I had the pleasure to record an interview earlier this week with GoldMoney.com’s Alasdair MacLeod. We talk gold, silver, bitcoin and the two paths humanity can take going forward. Either toward a centralized, police state gulag or a decentralized, free and open society. The choice is ours. Have a listen!
So I finally decided to record a podcast. It is something I have contemplated for a while and I finally got around to it. The reason why I did it today is probably a combination of the boredom in the markets but also tomorrow’s Jackson Hole spectacle. Viewer feedback would be really helpful as I would want to know if people find the podcast format useful and enjoyable.
Do I really think that any mainstream politician would ever actually move us toward the gold standard? Not a chance. It doesn’t matter. As I mentioned the other day, the mere fact that Romney was forced to consider creating a commission to examine the return to gold tells us all we need to know. The populace is becoming increasingly informed of the total scam that the current monetary system is and they are looking for answers. My personal belief is that a gold standard isn’t ideal either. I think we need to move away from centralized control of money completely. There is absolutely no reason why a small group of men should have the monopoly power to create money and distribute it with the defense of an army. That is feudalism. Monetary “evolution” in my mind is directly related to a movement toward human beings and businesses using whatever currency they want. It can be gold, it can be silver, it can be bitcoins, or it can be something else. That is not for me to decide. It is for the market to choose. That is freedom.
My guess is that when the current system dies, gold and silver will soar to unimaginable heights in government issued fiat currencies terms, and out of the ashes countless competing currencies will arise. This will be a good thing. Out of chaos let’s get our freedom back and never allow the criminal elite to use the chaos for dictatorship. The choice is ours so we need to start working on these concepts now and moving more toward alternative currencies sooner rather than later.
That is why I think the CNBC poll is so important. People know something is wrong. This presents a great opportunity.
Read the Benzinga article on the poll here.
Zealotry of either kind — the puritan’s need to regiment others or the victim’s passion for blaming everyone except himself — tends to produce a depressing civic stupidity. Each trait has about it the immobility of addiction. Victims become addicted to being victims: they derive identity, innocence and a kind of devious power from sheer, defaulting helplessness. On the other side, the candlesnuffers of behavioral and political correctness enact their paradox, accomplishing intolerance in the name of tolerance, regimentation in the name of betterment.
– Lance Morrow
It is unclear how disarming law-abiding citizens would better protect them from the dangers and threats posed by those who would flout the law. It is at just such times that the constitutional right to self-defense is most precious and must be protected from government overreach.
– Rick Scott
In my email of two weeks ago I wrote the following:
Barring a market catastrophe in the next two weeks I do not expect the Fed to act at the June meeting. With rates where they are and stocks where they are there is little upside to action; however, this lack of action is precisely what will set the stage for the massive action that must come later.
Well the Fed meeting came and went, and in my opinion, they did less than zero. The extension of operation TWIST is the biggest non-event, nonsense move in the history of the Federal Reserve. In fact, it does more harm than good on several fronts and it would have been smarter to have done nothing at all. Most significantly, the fact that they felt the need to “do something” should tell you something. With stock prices near their highs and the 10 year treasury at 1.60%, or just shy of record low yields, what is the rationale for any action? The answer to this question of course is that many of the world’s economies have been in recession for much of the year and as I have said for weeks, publicly and privately, I believe the U.S. joined the recession club at some point in May of this year. I think The Bernank understands this but dares not say it. Just like he rambled on about how “there was no housing bubble” and that the “subprime crisis was contained” back in 2007/08 as the world tipped into financial implosion, he employs the same strategy today. The core strategy at the moment, as I mentioned previously, is “talk up the economy, talk down printing and pray.” While this is all well and good, the biggest problem that the Bernank now faces is that the financial markets are such a distorted hologram that all asset prices are vulnerable to flash crash type moves. No one believes in their positions (other than people that hold hard assets like precious metals outside of the banking system and will not sell until the system is reset), rather investors and traders are forced to be involved in positions as a function of their mandates. Their decisions are no longer driven by economic or business prospects but rather by some view on what the Central Planners of the world will do next. The markets seem calm but there is a storm brewing beneath them and the pressure will be released one way or the other. We are now in the crucial six week period between Fed meetings. The reason I think this is such an important time is because not only will investors come to grips with the reality on the ground (recession) but it is also earnings season. As I pointed out during the last earnings period, stocks that had even a whiff of weakness in their numbers or outlook were decimated. Even names that had good results did not break out. This sent a clear signal that too much goodness is priced into many shares out there. Today we see a similar sign with Bed, Bath and Beyond. Another high flier returns to earth…
