-- Published: Thursday, 8 January 2015 | Print | Disqus
By Bill Holter
We have seen unprecedented volatility over the last 2 months, in particular the last 3 weeks. This is highly unusual as most year ends and beginnings are calm with very little news. The news on a global scale has had the volume turned up so that nearly no market has been left unaffected. The obvious markets are FOREX and oil, the not so obvious market is that of the hidden markets, OTC derivatives. We have just finished the worst three days to start the year in history, what has happened?
I wrote about this yesterday and don’t want to be redundant but it is my belief, someone is already “very dead” …we just don’t know “who”. Before going any further, in my opinion it really doesn’t matter “who” has been blown up because everyone is sleeping with everyone else so to speak. It doesn’t matter who has been bankrupted, it matters who the bankrupt “owes” …and then it matters who they owe …and who they owe etc. etc.. The fact is, we live in a credit based daisy chain where no one can be allowed to fail or they all fail. This truth was displayed in 2008 with Lehman, we were only hours away from a complete seizure while the Fed was working behind the scenes with a $16 trillion fire hose.
It is now different than 2008, FAR different and FAR more dangerous. How can I say this? First, the Fed has already quintupled their balance sheet. The ECB has filled their own balance sheet with steaming cow patties of bankrupt sovereign debt …while the Swiss have filled their central bank balance sheet with euros, go figure? Let’s not forget about the Japanese, they have printed enough yen to purchase all new Japanese and U.S. sovereign debt issued …absolutely BLATANT monetization!
But wait, until a week or two ago we were being told the global economy (except for Russia of course) was “recovering”. Talk of the Fed actually raising rates was the toast of the holidays and champagne glasses rose to cheer an economy growing at 5%. Fast forward not even 2 weeks and panic has already arrived. Instead of a weakening yen, it is now strengthening. This is one leg of the carry trade. The other leg is the dollar, this $9+++trillion beast has also strengthened as asset prices are dumped and “dollar loans” are paid back. This folks, was not “part of the script”!
Taking this just a bit further, oil was “supposed” to come down to injure Mr. Putin and Russia, it was NOT supposed to crash more than 50%. I say “supposed” because now the U.S., Canada, Australia and a long list of other names in the oil patch have impaired energy industries. Has Saudi Arabia just cleaned out their competition and put shale projects around the world on hold or out of business? Has China filled her strategic reserves and given herself an energy tax cut? Has the East just blown up the West’s petrodollar system …with alternatives and contingency plans waiting in the wings? It’s OK, you can say it …”yes”.
So now that markets are spinning out of control, what is the answer? “QE4 squared” of course! Just yesterday as an example, Charles Evans (voting Fed member) said raising rates now would be a “catastrophe” because housing is not as strong as they thought it should be by now. Really Mr. Evans? Just housing? Should the U.S. lead (follow) the world into negative interest rates for pieces of paper which have zero intrinsic value in the first place? Or another example across the pond, Der Spiegel says the ECB has lost control and questions whether “helicopter money” comes next?
The point is this, “control” is being lost. The system itself has gotten too large for the central banks to control EVEN with 100-1 leverage. On nearly a daily basis, the official comments coming out contradict what was said the day before. Simply put, the rhetoric, jawboning and outright lies need to be bigger and more rapidly dispersed to keep the sheep within the herd. The problem of course is they are actually “working against themselves” in so many various markets. They must print which waters down currency values and creates demand for real money gold. They must suppress gold prices but they actually need inflation. They need lower rates for the world to carry the debt but are zero bound … they also need rates higher to show “economic strength”. They need inflation to cheapen the debt but the inflation cannot be seen by the herd. They need cheap oil as tax cut to consumers but can’t have cheap oil because then the petrodollar loses support and derivatives go upside down. They need stocks higher but can’t have a bubble because they can no longer handle the “burst”.
Do you see? Nearly all markets need to move in both directions at the same time to support “the story” told to the sheep and at to maintain the perception of control. As I have written for the past few days, U.S. QE4 and ECB monetization etc. will by necessity be implemented because there are no other tools left. No collateral remains unencumbered to reflate so the final tool is outright, unabridged and publicly visible monetization. We are in the very endgame of the Ponzi where deflating assets (derivatives and thus broken balance sheets) will force more free money in the hopes of systemic survival. This, while markets have become too large to corral by central bank’s weakening powers. If you question my statement “weakening power”, just look at their balance sheets. Look at their pure size compared to 6 years ago and also look at what “assets” they now consist of.
I call a FULL ALERT because control has and is being lost. There are no more “bazookas” left as Hank Paulson called it. There are not even any bullets left! Can they sweep it under the rug again as they have done for so many years? I believe no, there are no more “can kicks”. I don’t believe the ability exists because there are so many markets and asset classes going “in the wrong direction” in violent moves. Even gold, THE most sacrosanct market to the total “rig” has been quietly going higher throughout all of this. In fact, looked at versus non dollar currencies, gold has been in a rip roaring bull market for several months …while demand for the metal has exploded.
Take for example in euro terms, gold has now blown higher and through 1,000 euros with a vengeance, European demand will be further bolstered in a physical safe haven manner. This is true almost everywhere and in every currency. Will foreigners flock to actual dollars for safety? Or will they chase an already under-supplied gold market? The dollar rally has been purely “synthetic” and has occurred because of carry trades being forced into closure. The underlying assets have dropped forcing liquidations and dollars “bought” to close the trades. It has become a self fulfilling circle. Why has gold not declined along with other “commodities” you ask? Because gold is not a commodity, it is money, real money and nothing else is. Hasn’t gold been purchased with leverage and “carried” as the commodities were? Yes, this trade was cleaned out over the last 2-3 years with the sale (help) of naked COMEX futures.
What I think we are seeing early yet clear glimpses of are the short positions being unwound. Remember, we showed you a few months back evidence of a “long Nikkei-short gold” trade. This looks to be unwinding along with several other “schemes”. When all is said and done, the unwind will take everything “defaultable” with it. Gold nor silver can default as an asset, nor as money. Gold will be THE go to safe haven as defaulting derivatives expose the many already insolvent sovereigns and their central banks.
The big question we have harped on for several years “who really has the gold” will be THE question rising from the ashes of a burnt paper system. Either central banks have it or not, having it will be THE ticket to sit at the table deciding on future policy. Having it or not personally will be the difference between having wealth to negotiate in whatever new system arises. Having gold or not will be the difference between having wealth or being at the mercy of charity. This is not a drill! Because everything is computerized, events can, do, and will happen at speeds faster than you can think. You MUST be positioned now for what comes, any single day you wake up from here can be THE DAY!
BILL HOLTER, Associate Writer, Miles Franklin Precious Metal Specialists
