing on Wall Street and the next day brokers are jumping out of windows.
What happened in one day, people ask? A market needs only to change at the margin.
This brings me to what makes for a massive, disorderly move…the kind that gets those brokers jumpin’… LEVERAGE.
Keep that in mind while we return for a moment to gold and ask some more questions.
Q: Gold is the antithesis of what?
A: Fiat money.
Q: What is Fiat money in today’s monetary system?
Q: Debt issued by whom?
A: Sovereigns who control the Fiat
Q: Are these Sovereigns leveraged?
Pay attention, because here is the answer to when gold will run, gallop and stampede.
The biggest bubble on this ball of dirt right now is Sovereign debt. If debt is simply long dated currency, and if currency is under attack, then the promise to pay said currency in the future should be under attack, right? But, it isn’t…yet.
The antithesis of this debt and currency is, you guessed it….Gold
Unless this (Syrian) war rapidly turns into a global war, which is always possible, I think gold will be region-specific. It’ll probably catch a bid on overall sentiment, but as I watch my screens now I see the Yen moving higher than gold with the same fundamentals underlying this whole steaming, seething mess.
Above is the Yen versus the Syrian pound… And below is gold versus the Syrian pound.
Only when a consensus change takes place with respect to global sovereign debt will we see a sustained bull market in gold. Since the bubble in sovereign debt exceeds anything this world has ever seen, my guess is that the other side of this coin promises to be pretty spectacular.