The Saudi Stimulus
In my recent piece titled Saudis Pump All Out as the Global Economy Crumbles, I outlined how the Obama administration and the Saudi government clearly came to an arrangement. Bascically, the U.S. and other OECD nations would not release SPR (strategic petroleum reserves) oil in exchange for the Saudis pumping all out. Of course, when faced with an SPR release the choice for the Saudis was pretty simple. At least this way if prices are headed lower they can sell the volume. I believe that with the Bernank terrified to act given the populist backlash (and rightly so) agaisnt the Federal Reserve, this was the “stimulus” that the administration agreed upon. It was a very crafty move. This is because 99% of investors out there have no idea what is really happening in the oil market and all of the geopolitical forces involved in the recent manufactured crash. As a result, your average investor, and more importantly, your average computer algo just sees oil collapsing and thinks this will be some boost to the economy. The following chart sums up this brain-dead trade perfectly.
Oil vs. the SPX
No ladies and gentlemen, oil is not falling from the sky like manna from heaven. No ladies and gentlemen, the Bakken shale is not a global oil supply game changer. Yes, the Saudis are purposefully crashing the price. Yes, demand is plunging as the world economy tips into recession. So where does this leave us? In a very, very bad position. First of all, just like all of the other “stimulus” this is a band-aid kick the can down the road move. Sure the Saudis can live with low oil prices for a while, but certainly not forever as their population is young, restless and needs consistent payoffs. Second, all of the new sources of supply are expensive, such as oil shale, oil sands and deepwater. Projects will be canceled en masse at these prices. Then, when the Central Planners of the world finally give in with the Big Print oil will skyrocket higher as confetti money meets supply declines and any economic recovery gets stopped dead in its tracks once again. Also, what about the fact that oil shale has been one of the highlights of the U.S. economy over the last few years. You think it is just a coincidence that North Dakota has the lowest unemployment rate in the United States at 3%? Of course not. The oil boom has been the one bright spot in this disaster financial ghetto economy we’ve got, and at $80 oil that doesn’t work. The oil shale workers can sadly now join the ranks of Obama’s food stamp nation. Oh and I’m sure green energy will really be stimulated at these prices! Great work guys. You are killing an entire nation to maintain your petty little power structure. But it won’t work because we are in the Forth Turning, and when it all blows up, trust me, we will never forget who’s responsible.
Peace and wisdom,
Republics are created by the virtue, public spirit, and intelligence of the citizens. They fall, when the wise are banished from the public councils, because they dare to be honest, and the profligate are rewarded, because they flatter the people, in order to betray them.
– Justice Joseph Story
When it becomes serious, you have to lie.
– Jean Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister in 2011
The Game Continues
I have no idea why anyone is making a big deal about The Bernank’s testimony to Congress today. There was no way he was going to come out with anything meaningful. The only thing our favorite Keynesian sorcerer wants to do is get through the session in as painless a manner as possible. It would be completely foolish to rock the boat in any way during such testimony, as it would just invite all sorts of aggressive questions and make the entire thing more of a spectacle than it already is. It would also increase the likelihood of a verbal blunder, so there is just no need. In fact, I am 100% certain that The Bernank merely wants to toe the line as carefully as possible and at the same time get some nice propaganda out there to the sheeple. In that sense, I think he achieved his goal.
Mapping the Next Five Months
Everyone has an opinion and on days like today people really like to come out and spout theirs so I suppose I may as well join the club. In a recent article, I wrote that The Big Print is Coming and in this piece I want to follow that one up with exactly how I think it all will manifest between now and the election. Of course, no one can predict the future, but what I want to do is attempt to outline how I think Central Planner policy will unfold from now until the U.S. Presidential election in early November.
