In April 2019, Forbes declared gold will outperform equities and bonds due to global equity corrections, wealth creation in emerging markets, a falling U.S. dollar, and rising political uncertainty. Any alarmist myths about a “gold crash” are moot.
Want proof? Here are some real expert opinions.
1. Alan Greenspan: Volatile Stock Market Will End the Bull Market
In December 2018, former Federal Reserve Chairman and Capitalism in America author Alan Greenspan told CNN claimed the bull market is beginning to fumble due to volatility and is unlikely to stabilize and take off again. Greenspan says the rise in long-term interest rates is putting pressure on stocks, which will weaken as rates continue to rise.
Greenspan predicts long-term rates will keep rising, and that we’re moving toward a period of stagflation, which is a combination of inflation and stagnation that causes the economy to weaken. He calls stagflation a “toxic mix” and has returned to his original stance, claiming gold as the “premiere currency.”
2. Judy Shelton: Gold Standard Is Needed to Fight Inflation
Judy Shelton, U.S. Executive Director of the European Bank for Reconstruction & Development and candidate for Trump’s Federal Reserve Board of Governors, wrote an op-ed piece for the Wall Street Journal titled, “The Case for Monetary Regime Change.”
In the piece, she writes that it’s worth considering linking a money supply to gold instead of relying on monetary officials setting interest rates. She continues that a linked system under gold would enable currency convertibility and mitigate inflation.
One of Trump’s top picks is advocating for gold. How likely could a gold crash be?
3. Peter Schiff: The U.S. Is Nearing a Great Financial Crisis
In May 2019, veteran stockbroker and CEO of Euro Pacific Capital, Peter Schiff, told RT the U.S. is on the verge of a greater financial crisis now than it was last year.
He says interest rates have no chance of normalizing, and balance sheets are going to balloon to new heights, a process that has been gaining momentum since early this year. That means gold will get a boost.
Bitcoin as “fool’s gold”
What about cryptocurrency? Schiff calls the cryptocurrency Bitcoin “fool’s gold.” He says it has none of the commodity properties of gold (which was a valuable commodity for centuries before it became money) and has no intrinsic value, making Bitcoin a Ponzi scheme.
Schiff compares Bitcoin trading to the Beanie Babies craze, but at least you can play with and admire Beanie Babies. You can’t do anything with Bitcoin except pray it’s worth trading.
4. Doug Casey: The Stock Market End Times Are Near
World-renowned investor, author, and founder of Casey Research Doug Casey wrote in November 2018 that gold continues to be the best form of money for reasons including:
Gold is durable
Gold can be convertible into larger and smaller pieces without losing value
Gold’s quality is consistent and easily recognizable
Gold is compact, portable, and convenient
Gold is something people want and can use, in forms like jewelry
Gold is something that can’t just be created out of thin air
He predicts the next crash will be much worse, much different and much longer lasting than the Great Recession. Since many global governments looked to inflation as a solution to the last recession, we’re in for something far worse.
5. Jim Cramer: Gold Protects Against Economic Chaos
In December 2018, Jim Cramer, host of CNBC’s Mad Money, cited severe weakness in the economy, according to Market Realist. Feeling “powerless,” he cautioned the Fed on further tightening and said the current odds don’t favor stockholders.
Cramer says if the current course of tightening continues, investors should buy into the bull market in gold. In January 2019, Cramer said if investors want an insurance policy against volatility, gold is the way to go. As he’s been saying for years, the best way to protect yourself from economic chaos is to own gold.
Experts Agree About Gold’s Value
Financial experts agree: The stock market is much more likely to crash than gold — which, as history has shown, never will.
When the stock market crashes, a gold-buying panic is likely. Wise investors are already investing in precious metals before the imminent global economic catastrophe.
Gold continues it’s front and center advance into the world’s monetary system. The mainstream news media misses it, but one of the biggest financial stories of our time is the massive move of the world’s central banks to add gold to their reserve holdings.
Of course, the mainstream media is missing it. After all, it will only affect… EVERYTHING.
That’s because it represents a “de-dollarization” of the world economy, a trend that will make Americans poorer.
And now, as though to underscore the strange new respect the central banks are paying to gold, they are even holding international conferences on gold reserves.
That is the sort of thing that signals an acceleration of their gold-buying spree.
The Global Central Bank Gold Buying Spree of 2019
We have diligently reported for our friends and clients on global central bank gold buying. See here, here, and here just for starters.
2019 has been a record-setter for central bank gold buying. In the first half of this year, the institutions added 374.1 metric tons to their holdings.
Currency wars, record debts and trillion-dollar deficits, negative interest rates and quantitative easing are some of the reasons behind the new gold awareness on the part of central banks.
They are among the reasons for you to buy gold as well.
It should surprise no one that the next international central bank gold reserve conference will be held in China. China is the world’s largest importer of gold. The 2019 Executive Program in Gold Reserve Management takes place in mid-October in Tsinghua University’s School of Finance in Beijing. Attendance is limited to “executives at central banks, sovereign wealth funds and finance ministries from around the world.”
As we wrote some time ago, “Central bank gold buying is a megatrend for a reason. The prognosis for the dollar is negative.”
If you knew what was coming, you would “buy gold on any level!”
So says Mark Mobius, the founder of Mobius Capital Partners and an emerging markets fund manager.
We think Mobius is worth listening to
On his retirement from Templeton last year Barron’s wrote, “The renowned Franklin Templeton Investments value manager has jetted from one far-flung corner of the world to the next, navigating military coups, Siberian snowstorms, and corrupt executives hurling threats, to unearth bargains as some of the world’s poorest countries transformed into economic powerhouses.
“Mobius… made a name for himself with on-the-ground research.”
In an appearance on Bloomberg Tuesday (8/20), the interviewer asked, “At what level should people be looking to buy gold.?”
“I think you have to be buying gold at any level, frankly,” he replied. “I think gold’s long-term prospect is up, up, and up.”
“The reason why I say that,” he explained, “is the money supply is up, up, and up. You know, with the efforts by these central banks to lower interest rates they’re going to be printing like crazy.”
Mobius was especially clear that he means physical gold and warned against paper gold substitutes.
That’s a point that cannot be made too clearly. One of gold’s chief attributes is that it is not someone else’s liability. It is not dependent on someone’s promise or management. But this unique and increasingly crucial advantage only applies to physical precious metals, the gold and silver coins and bullion that you own outright and have taken into you own possession. It does not extend to paper gold, stock and other representations of gold ownership, commodity contracts, or ETFs.
Learn more about in our post from last March on needless Counter-Party Risk, and speak with an RME Gold associate today about owning real gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
To some of us, it is perfectly understandable why gold and silver are in a bull market and racing higher.
To others, it is a mystery.
In our latest radio spot for RME, I joked that there are two kinds of people in the world: those who “get” gold… and those who don’t.
And to make matters worse, they tend to marry one another!
The point is that some of the people closest to us don’t understand what we do about fundamental economic reality. And it’s probably not their fault.
In all my school years I can’t remember anybody really talking much about money and what gives our currency value. They certainly don’t talk about it in presidential debates. Quite the opposite. The candidates almost unanimously know nothing about the production of wealth; they care only about its consumption. They think they can print more wealth.
Apparently, nobody talked much about money and what gives currency value in their schools either.
If you have a spouse or friend who doesn’t understand the need to own gold, bring them by for conversation.
We know for some people explaining why central banks are panicking, or how perverse and destructive the negative interest rates they have created are, is jumping a little too deep into the conversation.
We’ve gotten pretty good at explaining why owning gold is more important now than ever. Even to people who haven’t thought about such things.
So maybe we can help! Call or visit us. No obligation.
The US has had paper dollars for a long time, but through most of our history, even the paper dollars were tied to gold. Until this date, August 15, back in 1971. It was then, 48 years ago today, that President Nixon severed the last remaining link of the U.S. dollar to gold.
Today, almost half a century later, we are experiencing the long-term consequences of that decision. Those consequences include a trade and currency war, a race among nations to destroy the purchasing power of their currencies, unrestrained money printing, inadequate personal savings, interest rate manipulations, weak economic growth, a stalled out middle-class, growing deficits, and skyrocketing debt.
Under the post-World War II monetary regime, the rest of the world had been persuaded to hold dollars as reserves and conduct international commerce in dollars. But U.S. politicians of both parties had a grand time for years spending money and buying votes on left and right to delight their special constituencies. There was the Great Society and the Vietnam War, too. Because they had the Federal Reserve to print money for them, it had been a wild spree.
But like any ne’er do well, the U.S. was writing bad checks. The state was issuing more dollars than it could possibly redeem for gold at the promised exchange rate of $35 per ounce.
The rest of the world saw the U.S. money printing under the dollar/gold exchange standard and noted the falling purchasing power of the dollars they held.
They began to race for the exits. They wanted to cash their paper dollars in for gold while they could.
Like a run on the bank, the demand to exchange dollars for gold was beyond containment.
Nixon decided to find a bogeyman to blame for the government’s wastrel ways. He chose “international money speculators.”
The crisis of the U.S. writing hot checks was their fault, he said.
In making his case against them, Nixon uttered more monetary babble. “The strength of a nation’s currency is based on the strength of that nation’s economy,” he said. But that was simply untrue: America’s economy has been growing while the value of the dollar was sinking.
And so, on that hot August night in 1971, Nixon closed the gold window and abandoned any pretense of dollar redeemability in gold.
That was 48 years ago today.
Now we find ourselves on the doorstep of a long-brewing currency crisis. With the dollar redeemable in nothing, what would act as a restraint on the issuance of more and more dollars, an endless torrent of money printing?
If the rest of the world noticed that they were having difficulty cashing in their dollars for gold decades ago, consider how they must feel today knowing that there is nothing to cash them in for.
We are speeding toward the long inevitable crisis of resolution. At every hand, the central banks and governments of foreign nations, are taking steps to insulate themselves from the developing dollar crisis.
Many of the central banks are using dollars to add to their gold reserves. They may not mind fleecing their citizens with their own debased currencies, but they didn’t want to be victimized by ours 48 years ago. And they still don’t want to be victimized by it today.
Fiscal Year 2019 is winding down and it’s one for the books. For the ten months of the year through July 30, the deficit is already higher than for the entire 12 months of the prior year. So far revenue has increased 3 percent over last year, while spending is up 8 percent. Not smart.
Inflation turned higher in July. Both the Core Consumer Price Index – that’s the one that doesn’t count food and energy – and the broader CPI were up 0.3 percent for the month. Annualize that! The higher number, well above the Fed’s 2 percent annual inflation target, makes it hard to justify further interest rate cuts.
Publisher Bill Bonner writes that gold has outperformed stocks for the entire 21st Century. “And not by just a little – but a lot. The Dow rose 145%. Gold rose 420%. Compare this to the 20th century. It was just the opposite.”
The world is now awash in some $15 trillion in debt instruments (bonds) with negative yields. It’s quite an anomaly and one that screams danger. Jim Sinclair associate Bill Holter asks a question that should answer itself: “If you are offered a bond with negative rates from an issuer who is less than stellar…and your other option is gold or silver, which do you choose?”
Speaking of debt, US mortgage debt has now surpassed the level of 2008 when the mortgage meltdown hit. In the third quarter of 2008 when it all went kablooey, mortgage debt totaled $9.294 trillion. It jumped $162 billion in the last quarter, reaching $9.406.
And still speaking of debt, US bankruptcy filings, both personal and business, rose 5 percent in the month of July. Both student loan debt and auto loan debt just made new highs of $1.605 trillion and $1.174 trillion respectively.
Gold is a valuable barometer of financial conditions.
When gold was the basis of the international monetary system, currencies were more or less stable, exchange rates fixed.
On a gold standard, countries didn’t have to bash their trading partners over exchange rates. An ounce of gold was an ounce of gold everywhere. It didn’t matter whose picture was stamped on it.
Of course, governments always try to corrupt their monetary systems to accrue more power, to fight needless wars, or to reward their cronies. One common technique of this corruption was the printing press. Since the paper money issued by those countries was simply a claim check for gold, they often printed more claim checks then they could back-up. Those that tried getting away with the usual government shenanigans involving creating “money” out of nothing, saw gold begin to flow out of their countries. The real price of gold in their currencies would go up, no matter what the government said the official exchange rate was.
Despite its pledge to redeem its dollars for gold at a fixed rate of $35 an ounce in the years after World War II, the US began printing more dollars than it had gold. In 1965, de Gaulle sent the French navy to pick up gold it had stored in the US.
By 1971 countries and central banks everywhere began lining up to exchange their US dollars for gold. It didn’t matter what the official gold price was. The real price had been rising for years.
Gold has always been a sensitive barometer of troubled economic conditions.
Today all the world’s currencies are nothing but empty representations of value. As such, they can be created at will. This is true of all currencies: Euros, Yen, Francs. Pounds, Yuan, and Dollars.
The rising price of gold reflects the corruption of the currencies.
That’s why gold is making multi-year highs in the dollar and all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
Now we have entered a great currency war in which nations fight over fictitious currency values and exchange rates.
As President Trump tweeted a few days ago, “As your president, one would think that I would be thrilled with our very strong dollar. I am not!”
That’s why he’s pushing for additional interest rate cuts.
The central objective of currency warriors is to devalue their money, to reduce its purchasing power.
In fact, as President Reagan’s budget director David Stockman said, “The U.S. Federal Reserve is the all-time champion of currency manipulation.”
What You Need to Know
You should know that Washington’s currency war will send gold prices higher… even if you support it.
You should know that Washington’s currency war will send gold prices higher… even if you don’t support it.
That is because reducing the value of a currency means it buys less. Less of everything, including gold and silver. This is true whether you are a Republican or a Democrat, whether you are a liberal or conservative.
Additionally, when people see governments destroying the purchasing power of their currency, they begin to move out of the weakening currency.
The move to the safety of gold starts off slowly at first (that’s the “smart money”; it is the first to move into gold). Eventually, there’s a stampede as more and more people figure out that the currency is not a reliable unit of account or store of value.
Gold has always been a sensitive barometer of troubled economic conditions. Today gold is telling you there is trouble ahead.
Be the smart money! Talk to your RME professional today about the steps you can take to protect yourself and your family,
Gold and Silver Break Through- But How Did We Get Here?
Although we identified the gold and silver bull market early on, now that it is showing its explosive strength, it is impossible for anyone to ignore it.
At the same time, our calls for a breakdown in this highly overvalued stock market are familiar to most of our readers.
Many have taken our advice along the way, and it is clear that many more will. We’re grateful for the confidence you have placed in us.
With gold racing right through $1500 an ounce, it’s highest since 2013, and silver easily topping $17 an ounce, we think that a short review of our recent commentary is the best way to show how we got here and where we are headed.
Our first observation was short and pointed: “Something big is happening. Take advantage of the price break [in gold] while you can.” Our second was that it is “increasingly apparent that the rest of the year will be verypainful for stock investors.”
Recently we highlighted the time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling on the news of the Fed announcement would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. Monday was the steepest stock market plunge of the year. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
Which brings us to our next topic.
Trade and Currency Wars
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China, reacting to increased US tariffs, stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut days ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros.”
“That’s what governments do in trade wars.”
In fact, everything the Fed does is currency manipulation including every interest rate manipulation, liquidity operations, paying banks interest on excess reserves, Zero Interest Rate Policy (ZIRP), and both quantitative easing and quantitative tightening.
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value, vaporous made-up things, and therefore so easily manipulated?
We have positively been on a tear to warn our friends and clients that the developing trade and currency wars have but one clear outcome: Much higher gold prices. Out of numerous posts on the topic, we will just refer to “Gold Breaks Out Big Ahead of G20 Summit” from late June, which it turn refers to an earlier post:
“There are gathering storm clouds that are being overlooked by most commentators: economic darkness approaches in the form of a developing currency war.
“We have observed that the world – including the US – is headed pell-mell into this off-shoot of the trade war. A currency war is a form of financial madness in which the winners are said to be those that most thoroughly destroy their currencies’ purchasing power.
“We have been warning about the escalation of a global currency war for a long time, but have increased our warnings and sense of alarm recently, warning that gold is always the big winner of currency wars.
“These policies are unreservedly bullish for gold (emphasis added). All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as they all fight their way to the bottom.
“When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
“That means the price of gold goes up!
“The best way to protect yourself from a currency war is to own gold.”
Gold and Silver
If we have warned many times that gold is the big winner in currency wars, it is only because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
No wonder gold roared right past $1500 today! No wonder silver shot up past $17.00 an ounce today!
How long before gold hits an all-time high in the US dollar?
Just over a month ago we headlined a post “Higher Gold Price Targets: To the Moon!”, pointing to budget-busting new spending, compounding debt, and a field of presidential candidates basing their campaigns on offering voters more free things than their opponents. We wrote, “If financial analysts and portfolio managers around the world are starting to notice these things, at last, the target price for gold can barely be computed.”
Gold is up more than $470 an ounce since its low of $1046 in late 2016.
Last May gold traded at its low for the year of $1267. With today’s close over $1500, gold is up 20 percent from the May low.
Silver had a low last fall of $13.86. It’s 2019 low, like gold’s, also recorded in May, was $14.27. Now, finishing up over $17.00, silver is up 20 percent from its May low.
Those are explosive moves, particularly since both materialized in just a few short weeks.
“Confused central bankers flailing all about, banks dependent on Fed cronyism for their survival, foreign nations moving out of dollars and into gold. The remarkable strength of gold and silver is only an early warning of things to come.”
These powerful moves in gold and silver are not accidents. The world is growing more dangerous by the moment, and central bank authorities, not just at the Federal Reserve, but in Europe and around the world, know no other course but massive credit creation and money printing.
It is a path of dollar destruction. It is a road of no return.
We advise our friends and clients to add aggressively to their precious metal holdings now.
There are few phrases as unwelcome as “told you so.” It should be left in schoolyards where it belongs. For that reason, we won’t say it.
But we’re going to come uncomfortably close when we say instead …
“We hope you took our advice!”
Recently we trotted out time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling the news would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut day ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros. That’s what governments do in trade wars.”
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value and therefore so easily manipulated?
In fact, everything the Fed does is currency manipulation including interest rate manipulation, liquidity operations, paying banks interest on excess reserves, and both quantitative easing and quantitative tightening. The government’s fiscal behavior – borrowing and spending – can be described as currency manipulation as well.
We have warned many times (see here) that gold is the big winner in currency wars. It is because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
How long before it hits an all-time high in the US dollar?
Other authorities, like a gold expert and former presidential candidate Ron Paul, have joined us in identifying this as a gold and silver bull market.
Let’s review what has happened…
Gold is up more than $400 an ounce since its low of $1046 in late 2016.
Last May gold traded at its low for the year of $1267. Since then it has traded as high as $1458. That’s up 15% from the May low.
The recent silver story is even more dramatic as we repeatedly forecast. Silver had a low last fall of $13.86. It’s 2019 low, like gold’s also recorded in May, was $14.27. Since then it has traded as high as $16.68, up almost 17% from its May low.
Those are the kind of substantial moves that should get anybody’s attention, particularly since both materialized in just a few short weeks.
If we look at the low of both metals in 2018, gold moved up more than 25%, while silver climbed more than 20%.
And those moves (the textbooks define a bull market as a move that takes prices 20% higher) qualify both gold and silver as being in bull markets.
No wonder a Bloomberg News story last week said, “gold fever is breaking out from London to New York.”
Because we are old hands at this – our identification of the new bull market, like that of Dr. Paul, came long before the most recent powerful moves higher – we’ll just leave you with the observation that this market is just getting going.
Let me repeat that: This market is just getting going. Wait until you see what happens when large swaths of the public begin to realize they need to protect themselves from stock market bubbles, criminally destructive monetary policies around the world, and compounding government and corporate debt.
Then you won’t need a textbook definition to recognize the bull market! Take steps to protect yourself and your family. But do it now. Don’t be left behind!
Nobody was very happy with the Federal Reserve’s announcement on Wednesday that it would cut its targeted Fed funds interest rate and the interest it pays on “excess reserves” by a quarter-point.
Wall Street wanted more, a half-point, or at least a promise by the Fed that more rate cuts were on their way. It didn’t get that promise either.
So at one point, the DJIA was down 400 points, before settling 333 points lower. President Trump tweeted “As usual, Powell let us down.”
The writer of a Mises Institute article this week said, “With the economy growing at 2.1 percent, unemployment at 3.6 percent, creating 170,000 jobs per month, and estimated underlying core inflation of 2 percent, no objective data justifies cutting rates that are already artificially low.”
Then what is the real reason for a rate cut of whatever size? It’s not like someone has to break out the paddles for an economic coronary event, a rate cut defibrillator for a stricken economy.
Then why cut rates?
The Mises articles suggest it’s because we’re heading into a currency war.
The President’s pressure on the Fed to lower rates has been relentless. But don’t let anybody tell you that Trump is the first to politicize the Fed. One Fed chairman famously said years ago that the Fed has to do what the president wants, or it will lose its independence.
Think about that for a minute!
What is the fallout for gold? What is the collateral damage from another interest rate cut of whatever size? It is a currency destruction.
The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros. That’s what governments do in trade wars.
