It’s Monday morning, and rarely do I feel so challenged in picking a single topic to write of; as the weekend’s “horrible headline” list is as long as at any time in recent memory – regarding a variety of terrifying topics from the four corners of the globe.
In Japan, for example, the economic noose is dramatically tightening – as now that its catastrophic sales tax increase has been enacted, the odds of an already morbid economy taking a dramatic turn for the worse are skyrocketing. Halfway into “Abenomics,” the BOJ’s mad money printing experiment is a decided failure – as Japanese inflation has clearly increased, but not in the targeted areas. The Nikkei rose modestly when this suicidal money printing scheme was announced a year ago but hasn’t budged since, and remains 60% below the highs reached 25 years ago, which in inflation-adjusted terms, jacks the real losses closer to 80%. Meanwhile, Japanese CPI inflation hit a five-year high in March, whilst GDP growth was essentially zero as labor wages fell for the 21st straight month. Here at the Miles Franklin Blog, we believe Abenomics will be expanded further before the current version ends next Spring and that Japan will be the first “leading economy” to experience hyperinflation in the 21st century.
In China, an article I read this weekend was titled, “Is China the next Lehman Brothers?” Sadly, Lehman’s catastrophic impact on the global financial system – which one day, will be viewed as the “flash point” exposing its unsustainability – will be considered minor compared to the Chinese economic implosion. As Gary Shilling wrote this weekend, “China’s problems are the world’s problems.” In other words, just as the holder of the world’s “reserve currency” exports inflation when it prints too many dollars, the world’s “growth engine” causes global economic weakness when it slows down.
Worse yet, while America’s debt explosion was largely contained within large, “too big to fail” banks that the government “nationalized” with bailouts, ZIRP, and “QE to Infinity,” the Chinese credit, real estate and construction bubble was largely financed by a “shadow banking” system with no government backing, totaling an incredible $23 trillion, or 151% of China’s (likely overstated) GDP. Moreover, the scariest part of this unfolding financial horror is that $14 trillion, or 60% of this amount, has been undertaken since the 2008 financial crisis – in what can only be viewed as the Chinese government’s “veiled QE response” to the 200 crisis, in fostering such immense amounts of privately undertaken, highly speculative, completely un-backstopped investment lunacy.
To wit, shadow banking defaults have already started to explode; and given the Chinese government has shown no inclination to overtly bail it out (how can thousands of small lenders be saved anyway?), its response will clearly be further monetary easing – i.e., Chinese “QE to Infinity.” Last month’s decision to devalue the Yuan further – by doubling its daily trading band, enabling it to fall faster – is clearly the first salvo in the terminal stage of the “final currency war”; which, in our view, will expand to its inevitable, hyper-inflationary end sooner rather than later.
Meanwhile, China is clearly teaming up with the Russian in an attempt to end the dollar’s hegemony and no better instance of this change is evident than the aftermath of the initial stages of the Ukrainian crisis – which, by the way, shows no signs of “de-escalating.” China and the other BRICS have decidedly sided with Russia; and in just a few brief weeks have inked numerous non-dollar trading agreements – in some cases directly against U.S.-led sanctions, such as last week’s Russia/Iran oil for goods deal. The “petro-dollar” – and all other dollar trading, for that matter, is already in decline; and the more aggressive the suicidal U.S. government becomes – such as Defense Secretary Hagel last week reiterating America’s commitment to defending Japan in its ongoing territorial disputes with China – the quicker the dollar’s inevitable collapse will occur. Remember, the dollar doesn’t have to completely “collapse” for the sky-high standard of living of Americans to dramatically plunge – although inevitably, it will. And when it does, if you think the social unrest and political revolution ongoing overseas is bad, just wait till you see what occurs here.
In Europe, the situation can best be described by this weekend’s comment by UK Business Secretary (a British cabinet position) Vince Cable, per below.
Yes, just like in China, European money printing has created a worse financial bubble than in early 2008, in its attempt to “re-animate” the corpse that is an insolvent imploded banking system. Draghi’s July 2012 promise to do “whatever it takes” has caused an unprecedented bubble in European sovereign bonds – like U.S. Treasury bonds before them – causing yields in collapsing economies like Spain, Italy, and even Greece to plumb multi-year lows. Meanwhile, as the IMF calls for a maniacal concoction of bailouts and bail-ins – ironically, coupled with increased “austerity” – Draghi is preparing to finally unleash what he promised nearly two years ago; i.e., the OMT, or “Outright Monetary Transaction” scheme that, in effect will be a $1 trillion ECB QE program. At this point, it’s just a matter of when – be it next month, or the second half of 2014 at the latest – when Europe re-joins the global hyperinflation party, after having proven that no policy – from “tapering” to “ZIRP” to “QE” – can stop the inevitable, likely imminent, collapse of the global banking system. No doubt, Christine Lagarde, head of the IMF, will be thrilled, given her unending propaganda of “deflation” – or as she euphemistically calls it, “low-flation”…
The first obstacle is in the advanced economies. There is the emerging risk of what I call ‘low-flation,’ particularly in the Euro Area. A potentially prolonged period of low inflation can suppress demand and output—and suppress growth and jobs. More monetary easing, including through unconventional measures, is needed in the Euro Area to raise the prospects of achieving the ECB’s price stability objective. The Bank of Japan also should persist with its quantitative easing policy.