Ok so let’s start with the FOMC meetings. Between now and election day there are four. The first one as everyone know is June 20th, followed by August 1st, September 13th and then October 24th. Many pundits claim that if the Fed is going to act they may as well do so well before the election so as not to appear to be “influencing the election.” I’m not so sure about that. Maybe in times past, when the power structure was a bit more reserved and less blatant about their corruption and manipulations. They don’t hide that stuff anymore. The “elites” in America today are simply gangsters. We have already been officially christened as a Banana Republic. The criminal behavior that now governs our political and economic system is now all out in the open for anyone with eyes to see. They don’t care.
What I want to make clear in this piece is that just because I think a massive wave of liquidity is coming from the Central Planners, that doesn’t mean I expect it to happen in June. There is no doubt that The Bernank is now doubting all of his academic theories of the past and is scared out of his mind to “do more.” He is afraid it won’t work, he is afraid of the demand for physical gold and silver that it might spark, and he is also afraid to use the bullets now with asset prices where they are. He wants to save it for when he needs it and he knows he will need it.
So the game continues. Talk up the economy, talk down printing and pray. The beige book and today’s testimony represented textbook Fed strategy in 2012. Strategy that I have discussed many, many times in months prior. They can talk all they want and give all the reassurances they want but talk from monetary magicians does not alter the reality on the ground. As I have stated repeatedly in the last two weeks, I think the Fed is more behind the curve than at any point since 2008. Back then, The Bernank assured us that there was no housing bubble and that subprime was contained. Big bank CEOs were pimped out on CNBS to claim their solvency weeks before going under or needing a bailout. The only strategy left was to lie. Despite the fact that it didn’t work then doesn’t stop them from trying now. Why? They are insane.
Barring a market catastrophe in the next two weeks I do not expect the Fed to act at the June meeting. With rates where they are and stocks where they are there is little upside to action; however, this lack of action is precisely what will set the stage for the massive action that must come later. One of the main things that has allowed the Fed to kick the can down the road as long as it has is the fact that ever since 2008 they have acted aggressively on the first hint of weakness. While the beige book pointed to relatively rosy conditions for the U.S. economy, I think that is because they were looking at data from early April through late May together. If you look at the U.S. economic statistics, the data didn’t start turning for the worse in a serious manner until late in the second half of the month of May. The Fed knows this but they are purposefully misleading the market. In reading a Bloomberg article about the beige book the following quote stood out to me: “’The Beige Book is clearly at odds with the hard data we’ve been seeing,’ said Millan Mulraine, senior U.S. strategist at TD Securities in New York. ‘We’ve seen a dramatic slowdown in economic growth momentum that you’d think would be reflected in a few, if not the majority, of districts.’” Move along folks…nothing to see here.
If there was ever an article that should spark every British citizen to immediately shift their savings into physical gold this is it. Basically, proposals are on the table to change the way inflation is calculated for bonds that payout based on the rate of change in prices. Unsurprisingly, they are purposely attempting to use an alternative measure of inflation that allows substitution (so when people can no longer buy a steak and must spend the same amount of money on spam this shows up as no inflation)! If this goes through, it is blatant theft. This is why owning TIPS in the U.S. is a total fool’s game. They will mark inflation to whatever level they want at the end of the day. To whatever is most convenient at the moment. You know, just like the banks mark their balance sheets. But don’t take my word for it…
Key quotes from the FT article:
Holders of some UK index-linked gilts could see more than 40 per cent wiped off the value of their bonds, according to M&G Investments, as a result of technical changes to the way the retail price index, which underpins these “linkers”, is calculated.
The mooted changes are designed to eliminate “unjustified” causes of the persistent gap between inflation as measured by the RPI and the normally lower consumer price index, narrowing the “wedge” between the two measures by altering the way the RPI is calculated. Some industry figures believe the gap between the two measures could be eliminated entirely.
“To eradicate the wedge altogether would be tantamount to an event of default,” said Ben Lord, portfolio manager at M&G.
Full article here.
It is a mindless philosophy that assumes that one’s private beliefs have nothing to do with public office. Does it make sense to entrust those who are immoral in private with the power to determine the nation’s moral issues and, indeed, its destiny? …. The duplicitous soul of a leader can only make a nation more sophisticated in evil.