One other thing to note is that with its rate cut, the Fed also announced the early ending of its Quantitative Tightening activity. So monetary easing is the policy of the day. But this time it doubled down. Lower rates and a halt to cleaning up its bloated balance sheet. Constant easing drives bubbles and keeps zombie companies alive just a while longer. Both spell trouble down the road.
Loose money persists. Artificially contrived lower interest rates mean higher gold prices. And the world’s central banks know it. They are buying gold when the dollar trades up and when it trades down. They continue to buy gold when the Fed cuts rates, just as they did when the Fed was set on raising rates.
Here’s the latest from Bloomberg:
“Central banks continued to load up on gold in the first half, helping push total bullion demand to a three-year high, according to the World Gold Council.
“Nations added 374.1 tons in the first six months as Russia and China kept building reserves and Poland made a massive purchase. The trend is expected to continue, with a recent survey of central banks showing 54 percent of respondents expect global holdings to climb in the next 12 months.”
Nothing makes as much sense as buying gold when the money printers of the world are trying to lower the value of their currencies with interest rate cuts. And it makes more sense than ever when they become aggressive and competitive with their rate cuts, seeking to outdo one another in devaluing their currency. That’s what they do in trade wars.
“I think we’re headed for a bout of stagflation like we’ve never before seen.”
That’s the view of well-known market analyst Michael Pento.
Pento, the author of The Coming Bond Market Collapse, has proven himself to be a knowledgeable critic of bad fiscal and monetary policy, one who understands gold.
In a recent interview, Pento said that the stagflation ahead will be like nothing we have ever experienced “in the history of this nation.”
It’s not just the Fed that is panicking, he says. “Every other nation on earth now is panicking, too.” Central bankers are afraid that if they can’t engineer ongoing inflation, bank assets – the housing market, stocks, low grade, and junk bonds – will all tumble and turn into a massive crash.
According to Pento, the leverage in the system is so great that if things even started to correct a little bit, it could turn very quickly into a massive banking crash.
We’re glad Pento has identified stagflation as a very likely outcome of the monetary policies of the Fed and other central bankers. As the name suggests, stagflation combines elements of stagnation and inflation. Stagflation could be described as the worst of both worlds, weak on non-existent economic growth, accompanied by rising prices.
Weak growth makes it increasingly impossible for debtors – individuals and corporate – to service their massive debts. That’s because sales slow down, margins are squeezed, businesses are forced to cut prices, pay raises don’t materialize, and jobs disappear.
At the same time inflation means the purchasing power of the currency falls, interest rates rise in compensation, and, saving money becomes pointless. And it blows up the bond market.
There is a haven of safety and profit in an era of stagflation: Gold.
Some of our clients will remember the “stagflation decade,” the 1970s. Others will have heard about it. The stock market basically collapsed, and unemployment rose as did interest rates. Inflation skyrocketed.
Economic conditions were severe, and just when people most needed the money they had saved to keep afloat, it’s purchasing power failed them.
No wonder people began to pull out of troubled banks and failing currencies and moved into precious metals. A great bull market in gold and silver followed.
It is a pattern of movement that we are seeing today: confused central bankers flailing all about, banks dependent on Fed cronyism for their survival, foreign nations moving out of dollars and into gold. The remarkable strength of gold and silver is only an early warning of things to come.
Pento makes a strong case that stagflation is headed our way. Don’t delay. Speak with your RME Gold professional today about protecting yourself and your family with gold. If you don’t have an advisor, simply call RME Gold and you will be connected with one of our Gold Authorities.
The policy-setting Federal Reserve Open Market Committee meets this week on Tuesday and Wednesday, July 30 and 31. The announcement of any policy decisions will be made on Wednesday at 2 pm Eastern time.
At the top of the agenda is a cut in interest rates. We think that if the Fed fails to cut rates, Wall Street will throw another one of its infamous temper tantrums and stocks will fall. On the other hand, we think the possibility is growing that even if the Fed cuts rates, stocks will take a beating.
Take advantage of the new trend in the Gold-Silver Ratio. See our recent post, here, and speak with your RME Gold professional. He can give you examples of just how this powerful profit strategy can work for you.
Look Out Below!
Emerging market debt has climbed to $69.1 trillion. From Financial Times:
“Debt in the developing world has risen to an all-time high, adding to strains on a global economy flagging under the weight of rising trade protectionism and shifting supply chains.Emerging economies had the highest-ever level of debt at the end of the first quarter, both in dollar terms and as a share of their gross domestic product…
“The combined debts of 30 large emerging economies rose to 216.4 per cent of their GDP in March, from 212.4 per cent a year earlier.”
Exit Rule for the Stock Market Bubbles
From hedge funder John Hussman:
“One of the most important warnings offered by firefighters is simple: get out early.
“Similarly, our ‘Exit Rule for Bubbles’ is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it….
“Presently, we observe [stock] market conditions that have been associated almost exclusively, and in most cases precisely, with the most extreme bull market peaks across history.”
Why Can’t We All Just Print Money?
“A 20-year-old woman was recently arrested in Germany for walking into a car dealership and trying to by a €15,000 car with fake banknotes printed on a cheap inkjet printer using regular printing paper….
“At first, everything went smoothly. She inspected the car, took it for a test drive, but when the time came to pay the €15,000 price, dealership staff were stunned to receive a waddle of €50 and €100 bills that looked more like Monopoly money than actual currency. One employee told German media that he literally asked the woman if she wanted to play Monopoly or buy a car, but after seeing that she was serious, he called the police.”
Because It Costs More and More to Buy Less and Less!
The $100 dollar bill has overtaken the $1 dollar bill for the first time in history as the most widely used paper money.
Citing the Federal Reserve, the IMF reports there are more $100 bills circulating now than ever before. The $1 bill is now number 2, while the $20 dollar bill comes in third.
The number of $100 bill in circulation has almost doubled volume since the global financial crisis. (see chart).
No wonder we prefer gold! It’s the world’s superior money for wealth preservation, profit, and even privacy
It turned out to be pretty good advice. Silver is up more than $1.00 an ounce since then.
Nice. But experienced gold and silver investors and professionals watch something else: the gold-silver ratio.
That’s because, in bull markets like this, silver often outperforms gold. It’s something we’ve seen over and over again. Experienced gold and silver investors and professionals want their portfolios to emphasize the precious metal poised to move up the most.
Since silver is now outperforming gold, there is a window of opportunity for you to increase your precious metals holdings with an easy strategy, one I have used myself for many years.
It’s called the Gold-Silver Ratio strategy. The ratio is simply the price of gold divided by the price of silver. In other words, how many ounces of silver it takes to buy one ounce of gold.
In a precious metals bull market like this, both gold and silver move higher. But since we want to be in the one that moves the most, at these high ratios we recommend trading gold for silver.
Later, when the ratio is lower you can trade your silver back into gold with a net increase in the number of ounces of gold you own.
As you can see from the following chart, the Gold-Silver Ratio has been moving higher for some time. Suddenly a couple of weeks ago it spiked briefly at 95 to one, turned around, and began to move sharply lower as we expected.
Although it is moving lower, as I write this the ratio is still around 86 to one, still highly advantageous for you to take advantage of this strategy and increase your precious metals holdings without making any additional purchases.
I urge to speak with one of our professionals. Even if you didn’t buy your gold from us, they are happy to explain this powerful strategy in more detail and answer your questions. We especially like this simple strategy for growing your gold and silver holdings because you are always invested in precious metals, moving into the precious metal that is relatively undervalued and therefore the one that promises the greatest relative price appreciation.
Most of the biggest banks and financial institutions find very little fault with the monetary status quo. After all, they are the beneficiaries of it. Bailouts preferred borrowing at the Fed’s discount window, protection from market competition, and interest on excess reserves are just a few the privileges they enjoy under the Federal Reserve’s monetary regime.
There are policy differences at the margin among some of them from time to time. Some will prefer one policy option to another one very much like it, one interest rate adjustment more than another, or one quantitative easing or tightening schedule more than an alternative. But such differences and debates occur within a narrow range of allowable opinions.
But every now and then a development looms so largely, a consequence of monetary malfeasance so certain, that even loyal banking cronies have to say something.
Such is the case with the spreading de-dollarization of the global economy.
Although we have been warning our clients and friends about the certain ending of the US dollar’s role as the world’s reserve currency, one banking giant has noticed this 800-pound gorilla in our monetary future.
From JPMorgan Chase, the largest US bank:
“We believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”
The bank even says that diversifying from the dollar with a higher weighting in precious metals “makes sense.”
Indeed, it does.
JPMorgan Chase asks if the dollar’s declining role is already under way? Its answer makes us wonder if they have been reading our blog. It writes:
“As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession….
“Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.”
The world is beginning to de-dollarize. If you’d like to know why read our blog posts over the past year.
Or look instead at the debt ceiling suspension deal working its way through Washington right now with its $320 billion in new spending. To put it another way, spending in the current fiscal year is already up – before the new debt deal — more than 10 percent over last year, while revenue is up just 3.3 percent.
The deficit this fiscal year looks like it will come in a $1.1 trillion
Time to de-dollarize your investments.
Your RME Gold professional can help you embark on a sensible plan to diversify out of the debt-loaded, debt-backed, decaying dollar.
“We are right now sitting on a bubble that’s going to explode and it’s going to be a real bad situation, and we better get rid of the debt and we better straighten ourselves out because we have debt on debt on debt.”
Presidential Candidate Donald Trump, April 2016
The debt bomb is ticking.
That’s because nothing will stop Washington’s spending. Nothing.
Watch the Democrat debates. They don’t even mention the debt.
Not a word. Not one.
Nor do the moderators of their debates, the Democrat’s media allies, mention it.
Not a word. Not one.
So, Washington will be raising the debt ceiling again soon.
But, of course, it’s not just the fault of Democrats. The Drudge Report just prominently featured a Daily Caller report that not only do the websites of the Democrat candidates not mention the debt, “The ‘Promises Kept’ section on President Donald Trump’s reelection website makes no mention of the national debt.”
There was a time when there was a Capitol Hill constituency for fiscal responsibility. It was small, but at least it made some noise.
There’s not much of a constituency like that today.
Some debt ceiling backstory: In early 2018, the debt ceiling was suspended by Congress until a few months ago, March 1, 2019. At that time the debt limit was reset to just over $22 trillion. Since then, US government debt has officially stayed at that level. How is that accomplished, since the government still spends more than it collects?
Since the beginning of March, the Treasury has used money shuffling techniques, “extraordinary authorities,” to pay its bills. The Treasury believes that it can keep this shell game going until October. As we pointed out last week here, Nancy Pelosi thinks that may not be able to keep it up longer than August. After that some programs would be scaled back, some payments would go unmade.
Either way, Congress will be forced to raise the national debt ceiling soon.
The debate on the debt ceiling increase comes at a time of the most divided Congress and the polarized electorate in recent memory. The debate could be rancorous and bitter. That would involve some horse-trading on votes and even agreement on new government spending programs, come more crony deals, to corral the votes necessary for passage.
Or lawmakers could just close their eyes and hope the issue will go away. One proposal is to simply suspend the debt ceiling for 2 ½ years – to take the issue off the table during the elections season in 2020. After all, the nation’s solvency takes a back seat to the real issue politicians care about on both sides of the aisle: REELECTION!
The net effect of another suspension or of a protracted fight “solved” with new spending initiatives that are unpaid for, will be serious questions about US solvency in financial centers around the world. Already foreign central banks are moving away from the dollar and to gold.
New questions about US solvency cannot be comfortably answered. In fact, the only real answer to how debt that comes due today can possibly be paid is by issuance new debt tomorrow.
Or by printing more money of no intrinsic value.
That is why gold marches up in lockstep with the rising debt ceiling.
The historical correlation between the rising debt ceiling and higher gold prices is very strong.
The dollar is backed by nothing but debt. But gold is real money.
Is a short squeeze developing in the silver market? A short squeeze is an exciting market event in which rising prices give rise to still more rising prices, which in turn give rise to more… Well, you get the idea: sharply higher prices!
“Shorts” are speculators who have sold silver for future delivery in the hopes that as that date approaches, they will be able to meet their obligation by buying at lower prices. They hope to profit by the difference in those prices.
But if silver prices are actually higher as the date nears, they have to buy at those higher prices to meet their obligations. And that additional buying (called “short covering”) drives rising prices higher still, which stampedes other shorts to cover their positions with more buying.
And so it goes.
Here is some of the evidence that a silver short squeeze may be in development. As I write this, silver is up more than 13 percent since the end of May. It has even begun now to outpace gold.
As a consequence of this silver strength, the gold/silver ratio that we have written about many times (most recently here) has begun to trend lower. The ratio peaked just two weeks ago at 95 to 1 and as I write is now just below 88 to 1.
Update (7/24/19): as we’ve been saying all along, the ratio keeps gradually shrinking, and the investment opportunities are shrinking along with it. Today the ratio is down to 86:1.
Two takeaways for our clients and friends: If a silver squeeze is underway, you can expect a dramatic (and sometimes very dramatic) increase in silver prices. Your RME Gold professional will monitor all the latest developments and is prepared to advise you how to emphasize silver in your portfolio to take advantage of the move.
The turn-down in the gold/silver ratio also provides you with an important reminder about the potential gains available by trading gold for silver. Be sure to discuss this important and time-tested strategy. There is still time.
A FOLLOW-UP ABOUT DEUTSCHE BANK
Last week we wrote about troubles at Deutsche Bank, the German banking giant. We wondered it was the “key log” in the banking log-jam like Bear Stearns and Lehman Brothers were a decade ago. Their collapses led to a torrent of other collapses, a chain of destruction that became known as the Great Recession and Mortgage Meltdown.
Today we note that others are wondering the same thing. Zero Hedge reports that Deutsche Bank clients are pulling a billion dollars a day from the bank. “The similarities to Lehman Brothers are growing by the day,” it writes.
An old market adage advises to “buy the rumor, sell the news.”
In application, it suggests that you can buy stock XYZ when the market assumes that something important – a takeover, an acquisition, a major breakthrough – is imminent, but then to sell quickly when the actual news hits.
There is a justifiable cynicism to the advice. After all, it sometimes happens that market rumors are fabricated out of little or nothing, simply to run a stock price up. The rumormongers are poised to sell at the top when the news proves to be entirely fictitious or less than impressive.
That’s the description of a “pump and dump” scheme.
When the news is real, insiders have still positioned themselves well in advance. Lest they be accused of illegally trading on material non-public information, some patiently wait to profit when the rumored announcement is finally made.
“Buy the rumor, sell the news” is probably pretty good advice in the face of the widely expected Federal Reserve interest rate cut. In this case, we are not suggesting you go out and buy stocks before the upcoming Fed announcement. Certainly not. But realistically, if you are holding stocks you are already participating in the bubble; you have already effectively “bought the rumor.”
If the market universally expects that the Fed will cut interest rates, what happens when it either does so – or fails to do so – at the July meeting?
First, if it fails to cut rates, the disappointment will be widespread. Expect a hard fall in stock prices. Hard. The S&P 500 fell 25 percent in three months last fall over interest rate disappointments.
Meanwhile, the market has been buying the rumor, the expectation of a Fed rate cut, since the first of June, climbing non-stop ever since. The market believes a rate cut is a given.
That’s the “pump” part of the “pump and dump” scheme.
But if the Fed does cut rates, some observers suggest the Wall Street will “sell the news.” That’s the “dump” part of the “pump and dump” scheme.
Wall Street “selling the news” will trigger the next big decline. That’s the view of Jesse from Cafe Americain and others close observers.
It is a view we share. Although there is no shortage of other candidates to trigger the stock market sell-off, typical rumor/news market behavior is as good a trigger candidate as any. This is especially true in the face of what fund manager John Hussman calls some of the most extreme market valuations in history. Says Hussman, “Presently, we observe market conditions that have been associated almost exclusively, and in most cases precisely, with the most extreme bull market peaks across history.”
Be ready. The highly anticipated Fed meeting is only two weeks away!
We addressed this briefly the other day, but it is a financial megatrend so important that we want to loop back around to add to what we wrote.
Foreign governments and their central banks have lost faith in the US dollar.
Trust in the dollar dates back more than a century when people used expressions like “sound as a dollar,” or “the dollar is as good as gold.”
Although faith in the dollar lasted for a long time, today it is eroding rapidly.
Paper money is basically a confidence game. As long as confidence persists, the game can continue. Once people begin to lose confidence in the game, things start to break down.
Ask investors in Bernie Madoff’s funds. There were those that got a whiff of the funny business and got out early. Others figured the confidence game out too late.
Foreigners have reasons of their own for shying away from the dollar. Things like the Iraq war didn’t help. Economic sanctions that have replaced diplomacy are another reason that foreign nations are abandoning the dollar.
But those reasons wouldn’t really matter, and the dollar’s preeminence would last if the dollar were still as good as gold.
But, of course, it is not.
That’s why China added 10.3 tons of gold to its reserves in June. That’s the seventh straight month that China added to its official gold position. It is in addition to the 74 tons it added in the six months through May.
The last year has seen China reduce its US Treasury holdings by around $70 billion.
Poland added aggressively to its gold reserves recently, doubling its holdings. Turkey, Russia, Mexico, and India are prominent among those adding to their gold reserves.
We think it is vital that our clients and friends read these signs of the times. Such outsized financial dynamics can tell you what is coming.
For example, former Fed chairman Alan Greenspan said he didn’t see the housing bubble information. No one could have foreseen it, he said. Somehow he missed the fact that mortgage debt had grown from $1.8 trillion to $8 trillion on his watch.
That’s what we mean by “outsized financial dynamics.”
The move by foreign central to build gold reserves are a sure sign that the dollar confidence game is beginning to end. As we wrote in a recent post, “Suspicions about the reliability of the international dollar-reserve monetary system are running so high that countries are not just adding to their gold holdings. They are bringing their gold home from accounts at foreign institutions.”
Federal Reserve monetary officials are very clever and eventually, they will resort to the most inventive shenanigans and desperate measures to try to keep the game going.
Just like Bernie Madoff.
Those measures won’t work. But you already know the confidence game is ending. That’s why you are buying gold.
There are a lot of reasons that real money – gold – outperforms irredeemable money created out of thin air.
But for today, here are three news stories that spell higher gold prices in the immediate future.
Reason Number One: The US government, hopelessly in debt, is recklessly piling up more debt by the hour.
Total federal debt, $22,022,825,000,000, is more than 100 percent of total US productivity. But that is not enough to stop Washington’s deficit spending.
The Treasury estimates that the national debt ceiling will have to be raised sometime around October. Nancy Pelosi thinks it may have to be raised in August to avoid a federal default.
Reason Number Two: The world’s central banks continue to ditch the dollar.
This is a story we’ve highlighted many times, here, here, and here.
The implications of this global “de-dollarization” are so far-reaching that we can hardly believe it receives such little attention.
We’ll have more to say about this soon, but just to share one story that captures the megatrend, Poland’s central bank announced last week that it has added 100 tons of gold to its reserves since the beginning of the year. That is four times what it added to its reserves last year.
Those willing to read between the lines will see that suspicions about the reliability of the international dollar-reserve monetary system are running so high that countries are not just adding to their gold holdings. They are bringing their gold home from accounts at foreign institutions. For example, at the same time Poland is adding aggressively to its gold reserves, it is repatriating gold that has been held in its accounts at the Bank of England.
Reason Number Three:Countries around the world are creating institutions to allow them to circumvent dollar-denominated financial institutions.
US control of the international payments system enables it to enforce sanctions against foreign countries, and then to sanction countries that evade existing sanctions. The proliferation of these US sanctions has spurred the development of non-dollar, non-US settlement alternatives of foreign transactions.
Since the Iraq war, a host of new bi-lateral and multi-lateral trade agreements have sprung up among nations. But most significant is the recent announcement by British, French, and German officials that a new system that will enable them to bypass the US SWIFT payments system is now operational. The new system, INSTEX, will initially allow countries to circumvent the US and continue to trade and settle accounts with Iran.
The long-term consequence is to sharply lessen the world’s reliance on the dollar. The dollar reserve standard that has prevailed since the end of World War II has added marginally to the purchasing power of the US dollar. A dwindling reliance of the dollar will have the opposite effect of diminishing the dollar’s purchasing power.
It is our hope that these three news stories will help our clients and friends read the signs of the times and take steps to protect themselves from potentially cataclysmic changes in the dollar and its value.
More than ever, you can’t believe everything you read. What has been hailed as “the Information Age” might as well be renamed “the Misinformation age,” as fake news continues to dominate social media and newspaper headlines around the world.
Not surprisingly, myths about gold have made their rounds in the mainstream media. From the comically misinformed to the moronically smug, every blogger thinks they know the real value of gold. When it comes to investing in gold, everyone has a strong opinion, and most of them aren’t based in reality.
Here are three myths about investing in gold that need to die.
Myth #1: The Gold Bubble Has Popped
This myth is a two-part myth. In 2010, George Soros famously said, “Gold is the ultimate bubble.” First of all, gold is not a bubble. Although several alarmist headlines followed suit, and warned of a bubble burst in 2009 when gold spot prices hit $1000 per ounce, the “pop” never happened.
