2008 Redux? What it Means for Precious Metals
It’s Monday morning, and I cannot overemphasize the importance of the topics discussed in Friday’s “Emergency Podcast” with Bix Weir – including Thursday’s Federal Reserve and Bank of Japan policy statements; Obama’s “damned if he does, damned if he doesn’t” signature or veto of the JASTA, or Justice Against Sponsors of Terrorism Act, also on Thursday; the first Presidential debate, a week from today; the much-ballyhooed, but likely all-bark-but-no-bite Algiers oil producers meeting a day later; and oh yeah, the accelerating Deutsche Bank stock collapse. Not to mention, upcoming referendums and/or elections across Europe; the looming GrExit crisis and Catalonian secession; and the unquestionably intertwined ramifications of all of the above; particularly as relates to Precious Metals, which equally unquestionably, will experience a dramatic demand surge if the “powers that be” lose control of any or all of the above. Or, for that matter, countless “black swan” events that cannot possibly be predicted, despite logic suggesting anything that can go wrong under such circumstances, likely will.
Above all, “it’s the debt, stupid.” To which, I feel compelled to highlight Bix’s quote that “no country in the history of countries has ever paid off its debt…as they either devalue their currency, or default.” This is the gist of the problem affecting all the world’s fiat currencies; each of which, is amidst its final, catastrophic stage of collapse – although clearly, some are further along than others. No matter, all will eventually get there – including those at the top of the “monetary totem pole” – once Central banks realize there is no alternative to all-out hyperinflation, rate suppression, and asset monetization. In other words, the definition of how a Ponzi scheme, which is exactly what fiat currency is, implodes.
The principal catalyst for Friday’s podcast was the incomprehensible act of financial sabotage – and frankly, political warfare – that was the Department of Justice’s decision to charge Deutsche Bank $14 billion for committing the same crimes as all other banks have received ZERO penalties for. An amount, I might add, identical to what Apple is being penalized by the European Union for “tax evasion.” Not to mention, this amount is roughly two-thirds of Deutsche Bank’s remaining market capitalization. To that end, I’ll leave it to you to decide why such an incredibly destructive decision was made, just six weeks before the most important election in U.S. history. But irrespective, no one can deny that “whoever” made such a decision, knew full well the potentially devastating political; economic; and above all, financial market ramifications.
To that end, the weekend’s news was wrought with chaos. Again, making one wonder if such events are connected – or alternatively, the rapidly progressing symptoms of a world at the edge of dramatic political, economic, and social changes. Such as, random bomb attacks in New York and New Jersey; an ISIS-claimed stabbing spree in Minnesota; the U.S. military “accidentally” killing 62 Syrian troops, who were theoretically fighting against ISIS; Angela Merkel’s Christian Democratic Party (what happened to the separation of church and state?) suffering a stunning defeat in Berlin’s elections, at the hands of the resurgent, anti-EU “Alternative for Deutschland” party; 300,000 Germans protesting the globalist TTIP and CETA trade proposals; a report showing that Central banks, led by China, sold a whopping $343 billion of U.S. Treasury bonds in the last 12 months; Russia cutting interest rates, marking the 673rd Central bank easing since the 2008 crisis; and Donald Trump’s continuing polls surge, despite “betting lines” stating otherwise. Just as they did hours before the Brexit, when equally rigged “betting lines” suggested a strong “Bremain” victory. Last but not least, the “Land of the Setting Sun” continues to lead all “first world” nations in its cumulative plunge down the rabbit hole to mediocrity – as it’s government hit a new low of lunacy, in lambasting its shrinking population’s “sexual apathy.” Apparently, the equivalent of “sexual stimulus” – i.e., offering financial incentives, with printed money – isn’t causing Japanese citizens to have more children. Perhaps it’s because the Bank of Japan’s hyperinflationary policies, including negative interest rates, have made the cost of raising children too expensive?