–IMF.org, April 2, 2014
And then, of course, there’s the U.S., where the only “businesses” thriving are those exploiting the economic collapse – such as “reverse mortgages” that steal people’s homes, given how few can actually afford their mortgages. Perhaps the most important article we’ve penned all year is January’s “3.0% – ‘Nuff Said” – as given said collapse, amidst exploding debt and surging inflation, there is simply no way, no how, the Fed can allow interest rates to rise. It’s why the whole concept of “tapering” is nothing more than propaganda – as the Fed has been printing more than ever; and why sometime soon, “Whirlybird Janet” must officially go on the record as the printing press aficionado she has always been.
In last week’s “Anatomy of a Bubble,” we described how – like China – Fed money printing has created U.S. financial bubbles far greater today than at the 2008 peak. Only this time, the underlying economy is far weaker, the Fed’s QE “ammo” largely spent, and, by and large, only the “1%” has been allowed to participate – aided by every imaginable illegal tactic, such as high frequency trading. In it, we discussed how – incredibly – NYSE margin debt has nearly doubled the 2000 peak level more than 10% above the record level achieved just before the 2008 collapse. In fact, the market’s P/E ratio is now exactly the same as at the 2008 peak only this time, care of fraudulent accounting like the 2009 FASB ruling enabling banks to value toxic bonds at par, said “earnings” are far more suspect.
The PPT has done everything imaginable to support its end of the “manipulation bargain” by supporting stocks every second of every trading day; and no better proof of such blatant machinations can be found than the fact that the average stock is down nearly 7%, despite the S&P sitting near its all-time high. In other words, the poor, foolish “hedge bombs” continue to underperform because they don’t realize it’s only been rising because the PPT focuses its buying efforts on index futures. Well, that and their foolish, sheep-like chasing – on record leverage, per above – of high beta “momentum stocks” like Netflix, Tesla, and Twitter which as I write, continue their freefall.
Will the PPT be able to save the day with its daily “POMO” or permanent market operations” buying of “Dow Jones Propaganda Average” futures at 10 AM EST which as you can see failed miserably today? Or will more draconian “QE” measures need to be taken, such as the Fed announcing not only a reversal of said “tapering,” but an acceleration of QE later this year. We’ll take “the over” on both, as well as the likelihood that inflation fears become a major global talking point in the coming 12 months – as well as bailouts, bail-ins, and other draconian government policy responses. In other words, Central banks – the world round – will do everything imaginable to prevent a “2008 redux”; which unfortunately, is already “baked in the cake,” with no viable means of either stopping it or curtailing its horrific, long-term ramifications.
As for Precious Metals, the Cartel, too, will do everything in its power to prevent these “barometers of bad tidings” from exposing the economic horror they have created; including the recruitment of every imaginable MSM source to paint the picture they want disseminated.
Fortunately, a global “realization of reality” is standing in their way – as physical demand has surged to all-time highs whilst production is plunging, and likely to do so for the next decade. Moreover, amidst their repeated paper attacks – particularly since last April’s “Alternative Currencies Destruction” – they have inadvertently created a massive “double bottom” in both metals, as validated by gold’s recent “golden cross” – soon to be followed by a similar technical achievement in silver, in the context of the most bullish long-term technical bullishness in financial market history. Conversely, “tapering” and all, the 10-year Treasury yield – incredibly, given all the foreign Treasury selling – just completed a “death cross,” signaling an imminent plunge in rates. In other words, the anticipation of an expansion of QE, just like we discussed regarding Europe. Such a combination of events could not be more lethal to TPTB’s goal of convincing the masses of “recovery”; and thus, the odds of initiating hyperinflationary monetary and fiscal policies are going parabolic.
Meanwhile, the Cartel is going hog wild capping gold and silver at their current “lines in the sand” at the key round numbers of $1,300/oz. and $20/oz., respectively. Literally every day last week, followed by this morning’s 33rd “Sunday night Sentiment” attack in the past 34 weekends, and 200th “2:15 AM” EST raid of the past 224 trading days, they have been naked shorting with reckless, transparent abandon.
Fortunately, their days appear numbered – as evidence that physical supply is drying up, amidst exponentially rising physical demand – is mounting rapidly. It’s only a matter of time before this inevitability becomes imminent and when it does, if you haven’t protected yourself already, it will be too late.
If you have any questions, please call Miles Franklin at 800-822-8080. Celebrating our 25th anniversary this year, our brokers, on average, have 19 years of precious metals sales experience. You will always be treated fairly, with the industry’s best customer service, competitive pricing – and in my view, the Western hemisphere’s best storage program; in which, I put my “money where my mouth is.” That, we promise!