Precious metals, and especially gold, don’t devalue and inflate like mass-printed, free-floating currency.
“Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by inflation or deflation.”
Though demand for gold may rise and fall with the volatility of the market, gold is a real asset. It is a physical commodity that maintains its value, despite the unrelenting devaluation of the American dollar and the fickle fluctuations of the financial markets. The Fed has destroyed 96% of the US dollar’s purchasing power since its establishment in 1913, while an ounce of gold has maintained its value.
Anyone calling the gold and precious metals market a “bubble” is in direct need of a reality check.
Myth #2: You Shouldn’t Buy Gold when the Economy is Doing Well
Anyone riding a stock market bull run might scoff at the prospect of buying gold. Time and time again, investors are so elated with their momentary profits that they ignore the very real signs of collapse.
In 1928, shortly before the Wall Street Crash of 1929, president Calvin Coolidge said, “No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment…and the highest record of years of prosperity.” Needless to say, the president had to eat his words when the market imploded and a 10-year depression went into effect.
From amateur investors to the highest echelons of financial acumen, no one knows precisely what the market will do. You’d be amazed at how many “financial experts” get it wrong, year after year. Despite the yammering from financial blowhards, the market is more precarious than you think…especially so with the skyrocketing deficit, unthinkable national debt, and several warning signs of an imminent recession.
As stated before, it’s not precious metals’ value you need to worry about; it’s everything else.
Myth #3: Gold’s Return-on-Investment is Poor
There’s no shortage of blogs bemoaning gold as a weak investment, complete with all the earmarks of fake news:
These blogs show year-over-year growth of gold compared to other investments, with very skewed charts and specific time frames that back up their points, without any consideration for alternative points of view.
Let’s look at the past 20 years. In 1999, the closing spot price of gold was $290.25 per ounce. In 2019, the price per ounce has been hovering around $1,300 per ounce. Compare this to the DOW’s gains since 1999, from 16,496.44 to 26,543.33. The S&P 500 has grown from 2,041 to 2,939 over the same period.
Though the DOW’s gains are not negligible at 160%, they pale in comparison to gold’s growth at 460%. The same applies to the S&P 500, at 144% growth. Though investing in gold isn’t a get-rich-quick scheme, investors have made significant profits from gold.
If gold and precious metals don’t get you a decent ROI, you’re doing it wrong.
Everyone thinks they’re an expert until a catastrophe. Every wannabe financial guru is forced to eat crow when the markets shift and the world enters panic mode. Those that scoff at gold as an investment option are likely to lose everything the next time the market goes belly-up. For sound investment advice on protecting your financial future with gold and precious metals, consult with Republic Monetary Exchange today. Call 602-955-6500 or 877-354-4040.
It’s hard to know what will prove to be the key log in the log jam.
That’s the log that, once moved, sets the whole destructive torrent of all the other logs loose to destroy everything downstream in their path.
It could be Germany’s Deutsche Bank.
In the Panic of 2008, Bear Stearns went first. The Fed threw $29 billion into the mess to get JPMorgan to take over the Bad News Bear.
A lot of good that did. Soon other logs were rolling: IndyMac, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac.
It was the biggest bust since the Great Depression.
Deutsche Bank is the world’s 15th largest bank. It is slashing operations everywhere and cutting 18,000 jobs.
While Deutsche Bank is flailing about, the Bank of International Settlements in Switzerland, sort of a central bank for the world’s central banks, is warning that the corporate debt market is growing unstable. From a story in the Guardian:
“The Basel-based watchdog said a surge in the sale of collateralized loan obligations (CLOs), which are collections of low-grade corporate debts packaged for sale to investors, was reminiscent of the steep rise in their forerunner – collateralized debt obligations – which ‘amplified the sub-prime crisis’.”
It is eerily like the last time. Gold was about $600 an ounce at the beginning of 2007. Then banks started failing and the mortgage crisis set gold running to $1900 in 2011.
Deutsche Bank’s problems are just one sign that “the financial system is in trouble,” says Jim Rogers.
Deutsche Bank could be the key log in the log jam. But there are others major European banks that are going to have to confront similar restructuring.
It’s best to just get out of the way of a crumbling financial system. It’s best to move into gold now.
Financial analysts around the world are racing to revise their gold price targets higher… Way higher.
Many are recommending allocating more of their portfolios to precious metals.
Maybe they are starting to take notice of some troubling fiscal and monetary developments.
June’s gold breakout, taking it to over $1,442 was like a wake-up call for many of them. The technical picture is incredibly strong. Even after pulling back to $1,400 an ounce, gold finished last week $74 over its 50-day moving average and $119 over its 200-day moving average.
Maybe somebody noticed that “the everything bubble” engineered by the Federal Reserve and its fellow central banks includes not just a stock market bubble, but a massive bond bubble as well. The bond bubble has resulted in $13.4 trillion in global negative yielding debt!
Negative yielding debt means that when you buy a bond, for say $1,000, at maturity it is redeemed for less than $1,000 dollars.
How long will individuals and even institutions buy bonds with negative yields? I don’t want any and you probably don’t either. It is a market anomaly so great that it fairly screams for informed people to get out of the way before it breaks. To get out of the way of not only bonds but stocks as well.
Maybe they finally noticed all the politicians running around the country promising free goodies to everybody.
Maybe they are starting to pay attention to US spending and debt.
If financial analysts and portfolio managers around the world are starting to notice these things, at last, the target price for gold can barely be computed.
Right now, as John Rubino notes, the financial world’s total invested capital in gold is a mere one percent. What happens when that share rises as it inevitable will? Long-time Templeton Financial fund manager Mark Mobius says portfolios should contain closer to 10 percent gold.
That, says Rubino, would send gold to the moon!
If you have noticed any of these troubling fiscal and monetary developments yourself, call or stop by our offices to discuss ways of protecting yourself and your family with prudent precious metals investments.
What a tragedy Zimbabwe has been. And a monetary laughingstock for the ages.
Now Zimbabwe wants to do it all over again.
Like so many of the African countries that fell under the control of native Marxists-Leninists and other indistinguishable leftist totalitarians in the post-colonial period – Nyerere, Mobuto, Kaunda, Lumumba – it was Zimbabwe’s bad fortune to be home to a madman named Robert Mugabe.
Zimbabwe, of course, is the former Rhodesia. As Rhodesia, it was a food exporting nation. But not long after it became Zimbabwe in 1980, and under the rule of Mugabe, it soon couldn’t produce enough food to feed its own population.
Such stories of economic train wrecks are all too familiar in sub-Saharan Africa. But what made Zimbabwe the butt of the economic jokes was its hyper-inflationary monetary policies.
Gideon Gono, the head of Zimbabwe’s central bank (sort of the Ben Bernanke of Africa) was eventually printing Zimbabwe dollars at a frenzied pace. Annual inflation was reported to have hit 11,200,000 percent in 2008!
Somewhere around the office, I have a 100 trillion Zimbabwe dollar bill. Worthless, except as an artifact of one of the worst inflations in recent history. Afterall, at the end of the money-printing experiment, it took 35 quadrillion Zimbabwe dollars to buy one US dollar.
It was literally not worth the paper it was printed on.
Eventually, Zimbabweans dumped their dollar and began using the US dollar instead. That helped for a while, but now they are back to their old ways. Zimbabwe has banned the use of foreign currencies, including the US dollar, and issued a new Zimbabwe dollar. Predictably, it put the force of law behind it, designating it the new legal tender.
Prices are surging, People are taking to the streets. It is a human tragedy, one enacted again and again. One must feel sorry for the people of the land victimized by their government’s policies. But don’t laugh out loud, because failure is the certain fate of unbacked, irredeemable paper money everywhere. That includes the US dollar.
We can only wonder how many times the lesson needs to be relearned.
“NOTE: So far this year, any pullback of gold below $1,300 has been a favorable opportunity to add to your holdings.”
It’s always risky to make a call like that because we don’t want anyone to fail to acquire gold because they waited for a price pullback. But there are often trading patterns that appear – after a lifetime in the business – predictable.
For example, after a sharp rise, the only way for “long” futures markets traders to realize their profits is to sell. When a market falls, those with “short” positions take their profits by buying. Accordingly, we are never surprised to see a pull-back, no matter how brief, after a good run, or a bounce up after a market moves lower.
Still, modesty demands that we chalk up to good luck that our clients had several opportunities to buy gold below $1,300 as we suggested before the bull market sprang to life in June.
We have just experienced a powerful wave up, in a very short period. From $1,267 on April 29, gold roared up to more than $1,440 in June. On July 1 it closed at $1389.
We would like to suggest now that any pullback to $1,400 or below is a good gold buying opportunity. But be warned: it may not last. There is a very real and broad-based rotation into gold taking place at the level of governments and major institutions globally.
Something big is happening. Take advantage of the price break while you can.
Thought Two: Now that we have entered the second half of 2019, it looks increasingly apparent that the rest of the year will be verypainful for stock investors. We are now in the longest economic expansion in history, tepid though it has been.
David Stockman makes the point that during the past twelve years the stock market’s growth has outpaced the growth of the main street economy by six times.
That is unsustainable.
Stockman asks how the big shots at the Fed could miss this and countless other data points that confirm the basic disconnect between the state of the underlying economy and the market.
The answer is simple: They always miss it.
One portfolio manager interviewed by Yahoo Finance said investors stand to get “clobbered.”
We agree and will have more to say about it in the weeks ahead.
Hint: They didn’t have staggering debt and bottomless printable currency in mind.
As we celebrate America this week, our independence and the birth of our Republic remember that the founders specifically wrote into the Constitution itself a gold and silver based monetary system for the new nation.
First of all, they gave Congress the power to coin money. From Article I, Section 8, “Congress shall have Power…to coin Money.”
Not print. Coin.
It’s hard to believe that proponents of today’s irredeemable, unbacked printing-press money schemes can get away with conflating printed money with coined money.
The founders certainly knew the difference between the two. They had experienced the collapse of the irredeemable paper currencies of the colonies and that of the Continental Congress. The Continental paper dollar was such a failure that it gave rise to a popular expression, “not worth a Continental.” It was an all-purpose description of complete worthlessness.
In Section 10 they addressed the monetary system again without ambiguity: “No state…shall make any Thing but gold and silver Coin a Tender in Payment of Debts.”
Why did the founders incorporate these provisions into the Constitution? First of all, they have learned men, well-read in the historical precedents of paper money failures, base-money inflations, and spendthrift governments.
Secondly, just as they intended to set up a government that would protect our rights, they wanted the new government to protect our wealth as well.
But our politicians had other ideas. They stripped away the protection gold and silver provide to a monetary system, first in the Civil War era with the “greenback dollar,” and then again later with the Federal Reserve system and the final break with a gold-backed monetary system in 1971.
Although we endured a brazen act of unconstitutionality from 1933 to 1974 when the government made it illegal for Americans to own monetary gold, today you can own gold.
So today, our politicians have failed to do what the founders wished, and instead of a sound monetary system that protects your wealth, you have to protect your own wealth.
And that’s exactly why we are here at Republic Monetary Exchange.
Have a happy Fourth of July. Spend some time thinking about the blessings of liberty this week. And when you or someone you know needs help protecting their wealth, call or stop by and find out why the founders trusted gold and silver.
Something about the way the world works seems to have been forgotten in America.
Here it is:
This is a world in which people’s wants are virtually limitless. Resources, on the other hand, the means of fulfilling those wants, are strictly limited.
Economics is about meeting unlimited wants with limited means. It is about trade-offs. It is why accounting is important.
But today people in Washington have an aversion to confronting the real world with its limited resources.
They missed out on that 400-year-old nursery rhyme which said that if wishes were horses, beggars would ride.
These thoughts occurred to us after the Democratic presidential debates. The news site The Daily Caller noticed it, too: “Moderators Ask Zero Questions About National Debt In First Two Democratic Debates Combined.”
“Moderators for the first two Democratic debates asked a combined zero questions about the rapidly expanding national debt.
“NBC and MSNBC hosts Savannah Guthrie, Lester Holt, Chuck Todd, Rachel Maddow, and José Diaz-Balart failed to ask any of the 20 candidates on the stage Wednesday and Thursday night about the national debt.
“The moderators covered a range of topics — other than the national debt.”
You would think that with $22 trillion in unpayable national debt (and unknown trillions more in promises the government has made to pay people for things in the future), candidates and news moderators would be deeply concerned about the ways and means of our national solvency and survival. But not so!
No wonder politics in America has become a contest of offering the people something for nothing: free housing, free medical care, free education, guaranteed annual income.
You knew, of course, that I would bring the discussion back to gold. This indifference to the realities of hard-world accounting and clear-eyed fiscal responsibility got underway with the ending of the gold standard, something that happened in two major steps. The first was with FDR’s unconstitutional confiscation of the people’s gold. The second step was Nixon’s repudiation of America’s promise to redeem its dollars in gold.
A gold-based monetary system provides discipline on governments. No wonder politicians hate it! They can’t simply issue a decree or pass a law that increases the amount of gold in the treasury.
In a gold system, they are forced to live in the real world.
That’s why gold had to go. It is why the Federal Reserve was created to replace it.
If you understand how grim it is that Washington can’t be bothered to deal with little things like national solvency and unpayable debt, you will understand why you need to take steps to insulate yourself from the governing classes’ failing monetary system.
That’s what we’re here for. RME’s experts can help you get started on a plan to protect yourself and your family with gold and silver.
Bloomberg writes this about gold: “Futures post the highest close in six years; funds pile in.”
With gold hitting six-year highs, major institutional financial analysts around the world have been busy revising upwards their precious metals price targets.
Here’s a sampling of comments and observations about the precious metals bull market:
“Gold bulls are back in control,” said one analyst in a Bloomberg article.
Michael Oliver, a technical analyst, said in an interview, “By the end of the year we should see $1,700 in gold. That’s not the end, it’s just where it will be at year-end. We’re in a major situation.
John Rubino headlines a piece about silver this way: “If History Still Matters, Silver Is Poised For A Huge Move.”
Agora Financial wrote this week, “This could be your last chance to hold physical metal before the masses come rushing in.”
Jim Sinclair, a veteran precious metals analyst, called the timing of the June breakout in precious metals with amazing precision. He called for the breakout within a couple of days. Now, says Sinclair, we’ll see a complete monetary re-set by 2024, or heading into 2025, with a gold price so high, I won’t even repeat it here. Not because I disagree with Sinclair, but because at that point, the dollar price of gold will be much less important than how many ounces of gold one owns.
Most of the commentary about the gold and silver breakout refers to trigger events like the Fed’s recent meeting and the Iran situation. The importance of both of those cannot be overstated. We have emphasized both as our regular readers will know.
But there are gathering storm clouds that are being overlooked by most commentators: economic darkness approaches in the form of a developing currency war.
We have observed that the world – including the US – is headed pell-mell into this off-shoot of the trade war. A currency war is a form of financial madness in which the winners are said to be those that most thoroughly destroy their currencies’ purchasing power.
We have been warning about the escalation of a global currency war for a long time, but have increased our warnings and sense of alarm recently (see here and here), warning that gold is always the big winner of currency wars.
“These policies are unreservedly bullish for gold. All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as they all fight their way to the bottom.
“When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
“That means the price of gold goes up!
“The best way to protect yourself from a currency war is to own gold.”
We want to call your attention to the fact that the breakout in gold and silver comes just ahead of the G20 meeting of nations in Japan. Only one other analyst that we have seen also notes the direct linkage between the price movement in the metals and the G20 meeting. It is his view that the Japan summit will result in a sharp devaluation of the US dollar, somewhere on the order of 20-25 percent.
If that is the case, the price movement we have seen in the last month is only the beginning of what is to come.
With gold closing over $1,400 an ounce and silver easily breaking through $15.00 an ounce, the world is discovering that there are a lot of important reasons to own gold and silver.
Reasons like government debt and money printing. Wealth preservation. Financial privacy.
Or just to make money!
Today’s message is for those of you looking for good old-fashioned profits!
Right now, silver is less than a third the price it hit in 1980!
Think about that a moment. How many other investments are less than a third the price they were almost 40 years ago?
Today, everywhere you look, things are higher. In 1980 the median price of a US home was only $47,200. Today it is $226,800.
Oil topped out a $40 a barrel back in 1980. Today it is $54.
At the beginning of 1980, the Dow Jones Industrial Average was 824. Today it is around its all-time high of 27,000. “It’s too late to be bullish” on stocks says a London analyst.
Everything is higher today. Everything except silver.
Is that because no one needs silver?
On the contrary. Because of silver’s dual role – as an industrial metal and prized for its monetary properties – demand rises over time. Silver demand for coins and bullion bars shows powerful growth. Some 60 percent of annual silver supplies are consumed by industrial applications. But new silver mining cannot keep up with overall demand for silver. The shortfall has largely been made up over the decades by scrap silver recovery and by net sales from government stockpiles. But scrap recovery is way down and sales from once huge government stockpiles have now ground to a complete halt as those stockpiles have been depleted.
Today at only $15 an ounce, silver is less than a third the price it topped out at in 1980, $50 an ounce. And that wasn’t just a one-time thing. Silver moved back up to that range – to over $49 an ounce – again in 2011.
Let me state the case I have made here differently. What is more likely to triple in value, the stock market that is already at all-time highs, or silver, priced today at less than one third its 1980 and 2011 highs?
Because somebody wise once suggested that the key to making money is to buy low and sell high, there are a lot of things we might consider to be attractive investments at their prices of 40 years ago. It would make great sense to buy real estate and stocks at the prices that prevailed back in those days.
But you can buy silver today for less than a third its prior highs. And that is a shining profit opportunity!
Gold raced to six-year highs on Thursday (6/20), closing at $1,397.10. That’s a powerful one day move of $48 on news of Iran taking out a US military drone and the expectation of forthcoming US countermeasures.
Gold has now marched up more than $130 an ounce in just the last month!
Silver easily broke above $15 an ounce this week, to close Thursday at $15.49. That’s up from a low last month of $14.27. That’s an 8.5 percent move in just over three weeks.
With these moves, we are watching many of our monetary predictions and warnings about global confrontations being fulfilled.
Two months ago, in one of our frequent posts about the Persian Gulf, we wrote that “the risk of an incident, even an accident, is rising.”
Now, the incendiary geopolitics propelling gold higher is taking place in an environment in which the markets expect more Federal Reserve interest rate manipulation and credit creation, as well.
Although the Fed did not announce an interest rate cut on Wednesday following its Open Market Committee meeting, close Fed watchers concluded that lower rates were in the offing. Bretton Woods Research said it was “95 percent certain the Fed will begin reducing rates sometime during the next 91 days.”
The widespread certainty of lower rates ahead not only pushed gold up, but it also pushed the dollar and treasury market yields lower.
As we reported recently, former Congressman and long-time gold expert Ron Paul is explicit in identifying this as a gold bull market. Similar bullish calls are coming in from every direction. Even Citigroup analysts say $1,500 seems to be a reasonable target for gold. Hedge fund manager Paul Tudor Jones, who we wrote about last week, sees $1,700 gold coming “rather quickly.”
Elsewhere, China’s aggressive gold buying continued in May for the sixth straight month. The chart below from Zero Hedge illustrates this de-dollarization and the move to gold by China and Russia.
We cannot be more clear: These powerful moves in gold and silver are not accidents. The world is growing more dangerous by the moment, and central bank authorities, not just at the Federal Reserve, but in Europe and around the world, know no other course but massive credit creation and money printing.
It is a path of dollar destruction. It is a road of no return.
We advise our friends and clients to add aggressively to their precious metal holdings now.
For those who have not yet taken steps to protect themselves and their families, we urge you to read the timely advice we posted last week: Don’t Wait Until It’s Too Late to Own Gold! Then contact RME Gold to learn more. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Gold’s close at $1350 on Tuesday, 6/18 was the highest close in over a year. Last week gold reached an intraday high of $1362.
With that, gold is more than $50 an ounce over its 50-day moving average; it is more than $80 an ounce over its 200-day m0ving average.
So, what exactly is going on with gold?
Just exactly what we have been writing about for months. In fact, the forces driving gold are so plentiful that we hardly know where to begin.
But let us touch on a couple of things.
Things are moving fast in the Persian Gulf. According to the Jerusalem Post, diplomatic sources at the UN describe the US as readying a massive aerial bombardment campaign against Iranian targets.
Secretary of State Mike Pompeo visited Centcom Headquarters in Florida, while both John Bolton and Henry Kissinger have been sighted at the Pentagon. All this as the Trump administration announced plans to send 1,000 more troops to the Mideast.
Meanwhile, China has sounded a grave warning about the US opening a “Pandora’s box” in the region and called on the US to halt its “extreme pressure” campaign against Iran.
At the same time, Russia, describing what it called a “conscious attempt to provoke a war with Iran,” has called on the US to halt its “unthinking and reckless pumping up of tensions in an explosive region.”
We don’t know exactly what will happen next. Things can heat up and cool down, only to ignite again when least expected.
Still, there are other fronts that threaten military confrontations, like the South China Sea. We always try to bear in mind that when the world is focused on one trouble spot, real conflagrations often break out somewhere off the news media’s radar screen. The US has just enough military presence scattered across the globe that any incident anywhere can act as a tripwire to assure US involvement.
