It’s Wednesday morning; and again, I’m having difficulty focusing on a single “horrible headline” – or if you will, a single “horrible topic.” I could start by following up with yesterday’s “PDAC, the Epitome of Mining Ineptitude” with this article from Brent Cook – a geologist who has written a mining newsletter for years – titled “Exploration cuts killing miners’ future.” And this one, of how Australian gold production rose in 2014; but “due to lower prices, Australian gold miners increased the ore grades they were targeting, and pushed their processing plants even harder. In other words, though “superficially, the figures give the impression of a healthy and vibrant industry, “higher grades and greater throughput shortens mine lives.” In other words, a “perfect storm” of an essentially dead development pipeline; collapsed capital availability; plunging capital expenditure; a vanishing junior mining sector; and cannibalistic “high grading” have indeed set PM mining for the “Armageddon” we forecast. Throw in the borderline fraudulent, but more aptly characterized “optimistic” mining resources we discussed last week, and said “storm” only appears more ominous; as global demand continues to rise, amidst the relentless money printing blitzkrieg of desperate, can-kicking Central banks.
To that end, I see that the oil industry, too, is plagued by accounting “vagaries” that will ultimately cause much pain to eternally optimistic investors, who simply don’t understand that the utterly massive oversupply – caused by decades of Central bank fostered overcapacity – is doomed to implode high cost oil producers for years to come. Apparently, the SEC, in its superior wisdom, requires oil companies to base year-end reserve statements on the average oil price of the first day of the past 12 months. And thus, despite oil prices ending 2014 at roughly $50/bbl, U.S. E&P (Exploration & Production) companies largely used a price closer to $95/bbl to estimate year-end reserves. Payback will obviously be a “b—h” in 2016; and isn’t it a “hoot” that whilst oil companies are given full leeway to lie about their reserves, gold and silver mining companies are required to utilize price assumptions based on market prices?
Finishing the point, I can’t wait to see this morning’s EIA (Energy Information Administration) oil inventory report. Earlier this week, I wrote of the inevitable “death of (unfounded) bullishness” when Central bank-supported stock and bond markets can no longer support the utter explosion of “horrible headlines” that expands with each passing day. Nowhere is this more evident than in the “oil PPT” supported crude oil market; where for the past three weeks, $49/bbl WTI has been defended with the same veracity that Cartel “lines in the sand” have sought to quell PM enthusiasm for decades. Las/t night, prices “surged” to nearly $51/bbl on news that API (American Petroleum Institute) “only” rose by 2.9 million barrels last week – to a new all-time high – versus “expectations” of a 3.9 million barrel build. In other words, said PPT-inspired lunacy is causing people to not just make lemonade out of lemons, but sweet nectar.
Only in Cartel-suppressed PM markets is good news bad and bad news good; and this is decidedly bad news for oil prices. To that end, if I see one more article about “speculation that lower rig counts will produce a supply response later this year,” I’m going to puke. Given the worldwide need for cash – particularly from junk-bond financed shale producers and socialized nations basing spending programs on far higher oil prices; let alone, “market share wars” every bit as vicious as the “final currency war,” there is no conceivable way that supply will slow down any time soon, regardless of how weak demand gets. This is what I wrote in last month’s “supply response” – noting how crude oil and Precious Metals are on the opposite ends of the “fundamentals spectrum,” with the former amidst a long-term supply/demand nightmare, and the latter, a sweet dream. And putting the “nail in the coffin” of said economic nightmare – and presaging today’s principal topic, last night’s Japanese PMI readings were so ugly, it calls into question if “Abenomics” is even viable; as not only did the PMI service index “unexpectedly” plunge from 51.3 to a contractionary 48.5, but the employment component plummeted to its lowest level in 2½ years. But hey, Japan’s hapless octogenarians just gave Shinzo Abe an undisputed “license to print” in December’s snap elections, so I guess it’s 200 Yen to the dollar or bust!
Which brings me to today’s principal topic, of how Central bank insanity has brought the world to the cusp of political, economic, and social Armageddon. Not that this topic is new to Miles Franklin Blog readers. However, at this point, all but the blindest, most jaded establishment apologists are aware of the accelerating “currency wars”; which, as noted above, we first discussed more than two years ago. To that end, what catalyzed this particular piece was this quote from David Stockman regarding ECB QE, neatly consolidating my beliefs into one short paragraph…
“All that remains is for the ECB to indulge in a final burst of QE-style money printing in a futile effort to reignite growth. But the Draghi monetary tsunami is nothing more than a last incendiary hurrah. It will cause the Euro to eventually plunge through parity with the dollar, meaning that the tailwind of translation gains that flattered S&P 500 profits since the turn of the century will turn into a ferocious headwind in the years ahead, as the euro stumbles toward its final demise.”
