On this day before yet another FOMC propaganda event, how can stock futures not be higher - given that, per the well-documented "pre-FOMC drift" manipulation scheme, for the past decade, stocks have enjoyed their biggest gains the days before and during FOMC announcements. Conversely, how can Precious Metals not be suppressed - per the 87th "2:15 AM" EST attack of the past 1,002 trading days - i.e., the open of the ultra-thinly traded London "pre-market" paper trading session; in this case, with the dollar down, to its lowest level in more than a year? Which interestingly, is rapidly reversing as I edit.
For those that don't yet understand the illusion today's rigged markets are, it's difficult to believe anyone with a few brain cells, and no ulterior motive, doesn't realize the only reason the "Dow Jones Propaganda Average" rises so relentlessly, and volatility-free, is the "dead ringer" algorithm I wrote of in April 2012; by which, it "coincidentally" bottoms around the time of the Fed's 10:00 "open market operations" at 10:00 AM, before steadily rising through the rest of the day; in most cases, ending with a "Hail Mary" surge. To wit, the last eight days trading - when either a "dead ringer" or "variations thereof" algorithm guided "trading." And BTW, does anyone think it a "coincidence" that 10:00 AM EST happens to be the London PM gold "fix?" Or, as I have deemed it years ago, the Cartel's "key attack time #1?"
Yes, despite a mere 3% chance of a "rate hike" tomorrow - and just 8% in September; no doubt, Whirlybird Janet will do her best to "dial back" the hyperinflationary prepared remarks from her Humphrey-Hawkins Congressional Economic testimony last week; i.e., her "Ding Dong, the Fed is dead" speech. Why, you ask? Frankly, the only "explanation" I could come up with is to give the Cartel some soundbites to tie their paper PM-selling algorithms to - despite not a shred of evidence that the Fed will actually do anything hawkish; or that higher nominal rates have any historical correlation to lower Precious Metal prices. Let alone, now that physical gold and silver markets are so tight; and anticipated to get much tighter, in both gold and silver; with paper prices at their lowest-ever inflation-adjusted levels, at a time when Central bank money printing has, cumulatively speaking, never been greater; and is about to get much greater, given the terror Yellen and her sociopathic Keynesian peers are currently experiencing, in (rightfully) worrying about the cyclical and secular pressures creating the biggest deflationary threat of modern times. I mean, consider how ludicrous quantitative easing has become; as depicted, in spades, by the chart below - of European corporate credit spreads (over sovereign bonds) since the ECB started, in March 2016, monetizing corporate bonds.
Consider that the last two Fed "tightening cycles" - of the Fed Funds rate - ended with the 2000 and 2008 market crashes. And subsequently, consider that the U.S. national debts in 2000 and 2008 were $5 trillion and $10 trillion, respectively - compared to $20 trillion today. How about that for "poetic symmetry?" And by the way, given the Ponzi-like nature of the National Debt; as well as interest rates that practically speaking, cannot go materially lower, pray tell how we won't have a $40 trillion debt a decade hence.
FYI, in the past week, due to increasing "debt ceiling fears" - of the potentially bloody Congressional debate it will engender no later than September, short-term T-bill rates spiked yesterday to their highest level since...drum roll please...the heart of the late 2008 Financial Crisis. In other words, while TPTB will, as usual, attempt to create the illusion that the Fed is in "control," the fact remains that Whirlybird Janet must continue to be; like Mario Draghi and Haruhiko Kuroda - whose own uber-dovish comments last week continue to reverberated throughout the monetary world; in Donald Trump's words, a "low interest rate person." Unless, of course, she wants the system to collapse.
It's time to follow up yesterday's discussion of how the "unprecedented liquidity explosion" we are witnessing will inevitably yield an historic bull market in scarcity assets. And by "scarcity assets," I mean anything that displays "monetary properties" due to their ability to preserve wealth over time. Clearly, this is a very broad description, given that many presumed "scarcity assets" - like prime real estate, fine art, and rare antiques are not only illiquid, but subject to sharp downward valuations at any given time - for a variety of reason, like financial crises - which do NOT negatively impact true monetary assets like gold and silver. And no, physical PMs did not decline during the 2008 crisis - as only the paper markets, due entirely to Cartel suppression (for the very purpose of preventing this perception) declined in its early stages. That is, until physical premiums reflexively surged - in gold's case, to 30%; and silver's 100%; before the paper markets recouped their losses in early 2009, several months before the stock market's ultimate bottom in March 2009.
