Weekly Article 02-07-2019
Hmm… the markets continue to recover from the December swoon and I can’t decide what the major reason might be. It may be that the major slowdown in China’s economy is the reason. It may be the collapsing exports coming out of Korea or the 50% collapse in the Baltic Dry Index (shipping rates) over the last few months. It may be the terrible manufacturing reports coming out of Germany or the recession that has already been confirmed in Italy.
Maybe it is the imploding economy and socioeconomic system in Venezuela or the riots taking place across Europe and Africa as people can’t afford to live the way they have been used to or maybe not living at all but are doing all they can do to just survive.
Maybe it is the magnificent jobs numbers here in the USA- that COULD be it if it wasn’t simply made up with mostly a birth /death model that is completely outdated in my opinion because since 2015 or so for the first time in US history more companies are CLOSING than are opening. It could also be all of the layoffs that are taking place in virtually all industries at this time as again we see good manufacturing jobs leaving and more Uber type jobs opening up.
Funny, supposedly jobs are growing but tax receipts were down 5% in 2018. S&P earnings growth has stalled and is down close to 1% instead of the massive growth in earnings priced into the “markets”.
I heard our President last night list all of the “accomplishments” of the administration and I appreciate that he is trying to make America great again but I just can’t figure out how we can be great again while running a GAAP (Generally Accepted Accounting Principles) deficit of $6 trillion and getting around 2% GDP growth to show for it. (USDebtclock.org) Or how we can be great again by mortgaging the next 20 generations with debt that cannot be repaid. I heard a lot of things that got done but no mention of the costs involved or the ramifications for the future.
My take on this, as I look at the hundreds of billions of dollars being added to the “markets” worldwide in just the last few weeks, the central banks are well aware of these reports also and are not only propping these “markets” up daily (while crushing gold and silver again) but are preparing for a MAJOR worldwide slowdown.
It appears that with around $7 trillion of debt still trading with negative interest rates globally and rates being historically low in many places their options for goosing up the system the next time is likely to be just “print” to infinity. It also appears that they are well aware that we are likely at a debt saturation level. What I mean by this is that no matter how much more debt they may issue we cannot carry what already exists (we are already creating “money” out of nowhere to even pay interest and retire maturing debt in many cases) and it just may occur to them that at some point the system could simply collapse upon itself without them exposing what it would take to actually bail it out. This may lead to a total shunning of the asset that gives them their power- their fiat currencies that they can create in any amount to buy anything they want and leave us with the bill. That is, until they go too far like Weimar Germany, Zimbabwe, Argentina, Brazil, and Venezuela. When they go too far it makes it impossible for regular people to survive and the population learns new numbers like billions, trillions and quadrillions.
At this point the population loses faith in paper and wants real goods for both labor and other real goods. The central banks are well aware of this because this is not the first time this has happened- its just the first time it is happening globally.
So what are those in the know doing about it right now?
Billionaires like Ray Dalio, Jeff Gundlach, Mark Mobius and Sam Zell are buying gold.
Countries, particularly those that are most astute like China, Russia, Turkey and virtually all others to varying degrees, are buying gold and requesting delivery of previously purchased gold back into their own hands.
Major banks that have been involved in the price suppression of gold and silver for at least 8 years now are also hoarding gold and silver in record amounts. According to Ted Butler JP Morgan has over 750 MILLION ounces of silver and 20 MILLION ounces of gold in their vaults for their own accounts.
Finally, who would know better how close we may be to a fiscal cliff than those that hold the controls to the economic and financial engines- the central banks.
EXCLUDING the PBOC (Peoples Bank OF China) central banks purchased 75% more gold in 2018 than in 2017. In addition, it is the most gold purchased since 1971. Over 651.5 TONS of gold was purchased by central banks alone in 2018 (McAlvaney podcast 2-5-2019).
Please explain to me why an entity that can “print” any amount of “money” for virtually no cost at any time would buy gold. The only rational reason I can come up with is that they have seen this movie before and know the ending. By the way, according to McAlvaney the shipments JUST FROM SWITZERLAND in 2018 to China was 450 tons. Add that up and you could have as much as 1100 TONS of gold purchased by central banks in 2018.
Many people around the world are seeing the value of gold and silver as it is taking more and more paper to buy things and gold and silver are near all time highs in many currencies right now. In an extreme example in Venezuela you can feed a family of 4 for a month with 1 ounce of silver while a cup of coffee cost 30,000,000 bolivars a couple of months ago- probably a lot more now!
If anything, I am pretty sure what we witnessed in December 2018 was a stark reminder of what I have been writing here for the past 8 years or so. Once you go the QE (“printing up money out of nowhere”) route you get to a point where there is no way out. I believe December was that warning. It caused the Fed to pause QT (reducing the balance sheet), pull back on any expectations for future rate increases and float the idea of more stimulus if needed. (IT WILL BE NEEDED to avoid a meltdown in my opinion)
It caused the ECB and Bank of Japan to up their QE purchases and has led the PBOC to provide massive amounts of stimulus in the last few weeks.
While the “markets” may appear somewhat calm compared to what we were seeing last year this could just be a calm before the next storm that may appear at any time. Also, there have been major gyrations during the day even though there may have not been a major move that is visible just looking at daily opening and closing numbers.
I always say- don’t listen to what they (those in positions of power) say- watch what they DO. If they talk down an asset it is possible that they want to buy that asset and want the lowest price they can get it for. I also say once they are convinced they have enough or the markets give them no choice the prices of these assets could climb in an extreme manner. I am expecting it- I just don’t know when.
Mike Savage, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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