JUST WHEN YOU THOUGHT THE WORST HAD PASSED
by Andy Hoffman, Miles Franklin
Nothing will please me more than when Whirlybird Janet is forced to admit the Fed has been wrong all along. That said, when said “Yellen Reversal” inevitably occurs, it will likely usher in an unprecedented era of financial market instability and accelerated economic decline; and consequently, heightened social unrest, geopolitical instability, and a host of other nasty events (like a “Grexit” or Catalonia, Spain secession) that will make life far more difficult for not just the parties involved, but all of the planet’s seven-plus billion denizens. This is why wise investors prepare for such worst-case scenarios beforehand; which in terms of financial assets, only physical Precious Metals have consistently proven their worth throughout history.
The Fed – as well as its Washington, Wall Street, and MSM minions – will continue to cheerlead until the bitter end, sitting atop the Titanic’s bobbing stern shouting “recovery.” As will the ECB, BOJ, and all the world’s Central bankers, in their eternal quest to maintain a murderous status quo, in which the “1%” that own them gather all the world’s wealth, at the expense of the “99%” that actually built it. However, like the Titanic, it is a mathematical certainty that history’s largest fiat Ponzi scheme will go down; and like the Titanic after it hit that fateful iceberg, the countdown to its demise has not only started, but is in its final economic “hours.”
All one has to do is search the daily headlines to realize how not three, four, or even five of the economic Titanic’s air tight compartments are now full, but all of them. Just look at China, which last night revealed several extremely scary data points – starting with not only its fourth consecutive quarter of foreign capital outflow, but it largest ever quarterly deficit. Throw in the official launch of the municipal debt “swap” program which is essentially a new form of QE, and you can see just how panicked the Chinese government is regarding the collapse of its historically unrivaled real estate, construction, and infrastructure bubble; which is probably why, taking a page from the Fed, it is attempting to bail out every zombified entity imaginable.
Not to mention, creating a new, “bigger and better” equity bubble; undoubtedly, directly monetizing stocks the way the Fed does covertly – and the Swiss National Bank and Bank of Japan overtly. However, no matter what they do to defer “Economic Mother Nature’s” wrathful vengeance, it’s graphs like this – of steel prices hitting 12-year lows – or this and this – depicting the exploding gap between rising U.S. and European stock prices and plunging economic activity – that tells the real story of the horrifying direction the world is headed. Or, worse yet, the parabolic debt explosion that must eventually implode – perhaps, far sooner than most can imagine.
To that end, things are getting so bad, government attempts to fudge economic data have moved beyond laughable, to the point of transparency so blatant, even a reasonably intelligent child can see it. To wit, this morning’s “better than expected” Japanese 1Q GDP growth – which, like America’s, was entirely due to inventory building. In other words, no growth at all – but simply, the manufacturing of products that may or may not be sold; and either way, must be “unwound” via future GDP contractions. Perhaps this is why it was a mere four weeks ago – after the supposedly strong first quarter concluded, that a major Bank of Japan official not only said a “natural exit (from QE) is out of the question, as is unwinding,” but “the thought of exit itself is a nightmare.” Meanwhile, we’re told that yesterday’s U.S. housing starts surge (entirely due to a mysterious, aberrational surge in the Northeast) suggests the worst has passed – when in fact, overall housing starts remain below the trough level of each of the past five recessions! Not to mention, that with historically low mortgage rates on the rise, already weak mortgage application data is again rolling over (see this morning’s 4% weekly decline). And this, in an environment of three-decade lows in home ownership, first home purchases, and even family formation – care of the imploding economy and massive debts that make it impossible for most of the nation’s youth to get started. And if any chart demonstrates just how lop-sided the so-called “housing recovery” has been – i.e., exploding values of high-end “1%” homes, whilst all else flounder – it’s this grotesque, unsustainable depiction of plunging home sales, but surging average prices.