Take a look at these two charts carefully. Which show, that from the time the crisis commenced with Lehman's bankruptcy in September 2008; to the Citibank bailout in March 2009 - which coincided with the Fed "doubling down" on QE1, finally stemming the market's crash; the Dow plunged from 12,000 to 6,500, or 46%, whilst gold was completely unchanged in the high $900s.
Today, gold and silver's "monetary properties" are more relevant than ever, given the aforementioned, historic, global liquidity explosion created by Central banks since the 2008 crisis. Which, together with unprecedented market manipulation, has "achieved" an historic windfall - in the form of "dotcom valuations in a Great Depression Era" - for the "1%"; but at the cost of parabolically rising, and eminently unpayable, debt; decimated fiat currencies; historic wealth inequality; and unprecedented oversupply that will take years, if not decades, to unwind.
Moreover, crypto-currency has, quite loudly and powerfully, "arrived" on the scene as well. Of which, only Bitcoin - and to a much lesser extent, Litecoin - have any chance of being viewed as "monetary assets." As opposed to the 99% of "altcoins" which, in my view, are no different than Pets.com-type dotcoms, that will ultimately fail or be subsumed. Bitcoin, at the ripe old age of nine, is the "elder statesman" of the crypto community - and while it clearly holds an incredibly amount of promise - as I have espoused for more than a year; it is still experiencing significant "growing pains." Which, I might add, I expect to be worked through, as last week's SegWit activation portends.
Irrespective, whether you believe in Bitcoin or not is beside the point. As, in a world teeming with tens of trillions of intrinsically worthless "currency units," the amount of capital that will be seeking the safe haven of "scarcity assets" is too large to fathom - particularly as fiat currency is not only open-ended in scope, but must be increased parabolically to avert the instantaneous collapse of the historic Ponzi scheme underlying them. In other words, as I wrote in May 2016's "Precious Metals and Bitcoin - Twin Destroyers of the Fiat Regime," these asset classes are not "competitors"; nor are they "mutually exclusive" scarcity assets. In fact, per December 2016's "why Bitcoin will make gold and silver go up," I believe, with all my heart, that Bitcoin is the best thing that ever happened to Precious Metals; in that, per last week's "Bitcoin SegWit Activation - the gold Cartel's worst nightmare," it may well cause the distraction that enables PMs' value as monetary assets to be unlocked - and enjoyed - whilst the powers that be refocus their attention on Bitcoin.
I find it both ironic and disappointing that the Precious Metals and Bitcoin communities fail to see this connection - given that both are rooted in the desire for sound money; and with it, the destruction of the fiat regime that has done more damage than any man-made cataclysm in history. In fact, the most vehement Bitcoin detractors I have come across are in the Precious Metal industry; just as the most vehement Precious Metal detractors - which is saying a lot - abound from the Bitcoin community. The former, due to a "dyed in the wool" attitude about what constitutes "real money"; and the latter, a disrespect of history that their computer-focused upbringing; not to mention, amidst an era of historic Precious Metal price suppression; has brought.
In the big picture, only a few billion ounces of physical silver are readily investable - at today's prices, valued at a piddling $30-$40 billion; whilst the amount of investable gold, when considering how little of today's rapidly declining production is actually available-for-sale, is unlikely to be more than a few hundred billion dollars' worth. This, in a world where, in just the past year alone, one Central bank - the ECB - printed $1.3 trillion out of thin air; with the promise of another $400 billion by year-end, and "whatever it takes" thereafter, to halt the "deflation" that will only worsen with each passing day.
As for Bitcoin, it's unlikely that more than a million or two are actually available-for-sale on any given day, valued at roughly $2-$4 billion. Thus, when you combine the threes' total "investable market cap," we're talking no more than $300 billion at most, or 0.1% of global financial assets currently valued at $300 trillion. Not to mention, the countless trillions of non-financial assets - like real estate, for example - that easily increase this amount by 50%. And I didn't even count the tens of trillions of "currency units" not deployed in investments. Which, with their superior liquidity, will be the first "assets" to chase scarce, wealth-protecting investments at the first sign of crisis.
In other words, there's no shortage of overvalued assets to be sold, against a "monetary scarcity" universe so tiny, it will at some point re-define the term "golf ball through a garden hose." So to all the "goldbugs"; "Bitcoiners"; and other sound money advocates, let's all realize that were are all on the same team, fighting for the same, eminently winnable cause of decentralized, non-inflationary money!
About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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