In other words, the quintessential description of said currency wars; combined with Central bank desperation – and prayer – that they can “grow into” their massive, exponentially growing debts by simply printing money and lowering interest rates to – and below – zero. Of course, it can never happen, as “Economic Mother Nature” does not allow growth once peak debt causes the “diminishing returns” of money printing to turn negative. And whilst historic market manipulation and propaganda have enabled these trapped rats to “extend and pretend” a tad longer, in the big scheme of things the clock is ticking louder than ever – with little time remaining before the “unstoppable tsunami of reality” crashes into all global shores.
And when I say “all,” I cannot emphasize enough that it already has on shores where billions of global denizens reside; as evidenced by the all-out collapse of dozens of currencies that we predicted not this year, but last year – when it became painfully apparent that “2008 redux” was approaching, yielding a global “flight” to the superior liquidity of the reserve currency. To wit, the below comment from my 2014 predictions, published 15 months ago…
“Multiple currencies will experience dramatic declines relative to the dollar. The “final currency war” is clearly underway; in our view, catalyzed by the Fed’s 2012 commencement of QE3; the ECB’s 2012 announcement that if needed, it would engage in open-ended sovereign debt monetization; and the Bank of Japan’s 2013 announcement that it intends to double the money supply in an attempt to dramatically weaken the Yen. Consequently, these “big three” Central banks have exported copious amounts of inflation worldwide – as highlighted in “The most important article I’ve ever written.” “Tapering” notwithstanding, the global trend of increased money printing must continue – and eventually, accelerate – as history’s largest Ponzi scheme plays itself out. Consequently, the “race to debase” will intensify, yielding increased worldwide inflation. In time, this “cancer” will rise to the top of the totem pole, destroying the world’s “reserve currency” itself.”
And “final currency war” it indeed has become; with this morning alone, India and Poland becoming the 20th and 21st Central banks to reduce interest rates since year-end, following China becoming the 19th last weekend. And oh year, as I write the Euro has just broken below the 12-year low of 1.11 achieved in the wake of the “surprise” Syriza election victory. Who knows how large the list of rate-cutters (and repeat rate-cutters) becomes before Janet Yellen follows up last week’s “most unequivocally dovish FOMC statement in memory” with the inevitable “Yellen Reversal” – i.e., initiation of QE4? Given the dramatically increasing – global – economic headwinds, it’s difficult to believe it won’t be this year; particularly when her band of money printers are making comments like Chicago Fed President Charles Evans’ this morning…

Regarding last night’s “surprise” Indian rate cut – which subsequently, has the Rupee within shouting distance of its all-time low – it is particularly alarming because it was only days ago when the Reserve Bank of India was given a “legal mandate” to “target inflation.” Which it clearly is doing, in deeming the rate cut a “pre-emptive” strike against “deflation.” And this, as the supposedly “gold-positive” Modi government took a page from Alexis Tsirpas’ “book of treason” by forsaking the wishes of those that elected him, by neglecting to reduce the onerous gold and silver tariffs that have sapped official gold and silver demand, leaving a booming, expensive black market in its wake. It’s no coincidence the Rupee’s all-time low was achieved in the summer of 2013, when the aforementioned PM tariffs were instituted to (as it turns out, temporarily) quell the fears of a billion-plus gold and silver loving Indians. And now, with the Rupee again plunging, as the Indian economy dramatically slows, it wouldn’t surprise me one bit if my long-standing fears of Indian monetary Armageddon become front and center 2015 issues.
Yes, when the “history books are written,” it will be Central banks blamed for essentially all of what destroyed the global, “modernized” economy of the early 21st Century. True historians will realize the root of such evil was sown in August 1971, when the global gold standard was abandoned; but all will realize that whatever it was that was “working” beforehand, decidedly broke in 2008, when the terminal phase of history’s largest Ponzi scheme commenced; and went “off the rails” when Central banks went hog wild printing money circa 2012.
And one more note before I stop, as I’d be remiss if I didn’t mention the “financial Frankenstein” created yesterday, by the merger of the sub-prime divisions of AIG and Citigroup by a fly-by-night company called Springleaf, ticker LEAF. Yes, the absolutely ugliest, most destructive practices – by the ugliest, most destructive companies – have joined forces in what is unquestionably an ominous sign that the long-awaited “end game” has arrived. In other words, the “quest for yield” in a world of QE, ZIRP, and – increasingly – NIRP has caused the most dangerous demons of old to be re-awoken, to the applause of a PPT-supported Wall Street. How long will it be before such cheers turn to Lehman-like jeers? No one has a crystal ball, but methinks it won’t be too long. Which, by the way, is the same “timeline” I anticipate for the global realization that only gold and silver are real money, whilst all others are worthless toilet paper.
PROTECT YOURSELF, and do it NOW!
Call Miles Franklin at 800-822-8080, and talk to one of our brokers. Through industry-leading customer service and competitive pricing, we aim to EARN your business.
