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Anatomy of a Bubble


 -- Published: Sunday, 30 March 2014 | Print  | Disqus 

By Andrew Hoffman

Today’s supposed “financial markets” will one day be viewed by historians with awe and wonderment. The bubbles created by money printing and market manipulation – not just in the U.S., but the entire world – have no precedent in centuries of economic experience, as never has currency been universally unbacked, nor government intervention so widespread.

The odds, for example, of gold suddenly plunging at the 2:15 AM EST open of the global paper market 90% of the time – even over multi-month periods of rising prices or U.S. stock futures surging in the wee hours nearly every day, are infinitesimal in the best of times. But in the worst of times, as we are far closer to today, it’s not out of line to toss terms like “sixth sigma” around, or six standard deviations from the mean; which statistically, should occur no more than once in two million years – were markets to be freely traded.

2 Kitco Charts

In other words, Western markets are now 100% rigged – from stocks and government bonds, which are relentlessly supported to PAPER gold and silver, which are suppressed and currencies, which are “managed.” In today’s particular case, Precious Metals were attacked in perfect concert with yesterday’s COMEX options expiration – just ahead of Friday’s “first delivery day” – as TPTB do everything in their power to prevent investors from taking delivery of the COMEX’s scant available physical metal. The fact that COMEX registered gold inventories have not changed in a month – at a measly 637,000 ounces – with perhaps 500,000 of it claimed via December, January, and February delivery demands, should tell you all you need to know; particularly given that, since June of last year, the COMEX conveniently slipped the following “disclaimer” into its daily inventory reports.

The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.

-CME Group

Not to mention, the fundamental backdrop of a dramatic plunge in the NASDAQ, potentially signaling the beginning of a crash in the market’s most speculative, highly-leveraged investments; as well as a new low in the Yuan/dollar exchange rate, surging oil prices, another week of blistering U.S. Mint demand for silver Eagles (as yet again, weekly quotas were sold out by Tuesday), Citigroup failing the Fed’s latest “stress test,” the largest U.S. home sales plunge in three years, a $27 billion Ukrainian bailout, and the head of the Bundesbank flat out stating that negative interest rates and QE are potential near-term options for the ECB!

Most comically of all, the propaganda utilized to “explain” the most recent PM attacks circulates around last week’s Fed “tapering” announcement; i.e., that rising interest rates, amidst an environment of “deflation and recovery,” will “strengthen the dollar.” As you can see below, the dollar index has barely budged since the FOMC meeting; or, for that matter, the Dow. Oil prices have surged, toward their highs for the year, while the market’s most speculative investments, technology stocks, have been slammed. And yet, gold and silver prices, already trading well below their respective costs of production have been hit hard. And as for the so-called “recovery,” I’ll defer to Peter Schiff’s prescient comments, here.

FOMC Statement

As for the aforementioned, historic bubble in Western financial assets, I cannot agree with Schiff more – in that it actually appears to be worse than 1999. I didn’t think it was possible, given the utter mania that era represented; but as I wrote yesterday, regarding the “Candy Crush” IPO, late 1990s “investment metrics,” with few exceptions, were far more conservative than today. Here at the Miles Franklin Blog, we have consistently stated our belief that the next phase could just as easily be a hyperinflation as a crash – although in real terms, the result would be equally catastrophic. Frankly, we could care less, as our goal is to protect ourselves from real losses in either scenario – which to our knowledge, only gold and silver have the ability to do.

Per today’s title, we plan to demonstrate that the “anatomy” of this gross overvaluation of U.S. financial assets – and by extension, those of many other nations – is Federal Reserve money printing, care of the gargantuan debt creation it engendered. Once you realize this – in viewing just how exponential such activity has recently become – it becomes easy to understand why TPTB have so viciously attacked Paper PM prices in the past two-plus years. Frankly, very little commentary is required; as in this case, pictures tell “a thousand words.”

Let’s start with what we view as one of the most shocking charts imaginable – that of NYSE margin debt. To wit, given what we wrote above, of the historically speculative mindset in 1999 – not to mention, the utter shambles today’s global economic environment has become – it is nearly inconceivable that margin debt could be any higher. And yet, not only is it higher than in 1999, but nearly two times higher.

NYSE Margin Debt

Of course, the national debt is three times higher – and four times higher when including the “off balance sheet” debt incurred via the 2008 nationalizations of Fannie Mae and Freddie Mac. So as to not make your heads spin, we won’t even bring up the parabolic increase in “unfunded liabilities” – but suffice to say, they are tens of trillions of dollars larger.

US National Debt

Next up, we have the Fed’s balance sheet – that is, the portion they tell us about – up more than eight times over this period. Those $3.5 trillion extra dollars were injected directly into the TBTF banks; and since loan growth has been utterly dead over this period, said money has been injected directly into financial markets.

Federal Reserve Balance Sheet

…which, “amazingly,” has an 82% statistical correlation to the plunge in Treasury yields…

US Treasury 10 Year Bond

…and similarly, government spending…

…corporate debt…

Zero Hedge

…and, what do you know, inflation! But don’t tell Janet Yellen – or Mario Draghi, Shinzo Abe, and the rest of the world destroying Central bankers – whom insist that “deflation” is the world’s biggest threat, so they can continue running the printing presses full tilt.

Zero Hedge

And thus, on yet another day when stocks “miraculously” reversed at exactly 10:00 AM EST – when the Fed’s daily “open market operations” occur; whilst PM prices equally “miraculously” turned down – just as the global physical markets closed, ask yourself these questions. Do you believe the aforementioned trends are sustainable – regarding debt, Treasury yields, margin, and Precious Metals prices?

NASDAQ Chart

If so, go right on believing “deflation” and “recovery” are on the way. But if not, the time is now – with Precious Metals at historically undervalued levels relative to production costs, money supply, and essentially all relevant metrics – to protect your assets against the more likely scenario of inflation and depression. And if you choose the latter, remember that Miles Franklin is always here – at 800-822-8080 – to answer all your questions, and ensure the optimization of your decision-making process.

http://blog.milesfranklin.com/
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 -- Published: Sunday, 30 March 2014 | E-Mail  | Print  | Source: GoldSeek.com

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