At the same time, US debt continues to explode. But foreigners, many of whom are skeptical of US attribution of responsibility to Iran for tanker attacks in the Persian Gulf region, are also dragging their feet when it comes to continuing funding US debt.
China, the largest foreign creditor of the US, sold $17 billion of US debt in March and April, a total of $69 billion over the twelve months that ended in April.
Other countries are picking up part of the shortfall, but they won’t be able to continue to do so in the face of the advancing global trade war and the coming currency war. (It should be lost on no one that both Trump and Democratic opponents like Elizabeth Warren want to drive the purchasing power of the dollar down. That means Americans will get less, not more for their money.) Nor can foreign creditors be counted to keep up with the rivers of US red ink. During the same 12-month period ending in April, US debt soared by almost a trillion dollars.
That’s probably enough to chew on for now. We will leave for another day revisiting other dynamics that will propel gold to unimaginable new heights.
Your RME Gold professional can help you take sound steps to protect yourself and profit from a world spinning apart. But don’t delay! Call or stop by today.
At Republic Monetary Exchange, we take client service seriously.
Our gold professionals are always only a phone call away. And with our blog, we provide our clients with online briefings on news and vital behind the scenes-developments. Special profit tips. Spot-on warnings about stock market sell-offs. The deep significance of record gold buying by the world’s central banks.
Let’s discuss some things you must know to protect your wealth.
I have more than four decades in the precious metals business and founded RME Gold in 2008. We have been serving our client from the same location ever since. And we have a staff of professional gold and silver advisors trained to assist you to achieve your investing goals.
Because of our reputation as the Gold Authorities, we know many people have bookmarked our website and read our alerts who have not taken the necessary steps to protect themselves and their families from the approaching financial upheavals.
We think it is important that as many people as possible be alerted to the economic challenges ahead of us. And, in fact, the more people who own gold and silver, the more resilience the economy will have when the breakdown of the current monetary system takes place.
We don’t want commerce to grind to a halt because no one has reliable money. Nor do we want people to suffer avoidable loss.
But all the information in the world is not enough for people who procrastinate forever. Too many people in this country still have not acted to protect themselves in a currency crisis.
But we are not willing to throw in the towel simply because someone hasn’t taken prudent action yet.
With that said, below are links to four recent posts on the RME Gold blog that should help move people to add gold and silver to their holdings now.
Back in April, I called central bank gold buying a “megatrend.” It is one of the most important and overlooked monetary developments of our time. For more on the story be sure to read The Gold Buying Spree Continues.
The national debt, now more than $22 trillion, is one of the best indicators of the scale of US fiscal recklessness. Through the first eight months of the fiscal year 2019, the US government spent more than $3 trillion, which is a new spending record. The budget shortfall, the deficit for the 8 months, came in at $738,639,000,000. The spending and deficits are, of course, unsustainable. We have taken pains to put them in perspective several times, most recently in a piece called It’s The Titanic and the Iceberg- Full Speed Ahead.
In The Doom Loop, published in March, we confronted a concept economist call “the marginal productivity of debt.” It is one thing if incremental indebtedness is producing more wealth. But it is very serious indeed when debt is outpacing productivity. And that is what is happening in the US today.
And finally, six months ago I surveyed for you three dramatic stock market collapses in the modern era that resembles today’s markets in many ways.
Paul Tudor Jones, the Tudor Investment Corporation founder, believes that gold is the best trade and is going to “scream” over the next year to two years.
Jones is a leading hedge fund manager of long-standing. His philanthropic activities are many. He first became prominent when he predicted the calamitous Black Monday stock market crash in October 1987.
In an interview on Bloomberg TV this week, Jones said:
“The best trade is going to be gold. If I have to pick my favorite for the next 12-24 months, it probably would be gold. I think gold goes beyond $1,400… it goes to $1,700 rather quickly. It has everything going for it in a world where rates are conceivably going to zero in the United States.
“Remember we’ve had 75 years of expanding globalization and trade, and we built the machine around the belief that’s the way the world’s going to be. Now, all of a sudden, it’s stopped, and we are reversing that.
“When you break something like that, the consequences won’t be seen at first, it might be seen one year, two years, three years later. That would make one think that it’s possible that we go into a recession. That would make one think that rates in the US go back toward the zero bound and in the course of that situation, gold is going to scream.”
It is early to draw any firm conclusion about the latest incidents in the Persian Gulf attacks on two commercial vessels. We have lived through too many things like the Tonkin Gulf incident, forged yellowcake documents, and missing WMDs to jump to conclusions. There are too many parties with interests in the region and hopes to gain from an escalation of hostilities to attribute responsibility without definitive evidence. As we have learned, the possibility of a false flag attack is always high.
While Iran has the most to lose, it is worth bearing in mind Iranian President Hassan Rouhani promised last year to his nation that, “If one day they (the US) want to prevent the export of Iran’s oil, then no oil will be exported from the Persian Gulf.”
We note only that no matter who is to blame, and for whatever purposes, such incidents in the Persian Gulf threaten wider warfare and they are unreservedly bullish for gold and silver.
“I think we’re in the middle of a bull market in gold.”
That’s the observation of Dr. Ron Paul.
The former congressman and presidential candidate was commenting on the dramatic surge in gold prices. Even with a correction this week, gold is up more than $60 an ounce since its late May low just weeks ago.
In fact, gold is up more than $300 since its low of $1046 in 2015.
“The dollar’s value goes down. It never keeps up. There are more dollars around. The purchasing power goes down. Real wages go down.”
“The purchasing power of gold is moving up again and people will discover it.”
The gold market has certainly taken note of the push for lower interest rates and more quantitative easing. Looking ahead to next years election, President Trump’s thumping for loose money has been relentless, despite his insistence during the last presidential campaign that we are in the middle of a “big, fat, ugly bubble” in the stock market.
Now Trump wants the bubble to get bigger, fatter, and uglier. Recently he remarked on CNBC that if the Fed had listened to him on interest rates, the stock market would be up another 10,000 points.
David Stockman reacted the bubble talk, warning market participants that “when the trap door opens, you won’t even know what hit you.”
Dr. Paul correctly observes that the market is probably 10,000 points too high right now because of what the Fed has already don.
Still, the Fed can certainly make the bubble bigger if it prints enough money, says Paul. But as it inflates the bubble, the people should be frightened by its enormous size. What happens to the cost structure the people will be forced to face? To medical costs? To education costs?
What’s the solution? Gold. “We need to seriously consider the use of gold as part of the monetary system.” But to really work, a gold standard has to be a gold coin standard, says Dr. Paul.
“My main concern, my interest in this is not only because people should protect themselves; I think it’s a freedom issue.
“This strategy of central banking over the last 50-60 years around the world has all been geared to pay for big government.
“Big government always undermines personal liberties and encourages wars.
“The issue is liberty, and liberty cannot be preserved without sound money.”
People certainly buy gold for a lot of (good) different reasons.
Some people buy gold for long-term capital preservation. If your grandparents or great grandparents had left you a pile of $20 gold coins, you’d be a lot better off than if they had left you a wad of $20 bills.
That’s because the Federal Reserve has destroyed 96 percent of the dollar’s purchasing power.
Other people buy gold as insurance against reckless government policies and money printing.
We think that’s be very good idea. People by fire insurance for their homes, too. But the risk of their home burning down is slight compared to the certainty that the government will spend itself into bankruptcy.
Some people buy gold for privacy. They would like to keep their financial affairs better protected. Since the banks have become snoops for the government, reporting what you do, and since big corporations try to follow you in everything you do and anything you buy, just the peace of mind of having a little privacy is a very good reason to own gold.
You may remember how a lot of things were shut down after 9/11. Have you even wondered what would happen if the increasingly stressed national electricity grid went down, or if solar flares screwed up satellite functions and digital communications?
What would you do if ATM machines stopped spitting out cash?
I can tell you this. In any of those circumstances you would be very happy to own gold and silver, the world’s most liquid commodities.
But there is one more very good reason that people buy gold. And that is for good, old fashioned profits.
They just want to make money.
You may have noticed that when the price of gold (and silver) are suppressed for a long time by the government (it was illegal for Americans to own monetary gold as recently as 1974!); or that when the price is suppressed by wild money printing and interest rate manipulation, it can only be suppressed for so long.
All of these are good reasons to own gold.
The longer they suppress the gold price, the bigger the move when it breaks out! We’ve already seen the spike begin this past week. Gold has now topped $1,300 and is quickly approaching the $1,350 mark. Why wait until $1,400 to protect your portfolio when you still can now with gold spot under $1,350?
I have coined a term for it: the socialist juggernaut.
Socialism is when the government enables other people to live at your expense.
A juggernaut is a large, merciless, and unstoppable destructive force.
And that is what is loose in America. A socialist juggernaut.
You work. You save. And then politicians looking for votes start offering everybody free stuff. Free college. Free medicine. Borrow money for free. Free guaranteed annual income. Free housing.
Somebody has to pay. The money has to come from somewhere. Before long they’re peering into your wallet. Eyeing your bank account. Focusing on your investments.
But as Margaret Thatcher said, the problem with socialism is that pretty soon you run out of other people’s money.
All of this comes to mind because of an investment newsletter that showed up in our inbox the other day. It asked what happens when the socialists come after your wealth.
We have plenty of precedents from all around the world, so the answer is pretty clear.
When the socialist come for your money, they get it.
Sometimes they get it by destroying the currency. The print more and more of it to pay for the giveaways, until the money you have saved looses its purchasing power. It is a stealth confiscation of your wealth.
Sometimes they get it through taxation. Or by the expropriation of your private property.
And there are other clever ways the socialists get your money. They may hope to borrow more. But if people decide they don’t trust the state enough to loan it any more money, they may insist that every bank and financial institution and even your personal retirement account must invest a certain percentage of its assets in their untrustworthy bonds. Bonds that are certificates of guaranteed confiscation.
Oh, they’re clever! When the socialists come for your money, they invent financial devices and monetary shenanigans to get it faster than you can keep up.
Ask the people in Venezuela. They get it by manipulating prices, by rationing, by increasingly burdensome financial regulations.
The evidence that a socialist juggernaut is loose on the land can be seen in the way America’s middle class is being wiped out, and in the mounting debt of the American people, borrowing and struggling to keep up. It can be seen in the compounding debt of the nation-state. It can be seen in the rise of political fantasies like Modern Monetary Theory and political figures who never learned that wealth comes from production, not from redistribution.
What do you do when the socialist come for your wealth?
You get your wealth out of the game since it is not a level playing field. You get it out of the institutions they control.
You refuse to be victimized.
Somebody wise once called gold “capital on strike.” When you realize your wealth is in their crosshairs, you have to go on strike.
The world has been through these episodes over and over: Venezuela, North Korea, Cuba, East Germany and much of Eastern Europe, the Soviet Union, and Mao’s China are but a few of many, many examples.
Gold remains the best means of getting out of the way and preserving your wealth when the socialist beast roams the land.
ONE FINAL NOTE:
If you have missed gold’s powerful breakout because you have been mesmerized by the stock market, we will share with you an observation from Bill Bonner, another newsletter writer:
“In the downturn of 2000, the Greenspan Fed cut the federal funds rate by 500 basis points. Still, in terms of gold, the Dow fell 82%. In 2008/2009, the Bernanke Fed again cut rates by 500 basis points. Once again, stocks nevertheless lost 68%.
“And now, the expansion seems to be approaching its end (it has to end sometime!)… and the Fed only has 240 basis points to cut.
“Besides, the Fed cannot really make companies more valuable. It can’t increase their sales; it can’t really increase their profits. It can’t improve their products or strengthen their marketing. It can’t create more time. Or more real money. Or make people smarter or more inventive.
“All it can do is mislead you and misallocate resources with fake money and fake price signals.”
April, says the famous poem The Waste Land, is the cruelest month. But May was pretty tough on the top-heavy stock market, as we had warned. (See here, here, and here.) The Month of May was cruel to investors.
Both the Dow Industrials and the S&P 5oo lost six percent in May. The Nasdaq fell about eight percent.
What happens when a market falls? What does it take to restore your position? This is a very important consideration and one of the reasons we have been advising you to seek safety in gold.
Let me give you an example. Suppose a stock index you have invested in is at 10,000 points. If the market falls 20 percent, your index is now worth 8,000. That is straight forward, right?
So, you need the market to bounce back up 20 percent to be made whole again, right?
At the new price of 8,000, if the index climbs a full 20 percent, it is now worth only 9,600 points
The market fell 20 percent. But then in climbed 20 percent back up. Yet you are still down four percent.
And that is crueler than any month.
In fact, you need the market to climb 25 percent just to break even!
That is why we warn so repeatedly that in this environment of an obviously top-heavy and wobbly stock market, it is better to sit out the game.
Don’t forget for an instant that last fall the S&P 500 dropped 25 percent in just 64 trading days! And when a market falls 25 percent like that, it has to climb back up 33 percent just to get you back to break-even!
That’s a pretty steep climb!
The safest place to sit out the risky stock market game in an era of trade and currency wars, unpayable government debt, and reckless money-printing, is gold.
Contact RME Gold to learn more. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Today we have a rare and potentially extremely profitable opportunity for our friends and clients.
The ratio is so high right now that you can get more ounces of silver for each ounce of gold than at any time since 1993!
It is like a second chance to take advantage of this opportunity.
Then, when the Gold-Silver ratio moves lower, you will be able to trade your silver back into gold with a net increase in the amount of gold you own!
More gold in your portfolio! Without making any additional investment!
Recently the ratio has been in the high 80s range, creating a spectacular opportunity for you to increase your precious metal holdings. It is a simple strategy that the professionals us to increase their wealth.
There is nothing magical about it. Indeed, like so many of the best wealth building techniques it is really the essence of simplicity.
Let me give you an example of this powerful strategy.
Suppose you have 25 ounces of gold. On a day when the Gold-Silver ratio is high, say 86 to one, you trade your gold for 2,150 ounces of silver.
Then down the road, when the ratio reaches 50 to one, you trade your silver back into gold. At that ratio, your 2,150 ounces of silver would be equal to 43 ounces of gold.
With this simple strategy, you would have increased your gold holdings from 25 ounces to 43 ounces, an increase of 18 ounces of gold.
That is a 72 percent increase in the amount of gold you own! With no additional investment.
This example, using the spot prices of gold and silver, is for purposes of illustration only because of transaction costs and since different coins and bars have their own premiums relative to the spot prices. But I have chosen to be very conservative in illustrating this strategy.
I used the example of trading with the ration at 86 to 1. But the actual ratio as I write this is almost 90 to 1, even more favorable for making the trade. And when you trade back into gold, the ratio could very well be even lower than the 50 to 1 example I used to illustrate the strategy, meaning more gold in your portfolio. Your RME Professional will be able to give you specific recommendations depending on market conditions at that time.
Many of our clients and I, myself, have used this powerful strategy for years to substantially increase our precious metals holdings.
The key takeaway is that with the Gold-Silver ratio at almost 90 to 1, the price of silver is historically low relative to the gold price.
In a rising market, silver in poised to appreciate even faster than the price of gold. With this strategy, you are never out of precious metals, but you always emphasize the one in your holdings with the greatest promise of profit.
And that is a good place to be!
If you own gold, even if you didn’t buy your gold from us, let us show you how the professionals use this ratio to maximize their profits. Call or stop by.
After all, why should you let the professionals have all the profits?
Switzerland has a long, long history of taking issues of money, wealth, banking and financial propriety very seriously.
These are some of the reason that Switzerland has long been a prosperous island of stability surrounded by centuries of chaos and ruinous inflation, currency failure, and bankruptcy in neighboring countries like Germany, France, and Italy.
It is no surprise that Switzerland ranks near the top in measures of economic stability, growth, privacy, and prosperity. In terms of size or natural resources, it would not rank near the top at all. But it rates number one in Europe and number four worldwide in the Heritage 2019 Index of World Freedom. Its per capital GDP ranks among the highest in the world.
For a very long time the Swiss Franc was one of the world’s premier currencies. It even had a statutory gold-backing.
Although Switzerland in recent decades has succumbed to some of the paper money mania that has proven so destructive elsewhere, still the preference for sound money runs deep in the national ethos of the Swiss people.
A new survey reveals the persistence of Swiss attachment to gold. In fact, the headline on a report by the University of St. Gallen reads, “Swiss people like to invest in gold.” 48 percent of Swiss surveyed mention gold among their favorite investments. That’s second only to real estate, and well ahead of stocks and funds, and even traditional saving accounts. Platinum ranks surprisingly high among the Swiss, at ninth, and even ahead of silver which ranks 13th.
Switzerland has the second highest per capital gold demand in the world, right after Hong Kong, also noted for its prosperity. Unfortunately, the US doesn’t even rank in the top 10.
Almost forty percent of the Swiss surveyed mentioned “security” as among their reasons for preferring gold.
Gold remains the world’s super sovereign currency. As such, it’s linkage to wealth, prosperity, and economic security is not a coincidence.
Speak with one of RME Gold’s professionals to find out how to anchor your wealth, prosperity and security in gold.
We would like you, and all our friends and clients, to take a good look at the accompanying chart. It will help you read the signs of the times.
It is an eye-opening portrayal of this stage in the everything bubble! As you can see from the movement up by the S&P500 since last Christmas, the stock market has been powered by the Fed’s reversal of its announced interest rate increases at the end of last year.
In fact, as we have pointed out many times, this entire stock market bubble is the offspring of the Fed’s interest rate suppression.
The chart shows the yield on the 10-year US Treasury moving down, down, down, down.
Wednesday’s market action (5/29) was strong confirmation of the longer-term picture illustrated here. The 10-year yield fell to 2.26 percent. That’s the lowest yield since September 2017. At the same time stocks fell to 12- week lows, with the Dow Industrials gapping down to close beneath its 200-day moving average.
Lower yields mean that money is moving massively into the bond market. Why would Wall Street stampede into the bond market at these historic low yields? The answer comes in two parts:
They are getting out of the way of a stock market calamity.
And they expect that the Fed will respond to a stock market calamity by attempting to drive rates even lower – an effort to goose the economy as a recession looms.
We expect the same thing.
The Federal Reserve is a one trick pony. It has one thing that it does: It creates money and credit out of nothing. That is the Fed’s response to every crisis, a banking liquidity crisis, a housing bubble that popped, or a collapsing stock market.
One other important note:
There is an anomaly in the interest rate market called a yield curve inversion. In this case the yield on the 10-year Treasury is lower than the yield on the three-month Treasury.
That is abnormal. It is an important signal that something is amiss.
As we have pointed out, normally longer-term interest rates are higher than short-term rates. After all, whatever you might charge to loan someone money for three months, you would certainly want a higher rate to loan money for ten years. You have given up the use of your money for a longer time during which market rates may change markedly, while a longer-term increases the risks that can befall the borrower and the return of your money.
In normal markets, long-term rates are higher than short-term rates. An interest rate inversion like the one we are experiencing, when long-term debt instruments develop lower yields than short-term ones, is a classic indication of a weakening economy and of recessions.
It is an indication that investors are beginning to panic!
As a post on Zero Hedge put it, “The last two times the yield curve inverted like this were March 2000… right when the Tech Bubble burst… and late 2006… right as the housing bubble burst… and about 12 months before the Great Financial Crisis…”
This is a key juncture to buy gold. The deficit picture will worsen in a recession and Fed money printing will become much more aggressive. At the same time, many of the people fleeing the stock market, those who can read the signs of the times, will look to the safest of safe havens.
There are two takeaways from today’s’ commentary. Let me share them with your right up front:
Takeaway #1: President Trump wants to have a currency war with China, and ultimately with the rest of the world.
Takeaway #2: The big winner in currency wars is gold.
In addition to continual calls from the administration for all the elements of a currency war, specifically for the Federal Reserve to lower rates further, for more Quantitative Easing (money printing), and for tariff regimes, the President recently tweeted,
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
In response to the taunt, a Chinese government newspaper, the Global Times, reports that China is preparing for a currency war, with steps being taken that will position it to strike back.
A currency war occurs when nations deliberately depreciate the value of their currencies in order to stimulate their economies. When trading partners impose tariffs on a country’s incoming goods, the exporting nation will often depreciate or devalue its currency so that its goods become cheaper to foreign buyers. In this way it hopes to offset the additional cost imposed on its goods by the tariffs or taxes imposed on them.
It is a deranged strategy. Countries devalue their currencies by manipulating interest rates lower and printing money – or to use the euphemisms of the day, by “quantitative easing.”
While it can make its manufactured goods cheaper for foreign buyers with such machinations, it makes everything its own citizens buy from foreign producers more expensive. So, if a country like China drives the yuan down, the Chinese pay more for raw materials, gasoline, food, and anything else that comes from abroad.
When China devalues its currency, it makes the Chinese people poorer.
When America devalues its currency, it makes the American people poorer.
A country the devalues its currency is saying that it wants its people to get less for their money.
Who wins currency wars? People who own gold are the big winners.
In his book Currency Wars, author Jim Rickards identifies three major currency wars in the last 100 years.