Financial market damage control, at least early on, is in full swing; as despite Deutsche Bank falling further, and interest rates creeping higher, the PPT is pushing stocks up anew. The pathetically comical “reason” scrolling across CNBC is “Venezuela confident in an energy agreement” at Algiers next week, despite the fact that oil’s “bounce” is tepid at best. Let alone, that such a statement, like the other hundred “oil PPT” circulated rumors, is based on absolutely nothing. Let alone, from Venezuela – which isn’t even a major OPEC producer anymore, and can barely survive its horrifying hyperinflation on a daily basis. As for Precious Metals, we didn’t see a “Sunday Night Sentiment” attack for the first time in five months; or for that matter, a “2:15 am” raid for only the 106th time I the past 807 trading days. But don’t worry, even though silver prices surged to $19.20/oz – where it still trades, as I write – the Cartel “recovered its senses,” via prototypical “Cartel Herald” algorithm, in time for New York “pre-market” trading.
At this point, I’ve said all I can say about Thursday’s Fed and BOJ meetings – in a nutshell, that in both cases, I expect the results to be, putting it mildly, extraordinarily dovish. And since the powers that be are likely to throw the kitchen sink at market support before said decisions are made – that is, unless the Deutsche Bank news represented a new, market-destroying “strategy” – I thought it a good time to reprise the question of “what will happen” if financial markets spiral out of control (FYI, as I edit, Deutsche Bank stock is plunging anew).
The answer, of course, is that no one really knows – particularly if there are indeed “agendas” in motion, such as those that Bix Weir theorizes. However, the one thing I am sure of – and always have been – is that physical Precious Metal demand, which is already at a global all-time high, will rise more than any other asset class.
In 2008, the powers that be did everything in their power to make it appear that Treasury bonds, not Precious Metals, were the “ultimate safe haven” during times of crisis. Heck, they’ve utilized that same tactic every time financial markets have fallen in my memory, even as markets’ tell-tale “initial instinct” is always to take Precious Metals higher. Unfortunately, this strategy backfired in a major way in 2008 – as by November, not only had paper PM prices bottomed, but physical inventory sold out. Even paper gold ended the year higher, if only by the slightest of margins, outperforming absolutely everything except government-supported Treasury bonds. Which this time around, are going to need a lot more government support, now that interest rates are at all-time lows, whilst government debt and deficits all-time highs. And per above, Central banks are selling them en masse, to fund their own exploding deficits, and protect their imploding currencies.
That said, physical gold was up perhaps 20% in 2008, given the exploding premiums the sold out bullion industry experienced; whilst silver, despite paper prices falling roughly 50%, was essentially unchanged, given the roughly 100% premiums experienced in sold out physical markets. And what do you know, a mere three years later, paper gold had rocketed from $770/oz to $1,920/oz, and paper silver $10 to $50.
But that was 2008, an environment when global debt was barely half of what it is today; whilst currencies were dramatically higher; political unity and social stability non-issues; and Central banks had both credibility and balance sheet “dry powder.” As for Precious Metals, physical demand was dramatically less than it is today (2008 U.S. Mint Silver Eagles sales were 19 million ounces, compared to 47 million in 2015); mine production was still rising, and above-ground, available-for-sale inventory significantly higher. In other words, eight years of comprehensive financial market and economic intervention have created a “perfect storm” of potential Precious Metals tightness; compared to the polar opposite condition – i.e., massive oversupply – of essentially everything else, from stocks; to bonds, commodities, currencies – and most damning of all, DEBT.
In other words, if anything even remotely close to 2008 unfolds, the results will be as “leveraged” as Deutsche Bank’s derivative book – politically, economically, socially, and monetarily. Few asset classes even have a chance to avoid all-out destruction, as anything related to “risk” will be destroyed. Which leaves just money, i.e., physical gold and silver. Which, in a world where the very definition of money will be in question, will likely be at the receiving end of the greatest demand surge in monetary history. In my humble opinion, of course.