– Dr. Ravi Zacharias
A reasonable action on the part of the majority is very rare, while the evidence of mob stupidity and brutality is overwhelming. The majority in power make laws for their own financial benefit, disregarding the interests of the minority, and when the weak minority, by adding to its numbers, becomes powerful, it, in turn, does the same thing; thus, by appealing to power to settle their conflicting interests, the conflict would go on forever.
– Charles T. Sprading
A little government and a little luck are necessary in life, but only a fool trusts either of them.
– P. J. O’Rourke
Saudis Pump All Out as the Global Economy Crumbles
In an election year where The Bernank is afraid to print more money despite his understanding that he must in order to keep the ponzi going (if only for a few more months), Obama has been given a gift by the Saudis in the form of purposefully flooding the world with oil. Specifically, the Saudis are now pumping 9.9 million b/d, which is the highest level in at least the last 20 years (see chart below). This increase in output has come at the exact same time that much of Europe has fallen into depression and as China and many of the BRICS have collapsed from higher than average growth rates to what I believe is barely positive real GDP growth (if we actually had reliable data). This oversupply of crude has led to a severe correction.
I think the realization of the situation in Europe and the emerging markets accounted for the initial 10% or so drop in Brent crude from $125/b to $110/b. The most recent 10% plunge to just below $100/b as of today can, in my opinion, be explained by the sudden understanding that the U.S. is not the Goliath the presstitutes in the mainstream media would have you believe. Rather, as I mentioned in my email from last week, I believe that May represented the tipping point into contraction for the domestic economy. A process that could unfold a lot faster than most anticipate.
As you can see from the above chart, Saudi oil production is at its highs. The fact that they continue to flood the market is no accident. It is a favor to Barack Obama and the United States generally. The idea was that if oil supply flooded the market and knocked down the most important commodity in the world, this would serve as a hidden “stimulus” in an election year. It would represent something of a tax break to the American consumer and thus make things look better into November. That was the plan. Unfortunately for them, it is not working.
The reason it is not working is because we do not have a healthy global economy. We have a giant house of cards built on debt and derivatives, which market forces desperately wants to blow away so that the system can reset. The ponzi has gotten so gigantic at this point that a little extra Saudi oil isn’t going to do the trick. As I have been saying for a while and made clear last week, when the forces of nature start to roll over again there will be no stopping the train wreck. It will be so catastrophic and overwhelming that asset prices will do things pretty much no money manager out there is anticipating at this point. While The Bernank and his minions can go out in public and lie about the state of the economy and claim they do not need more QE, the only thing they are doing is setting the stage for a seismic price readjustment in assets classes globally. It is a readjustment they will not be able to accept, and the global Central Planner response will have to be so massive just to keep things together it will send gold to at least $2,500/oz.
The other thing I would point out is look at where Saudi production was in the summer of 2008. It was at a high of 9.6 million b/d right before the entire global financial system melted down. Is history repeating itself in crude? If so, what is the downside? My sense is the downside is much, much higher than in 2008. Back then Brent crude got to just below $40/b. There are many reasons for this, but I think one of them relates to the fact that there was a commodity bubble going into the decline at that time. Not so in 2012. Furthermore, the marginal cost of oil has only been moving higher and higher as conventional supplies have peaked and the world is relying more on higher cost shale, deepwater and oil sands. My guess is that even if the global economy goes into a depression like state, I do not think oil will sustain itself much below $70/b. In fact, my guess would be somewhere in the $60s/b will be the low and that will only happen if the Central Planners play things too cute and do not act until this fall.
The last point I want to make is that commodities are way ahead of stocks in the U.S., and the sell-off in equities we have seen so far may have quite a bit more to go. The dominoes this time are falling in reverse to what happened in 2008. Back then, it was the U.S. that cratered first and later commodities joined the show. There were dreams of BRIC decoupling in the air. This time Europe and the BRICS went first and there are new dreams of decoupling – this time centered upon the U.S. economy. This dream, like the prior one, will turn out to be a nightmare. Brent crude has already corrected by about 24% from the highs. The Dow Jones Industrial Average is only down 8% from the highs. 24% would put it at about 10,000. Decoupling didn’t exist in 2008 and it doesn’t exist now. Plan accordingly.