The first, from 1920 – 1936 saw the complete collapse of some currencies, while President Roosevelt declared a bank holiday and steeply depreciated the dollar.
Gold holders were the big winners as gold skyrocketed from the gold standard price of $20.67 an ounce to $35 an ounce.
Gold appreciated 69 percent.
The second currency war, Rickards dates from 1967 – 1987. There can be some disagreement about the dates, but there is no disagreement about the dollar’s loss of purchasing power during the period. As the currency war opened, gold was still officially priced at $35 dollars an ounce, but in the free market none was available at that price. It was the period that saw the silver in US coinage replaced with cheap base metals, although the government went to a great deal of trouble to make the new coinage appear to still be made of silver. Most of the action took place during the stagflation decade of the 1970s, and by the beginning of the 1980s gold has raced to $850 an ounce.
Rickards identifies the third currency war as having begun in 2010. It continues today. Given the risk of the collapse of the global monetary system, Rickards suggests that Currency War III may be the last currency war.
Currency War III includes the so-called Great Recession, Quantitative Easing, and an explosion of unpayable government debt. Even with events of that magnitude, it is fair to say that until now, Currency War III has been a low-grade affair. Even so, it saw gold roar up to $1,900 per ounce in 2011.
But now the currency war is getting going in earnest as threats and counter-threats of rising intensity fly back and forth across the oceans.
If Rickards is right that this could be the last currency war, then there is little point in attempting to forecast just how high the price of gold will go in terms of a dollar that itself will be dethroned as the world’s reserve currency.
In the final analysis, wealth will be measured not in terms of such irredeemable paper currencies, but in terms of how many ounces of gold one owns.
In currency wars, the winners are people who own gold.
We’ve all heard of bloggers and writers – mostly conservatives, but not all – that have been de-platformed by social media. These are people that have said something that the social media giants like Facebook and Twitter have found unacceptable, and who have therefore been banned and lost their access to their audiences.
But have you heard of people being de-platformed by their bank?
Actually, in the banking world, it is called “de-risking.” And apparently, a growing number of people has had their accounts closed. Some are finding their funds frozen along the way.
A common pretext for de-risking is a bank’s finding that it isn’t making enough money off a customer’s account. But the proliferation of governmental policies and regulations and the war on cash are also responsible for banks closing customer accounts.
Mark Nestmann, whose business involves helping people establish foreign domiciles, writes, “In the US, tens of thousands of gun sellers, coin dealers, fireworks suppliers, dating services, US citizens living abroad, Muslim students, money services businesses, diplomats, and even porn stars like Teagan Presley have had their accounts closed due to the de-risking phenomenon.”
According to Nestmann,
“It’s not really surprising that US banks are de-risking as fast as they can. They must follow strict ‘know your customer’ rules and also report an ever-larger list of supposed ‘suspicious transactions’ to a secretive Treasury bureau called the “Financial Crimes Enforcement Network,” (FinCEN).
“If a bank perceives a customer as ‘high risk,’ it’s safer to close their account than to possibly face stiff fines and even criminal prosecution. And Congress keeps passing new laws requiring ever-greater levels of surveillance over our financial transactions. Is it really a surprise that a growing number of banks refuse to provide banking services to a growing number of categories of customers?”
One financial consultancy that studied the phenomena found it ironic that regulations purportedly spawned to protect financial institutions are having the opposite effect. They are driving people and business away from financial institutions.
Meanwhile, so-called “anti-money laundering” provisions are casting an ever-widening net. Banks have required foreign embassies, over the protest of the State Department, to close their accounts, while people involved in marijuana commerce in venues where it is perfectly legal to have had banks close their accounts.
All in all, it is another development in the fatigue and confusion of the financial and monetary system. The government, demonstrably incapable of managing its own financial and monetary affairs, compensates with a flurry of intrusions into the private affairs of the people.
We prefer to look at the term “de-risking” from the perspective of our clients and the American people. That is why we recommend holding at least a substantial portion of your wealth in gold. It is the most efficient way to insulate yourself from the financial risk of a hopelessly indebted government and the monetary risk of a confused, money-printing central bank.
Speak with an RME Gold associate today to find out how to de-risk yourself. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
There is an old expression in the stock market that they never ring a bell at the top. It’s true.
They shouldn’t need to ring a bell. This expansion is already long-in-the-tooth, almost ten years old. In a few weeks it will be the longest on record. Ever. And one of the weakest, too.
In place of the bell, look at the burgeoning trade war. Or look at some of the ridiculous IPOs. Uber and Lyft are the biggest money-losing companies to ever go public. Doesn’t anybody remember the Nasdaq bubble and Pets.com, eToys.com, Drugstore.com, or DrKoop.com?
Just as they never ring a bell at the top of the market, former congressman Ron Paul says that the Federal Reserve never announces that it created a bubble.
It has created so many that you might think they would know exactly how and precisely when they do it so that they could announce it.
It’s just that they really don’t want you to know it’s a bubble. Besides, you’ll find out soon enough – once it pops and the damage is done!
In the meantime, they can’t announce a bubble like the dotcom bubble, the housing bubble, or today’s stock market bubble because, as Dr. Paul says, they want to avoid a panic.
“The bubble is there,” he says. “No one wants to admit it. I think people should prepare for it. And quite frankly, my opinion is, this bubble is really big!”
Of course, he’s not the only one who notices that this bubble is much bigger than the others the Fed has created. And that’s really saying something, since most have them have been stupendous. “When the Nasdaq bubble burst, it lost 80 percent of its value,” Paul reminds us.
“It will be the worst in my lifetime,” says Jim Rogers of the coming bear market.
But they don’t ring a bell at the top.
And the Fed never announces that it created another bubble.
Avoid the casino economy! The stock market looks more like a casino every day. And you know that casino odds are never in your favor.
Casino? Consider David Stockman’s observation that “between the September 21 intra-day high of 2,941 and the 2,351 close on Christmas Eve, the S&P 500 index dropped by a stomach-churning 25% in just 64 trading days.”
That drastic move wasn’t because the underlying conditions, sales, markets, or revenue picture of American business had changed dramatically in those three months.
It was because the Fed intended to raise interest rates. Betting on the future value of stocks based on what a handful of unelected and mostly unknown Fed officials may do next is like betting on a roll of the dice.
It is not investing. It’s a crap shoot.
Then the Fed changed its position on interest rates and the market moved back up. The Dow Industrial began trading above its 50-day moving average.
But suddenly, with the next roll of the dice and some announcements from Washington, a trade war began gaining traction. Now the market has fallen for two weeks and is trading below its 50-day moving average again.
With every little change in the breeze, with every change in the Washington winds, the market reverses itself.
That is not a reputable trading environment. It is a casino.
The more volatile the stock market, the more dangerous to you. And the more important it is to own gold.
Casino markets come and go. But gold has been the preferred money of the world for thousands of years, the supra-sovereign currency that outlasts all paper money schemes, and the best haven for safety as governments gorge themselves to death on debt.
Leave the casino. Cash in your casino chips. Protect yourself and your family from the casino economy. With gold and silver.
Speak with an RME associate today. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Today some key insights and financial news, little noticed and mostly overlooked stories that affect our economy, paper money, and gold; bite-size news that we think our friends and clients should know.
China Cuts US Debt Holdings
“China reduced its holdings of U.S. debt in March by about $20.5 billion, bringing its overall ownership down to $1.12 trillion.
“The holdings are at their lowest level in two years and come amid escalating trade tensions.
“There’s worry that China might use its status as the world’s No. 1 U.S. debtholder as leverage in trade negotiations.”
Social Security just ran a $9 trillion deficit, and nobody noticed!
“Social Security’s annual Trustees Report came out recently, and it showed Social Security ran a gigantic $9 trillion deficit between last year and this year. The system’s long-term unfunded liability is now $43 trillion, up from $34 trillion last year.
“Funny, nobody noticed.”
Boston University Professor Laurence Kotlikoff, The Hill, 5/14/19
Fed Issues More Warnings on Danger of High-Risk Company Debt
“The Federal Reserve escalated its warnings about the perils of risky borrowing by businesses Monday, saying firms with the worst credit profiles are the ones taking on more and more debt….
“The U.S. central bank’s latest financial stability report said leveraged-lending issuance grew 20 percent last year, and that protections included in loan documents to shield lenders from defaults are eroding.”
Dutch Central Bank Admits ‘The Rich Get Richer When We Print Money“
“Loose monetary conditions strongly increase the top one percent’s income and vice versa. In fact, following an expansionary monetary policy shock, the share of national income held by the richest 1 percent increases by approximately 1 to 6 percentage points.”
“… the increase in top 1 percent’s share is arguably the result of higher asset prices. The baseline results hold under a battery of robustness checks…. Furthermore, the regime-switching version of our model indicates that our conclusions are robust, regardless of the state of the economy.”
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We think this is one of the most important warnings we have posted. Please read it carefully.
We posted an item months ago about the way that tariff wars can deteriorate into currency wars.
A currency war is about to break out.
A currency war occurs when nations deliberately weaken the value of their currencies in order to stimulate their economies. When trading partners impose tariffs on a country’s incoming goods, that exporting nation will often depreciate or devalue its currency so that its goods become cheaper to foreign buyers. In this way, it hopes to offset the additional cost imposed on its goods by the tariffs or taxes imposed on them.
It is a deranged strategy. Countries devalue their currencies by manipulating interest rates lower and printing money – or to use the euphemisms of the day, by “quantitative easing.”
While it can make its manufactured goods cheaper for foreign buyers with these manipulations, it makes everything its own citizens buy from foreign producers more expensive. So, if a country like China drives the yuan down, the Chinese pay more for raw materials, gasoline, food, and anything else that comes from abroad.
When China devalues its currency, it makes the Chinese people poorer.
When America devalues its currency, it makes the American people poorer.
A country the devalues its currency is saying that it wants its people to get less for their money.
Now Trump, expecting China to devalue its currency in the new trade war, is challenging the Fed to do the same thing: print, PRINT, PRINT!
Here’s an early Tuesday morning tweet from Trump:
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
The President and his advisors have been calling for the Fed to lower interest rates a full-percentage point and to start another round of Quantitative Easing anyway, for domestic economic reasons. And to help Trump get reelected.
Now they are calling for it as a tool in the trade war with China.
There policies are unreservedly bullish for gold. All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as the all fight their way to the bottom.
When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
That means the price of gold goes up!
The best way to protect yourself from a currency war is to own gold!
We hope you will re-read this post and share it with your family and friends. It is timely and extremely important.
Please contact your RME Gold professional if you have any questions.
Things to keep in mind while Alien and Predator are locked in mortal trade combat, whipsawing the stock market, and trampling ordinary people underfoot:
There is hardly a sector of the market or an area that won’t be affected. American farmers are already being slammed. To cite but one example, Farmers for Free Trade reports that in 2017 farmers in Washington state sold 270,000 metric tons of wheat to China. In 2018, their sales dropped to zero.
At the same time, the costs of the trade war include billions in welfare the Department of Agriculture is paying to the struggling farmers.
The additional taxes on goods (tariffs are taxes) are costing Americans an estimated $3 billion a month.
The research teams at the major investment banks are pumping out reports daily about which industries and stocks will be hit hardest. It’s hard to find any that won’t be hurt. And the currency consequences can be huge as well.
The last big trade war, and the Smoot-Hawley tariffs, led to a world-wide stock market crash and a global depression that seemed endless.
We don’t pretend to know how long this stand-off will last or who will blink. Tariffs always invite retaliatory tariffs, but no one can say in advance how much things will escalate.
We’ll leave others to take wild guesses about such unknowns.
We prefer to advise you to simply get out of the way.
We’ve all seen terrified and innocent bystanders get crushed in movies with battling behemoths like King Kong vs. Godzilla. We think it wise to stand aside and not be crushed and victimized.
That means retreating to the safety of gold and silver. Trade war often lead to hot wars, but even when they don’t, they are still financially destructive to stocks and paper currencies.
Speak with your RME associate today about getting your wealth out of the way as giants thrash about destroying anything in their path.
It was just days ago that we warned the stock market was hanging by a thread.
Now we have seen just how thin that thread was.
The one-day 473 point drop in the Dow earlier this week is nothing to sneeze at. As of this morning, its getting hammered again- down over 100 points as of print.
(Incidentally for those that follow technical signals, the Dow closed below its 50-day moving average for the first time since January.)
This market is based on an illusion. Stock prices are based on the expectation that everything will work out perfectly:
That there will be a perfect trade deal with China;
That the deficits don’t matter;
That the national debt doesn’t matter;
That warships steaming to Venezuela and the Persian Gulf don’t matter;
That the Fed can really control interest rates;
That the Fed, which still has a big problem with QE I, II, and III, will launch another round of money printing to help Donald Trump get reelected.
But as the latest drop proves, all of those views are astonishingly naïve. At the faintest sign that one of these naïve beliefs will prove untrue, the Wall Street professionals head for the door.
They can be quick. That’s because they want to make sure they beat you out the door!
Deal with China?
Perhaps a last-minute trade deal with China will be pulled out of a hat. Or perhaps the Plunge Protection Team (a secret little Deep State operation created to manipulate the stock market) will engage in some sleight of hand to tap the brakes on the new bear market.
But ask yourself this simple question: If the market is as sound as Trump insists, why does it need unprecedented rate cuts and still more Quantitative Easing to keep going?
It’s like proclaiming someone a world-record setting athlete and then pleading for performance enhancing injections so he can compete.
In much the same discordant manner, the GDP is supposed to robust, but the national debt is leapfrogging up a trillion dollars a year. (Months ago, we wrote about the marginal productivity of debt: How much growth do you get for each additional dollar of borrowing? Economist Keith Weiner has formulated this into an economic law: If the marginal productivity of debt is less than 1, the economy is not sustainable. See our post on The Doom Loop here).
This stock market is a bubble. It’s not a bubble because we say it is a bubble. It’s a bubble because like all bubbles it is driven by the artificial creation of money and credit.
And like all bubbles, it will meet its pin.
That pin could be anything. Expected or unexpected.
Now, you would think that after the dot.com bubble and the housing bubble, the people would be in no mood for a third Fed-engineered bubble in this young century. But as we have been saying, the people don’t really understand how these things work.
And the media sure isn’t going to tell them.
That’s why we take it as part of our job to help them figure it out with these posts, to show them the wizard behind the curtain.
If all your investments are in the stock market, you’re doing it wrong. Historically, folks have lost their shirts in the stock market, even in times of extreme optimism. As investors scramble to get ahead of the next hot stock or investment opportunity, they often neglect to consider precious metals.
Here are seven reasons why gold is the best investment to make in 2019.
1. 2019 Is Filled with Uncertainty
World events like Brexit, U.S.-China trade disputes, and a potential economic downturn in the States point to volatility in stocks and indexes in 2019. A 2019 poll by interactive investor shows one-third of investors expect the FTSE 100 index to see either negative or flat growth this year.
Investors who are worried about the instability that may come can hedge their bets with gold. Even during times of financial stress, gold remains one of the most valued currencies around the globe.
2. Experts Are Predicting Strong Outlooks for Gold
Financial experts agree that the U.S. dollar “looks to be in retreat,” according to a 2019 report by Forbes. That means the price of gold is expected to rise, which is good news for gold investors who purchase early. Goldman Sachs and the World Gold Council both predict bullish markets for gold due to the economic impact issues like the government shutdown.
Gold beat global equities and commodities for the fourth quarter at the end of 2018, with daily trading volumes almost the same as S&P 500 companies. In January 2019, gold achieved a golden cross, meaning the 50-day moving average crossed above the 200-day moving average, which is a bullish sign for the price of gold.
To learn how to invest in gold, download our free eBook.
3. Gold Is Stable
Do you hate watching your investments fluctuate, cringing every time the stock market value is in the red? Don’t panic, don’t punch a wall, and don’t swear off investing. Gold is one of the most stable investments you can make.
When inflation hits, gold rises in value. When the U.S. dollar deteriorates, the value of gold rises. So even in a recession, gold is a solid investment. When a bear market hits, gold tends to go up in value as investors look to stable investments. And now that we’re in our 10th year of a bull market, a bear market is due any time.
4. Gold’s Value Doesn’t Change
Even when the price of gold takes a dip, its value isn’t affected. Gold maintains value over time because it’s a commodity. There’s only a fixed scarce quantity of gold, compared to a fiat currency like the dollar which holds no inherent value. Since it’s the most sought-after precious metal for jewelry, there is always a demand for gold.
A 2017 report by Duke University found the purchasing power of gold remains largely the same over extended periods of time. So, even though you’re not going to grow your investment with gold, you’re not going to lose your investment, either. Take that, bear market!
5. Gold Is Liquid
We’re talking liquidity here, and not liquid like water. Because gold is universally valued as a form of viable currency, it can easily be converted into cash around the globe. There aren’t any commodities more valuable than gold, which is extremely rare and difficult to extract but highly prized in all types of countries.
If the country you live in experiences an economic collapse (ahem, Venezuela), having gold on hand gives you options to keep your finances strong. Since gold doesn’t decay or lose its quality or structure, it’s as solid an investment as it is a physical commodity.
6. Gold Diversifies Your Portfolio
The more you rely on one type of investment, the more risk you incur should that investment go south. Adding gold to your portfolio is a great way to diversify your investments, which lowers the overall risk. It’s like having a built-in insurance policy for your portfolio.
The closer you are to retirement or older you are, the less risk you want with your investments. Since gold prices tend to counteract stock prices, it’s a natural stabilizer for your portfolio.
7. Gold Is Real
Have you ever lost your wallet and all the cash in it? Or how about thousands of dollars in one fell swoop on the stock market? The feeling is crushing. You may have wished you had just stuffed your dollars into your mattress for safekeeping.
Gold is a tangible investment that will always be there for you. It can’t be destroyed by a natural disaster. It can’t be hacked and stolen by an identity thief. With safe storage, you’ll never lose it and can always access it when you need it.
Ready to Go After the Gold?
We say gold isn’t just the best investment of 2019 – it’s a must-have every year. Owning gold in an IRA is a way to protect your finances, no matter what the market experiences this year and beyond.
“What is the fundamental difference between any failed currency and the US dollar? Except for degree, not much. Like other currencies that have in time returned to their ultimate commodity value (what is the value of little rectangular pieces of paper, especially those that have already been printed on?) the US dollar in unbacked and issued without restraint.
“If you think that is an exaggeration, let me point you to the trillions of dollars the Fed created out of thin air to buy government bonds and toxic mortgage securities from the money center banks in the years between 2008 and 2015. That’s money printing on a Venezuelan scale!”
We’ll conclude today post with a few words from a January piece called The New Venezuela, in which we wrote about the socialist juggernaut running loose in America:
“Their prominence and the spread of socialist ideas is a really good reason to start attending to your precious metals portfolio today. The left is determined that America should tread the path of socialism and become the next Venezuela. Socialism’s manifest failures are not enough to dissuade them from trying to tank what is left of our prosperity and charting a ruinous course for Americans.
“Millions of impoverished Venezuelans wish they had transferred their wealth into gold and silver while they still could. Before their Hugos and Maduros took over.
Have you noticed that practically nobody in Washington talks about the national debt anymore?
Not so long ago there were committees of concern about the national debt, national debt commissions, people signing petitions, and coalitions in Congress to rein in the debt.
But now, at $22 trillion dollars of debt and climbing, there is none of that. If you listen carefully, all you can hear is crickets!
22 trillion is an amount more than the human mind can adequately comprehend.
22 trillion… let’s put this astronomical number into some perspective: To travel 22 trillion miles, you would have to go from the Earth to Pluto and back… 3,081 times!
The silence about this incomprehensible national debt reminds of the famous Sherlock Holmes tale of the dog that didn’t bark. The dog didn’t bark in the night because the criminal in the story was familiar to him. There was no point in alerting anyone.
Now, no one bothers to raise an alarm about the national debt because there is no reason to. Nothing can be done about it now. We have passed the point of no return.
Even with todays Fed-engineered low interest rates, the interest on the debt is climbing at a hair-raising pace. Interest payments on the federal debt rose at a double-digit rate in the first half of the current fiscal year.
Here’s the way the Congressional Budget Office reported on the results for the six months ending in March: “Outlays for net interest on the public debt increased by $22 billion (or 13 percent) because interest rates on short-term debt are substantially higher now than they were during the same period in 2018 and because the amount of federal debt is larger than it was a year ago.”
The Fed Can’t Stop Rising Interest Rates
No matter what the Fed does, market interest rates will go up. And they will go higher on US Treasury debt as the grim prospects of that debt being repaid become more widely known.
Rather than attacking the federal debt, politicians are offering more entitlements, new foreign wars, and Medicare for all. They are promising to wipe out student debt, pay reparations, and increase defense budgets. They are planning to spend trillions on new infrastructure programs and are talking about universal basic income and regime change interventions in places like Iran and Venezuela.
Washington has grown accustomed to the idea that the Fed can print money to fund its vote-buying schemes. Yes, the Fed can bail them out… but only by destroying the dollar. And that’s just what they will do. In our lifetimes we have never before seen Congress this irresponsible.
The time is long past when you could hope that somebody in Washington will put things right and protect the wealth and prosperity of the American people.
Now you must protect your own wealth and prosperity.