Just think… We are all being written into the upcoming history books even as we are performing that history in the here and now. Hope there’s some one around to publish it, and then to read it! It’ll probably be printed on used bank note paper… Nice job, Andy!
Hello Andy,
When government financing has been under distress in the past, don’t TPTB resort to WAR!
TX Bill
They certainly do. Iraq, Libya, Syria, Iran, Ukraine, you name it.
Haha, talking of resorting war:
Here, a banker warning from a Rothschild saying geopolitical situtation as dangerous as any since World War II!!
http://www.telegraph.co.uk/finance/personalfinance/investing/funds/11445631/Lord-Rothschild-Investors-face-a-geopolitical-situation-as-dangerous-as-any-since-WW2.html
Wasn’t WWII itself exacerbated by bankers advising FDR to impose brutal oil embargo on Japan? Not to mention, Rothschilds advising FDR to de-monetise silver, which caused a major silver crisis in China destroying feudal Chinese economy, setting it for take over by Japan.
Can certainly go back to WWI for more examples like that.
The old saying goes in Economics, “When you need to jump start your economy, just go to war” – hence spend spend spend on military to pump prime the economy’s GDP and weaken your currency to further help with stronger exports.
But G.W. Bush did this after the dot com bust with Iraq and Afghanistan (in addition to 9/11), so … my biggest concern is military conflict with Russia.
Andy.
Excellent update and thank you.
If we have WWIII who will be left to write the history books, much less read them?
Old Albert said he didn’t know what manner WWIII would be fought with, but he was sure WWIV would be fought with sticks and stones.
Looking bleaker by the day and soon bleaker by the hour.
God help us all.
While we are waiting for the details on the European Central Bank’s quantitative easing program (will be published on Thursday) and the U.S. non-farm payroll report (will be revealed on Friday), it is worth analyzing a piece of news which passed almost unnoticed: the long-established London Gold Fix is going to be replaced by the new electronic LBMA price-discovery process on March 20. Why do we believe that all gold investors should be aware of that fact?
When we first read about the coming end of the London Gold Fix, we could not believe it. It is (still) the most important global benchmark for gold prices in the world, being in operation since 1919. We do not know whether the approaching launch of the new gold pricing mechanism will be a genuine game-changer, but it definitely means something. What is this all about? In short, the gold benchmark will be set via an electronic platform managed by the ICE Benchmark Administration. According to the official statement:
“IBA will operate a physically settled, electronic and tradeable auction process. The price formation will be in dollars and prices will continue to be set twice daily at 10:30 and 15:00 (London time) in three currencies: USD, EUR and GBP. Within the process, aggregated gold bids and offers will be updated in real-time with the imbalance calculated and the price updated every 30 seconds until the buy and sell orders are matched. Participants, as well as sponsored clients, will be able to manage their orders in the auction in real time via their desktops.”
The London gold price will therefore be no longer set through a private arrangement among just four members of London Gold Market Fixing Ltd. (at present, Bank of Nova Scotia-ScotiaMocatta, Barclays Bank PLC, HSBC Bank U.S.A., and Société Générale SA).
What are the possible consequences of this replacement for the gold market? First, it should bring more transparency to the market. We are not claiming that banks used to meddle with the gold market; however the change is coming after a big investigation into a number of global benchmarks set behind the closed doors, like the rigged Libor. Second, more participants will be involved into setting the benchmark price of gold. Probably 11 entities will provide the data used to establish the daily gold price. More participants should provide larger transparency: the more players, the harder to collude to set the price.
Third, the new gold price mechanism may be positive for the gold prices. Why? A few Chinese banks (three of them are already LBMA members) are likely to participate in setting the gold prices. It means that Chinese clients will have a more direct influence on the international price of gold. This is important, because the Chinese are considered to be more bullish on gold. It is an open secret that the gold prices trade on average at higher price levels during the Asian trading hours than during the London and New York trading hours.
The key takeaway is that the new gold price mechanism is going to be launched on March 20, and it should bring more transparency to the market. It may also strengthen the gold prices. It will rather not cause a parabolic spike in the gold prices, however it may provide a long-term support by ensuring larger transparency and stability and, thus, attracting more value-oriented clients to the gold market.
“”In other words, said PPT-inspired lunacy is causing people to not just make lemonade out of lemons, but sweet nectar.””
Classic Line Andy, thanks
I’m watching out for Springleaf in case they want to loan me some
cash.
Andy, have you ever thought of tweeting impromptu rants on random thoughts and breaking headlines?
You’d be fun to follow!
Makes no sense. I discuss the big picture, not trading tips.
Added to the above, it may also be a more “graceful” way for the Chinese to exercise their position without having to show up anyone else. That would seem to fit their cultural attitudes as well as avoiding an event triggering an armed conflict.
Just ignore my previous post. I just thought it would be a more convenient was to spread news and your new blog postings, I hope people wouldn’t trade off a single tweet, but then again, who knows.