Peace and wisdom,
My Take: This is a very important article from Bloomberg. Paul Volcker, who is known for crushing inflation in the early 1980’s by spiking interest rates into the double digits, is seen in many circles as perhaps the best U.S. Central Banker of the modern era. As a guy who was willing to take the hard steps to avoid a dollar collapse and restore America back on a path to prosperity. That is the myth. Reality is a lot different. Besides the fact that his actions merely created a temporary respite on the terminal path of the fiat dollar, all that happened from the early 80’s until now was the blowing up of the biggest credit and derivatives bubble in human history. A ponzi scheme of counterfeit money so monstrous that nothing short of a total reset of the global monetary and financial system globally will suffice to end this nightmare. The fact that the “problems” keep resurfacing is simply a function of our failure to reset the system. Until that happens, nothing will ever get better on a consistent basis.
In any event, the title of this article makes Volcker sound like he is really in favor of a system overhaul, yet if you read it you realize that is not the case. He is merely calling for tweaks here and there and seems to even be calling for MORE power in the hands of bureaucrats and Central Bankers.
For example, when talking about the global trade imbalances that have been built up he offers as a solution: “Possibilities for forcing countries to correct imbalances may include stronger surveillance by the International Monetary Fund or financial penalties and incentives, Volcker said. He also urged the study of a multiple-currency reserve system.”
I mean, this guy has some nerve. More power to the IMF? This proves to me Volcker is a total globalist who wants to march toward the fiat feudalism of a one-world fiat currency like the SDR. The reason I say this is because he knows full well that using gold naturally prevents all of the trade imbalances from ever occurring. I am not talking about a Bretton Woods phony “in theory gold standard,” I am talking about if nations used gold for international trade. If we were under such a system the trade imbalances, credit bubble and derivatives nightmare could never have ever gotten to where it is. Amazingly, Volcker’s brilliant solution is to give more power to those that got us into this mess, hoping they can make the right decisions this time. That represents a march toward more Central Planning as well as feudalism for the masses and this clown wants more of it as a solution!
Read the full article here.
You know the system is in trouble when it rolls out every multi-billionaire status quo gatekeeper to appear on CNBC and regurgitate the same trite propaganda lines to scare people away from protecting their financial well being via the one asset that has proven timeless and portable for thousands of years. What the sheeple still cannot get through their minds thanks to constant misdirection from people such as Bill Gates “being on the same page” as Buffett and Charlie “only Jews about to be gassed should buy gold” Munger on the subject of precious metals is that government can and will steal your money and assets when they are backed into a corner. While you can’t sow your E*TRADE account or steel plant into your garments you can with gold.
Billy Gates’ comments on gold are so ridiculous only a caveman could believe them. He uses a lot of fear tactics in the brief commentary. He uses the tried and true what if the “IMF and Central Banks start selling” line. This is hilarious because it is only very recently that Central Banks have been net buyers of gold after decades of selling. Furthermore, the emerging market Central Banks, especially China, have merely 1%-5% of their FX reserves in gold (no one knows the exact number) so they will take every ounce the Western Central Banks are stupid enough to put up for sale. He implies that Central Banks could sell gold because it does “nothing for its citizens.” A more ridiculous statement has never been uttered. First of all why would these sophisticated financial wizards running these institutions hold gold in the first place? Why would Nixon close the gold window in 1971 to prevent the loss of more U.S. gold if gold doesn’t matter? Why would all the up and coming economies be buying it and why are some of the smartest investors in the world buying physical gold? Gates is trying to imply these investors are all stupid, mentally weak individuals. Finally, as if what these governments are doing at the moment is good for their citizens?! Yeah, just look at the skyrocketing suicide rate in Greece for your proof. I’m sorry the best thing a government can do is to hold as much gold as possible for its citizens so they have a chance to start over once this house of cards implodes publicly.
He also states that once people want to sell “there is no floor.” I mean come on man. Gold is the only currency that has survived purchasing power intact since the ancient Egyptians. The worst part about him saying all this publicly is that he is actively discouraging the sheeple who actually listen to him from protecting themselves. That is morally repugnant.