I encourage you to take steps now to do so. Begin by speaking with the RME gold authorities. Simply call our office at 602-955-6500 and you will be connected to one of our knowledgeable gold and silver professionals.
How do you think President Trump would like to have a full Monty recession underway around while he’s campaigning for reelection in 2020?
He says the Fed is holding back the economy. That’s why he’s calling for the Fed to lower interest rates a full-percentage point and to start another round of Quantitative Easing.
As we wrote here several weeks ago, “It has taken a lot of loose money to drive the stock market to today’s levels. Now the market, addicted to losing money, is growing skittish. As we saw at the end of last year, the stock market wants the Fed to provide it with another fix.
“It’s like a junkie getting the heebie-jeebies. If it doesn’t get its fix, it will fall. Hard.”
So when Fed chairman Powell failed to dangle a rate cut in front of the stock exchanges the other day, the Dow quickly gave up about 500 points. (And focused our attention on the opportunity to take advantage of the buying opportunity in gold!)
Are lower rates and more Fed bond buying in our future? The President is demanding it. And the stock market is threatening that it will do something drastic once again if it doesn’t get its way.
Remember how gold skyrocketed during QE 1, 2, and 3 beginning in 2008?
It’ll happen again.
Second Thing You Should Know:
It starting to look like “Groundhog Day”. The same thing over and over: Foreign central banks just keep buying gold.
Here’s the 5/1/19 Bloomberg story, “Central Banks Are Ditching the Dollar for Gold”:
“First-quarter gold purchases by central banks, led by Russia and China, were the highest in six years as countries diversify their assets away from the U.S. dollar.
“Global gold reserves rose 145.5 tons in the first quarter, a 68 percent increase from a year earlier.”
The global de-dollarization and central bank move to gold is one of the most important monetary events of the day. And yet it is overlooked by the mainstream press and financial establishment in a way that is disappointing but not surprising.
Things haven’t been sound on the money front for a long time, and certainly not since the Fed was created and we left the gold standard.
We developed quite a reputation for out timely warnings about the stock market last year (see here, here, and here.)
What took place in stocks late in the year can honestly be described as a bloodbath. Only the most extraordinary policy reversal by the Federal Reserve was able to keep Wall Street, hedge funds, and their robot algorithms trading in the game.
We turn now to the fearless David Stockman, President Reagan’s budget director and himself a long-time Wall Street veteran, to synopsize exactly what happened.
On April 24 Stockman wrote, “Between the September 21 intra-day high of 2,941 and the 2,351 close on Christmas Eve, the S&P 500 index dropped by a stomach-churning 25% in just 64 trading days.”
That’s what happened on the down-side. It was simply brutal. And who knows how much farther it would have fallen, had it not been for Fed chairman Powell’s sudden policy pivot.
A few days later, on April 29 Stockman described what happened with the engineered bounce-back. “To wit, since Christmas Eve the Dow is up 22%, the S&P 500 is higher by 25% and the NASDAQ-100 by a scorching 33%. …
What about the FAANG Stocks?
“Facebook is up 56%, Apple 39%, Amazon 69%, Netflix 59%, Google 25% and Microsoft 38%. In all, these six stocks put on $1.25 trillion of market cap that wasn’t there on Christmas Eve—- rising from a combined value of $3.21 trillion to $4.46 trillion in virtually a heartbeat.”
What should have been learned from the episode? Simply this: That stock valuations are not trading on the basis of business fundamentals. After all, nothing changed about Amazon’s business during that period to justify a 69 percent increase in its value. Stocks are not trading on fundamentals, on their dividends and earnings, on their P/E ratios, or on profitability.
They are trading on the basis of momentum only. When that broke down, the Fed was able to reverse the momentum for the time being by promising to firehose more money and credit Wall Street’s way.
Stock market valuations are an illusion, the product of the Fed’s monetary sleight of hand.
In other words, the stock market is once again hanging by a thread.
Now you would think that after the dot.com bubble and the housing bubble, the people would be in no mood for a third Fed-engineered bubble in this young century. But people don’t really understand how these things work. And the media doesn’t help them.
That’s why we take it as part of our job to help them figure it out with these posts, to show them the wizard behind the curtain.
And to show them how to protect themselves with gold and silver.
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You can’t believe how crazy things are in Washington.
Thing haven’t been sound on the money front for a long time. Certainly not since the Fed was created and we left the gold standard.
But thing have gotten crazier than ever. Now people in Washington and their academic minions are working on hyper-inflationary schemes you probably haven’t even heard of!
Like “Helicopter Money.” And “Modern Monetary Theory.” That’s the one Alexandria Ocasio-Cortez likes.
The Fed’s printing press has been destroying the dollar anyway, but now the crazies want to get their hands on it.
We wrote about Helicopter Money a couple of weeks ago HERE. The idea behind Helicopter Money is that if the Federal Reserve has trouble inflating the money supply through the banking system, the government can simply take a step back to the olden days of money-printing and inflate the money supply without the help of banks. It can simply print the money and get the Treasury Department to help shovel at out the doors of helicopters to the people down below.
Using helicopters to drop money on people around the country is only a metaphor for something more sophisticated. While it means using the US Treasury and tax policy instead of the Fed, the end goal is the same: hyperinflation by shoveling more and more dollars of less and less value into the consumer economy.
Milton Friedman discussed this option back in the 1960s. Former Fed chairman Ben Bernanke brought it back to life in a speech in 2002.
But today even Helicopter Money is an old school concept now that there is a socialist juggernaut loose on the land. The newest rage of the something-for-nothing crowd is called “Modern Monetary Theory.”
I was going to say that Modern Monetary Theory (MMT) is not modern, not about money, and not really much of a theory. But then on Friday, an economist named Charles Gave beat me to the punch!
MMT is like a perpetual motion machine. Free college education? Done! Government guaranteed jobs? Of course! The Green New Deal? Free health care? Free universal income? No worries! MMT can provide all that and much, much more.
As long as money is a State monopoly and as long as legal tender laws force people to use the State’s money and pay their taxes with it, the State can simply print whatever it needs to pay for anything it wishes to give away.
Oh, sure, taxes will still exist, but their primary purpose in the MMT future is as a tool of social control. Taxation will be used to force people to behave in ways the State wishes. Otherwise, for the State’s spending, taxes are mostly superfluous. The State can print as much money as it wishes to spend.
MMT is all about consumption. Production, the work involved in the creation of goods and services? Forget about it!
It is so crazy that even big government types like Bill Gates and Warren Buffett can see through it. Even Paul Krugman realizes how crazy it is.
Even so, MMT is all the rage. Academics who should know better (and they would know better if they had studied historical schemes like John Law’s Mississippi Bubble debacle three hundred years ago) are climbing aboard. And politicians, many of whom will subscribe to any scheme that allows them to promise to give things to people and get re-elected, are falling all over themselves to sign up.
MMT hasn’t reached critical mass yet, but I suspect it will soon. Remember the old saying that those whom the gods would destroy, they first make mad.
Protect yourself and profit from the madness of our times with gold.
Call or stop by Republic Monetary Exchange on Camelback, just east of 40th Street. 602-682-GOLD. 602-682-GOLD. RMEGold.com.
The story cites one analyst who says that the anecdotal comments about pricing from companies show that “inflation is not dead.”
What they should say is that consumer price inflation is not dead and appears to be making a comeback. Asset price inflation, as we have been tirelessly pointing out about the stock market bubble, has been very much alive.
This headline is from CNN, Social security won’t Be Able to Pay Full Benefits by 2035.
In some ways the story might be considered old news, except that it adjusts the date it projects that the Social Security trust fund will run out of money to 2035.
Social Security is expected to pay out more to beneficiaries next year, 2020, than it generates in revenue, a pattern that will continue for the foreseeable future.
We will only comment that all these stories about the Social Security trust fund neglect to point out that there is no such fund. The money has been spent. In its place a notoriously irresponsible government has left only an IOU. We might say there is no security, no trust, and no fund.
And here’s an article from the Economic Collapse Blog we found insightful: Do You Remember The Oil Crisis And “Stagflation” Of The 1970s? In Many Ways, 2019 Is Starting To Look A Lot Like 1973…
This look back at the stagflation decade with its powerful gold bull market begins this way: “The price of gasoline is rapidly rising, economic activity is slowing down, the Middle East appears to be on the brink of war, and Democrats are trying to find a way to remove a Republican president from office. In many ways, 2019 is starting to look a lot like 1973.”
Today, we glean some information from the new World Silver Survey 2019. The annual report, released this month, is produced by The Silver Institute, a trade association.
The Survey notes several significant silver supply/demand developments last year.
Total silver demand rose 4 percent to 1.0335 billion ounces in 2018. This was the first annual increase in total demand since 2015. Although the report found a small decline in silver demand for industrial applications, it was offset by “a robust recovery in retail investment, led principally by silver bar demand, which climbed sharply last year.” In fact, the coin and bar market jumped 20 percent last year. Demand also benefited by increases in jewelry and silverware demand.
Global mine production of silver had climbed for 13 straight years before 2016. Now it has fallen for three years in a row. 2018 saw mine production fall 2 percent over the prior year, to 855.7 million ounces.
Silver recovered from prior usage, scrap production, has always been vital to filling the gap between silver production and demand. Scrap supply has been falling every year since 2012. In 2018, scrap supply fell 1.6 percent over the prior year to 151.3 million ounces.
Altogether, including marginal adjustment to the supply and demand figures given here, the Survey reports that there was a physical silver deficit of 29.2 million ounces. The shortfall must be made up by above-ground stocks of silver. In 2018, after nine years of growing above-ground silver inventories, those stocks fell by 3 percent to 2,457.5 million ounces.
The Results Indicate Silver is Bullish
In summation, the silver picture is bullish indeed. Silver demand grew in 2018, while production fell. Scrap silver recovery continues to decline, while above-ground stockpiles fell as well.
The complete World Silver Survey 2019 report can be accessed online at The Silver Institute site HERE.
Call or stop by and visit with an RME gold and silver professional today and learn more about the profit opportunities available in silver.
The U.S. confrontation with Iran continues to escalate
It is still mostly a war of words, but we are inching closer to something else. The risk of an incident, even an accident, is rising. A military engagement of any sort in the shipping lanes of the Persian Gulf is all it would take to kick start a powerful surge in the price of gold.
The US has announced that it will no longer provide waivers to countries not in compliance with its sanctions on Iranian oil importers. Secretary of State Mike Pompeo confirmed that the US intends to “zero out” Iran’s exports, “Iran’s principal source of revenue.”
Calling the American restrictions on Iran “sanctions” soft pedals what is really an act of war: a blockade. The objective is to prevent Iran from exporting oil and to shut down its access to international markets and financial clearinghouses. It is designed to be a complete blockade of both Iranian oil and commerce, one every bit as effective as a military blockade.
Gas and Gold Prices Could Rise with an Iranian Conflict
Gas prices in California just hit a five-year high. If the Iranian situation continues to heat up, gas prices could get a lot worse.
Although other Persian Gulf states have promised to hike their oil production to offset the loss of Iranian oil to the world market, Iran’s response to Pompeo was a quick pivot to the Strait of Hormuz shipping lanes.
It is not enough for more oil to be pumped to make up for the loss to the world market of production Iran will be prevented from selling. Oil must be moved as well.
Which is why Iran said if it is prevented from using the shipping lanes, it will act militarily to close the Strait of Hormuz.
It is normally in Iran’s interest to see the shipping lanes open. But there is no telling what Iran will do in extremis. The threat to shut down the passageway is the only defense Iran has to any kind of attack.
The Strait of Hormuz is a sea-lane between Iran and the Arabian Peninsula. It links the otherwise landlocked Persian Gulf with the Gulf of Oman and the Arabian Sea, providing access to the world’s oceans.
Twenty-one miles wide at its narrowest, the waterway is a critical choke point.
The Strait accounts for nearly 20% of global oil trade, with Iran, Iraq, Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates all relying on the Strait to ship their oil. Most of these shipments have Asian destinations: Japan, India, China, and South Korea.
Now, imagine you run a powerful company that owns and operates supertankers that sail through the Persian Gulf. If hostilities break out and the Strait of Hormuz is shut down – even for a day – will you authorize your ships to sail in those waters?
Imagine you insure oil tankers. You will have very strict terms to suspend coverage for a company foolish enough to ship in the waterways of warfare.
Either way, the flow of oil is interrupted. Geopolitical alliances begin to shift as countries weigh their self-interest and seek advantage from an international incident. Of course, oil prices explode.
Those with long memories will note the role the Iranian Revolution in 1979 and the taking of 52 American hostages played in the skyrocketing price of gold. Today Iran has a high profile in gold’s action once again.
The war of words with Iran can’t continue to escalate forever. When temperatures rise, things boil over.
NOTE: So far this year, any pullback of gold below $1,300 has been a favorable opportunity to add to your holdings.
There’s a lot of talk about a slowdown in the economy.
World trade has slowed sharply… the worst downturn since the Panic of 2008.
We saw a story the other day that 6,000 retail stores have closed so far this year. That’s more than all of last year.
Housing starts have fallen to a two-year low.
And David Stockman asks how the stock market can be up when business profits are down year after year. Here’s a chart from the Federal Reserve he uses to make the point graphically:
President Trump and his advisors are very concerned about evidence of a slowdown. They want the Fed to lower rates, and to print and pump money into the economy.
They are calling for interest rate cuts that will put real interest rates (rates after inflation) into negative territory.
Return to QE?
President Trump is himself explicitly calling for another round of Quantitative Easing, a repeat of the biggest money-printing binge in US history.
You know what that does to the price of gold?
We do. We’ve seen it before.
Quantitative Easing began in November 2008. Gold took off like a rocket ship. This chart shows the shocking increase in the Fed’s holdings of US Treasury securities (the blue line). Those holdings had been about $800 billion for some time before this chart begins in 2008.
Before long it had $2 trillion in US securities. Where did the Fed get the money to purchase a fresh $1.2 trillion in US government bonds?
Silly question. It made it up on a computer.
As a part of QE, the Fed not only ratcheted up its purchase of Treasury bonds with money it made up out of nothing more than a digital keystroke, it began purchasing mortgage-backed securities, toxic and worthless mortgage portfolios from the crony banks (the red line).
The Fed had no mortgage-backed securities before QE. Before long, it had more than $1.6 trillion of them.
I’ve overlaid the price of gold so that you can see how the launch of QE pulled gold up to a high of $1900 in 2011.
The chart might suggest that gold became indifferent to the QE money pumping before QE leveled off in 2014. But in reality, money managers around the world realized that all of that bond and mortgage security buying was going to firehose money right to Wall Street and money center banks. So they all piled into the stock market. Many sold gold to buy stocks.
The result has the US in a dilemma. It has taken a lot of loose money to drive the stock market to today’s levels. Now the market, addicted to loose money, is growing skittish. As we saw at the end of last year, the stock market wants the Fed to provide it with another fix.
It’s like a junkie getting the heebie-jeebies. If it doesn’t get its fix, it will fall. Hard.
And money will come rushing out of the stock market and into gold. Gold will take off.
If it does get the QE fix it wants, like last time, gold will skyrocket again. Just like it did when they started this whole QE mess.
Either way, gold moves up. “Bigly,” as the President might put it.
If you’d like to know more about the gold and silver markets and learn how to participate in the coming boom, speak with the RME gold authorities. Simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Recessions, depression, and destroying 96 percent of the dollar’s purchasing power. Yes, the Fed’s track record is pretty bad.
But the Federal Reserve is good at one thing: Creating bubbles. Like the dot com bubble and the housing bubble.
And now the Fed’s massive money printing, pumping trillions to Wall Street, has created the biggest bubble of all… the stock market bubble.
Since he took office, President Trump has tied himself pretty tightly to a rising stock market. He has not been shy about taking credit for it on the way up. It worked out well for him since the Dow Industrial went almost straight up in his first year. But things were a little choppy in 2018 his second year.
By the end of last year the market plunged, just as we had warned.
The market fell from a high of 27,000 in the fall to 21,700 at the end of the year. Only a pivot by the Fed, a decision to halt interest rate increases and back off efforts to modestly reduce its toxic bond portfolio, has allowed the market to recover, closing Friday (4/12) of 26,412
But Trump and those around him know just how precarious the stock market still is. And they know a bear market would play against them in next year’s election. If he owned it on the way up, he’ll own it on the way down whether he wants to or not.
That’s just the way it works.
Note how anxious the Trump team is to get the Fed’s printing presses going full-tilt. It is a frank acknowledgement that only loose money sustains this market.
Larry Kudlow, the president’s chief economic advisor, is calling for interest rate cuts.
Trump Federal Reserve Board nominee Stephen Moore has called for an immediate rate cut of half a point.
Think about that. The Fed funds rate is about 2.4 percent right now. The inflation rate in March was 1.9 percent. That means he is calling for a real interest rate (the interest rate minus inflation) of zero percent.
Now that’s loose money!
President Trump is characteristically the most explicit about the Fed policy he wants. “I personally think the Fed should drop rates; I think they really slowed us down,” he said. “In terms of quantitative tightening, it should absolutely now be quantitative easing,” he added.
None of this will be enough to keep the stock market bubble from popping, no matter how much it gets juiced. You can juice a runner with something to keep him going, but not forever. Eventually he can’t be juiced any more.
We survey world events — deep economic trouble in China, the European Union coming apart at the seams, trade hostilities growing – and add in a weakening domestic economy – and there is no shortage of pins to pop this bubble.
You’ll be happy to have moved to gold when the air comes out of stocks. And wait until you see what happens then, even crazier Fed policies like “helicopter money” that we wrote about here, and even “Modern Monetary Theory,” the newest hyper-inflationary enthusiasm of people like Alexandria Ocasio-Cortez.
We just know don’t know exactly when and by what means.
The Federal Reserve will inflate. It will print money. It will debauch the currency.
It will do what it has always done. That is the source of its power. Short of inflating, there is no other reason for it to exist.
An Observer says the Fed will start dropping money from helicopters next.
Let me explain.
Over the centuries the means of inflating have changed. The kings of old used to re-mint the precious metals coins that came through their counting house, adding base metals to dilute their gold or silver content.
A hundred coins came in. Presto! A hundred and ten coins went out.
That’s an old-fashioned means of inflation. But we saw a variation on this when US silver coins, dimes, quarter, and half-dollars, were replaced with cheap metal. President Johnson said at the time that silver had become too valuable to be used as money,
Of course money is supposed to be valuable. That’s why its called… money!
Later inflation took the form of just printing more paper dollars, marks, francs, pesos, lira, yen and other currencies. A lot of that still goes on around the world.
Inflating the Currency
In more sophisticated countries like the US, inflating the currency is done by a more sophisticated process. The Federal Reserve expands the supply of money and credit with policies called liquidity operations, debt monetization, interest rate management, and Quantitative Easing.
High-powered inflation depends on the so-called “fractional reserve” banking system, as the Fed empowers banks to lend out the amount of their deposits many times over.
But there can be a problem with that. What if banks can’t find enough credit-worthy borrowers? If a business can’t sell what in already has, or is losing money, will it borrow more money to expand?
This had economist scratching their heads. How can we inflate in a fractional reserve economy when borrowers are in trouble and don’t want to take on more debt?
But then they realized that they could just take a step back to the old money-printing era and inflate the money supply without the help of banks. They could print the money and get the Treasury department to help shovel at out the doors of helicopters to the people down below.
Although the term “helicopter money” had been around since the 1960’s, The Federal Reserve’s Ben Bernanke brought it back to life in a speech in 2002.
That brings our story up to the present and to David Rosenberg, chief economist of Gluskin Sheff, a major Canadian wealth management firm and former chief economist of Merrill Lynch. He is generally a standout among people in such positions.
That’s why we sat up and noticed the other day when an interviewer suggested to Rosenberg that helicopter money would be the next Fed initiative.
“I think actually you’re 100 percent on the money with that observation,” said Rosenberg. “Quantitative easings and incursions by the Bernanke Fed were all aimed at promoting a stronger stock market.” The result, he says correctly, was record income inequality. But that also created record wealth inequality. So the next time, the policy will be different.
Because wealth inequality has turned America into a powder keg ready to blow!
The political reality is that the Fed won’t be able to get away with stove-piping money to Wall Street in the next inflationary round. It will have to use a more populist policy. In other words, “Fire up the helicopters, boys!”
“The Fed prints that money and then hands it over to the Treasury to do with it what you would like,” says Rosenberg. “And you don’t have to change the tax system. You don’t have to change any laws and have it held up in the House or the Senate. And there’s a whole bunch of things you could do with that money to try and stimulate aggregate demand.
“And then we’ll create a whole new inflationary experience.”
We think this discussion of helicopter money is one of the most important pieces we’ve published. It is a policy that will have ruinous consequences for our nation. You are free to distribute it to your associates, friends, and family and to print it if you wish.
Speak with an RME Gold associate today to find out how to profit from the next round of dollar destruction. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
For the naïve mind there is something miraculous in the issuance of fiat money. A magic word spoken by the government creates out of nothing a thing which can be exchanged against any merchandise a man would like to get. How pale is the art of sorcerers, witches, and conjurors when compared.
