THE DIREST PREDICTION OF ALL
by Andrew Hoffman, Miles Franklin
I’m writing this New Year’s Eve day, from the “Play Factory” in Phoenix – where my soon-to-be three-year old is frolicking, on one of Arizona’s few rainy days. Oh well, the ominous, overcast weather is a fitting end to one of the most frustrating years of my life – which, I might add, will be replaced by weeks of sunshine starting tomorrow.
Watching the global economy freefall at a pace matched only by 2008 – albeit, with dramatically higher debt, social unrest, and geopolitical tension, I can only imagine what will occur when things really get ugly. And frankly, I have ZERO doubt that a year from now, today’s economic horror show will be considered the “good old days.” Today’s PM attacks are just “par for the course” for TPTB’s “last stand”; as honestly, how much more obvious can the Cartel have been in its defense of $1,200/oz gold; let alone, the $1,205/oz level it closed 2013 at?
Every day this week, oil, commodities, currencies, interest rates, and economic data have plunged; and while PMs surged higher Friday and Tuesday (albeit, muted by prototypical capping algorithms), the Cartel viciously fought back Monday and today. Moreover, PPT/Fed support of the stock market, whilst “not allowing” the 10-year Treasury yield to fall too far below 2.2%, round out the height of manipulative hubris. The problem, of course, is that with each passing day, the “chasm of destruction” between economic reality and manipulated markets – fostering historic investor lethargy – grows wider; and in the case of Precious Metals, the timing of their inevitable, perhaps permanent shortage has been dramatically accelerated.
To wit, today’s economic data included the largest U.S. monthly home price decline in a year; followed by yet another downward “revision” of existing home sales; a multi-year low in the number of households expecting to purchase a home; an “unexpected plunge” in the Chicago PMI, and surging jobless claims. Meanwhile, in China, its manufacturing PMI again printed below 50 (signaling recession), whilst its main economic “leading indicator” plunged to its lowest level since the heart of the global crisis in early 2009.
Worse yet, dissension within the soon-to-implode ECB has never been worse, with Mario Draghi stating monetary union “must” be completed – as if it isn’t, the “threat” of nations exiting the Euro (read Greece) could have dire consequences for all members. Simultaneously, one of Angela Merkel’s top Bundestag allies claimed the Euro zone should no longer support Greece if it does not kowtow to “troika” austerity demands. In other words, even German support for the ill-fated monetary union is cracking, rendering Draghi’s “whatever it takes” rhetoric and actions futile. Remember, Greece has €400 billion of debt that may – and likely, will – be defaulted if Syriza does, as expected, take control of Greece following next month’s snap elections. And thus, it shouldn’t surprise anyone that as I write, in these last hours of 2014, the Euro finally plunged below the July 2012 “whatever it takes” low of 1.2124 – on the verge of collapsing below ten-year support, to nearly the Euro’s launch at the turn of the century. I mean seriously, this is one terrifying chart; and please note, how the 2010 bounce – corresponding to the initial Greek bailout; and the 2012 bounce, when Draghi said he’d do “whatever it takes” to save the Euro; simply bought ephemeral bounces that were destined to be swamped by the “unstoppable tsunami of reality”; which, quite clearly, is hitting Europe NOW.
Yes, the Euro is closing 2014 on its low tick; as will countless global currencies, serially crashing as fear of global economic and financial collapse goes parabolic. Not to mention, the interest rates in nearly all its member nations, as investors front-run the overt “QE to Infinity” that will become universally understood in the coming months. To wit, the “dollar index” has broken not only above its ten-year trading range, but the 2008 financial crisis high; clearly, illustrating the tragic ramifications of a collapsing fiat Ponzi scheme. The Ruble’s 80% plunge against the dollar is grabbing all the headlines, but nearly all currencies are significantly lower against the dollar this year – as well as gold, as we recently emphasized. And not just “commodity currencies” like the Ruble, Rand, Australian Dollar, Indonesian Rupiah, and Nigerian Naira; but “mainstream” currencies like the UK pound; “cancer-stricken” currencies like the Pound; “pegged” currencies like the Swiss Franc and Yuan; and of course, suicidal currencies like the Yen.
To that end, how ironic is it that the year’s best performing asset class is Chinese stocks? Just four months ago, they were down for the year, but ended 52% higher when the PBOC hyper-accelerated its already world-beating printing presses, by “unexpectedly” initiating easing measures from rate cuts, to relaxed bank reserve requirements, to eased mortgage financing standards – which, by the way, are just getting started. And what has actually occurred since then, aside from the opening of millions of margin trading accounts, just as in 2007, before the Shanghai stock exchange crashed? Per the aforementioned leading indicators and PMI data, every aspect of the Chinese economy has gone into freefall – from home prices; to manufacturing activity; debt delinquencies; and, of course, commodity demand. In other words, the aforementioned “chasm of destruction” between Chinese economic activity and financial markets is as wide as anywhere on the planet, getting wider each day.
Which brings me to today’s all-important, year-opening topic, the “direst prediction of all” – referring to what we view as the most economically catastrophic of the 2015 predictions espoused in last week’s audioblog. Which is, the horrifying collapse in commodities of all types; as depicted by the CRB Index, too, closing not only at its low tick of the year, but just 15% above its 2008 crisis low. Its largest component, WTI crude oil, just hit its low tick of the year as well, at $52.50/bbl – and at this point, it’s difficult to believe anyone doesn’t yet realize the global carnage this will cause.
Nearly four months – and 1,000 “Dow Jones Propaganda Average” points ago, we warned of the dire ramifications of the unfolding global commodity collapse. We also noted that based on their principal usage as monetary assets – per 5,000 years of financial history – gold and silver are decidedly not “commodities”; and today, more than ever, our confidence in their ability to protect assets from what’s coming has never been higher. However, that’s a story for another day, as what we’re about to speak of is eminently important – and ominous.