BEST-EVER FUNDAMENTALS, WORST-EVER PRICES
by Andy Hoffman, Miles Franklin
Two days and counting to, yet again, “the most important Fed meeting ever.” Which CNBC, lowest-ever ratings and all – believes is worthy of a “countdown clock.” And yet, whilst it hit two days, 6 hours, and 20 minutes as I was at the gym this morning, two other, far more important data points were conspicuously absent. As they have been for the past two weeks, when CNBC’s leadership decided that neither the 10-year Treasury yield nor the Shanghai stock market were worthy of scrolling. And regarding the latter, it’s not because CNBC decided to stop scrolling Asian stocks – which would be quite a stupid idea itself, given how the MSM likes to blame Asia for America’s problems. To the contrary, they have decided Australia’s stock market should replace China’s on their scroll, given how eminently important the bourse of a nation of 23 million is, compared to one of 1.5 billion citizens!
Yes, the “most important Fed meeting ever” – which we have been told of every time Bernanke, Yellen and company have met for the past 2½ years. That is, since the infamous “closed door” meeting between Obama and the top “TBTF” bank CEOs on April 11th, 2013 – after which, the propaganda buzzword “tapering” was introduced – and the day afterward, the “alternative currency destruction” paper gold and silver raids. Which, it turns out, represented the starting point of the run on global physical inventories that leaves us in today’s “best-ever fundamentals, but worst-ever prices” environment. But more on that in a moment.
“Rate hike?” Whilst the global economy collapses? The CRB Commodity Index – plunging anew this week – hovers barely above its 40-year low? The U.S. Labor Participation rate sits at a 38-year low? Real wages sit at 40 year lows? The dollar’s “liquidity vacuum” surge has the U.S. government and corporate sector up at arms? The world’s largest U.S. Treasury holder – China – is actively selling? The Fed’s own “inflation gauges” print negative numbers? And history’s largest financial asset bubbles beg and plead for zero interests to “value” them? Let alone, as the cacophony of human begging to delay a rate hike couldn’t be stronger – if these people can even be considered human – from the head of the IMF; the chief economist of the World Bank; the Chinese Central bank; Paul Krugman; and Wall Street?
Heck, not only did Citigroup join Japan’s Daiwa yesterday in making global recession its 2016 “base case scenario,” but Goldman Sachs called for the Fed to lay the groundwork for easing monetary policy. Which couldn’t have been helped by this morning’s trio of horrific economic data – such as a “lower than expected” 0.1% increase in core retail sales; lower than expected industrial production and manufacturing – which came in at negative 0.4% and negative 0.5%, respectively; and the Empire State Manufacturing Index, for the second straight month, printing at a whopping negative 15, instead of rebounding back to zero as anticipated. Which, ironically, would have been hailed as a “strong number” – and relative to negative 15, I guess one can’t argue with that logic.
I mean geez, even Wall Street is hemorrhaging money in today’s ZIRP environment – despite unlimited free money and government “manipulation operations” actively supporting their business. Yesterday alone, Italy’s largest bank, Unicredit, announced layoffs of 10,000 workers; whilst Germany’s largest bank (and the largest European derivatives player, by far), Deutschebank, announced the layoff of a whopping 23,000 workers – or 25% of its entire global workforce!
Not that any of this claptrap matters – as in the big picture, what’s the difference between zero and 1/8, 1/4, or 3/8of a percent? Particularly when we are rapidly approaching the “end of belief that Central banks can save us” – or more aptly put, the beginning of the realization Central banks have destroyed us. Which ultimately will be capped off by the inevitable “Yellen Reversal”; when Whirlybird Janet is forced by collapsing markets (anyone notice the Shanghai Exchange is down 6.5% in the last two days?) to admit the propagandized “recovery” is faltering, and respond correspondingly – not to mention, to the raging “final currency war” – with a new, unprecedentedly large round of QE, or whatever they decide to call it. To that end, recall that I recently deemed a potential Fed rate hike to be the “only financial event more catastrophic than a significant Yuan devaluation.” Conversely, such an insane money printing initiative would likely have the same catastrophic effect on the real returns of financial assets, even if their nominal values might fare slightly better.