– Ludwig von Mises
Another month, another purchase of tons of gold.
China continued its gold buying spree in March. It added 360,000 troy ounces of gold to its reserves. That’s 11.2 metric tons. In one month.
It’s the fourth month in a row that China has beefed up its gold stock. In February it bought 9.95 tons, in January 11.8 tons, and in December 9.95 tons.
China is also the world’s top gold producer. China is serious about gold.
Last year the world’s central banks added 651.5 tons of gold.
It’s reached the point where I have to describe central bank gold buying as a megatrend. As with most financial megatrends, the mainstream media usually misses its significance until much later.
Like the housing bubble.
What is behind the megatrend?
It is a move away from the US dollar.
Some years ago, in congressional testimony, Federal Reserve chairman Ben Bernanke was asked by Ron Paul why central banks own gold.
Bernanke had to come up with something. He thought fast. “It’s tradition,” he answered.
Like so much else, he had that wrong, too. Central banks hold gold because it is money.
They hold dollars because of tradition. The tradition became institutionalized with the international Bretton Woods agreement after World War II. That agreement broke down decades ago.
They have continued to hold the dollar in the belief that it’s “the cleanest dirty shirt.” All paper currencies are flawed, although they viewed the dollar is the best of a bad lot.
But with Bernanke’s Quantitative Easing, central banks are slowly realizing that they don’t want any dirty shirt. If the Fed can conjure up trillions of dollars out of nothing, maybe they better get out of the way.
Because even the best of a bad lot is still bad.
Central bank gold buying is a megatrend for a reason. The prognosis for the dollar is negative.
It’s the Titanic and the Iceberg- Full Speed Ahead.
Icebergs aren’t the only things that are 90 percent underwater.
So is the US national debt.
The visible national debt is more than $22 trillion. That’s the part that everybody knows about. If you ask Google, it says $22 trillion. If you walk by the US national debt clock in midtown Manhattan, you’ll see it registers $22 trillion. Even politicians answer that the national debt is $22 trillion.
But like the iceberg, $22 trillion is the only part that people see. It’s above the waterline.
In the case of both the iceberg and the national debt, the invisible part that is much larger and is also most the most dangerous.
So here are the numbers. The visible national debt as I write this is about $22,028,000,000,000.
The US population is just over 327,200,000. That means the visible national debt is $67,322 per person.
That’s your share. It’s about $270,000 for a family of four.
How will the National Debt ever be paid?
We’ll get to that. But first you need to be aware of the hidden debt, too. It consists of promises the government has made to people, promises that people have relied upon, for which payment hasn’t been funded.
Oh, they’re debts all right. If the million of people who paid into Social Security for a lifetime suddenly stopped getting their checks – checks they depend upon to put food on the table – the economy would melt down.
These promises are called “unfunded liabilities.”
Boston University economist Laurence Kotlikoff says this hidden debt amounts to more than $222 trillion.
That’s ten times the visible debt. No wonder former Reagan budget director David Stockman says we’re headed for the “debtberg.”
Your share of the hidden debt would be more than $670,000. It’s about $2,700,000 for a family of four.
When will you get your share?
That’s not really a serious question, because the debt can’t and won’t be repaid.
It will have to be “reset.”
That means it will be defaulted, repudiated, and inflated away.
The Federal Reserve “printed” almost $4 trillion during the Quantitative Easing episode. Most of that hasn’t entered the consumer economy yet, but a lot of it has been stovepiped Wall Street’s way; hence the stock market bubble. Watch out.
There’s no reason that it won’t try to inflate away much of the national debt with more money printing.
Of course, that will sink the dollar. And send gold prices to the moon.
The debtberg lies straight ahead. Think of the Titanic. We are perilously close and incapable of changing direction in time.
You need to protect yourself and your family with gold.
At least there was a house behind all that mortgage debt.
Today 11.4 percent of student loans are 90 or more days delinquent. What’s behind all the student debt? Many are “backed” by degrees of questionable market value.
Student loan debt is more than $1.56 trillion today. More than the value of subprime loans that led to the Great Recession. A half-trillion dollars more than total US credit card debt.
Like other guarantees and promises it makes so cavalierly, the government can only make good on its student loan guarantees by printing money. That’s because it doesn’t have an extra trillion dollars laying around anywhere.
Everything about student loan debt is bad economics. All the easy money flowing the way of colleges and universities has led to a doubling of the cost of higher education over the past 20 years. It’s made the schools rich. They’ve become palatial in some places, top heavy with administrators and bureaucrats everywhere, although nobody insists that their graduates are better educated.
Today some random facts about gold and the gold market, valuable little nuggets of information gleaned from World Gold Council research:
Gold Outperforms Paper Money
“Over the past century, gold has greatly outperformed all major currencies as a means of exchange. This includes instances when major economies defaulted, sending their currencies spiraling down, as well as after the end of the Gold Standard. One of the reasons for this robust performance is that the available above-ground supply of gold has changed little over time – over the past two decades increasing approximately 1.6% per year through mine production. By contrast, fiat money can be printed in unlimited quantities to support monetary policies.”
Investment Demand for Gold Keeps Growing
“Gold is becoming more mainstream. Since 2001, investment demand for gold worldwide has grown, on average, 15% per year. This has been driven in part by the advent of new ways to access the market, such as physical gold-backed exchange-traded funds (ETFs), but also by the expansion of the middle class in Asia and a renewed focus on effective risk management following the 2008–2009 financial crisis in the US and Europe.”
Institutional Investors Are Getting on Board
“Institutional investors have embraced alternatives to traditional assets such as stocks and bonds. The share of non-traditional assets among global pension funds has increased from 15% in 2007 to 25% in 2017. And in the US this figure is close to 30%.”
In Good Times and Bad
“Gold is not only useful in periods of higher uncertainty. Its price has increased by an average of 10% per year since 1971 when gold began to be freely traded following the collapse of Bretton Woods.”
Gold Outpaces Inflation
“In years when inflation has been higher than 3% gold’s price has increased by 15% on average.”
If you will spend a minute or so on the following story problem, I will share with you a secret that professional traders, dealers, and investors use to grow their precious metals holdings.
1- Bill has 10 ounces of gold.
2- He agrees to trade it for 800 ounces of silver.
3- When prices change, Bill trades his 800 ounces of silver back into gold.
Bill ends up with 16 ounces of gold instead of the 10 he started with. By Today’s Prices, that is somewhere in the neighborhood of $7,750 in profits.
Question: Would that be a pretty smart thing for Bill to do?
In this example Bill is using a strategy well-known to professionals. It’s called the trading the gold/silver ratio.
Bill didn’t invest any more money, but the amount of gold he owns just increased by a sixty percent!
It’s Common Sense Trading
The gold-silver ratio is the price of gold divided by the price of silver – essentially how many ounces of silver can you buy with one ounce of gold.
Right now, an ounce of gold will buy 85 ounces of silver. That is the highest level in about 25 years, and even more advantageous for trading than our example!
We strongly recommend trading gold for silver with the ratio this high.
Our example using the spot prices of gold and silver, is for purposes of illustration only because of transaction costs and since different coins and bars have their own premiums relative to the spot prices.
Because gold and silver each have their own supply-demand fundamentals, their prices don’t move in lockstep. Down the road as prices change the ratio between the two metals will change.
For example, in April 2011 the ratio hit 30 to 1.
In short, the objective is to hold the precious metal poised for the most rapid appreciation. Because silver is underpriced relative to the gold price, it’s is a favorable time to trade gold for silver. I don’t want you to miss the opportunity to add to your precious metals holdings without investing additional money.
The gold-silver ratio doesn’t tell you where the price of either metal will be next month or next year. But at 85 to 1, it is very persuasive evidence that the price of silver is low relative to the gold price.
So that is the secret strategy professionals use to increase their holdings of gold and silver. Many of our clients and I, myself, have used this powerful strategy for years to substantially increase our precious metals holdings.
I urge you to speak with your RME Gold professional advisor about this strategy.
After all, why should the professionals get all the profits?
They just never stop. The people who want to control your life, your money, and your wealth, that is.
They never stop!
After watching the authorities destroy 96 percent of the purchasing power of the dollar, after watching all the bubbles they inflate that then pop in a spectacle of widespread disaster, one wonders what claim that should have on managing anybody’s affairs.
It’s like watching the giants on Wall Street lined up with their tin cups in Washington begging for handouts from everyday Americans who didn’t speculate recklessly on toxic mortgage securities.
And these are the financial institutions, the advisors, and geniuses we should trust with planning our affairs, our savings, investments, and retirement plans? When they can’t even manage their own affairs?
Alright. That’s enough ranting.
But they never stop wanting to get their hands on your wealth.
Here’s the latest.
Something called the Independent Commission for the Reform on International Corporate Taxation has jumped on board a proposal to launch a “global wealth registry” using blockchain technology
A proposed pilot program would require the registration and tracking of private assets in things like real estate, gold, and other financial assets in proposed amounts of $10,000 or more.
One of the targets of the program is “wealth inequality.” And more efficient taxation.
So virtually everything – stocks, real estate, savings accounts, checking – every conventional investment and form of wealth you own is already registered in on form or another with someone.
In fact only precious metal allow you to hold the world’s most time-tested monetary assets anonymously.
We think that is a good thing, especially in an era of unrestrained snooping by governments and mega-corporations.
Speak with an RME associate today to find out how to maintain your privacy in an era of intrusion with gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Not so long ago the suggestion that the US might default on its debt was considered slightly reprehensible in mainstream circles.
But we noticed an article on Fox Business News the other day from the principal of a Dallas investment firm asking just how an inevitable default should be managed.
Todd Stein writes that the answer may be a “soft default.”
And $10,000 gold.
Here’s what he suggests:
“The Treasury would peg the dollar to gold, oil, natural gas or silver — or perhaps a basket of those commodities. By choosing a weak valuation, for instance, $10,000 per ounce of gold, compared to the current market price of roughly $1,290 per ounce, much of the debt could be paid down thanks to a much weaker dollar.”
The soft default he describes is the rough equivalent of a massive devaluation of the dollar. It is a recognition of US insolvency.
A soft default is the least bad of bad options. The alternative is a hard default, the State’s repudiation of all or most of its debt.
“To be clear, a soft default isn’t a good idea., writes Stein. “It certainly isn’t moral. It’d hurt everyone who socked away money in bonds, certificates of deposit or savings accounts.”
“But realistically, a default of some kind will happen anyway — simply put, the debt load isn’t sustainable.”
The governing classes, and their fiscal and monetary officials have put this country and the American people between a rock and a hard place.
But it’s good to see the curtain being pulled back on their malperformance. It’s good to see the conversation changing.
But we also think it is good idea to get out of the way before dollar holders are victimized by either a de facto devaluation or a default.
Call it what you like. A vicious circle. A downward spiral. The point of no return.
I prefer to call it The Doom Loop.
Here’s an example. Suppose your business has to borrow a dollar to make 90 cents. You’re headed for big trouble.
Here’s a better example of the Doom Loop. Thinking to spur growth – increased productivity, more taxable activity – the government borrows and spends a lot of money.
But the growth doesn’t materialize. So it borrows and spends more.
Still, growth lags behind the rising debt. More borrowing and spending.
The hoped-for increases in productivity and therefor higher tax revenue fails to materialize.
But all the borrowing has a cost. Debt compounds. Compounding debt means more borrowing despite lagging growth.
Now we’re in the Doom Loop.
And that’s the situation Washington has gotten this country into.
US debt has passed total US productivity.
We reached the crossover point in the fourth quarter of 2012, at the end of Obama’s first term, when the debt surpassed the GDP for the first time since the World War II era.
US GDP at the end of 2012 was $16.24 trillion. US debt was $16.43 trillion.
Soaring National Debt
Today the national debt has climbed more than a trillion dollars past the nation’s total productivity. 2018 GDP was $20.89 trillion (an update of the 2018 estimate is due out in days). The national debt is $22.03 trillion.
Take a look again at the chart we provided in our recent post It’s When… Not If! It shows US Debt in red blowing right past US GDP. And the debt is climbing at a steeper rate.
Economists talk about the marginal productivity of debt: How much growth do you get for each additional dollar of borrowing?
Again, suppose your business has to borrow a dollar to make 90 cents. You’re in the Doom Loop.
Economist Keith Weiner has formulated this into an economic law: If the marginal productivity of debt is less than 1, the economy is not sustainable.
To the extent there is any acknowledgement of this problem in Washington, the stock answer from both Republicans and Democrats has been, “We’ll grow our way out of it.”
Except we haven’t.
We are ten years into the current economic expansion. The average length of an economic expansion is just over three years. The odds of the current expansion continuing are slim, the signs that the economy is slowing are plentiful.
The Doom Loop is a global phenomenon. The IMF says that global debt is now equal to $184 trillion which is 225 percent of global GDP.
How can you escape the Doom Loop?
Don’t expect the government to deal with the problem. When President Trump’s advisors showed him graphs of the coming “hockey stick” debt spike, he merely shrugged, “Yeah, but I won’t be here.”
Economist Weiner says, “It is time for gold to enter the mainstream monetary discussion. Interest rates and the marginal productivity of debt do not fall when there is a free market in money and credit. And the market will choose gold, if it is free to do so.”
But you can choose gold. Speak with an RME associate today to find out how to protect yourself from the Doom Loop. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Politicians and government will not choose gold. Printing money is a source of power. It is a major means of vote-buying.
“Buy gold,” said Mish. That was on Wednesday, two days before the Dow’s stunning 460 point drop.
Mish was watching anomalies in the interest rate market. Wall Street figured it out later.
Mish has a great track record on the big events. Like Ron Paul, he was a small, still, voice crying out about the housing bubble back when nobody wanted to hear it.
Now Mish is alarmed by action in the interest rate markets. Normally longer-term interest rates are higher than short-term rates. After all, whatever you might charge to loan someone money for three months, you would certainly want a higher rate to loan money for ten years. You have given up the use of your money for a longer time during which market rates may change markedly, while a longer-term increases the risks that can befall the borrower and the return of your money.
In normal markets, long-term rates are higher than short-term rates. An interest rate inversion, when long-term debt instruments develop lower yields than short-term ones, is a classic indication of a weakening economy and of recessions.
Mish also notes rates on the 30-year government bond and concludes the market is growing “very concerned about US government deficits exceeding $1 trillion dollars for the next five years minimum.”
We think that concern is justifiable. See our two-part comments “Debt Binging” here and here.
In the meantime…
Mish says, “Meanwhile, buy gold. The budget deficit picture will get much worse in a recession.”
We will note once again just how precarious the stock market is. It will grow more wobbly as the deficit picture becomes more clear.
We note as well that as the European market was nearing its close on Wednesday, someone stepped in and dumped a billion dollars’ worth of “paper gold,” gold futures contracts, on the market, driving it briefly below $1300. We don’t know who or why, but observe only that if it was an attempt to manipulate the market lower, it didn’t work. Buyers stepped in immediately and took advantage of the lower price, quickly moving gold back over $1300.
We don’t often find ourselves citing the CEOs of America’s biggest banks. Between the bankster bailouts and the way the Fed has stovepiped wealth to the canyons of Wall Street, it’s clear that their influence peddling and cronyism has helped them at the expense of the people. Their every pronouncement should be viewed skeptically.
But the problem of the overlooked and declining American middle class is too big to be ignored, even by them. So today I will cite a comment from J.P. Morgan Chase CEO Jamie Dimon (whose bank had a $25 billion bailout windfall) about those who are being left behind:
“Forty percent of Americans make less than $15 an hour. Forty percent of Americans can’t afford a $400 bill, whether it’s medical or fixing their car. Fifteen percent of Americans make minimum wages, 70,000 die from opioids” annually.
“If you travel around to most neighborhoods where companies live, they’re doing fine.”
“So we’ve kind of bifurcated the economy.”
Bifurcated. Well, that’s one word for it.
In the 1960s, America’s growing middle class was the envy of the world. Its prosperity and reach haven’t been equaled since. No one should be surprised that with the end of the gold exchange standard (itself a corruption of a real gold standard) in 1971, the expansion of the middle-class ground to a halt.
The Income Gap
The wealth and income gap have been widening ever since. But the situation has gotten critical today with the frenzied wealth redistribution of today’s monetary cronyism. Quantitative Easing saw trillions of dollars made up out of thin air and pumped right into the financial sector.
In the interest of candor, we may call this Federal Reserve activity of creating money counterfeiting. It may be legalized by the state, but it is monetary counterfeiting none the less. Murray Rothbard pulled back the curtain on the practice long ago:
“It would be difficult to see the point of counterfeiting if each person is to receive the new money proportionally. In real life, then, the very point of counterfeiting is to constitute a process, a process of transmitting new money from one pocket to another, and not the result of a magical and proportionate expansion of money in everyone’s pocket simultaneously.”
Little wonder that the state and its cronies resist the discipline that an honest gold standard imposes on them. The alchemists of old couldn’t create gold out of lead, and today’s Washington wizards can’t create gold out of thin air.
The growing divide between the rich and poor that results from Washington’s monetary sleight of hand are, incidentally, a surefire recipe for social breakdown and violence. Even Dimon acknowledges the danger, saying, “We made a mistake by ignoring some of these things. If we don’t [act], society is going to get worse, because these problems aren’t aging well.”
We’ll go one step further and assure our readers that the problems will not get fixed. Living through a monetary collapse is not a pleasant thing, but get ready for it. If you know that it is coming you can protect yourself and your family with gold and silver.
The answer is the central banks of governments around the world. They are on a gold-buying spree!
And they are using money they used to keep in US dollars.
We think they know something most people don’t know.
In fact, we’ve seen this pattern before. Let me explain.
The World Gold Council reports that central bank gold buying is at the highest levels since 1971. Why is that date important?
Because that is the year the United States broke its promise to back its dollars with gold. Until then, if for some reason the central banks didn’t trust the US dollar, they could exchange their dollar holdings for gold, no questions asked.
But the US was printing money recklessly. Like writing bad checks, the US was printing more dollars than it had gold to back up those promises.
The world’s central banks could see where this was leading. So even before the end of dollar’s gold backing was made official, they began scrambling to get gold for their dollars. Buyers around the world were taking down hundreds of tons of gold with their discredited dollars.
It was a smart move. Over the following decade, from January 1970 to January 1980, gold moved from $35 to $850 an ounce.
Central banks today own 30,000 tons of gold. But they are adding more because they see what is coming. Like last time, they are acquiring gold fast. And like last time, they are doing it with money they used to keep in dollars.
We have written about this revealing megatrend many times. We strongly suggest you review this material. In More on the Central Bank Gold Rush in February, we wrote that “Russian dollar reserves have fallen over the last ten years from about $180 billion to around $10 billion today. On the other hand, its gold reserves have jumped from 40 tons in 2006 to nearly 2000 tons today.”
Altogether in 2018 central banks added more than 650 tons of gold to their reserves. That’s an increase of 74 percent over 2017. And as 2019 gets underway they are still at it.
China Continues to Add More Gold
After not announcing any new gold acquisitions since 2016, China suddenly announced in January that it increased its gold holding by almost 15 percent in 2018. As we pointed out at that time, in adding 10 tons to its gold reserves in December, “China has grown its official gold holdings by 75 percent in 3½ years.”
Just weeks ago, China announced that it kept buying gold in February, the third month in a row. India added 6.5 tons of gold in January alone and is now jockeying to be the tenth largest gold holder in the world.
Buying gold is not just for economic powerhouses
Perhaps I can underscore the purposes at work in this gold buying by pointing out that in addition to buying more gold, there is a stampede around the world of foreign governments repatriating their gold. Countries big and small are having gold they used to leave in storage with the US Federal Reserve or with the Bank of England or Banque de France returned home.
It’s almost like the early stages of a run on the bank as central banks seek to avoid being victimized by a coming dollar debt crisis and the reckless money printing it implies.
Germany recently completed a repatriation of $31 billion in gold from New York and London. But what had many market observers scratching their heads is that an operation that should have taken just weeks – or perhaps a couple of months – inexplicably met delays stretching out over four years.
So more countries began calling their gold home. Even tiny Romania is moving to bring home its gold held by the Bank of England.
Having been through the dollar chicanery of the 1970s and the subsequent decade of high inflation, central banks are moving to put their trust in gold instead of the “printed” paper money (or, more accurately, the digital bookkeeping entries) of the world’s largest debtor.
They see monetary upheavals ahead. They want gold. In their hands.
You should to.
Our precious metals professionals believe that educating as many Americans as possible is part of our job. If you have family members, friends, and colleagues that would like to learn why central bankers around the world are moving aggressively into gold, we can be of help. Have them contact Republic Monetary Exchange right away.
Everyone knows – perhaps I should say “every thinking person” since there are some in Washington who don’t actually know and therefore should not be accused of thinking – that the US debt can’t keep growing forever.
When the day arrives that it is evident to all that the US can’t pay its debts except by printing money, the game is over.
When foreign governments are no long willing to buy US debt, that end game has arrived.
Because no one will want to loan money at any kind of reasonable rate knowing that they will be paid back in cheaper dollars.
Governments always count on some slippage in there, allowing them to inflate away the currency for a while before most people sit up and take notice. And just because they begin to notice doesn’t mean that they won’t be fleeced a little more.