Since the historic oil price crash commenced last Fall – you know, the one Whirlybird Janet deemed “transitory” six months ago; as well as a “net positive” for the economy, despite energy being the largest component of S&P 500 capital expenditure, and the only sector to boast positive job growth since the 2008 crisis – the global “commodity crash” has dramatically worsened. A brief dollar decline – and incessant “oil PPT” and “copper PPT” support – have temporarily taken the focus away from broad, global commodity price weakness (like the aforementioned steel collapse) that is destroying corporate profits the world round; and sadly, due to four decades of Central bank fostered “deformation,” is destined to remain for years to come.
As you can see below, commodity prices remain barely above March’s lows – which themselves, were roughly the same as the spike low amidst the 2008 financial crisis. This week’s horrifying base metal decline, smashing prices by nearly 10% in a 36-hour period, appears likely to be a resumption of the catastrophic, terrifying commodity plunge that started the year; all the more ugly, as global stock markets – manipulated or not – are currently “ignoring” the hideous ramifications. And now that the dollar is surging anew – also, likely to have ended a modest countertrend move – the inflationary pressures on collapsing global currencies will exacerbate the aforementioned risks further. Not to mention, it will put heightened pressure on the Fed to step up the “final currency war” by easing policy further, to prevent the dollar from rising too steeply against currencies with Central banks dead-set on destroying their own fiat toilet paper.
Throw in the potentially catastrophic “tectonic market shifts” we have warned of the past two weeks – of the relentless rate rise occurring despite the aforementioned deflationary factors (which as we discussed yesterday, most likely involves Chinese Treasury selling) – and you can see how clearly, the “worst” has decidedly not passed. And by the way, for those fearful that such a “deflationary collapse” will hurt Precious Metals, bear in mind that whilst such commodity carnage was occurring earlier this year, gold and silver were the world’s best performing asset classes. As they were as the 2008-09 financial crisis unfolded – particularly in the physical markets, where supply dried up and premiums surged. And as for yesterday’s blatant Cartel smash, it naturally commenced just after the 10:00 AM EST close of the global physical markets – not to mention, after the entire 9% base metal crash had already occurred. Such attacks are inconsequential in the big picture, as they only serve to exaggerate the “supply response” that will pave the Cartel’s demise. Of course, if you hold mining stocks assuming they will be “proxies” for PM price movements – despite the fact they haven’t been for nearly a decade – you are putting your financial life into fate’s hands. Nearly the entire junior sector has already been destroyed; and as for the majors, more than a handful of names appear dangerously close to death’s door.
All that said, I’m “champing at the bit” awaiting this afternoon’s publication of the FOMC’s April 29th meeting “minutes.” Long-time readers are well aware of my view they are doctored to account for current market conditions; and since that meeting, global economic data – notwithstanding a handful of aberrational and/or rigged data points – has utterly collapsed. The Fed’s own “now-cast” projects the first quarter’s miserable, likely to be downwardly revised +0.2% GDP growth to be followed by a mere +0.7% in the second quarter; and as noted above, the ECB has for all intents and purposes increased its QE program just two months after commencement, whilst the PBOC has initiated its own. Worse yet, interest rates and the dollar are surging – whilst commodities and currencies are plunging anew, all but necessitating the Fed to be more dovish. As if February’s “most unequivocally dovish FOMC statement in memory” wasn’t enough!
If any remaining cheerleaders, propagandists – or pardon my French – idiots, still believe the Fed may raise rates at its June 17th meeting, they will likely be forever silenced this afternoon. And shortly afterwards, the “September rate hike” believers – and thereafter, anyone that still believes a rate hike will ever occur. Clearly, the “worst” has far from passed – and in fact, is just getting started. By year-end, my sense is no one will even recognize the “good times” today’s miserable global recession represents. And quite possibly, even the chief propagandists will give up believing in an institution that has wrought more economic damage than any in history.
With Central bank balance sheets loaded to the gills with toxic “assets” already, and most having already taken interest rates to zero (or lower), not only will their credibility be destroyed, but their ability to respond to the next crisis – which, most likely, will be “the big one.” that changes the world forever. Not that previous “responses” have achieved anything other than kicking the can a few years further, by dramatically worsening already unprecedented financial messes. Consequently, time is running out to protect yourself – as when “the worst” truly arrives, if you haven’t protected yourself already, it will be too late.