That said, in either case the big winner would be physical Precious Metals – both nominally and in real terms. They always have during times of crisis, and always following the purchasing power collapse every fiat currency ever created has endured. Let alone today, when as we speak, the average currency is at an all-time low valuation – with nowhere to go but down, as history’s worst economic fundamentals go from “bad” to “worse” to worst ever.
Conversely, the fundamentals for Precious Metals – i.e., the only real money the world has ever known, have likely not been this bullish ever. Which is saying a lot, I realize. However, never has the entire world been simultaneously consumed by a cancerous fiat currency regime. And never has so much (unpayable) debt been outstanding, or as much fiat currency printed. And never has the entire world been amidst an unprecedented, multi-generational oversupply of everything from commodities, to infrastructure, to government itself.
And no, I’m not going to yet again rehash the violently bullish Precious Metals fundamentals here – which you can peruse in dozens of previous articles and podcasts, such as yesterday’s “story of 2016.” In a nutshell, global physical gold and silver demand is at an all-time high; global inventories at an all-time low; and global production, having clearly peaked, set to collapse to generational lows. Perhaps irreversibly, as once such irrefutable fundamentals break the chains of derivative and naked shorting bondage holding prices down, gold and silver will unquestionably be re-viewed as money by governments the world round. Which, in turn, will inevitably lead to mine nationalizations, mining development inefficiency – and consequently, dramatically lower production.
Regarding the former, silver demand has gotten so tight, Miles Franklin is now seeing minimum delivery delays of 6-8 weeks on all one and ten ounce silver products; zero supply of junk silver – i.e., the “ultimate fear asset”; and surging physical premiums. Heck, yesterday alone, the physical premium on American Silver Eagles and Canadian Silver Maples rose by 1%-2%; and at the rate we’re going, with a maniacal Cartel seemingly putting a gun to its own head, I wouldn’t be surprised if 2008-like premiums re-emerge in the coming months.
And no, this is not just a U.S. phenomenon – which, in and of itself, is a laughable concept, given that Americans, as a whole, have less interest and knowledge in Precious Metals than anyone on the planet. Heck, I’d bet that relative to the nation’s cumulative wealth and education, the U.S. is by far the smallest global gold and silver consumer. And irrespective, U.S. Mint Silver Eagle sales – notwithstanding July’s sales suspension, or the painfully obvious “allocation” going on now – will clearly shatter last year’s record level.
As will the Royal Canadian Mint’s Silver Maple Leaf sales; Indian silver imports (massive, prohibitive import tariffs notwithstanding); and likely, any officially reported statistic of silver and gold demand. Which is probably why I constantly receive emails from Miles Franklin Blog readers noting “sold out” situations for silver bullion in their home markets – in places as diverse as Singapore, Australia, and Mexico.
As for mining stocks – the insanely speculative, hideously naked shorted investments I have begged and pleaded readers to avoid for the past four years, based on a “lifetime” of experience owning and working for them – they are now down to lows last seen in the 1990s; when ironically, mining was more profitable than today, at sub $300/oz and even sub $200/oz prices. Frankly, I’m not sure the miners could be screaming BANKRUPTCY any louder; and trust me, if the third quarter ends with $1,100 gold and $14 silver, the first major, industry-shattering write-downs will arrive. Let alone in the base metal sector – where half of all global silver production emanates as byproduct – as massively oversupplied copper, lead, and zinc careen towards the depths of pricing Hades. And don’t forget that at year-end, all mining companies are required to re-evaluate their reserves and “resources.”
As the old saying goes, “money talks, and BS walks.” Well the BS that is fiat currency – or in the case of Precious Metals, paper gold and silver – is clearly not telling the same story that real money, i.e., physical metal – is SCREAMING. And trust me, these two markets are not “mutually exclusive”; as ultimately, one must decidedly win – and the other, perhaps permanently, lose. I’ll let you decide if the latter, having the “best ever fundamentals, but worst-ever prices” will be the winner. Or conversely, the fiat currency regimes that have “lost” throughout history, by a cumulative “score” of roughly 600-0. And if you don’t believe me, why not call a Precious Metal dealer – like Miles Franklin, which has been around for 26 years – and simply ask how long you’ll have to wait, and what you’ll have to pay, to secure physical silver