So, for example, if government inflation results in a ten percent loss of purchasing power over a given period, most investors will demand an “inflation premium” on government bonds to compensate for the diminished purchasing power of the currency.
If a normal interest return of, say, five percent a year is expected, a bond would have to offer a fifteen percent return.
That sort of device works for a while, but generally not for long.
After all, why should the ten percent inflation rate in our hypothetical example, not give way to a 15 or 20 percent rate? Or higher.
Of course it will. Most gold investors understand this.
They aren’t suckers.
The rationale for government debt, going back to John Maynard Keynes, is that deficit spending will allow the authorities to “goose” the economy and get higher productivity.
But take a good, sober look at where we are right now. We are ten years into an economic expansion. Unemployment is said to be low, with armies of working people paying taxes.
And yet, what is happening to US debt? Despite a growing economy and low unemployment, the debt is climbing even faster! As you can see from the following chart, the gross federal debt (the red line) has overtaken GDP, the total productivity of the economy (the blue line).
Stated differently, a new dollar of national debt is unable to produce even a dollar of productivity. This crossover took place in 2013.
If the government cannot reduce its indebtedness in an expanding economy with supposed full-employment, when can it?
Here’s David Stockman’s answer: “We are probably only monthsfrom the onset of a budgetary red ink eruption that will envelope Washington and Wall Street alike as far as they eye can see.”
Our advice is to take whatever profits you may have in stocks and move to the safety of precious metals at once.
Next week on KFYI in Phoenix, I am beginning a series of radio commercials to alert listeners to some of the major economic events taking place around the world. These events will have a powerful impact on gold and silver. You can listen to a preview of that here:
These special messages are addressed to our existing friends and clients, as well as people who have never before bought gold and silver. For that reason, I invite you to share them each week with your own colleagues, friends, and family members, those you think who can profit from the information and use it to protect their own wealth and families. You might even want to share this blog with them. For those of you beyond the reaches of KFYI’s airwaves, we will include the audio each week right here in the GMD.
In the meantime, here’s a sampling of recent news items, things we think our clients and readers should know, a few bullet points about insiders rushing to sell stocks, and China adding still more gold to its reserves in February.
But let’s start with evidence that the current state of the US economy is much weaker than generally acknowledged. President Reagan’s former budget director observes that the US economy since 2007 is a case study in underperformance, even though the Great Recession was officially declared over ten years ago. In fact, the expansion even underperforms the pathetically weak expansion for the same period of the Great Depression following the 1929 market collapse:
“On a peak-to-peak basis, in fact, the 11-year gain (2007-2018) in real GDP came in at 18.85% and that, by your way, is less than the 19.89% gain posted during the Great Depression spanning the 11-year period between 1929 and 1940.” “From a cumulative growth viewpoint, the last 11 years have posted the weakest gain ever recorded since modern GDP statistics were invented.”
David Stockman, 3/1/19
Stockman goes on to points out that during the 11-year period from 1969 to 1980, which encompassed the “Stagflation Decade of the 70s,” the US experienced a peak-to-peak gain of 38 percent, more than double that of the past 11 years.
Next, a quick note on the stock market’s weakness:
“Stocks fell for a fifth straight day on Friday after the U.S. government released employment data that badly missed expectations, adding to growing concerns that the global economy may be slowing down.”
And, here’s something investors should know. Corporate insiders are rushing to sell stocks:
A category of investors who correctly picked the market’s bottom in December is retreating from U.S. stocks.
“The number of corporate executives and officers selling shares of their own companies has doubled since December while buying dwindled. Last month, insider sellers outpaced buyers by a ratio of 5-to-1, the most in two years, data compiled by the Washington Service showed.”
And a couple of briefs on Asia’s hunger for gold:
Physical gold demand picked up pace in major Asian hubs this week, with bullion being sold at a premium for the first time in more than three months in India, while China saw improved appetite for jewelry.
“In India, the world’s second biggest consumer of the metal after China, dealers were charging a premium of up to $1 an ounce over official domestic prices this week, up from last week’s discount of up to $2.”
– Reuters, 3/8/19
China increased its gold reserves for a third straight month in February, data from the People’s Bank of China (PBOC) showed this morning….
“John Reade of the World Gold Council notes on Twitter that the last time the PBoC reported regular monthly increases in gold holdings, it continued for 24 months.”
– Mark O’Byrne, 3/8/19
Next week we’ll focus on who is buying billions of dollars’ worth of gold!
One thing about gold, a defining characteristic that cannot be emphasized enough, is that it does not rely on some one else’s performance or promise.
Gold can be physically held in your hands, under your own control. There can be zero separation between yourself and your wealth– no banks to rely on, no brazen boardroom executives at the company of the stock you own. Simply put, owning physical gold is without counterparty risk.
The same is of course true of silver, which, like gold, has a long and shining monetary history.
What is counterparty risk?
It is the risk of nonpayment, default, and bankruptcy by individuals, companies, financial exchanges, institutions, and banks – quite apart from the risk of the Fed’s fiat dollar.
Gold (and silver) are the only monetary assets that are not someone else’s liability. They are not dependent on someone else’s solvency, promises to perform, or honesty. Their value does not depend on the endorsement or propriety of any state or state institution.
It is a wonderful thing for people’s promises to be reliable, for institutions to be vigorous fiduciaries of their clients’ interest. The modern world with all its miracles is built on the assurance that people will meet their obligations, fulfill their contracts, and respect others’ property.
When this environment of trust begins to fray, sophisticated civilization itself is at risk.
I mention this for two reasons: the monetary authorities sense of obligation to the users of its currency unit is nowhere in evidence. And debt – personal, corporate, and governmental – has reached unsustainable levels.
Although charged with maintaining the value of the currency (price stability), the Federal Reserve’s dollar management has an arbitrary and incompatible objective: a two percent annual inflation rate. At that rate, the Fed is destroying half the value of its currency in 35 years. Why save?
As for debt, corporate debt is higher than when the trouble hit the fan at the end of 2008. Low grade debt has exploded. The number of BBB bonds has more than tripled.
And you know about government debt.
We saw in 2008 how liquidity and solvency problems cascade from one counterparty to another, from insurance company to hedge fund to bank. It is in environments like this that counterparty risk becomes crucial.
Proliferating counterparty risks lead wise investors to the safe haven of gold. But its unique advantage only applies to physical precious metals, the gold and silver coins and bullion that you own outright and have taken into you own possession. It does not extend to paper gold, stock and other representations of gold ownership, commodity contracts, or ETFs.
Speak with an RME associate today to find out how to profit in uncertain times and protect your portfolio with gold and silver. Simply call our office, (602) 955-6500, and you will be connected to one of our knowledgeable gold and silver professionals.
Today, with a socialist juggernaut loose on the land, here’s a story that I am afraid will soon become as all-American as baseball itself.
Even casual sport fans by now know that 26-year-old right fielder Bryce Harper just signed a record busting 13-year, $330 million contract with the Philadelphia Phillies.
We’ve liked Harper ever since he replied, “That’s a clown question, bro,” to some reporter.
But it is the economics at work in Harper’s story that interests us as champions of prosperity and sound money. It is reported that the San Francisco Giants were in the hunt for Harper, too, and were willing to pay an astronomical amount to get him.
But they were undone by California’s sky-high taxes. The Giants would have had to pay far more than the Phillies for Harper’s after-tax income to be the same. So he went to Philadelphia instead of San Francisco.
Not only did he escape taxifornia by not signing with LA or SF— but he also chose the Phils, who are one of only 8 “Flat Tax” states in the country. That means whether you make $5,000 a year or, [cough], $27,538,462, you pay the same flat tax rate.
If he were to have played in California, he would have paid California state tax of $3,675,141. His total tax of his salary would have been 51.1%.
In Philly, where he will homer his way into the Hall of Fame, he will also save some cheddar- “enjoying” a lower tax rate of 41.8%, because the state of Pennsylvania only rakes $921,000.
That is $2,754,141 savings per year. Over the duration of his 13 seasons, (if he were to stay the duration of the contract, and the tax code didn’t change) that would be an insane $35,803,833 savings!!!!!!!
Harper’s story is only a large-scale example of calculations that are being made by people at lesser pay grades. We are seeing a lot of this sort of thing. Because it is hostile to wealth, the wealthy and even the not-so-wealthy are fleeing California in big numbers for tax reasons.
Charlie Munger of Berkshire Hathaway pointed out recently that places like California along with Connecticut, and New York City are shooting themselves in the foot with their tax greed.
“It’s been serious. Driving the rich people out is pretty dumb if you’re a state or a city,” said Munger.
It’s not just tax socialism that drives away wealth. Central banking itself and fiat money are nothing but monetary socialism. And you can see a corollary of tax greed in the US dollar.
In the words of Jim Grant, “the central bank is playing with fire by actively seeking to depreciate the dollar, a currency that, whatever its current lofty status in the world, is a piece of paper of no defined value.”
As we’ve pointed out often in this space, a building US debt calamity and Fed mismanagement are driving foreign central banks away from King Dollar.
And where are they going?
They are going to gold.
They’re buying billions of dollars’ worth of gold.
This flight to safety by foreign states illustrates one thing clearly. Governments around the world may be quite happy to fleece their citizens with their own bogus paper money schemes.
They just don’t want to be fleeced by ours. Just like Bryce Harper didn’t want to be fleeced by California.
You shouldn’t allow yourself to be fleeced either.
In February 2018, Congress suspended the US national debt ceiling, the statutory limit on how much money the government is authorized to borrow, until March 1, 2019.
It was the tenth time in the last decade the debt ceiling was suspended.
At that time the debt ceiling was $20.5 trillion. With the suspension of the ceiling, the national debt has risen to $22 trillion.
Now, for the government to borrow more, the statutory limit will have to be either suspended again or raised.
We’ve been to this circus many times. The government will resort to accounting gimmicks, what in describes as “extraordinary measures,” to keep operations going until sometime in September when it runs out of maneuvering room.
But it is without question that Congress will raise the debt ceiling by that time. Just as it has done dozens of time in the past.
That’s one of the reasons informed people buy gold.
But if the debt limit is just perfunctory, a time-consuming activity with a foregone outcome, why bother with it at all?
And that is just what a lot of people in Washington would like to do. Get rid of the debt ceiling. Take the spotlight off Washington’s big spending ways. Let the government borrow as much as Congress approves spending.
But debates over the nation debt ceiling are one of the few times the people’s attention can be focused on just how deeply in debt the US has gotten. It’s not often time is given in mainstream media reporting to a discussion of national solvency, but the debt ceiling is one.
It’s about all we’ve got.
Now here’s a mystery question for you…
In 2006 the national debt ceiling was “only” $8.965 trillion. When borrowing bumped up against that level, Congress voted to raise it again. During the debate one freshman senator voted “no” on the increase.
He rose to the floor to explain his vote. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said.
He was right.
Q: Do you know who that senator was?
A: His name was Barack Obama.
Oh, by the way, the national debt ceiling was raised five time during Obama’s presidency, a period in which the national debt virtually doubled.
Smart (and obvious) investing advice: When Warren Buffett speaks, you listen.
Something Warren Buffett said the other day caught our attention.
In a CNBC interview, Warren Buffett warned companies to avoid states with unfunded pension liabilities.
It is sound advice. And it has implications for individuals as well.
Unfunded public pension liabilities are a “disaster,” said the Oracle of Omaha.
“If I were relocating into some state that had a huge unfunded pension plan, I am walking into liabilities,” Buffett warned. “Because I mean, who knows whether they’re going to get it from the corporate income tax or my employees — you know, with personal income taxes or what. But that — that liability isn’t going — you can’t ship it offshore or anything like that. And those are big numbers, really big numbers…. they will come after corporations, they’ll come after individuals. They — just — they’re going to have to raise a lotta money.”
They will come after the money
Buffett’s logic must be applied to the financial behavior of the United States government. Because the problem of a state’s unfunded pension liabilities are chickenfeed compared to the unfunded pension liabilities of the US.
You know that the US national debt is now $22 trillion dollars. But that’s just the visible part of the debt. The hidden debt includes the government’s unfunded pension and other liabilities. These are IOUs and other promises the government has made to workers, retirees, and others that are inadequately funded.
An honest measure of its indebtedness should include promises the government has made to pay for things. That’s how we reckon debts in the real world. Instead, the US uses Bernie Madoff accounting. More about the fanciful world of government accounting HERE.
US unfunded liabilities are estimated to range between $123 trillion and $210 trillion.
That’s not chickenfeed.
Now, Buffett is right. State will seek to solve their problem of unfunded liabilities with income taxes and corporate taxes.
But, oh, how the states would love to be able to do what the US government can do. How envious they must be of the federal government’s ability to just print the money.
It’s a time-honored technique of governments throughout history. And while everybody notices when the tax bite gets bigger, most people don’t understand that the declining purchasing power of their money is a tax on them as well. The new money the government prints to pay its bills takes on purchasing power to the exact extent the money you have in your pocket or in the bank.
It’s taxation by sleight of hand.
Buffett warns that states with unfunded liabilities are money pit that can be avoided by staying away from those states. But the US government money pit is not as easily avoided by Americans. Most of us can’t just pack up and move away and most of us don’t want to.
But we can take prudent steps to insulate ourselves from the government’s inevitable currency destruction.
Find out how by speaking with an RME Gold associate.
We do occasionally run into someone who doesn’t understand our beef with the Federal Reserve.
You would think having destroyed 96 percent of the dollar’s purchasing power since it went into business in 1913 would be reason enough to be dissatisfied with the Fed. Not to mention engineering the worst economic upheavals in the country’s history, events like the Great Recession and Housing Bust, the Inflation Crack-Up and double-digit interest rates of the 1970s, or the Great Depression.
For those who don’t see the hand of the Fed behind those calamities, we can only point to the Fed’s serial stock market bubbles and ask, “Do you really think this can end well?”
By “this” we mean the Fed’s slavish relationship to Wall Street and the money center banks.
To illustrate the precariousness of it all, we have attached a chart overlaying the Fed’s interest rate suppression of almost forty years (the brown line) with the heights to which it has driven the stock market (the blue line) represented by the Wilshire 5000 Total Market Index.
Having created the double-digit interest rates of the 70s, the Stagflation Decade, the Fed engineered the record high rates seen on the left-hand side of the chart beginning in the early 80s. It has spent the following decades driving interest rates down. Along the way the Fed has made its role as the handmaiden of Wall Street explicit. You can see the result: artificially low rates have made borrowing cheap and provided a major subsidy for Wall Street.
Look carefully at the decades of falling rates. Down, down, down. Year after year of interest rate suppression. The Greenspan Fed. The Bernanke Fed. The Yellen Fed.
And when the current Fed chairman, a fellow named Powell, thought he would change things, he was handed his lunch. In a prior post, we noted the speed with which Wall Street was able reverse even a modest effort by the Fed to normalize interest rates.
Wall Street’s temper tantrum, The December collapse of stock prices, drew a quicker response than the government shut down.
The Fed’s about-face was total. “Raise rates? Why, no sir. Never had any such thing mind.”
So, for all the aforementioned Fed calamities, this stock bubble promises to be the biggest and baddest of them all.
For the last decade or so, real interest rates (the nominal interest rate minus the inflation rate) have been bumping along near zero. Wall Street has loved it. But now ask yourself, if it takes constantly lower interest rates to sustain the stock market, how much lower can rates go?
Not only is the answer not much, but all the economic fundamentals militate for higher rates. To provide one example, observe the growing revolt against America’s international sanctions regimes. Foreign countries have discovered they don’t like being told where they can buy the energy they need to keep warm in the winter, or who they may or may not sell their goods to. And they don’t want their dollar accounts frozen by Washington bureaucrats. Already foreign buyers presence in the US Treasury market is described as “fading.” Their search for alternatives to dollar jeopardy eventually will mean the US will have to offer higher rates to sell its debt instruments.
What we are saying is simply this: The stock market is a bubble of enormous proportions. The Fed will try to keep it inflated, but eventually it will fail. Eventually rates will rise.
And as always, the bigger the bubble, the bigger the bust.
“In trying to explain the complexities of interest rates, inflation, money and banking, exchange rates and business cycles to my students, I leave them with this comforting thought: Don’t blame me for all this, blame the government. Without the interference of government, the entire topic would be duck soup.”
In December, the Federal Reserve raised its Fed funds interest rate target to 2.5 percent. It clearly expressed its intent to hike interest rates at least a couple of more times in 2019.
But the stock market threw a fit. In seven consecutive trading days, the Dow Jones Industrials fell at least 350 points six times. In no time at all the DJIA gave up 4,000 points.
Fed chairman Jerome Powell felt the heat. And he saw the light. Additional interest rate hikes are off the table for now, Powell having observed that the case for rate hikes had “weakened.”
Not for the first time Wall Street demonstrated its veto power over Fed actions.
And the stock market has returned to its December highs.
For those of us that understand that interest rates, the costs of borrowing and returns on lending, are simply prices, the price of money, the entire episode reveals the madness of the monetary authorities. Prices are not just arbitrary things. They communicate vital information about supply and demand. When, instead of moving freely, prices are set arbitrarily by government authorities, they create harmful and wasteful conditions.
Prices that are set artificially low create harmful shortages, while those that are set above what real conditions of supply and demand would dictate create wasteful surpluses.
In the process vital information that directs valuable resources to where they are most needed by producers and savers and consumers is corrupted. Think back no further than the 2008 housing bust when artificial interference in mortgage lending and rates deceived builders and sellers and lenders about the extent of credit worthy buyers. When reality was finally revealed, the artificial boom was followed by a painful bust.
Yet central banks are like wrecking machines for crucial information about real conditions of credit. And while the Fed’s low rates are what its Wall Street overseers want, they are harmful to persons on fixed incomes that depend on interest income. They encourage older people and retirees to take investment risks that are inappropriate to their circumstances. They are harmful to pension funds that are underperforming and will soon ask to be bailed out by the taxpayers. The are a disincentive to savers and encourage speculation.
Interest rate interventions by central banks would be funny if they were not so destructive. Frantic Fed officials changed interest rates 23 times in 1978. Financial planning and business decision-making became almost impossible.
But interventionism is compulsive with central bankers, and not just with the Fed. Here’s a sample of actual headlines about recent central bank activities around the world:
Sri Lanka holds rates, cuts reserve ratio another 100 bps
Jamaica cuts rate 25 bps, reserve ratio to boost inflation
Tunisia raises rate 100 bps to curb inflationary pressures
Egypt cuts rate 100 bps after hitting first inflation target
Mozambique holds rate after 9 cuts in prudent policy
The point is that monetary meddling is a world-wide phenomenon. It is an occupational hazard of central banking and fiat money regimes.
But back to the US and contemporary events, where, the Fed having spoken, the stock market has done a complete 360 in recent weeks, and we’re back where we were.
One thing is different, however. The Fed’s theoretical objective in raising interest rates was to somehow mop up or sterilize all the mad money printing of Quantitative Easing. Before that liquidity leaks into the general economy and wreaks havoc with consumer prices.
Now we know that the QE trillions will not be neutralized.
One of the most basic principles of economics was made memorable in the oft-repeated aphorism of Milton Friedman: “There ain’t no such thing as a free lunch.” So, who pays for the QE lunch? The Fed has decided that the cost of a QE clean-up is too high for its crony constituency.
Said differently, the trillions of dollars the Fed created with QE will exact a cost, a very high cost. But the Fed is not willing for it to be borne by the financial institutions it serves.
The gold market has taken note of all this. While the stock market is back where it was at the beginning of December, gold did not return to its December lows where this turn of events began. Because gold discounts central banking machinations and paper money frauds, it has convincingly marched higher throughout the entire episode.
Afterall, gold always shows up wherever and whenever monetary shenanigans are afoot and currency destruction is in the works.
Reporting on a $23 jump in the price of gold the other day, The Wall Street Journal headline read, “Gold Surges on Elevated Geopolitical Uncertainty.”
We stopped right there.
When a market makes a big move – any market, stocks, oil, bonds, gold – financial writers have to explain it. In the gold market, if they don’t know exactly what’s behind the move, they can always fall back on “uncertainty.”
That’s probably because the mainstream press always seems to expect as a certainty that the conventional wisdom will prove out in the end, and anything contrary to the conventional wisdom is “uncertain.” Politicians, they trust, make good decisions for their nations, the monetary authorities know what they are doing, deficits don’t matter, we’ll grow our way out of it, and so on.
Perhaps we flatter ourselves in believing we know better, but we have long memories and are familiar with a rich history of precedents. We think that where your money is concerned it is wise to be skeptical of the conventional wisdom of the financial press. Indeed, we suspect that politicians are just as likely to be self-serving, that the monetary authorities don’t know what they are doing, that we cannot spend our way to prosperity.
In any case, we like to think for ourselves. And in most cases what the mainstream press calls “uncertainty” is not uncertain at all.
We invite out clients to review the past six months of these posts. You will find that we have identified a risky stock market that is sustained only by the Fed’s policies, a flight to quality among wise investors world-wide, including new gold-buying priorities by central banks, a world of troubled paper currencies, a badly deteriorating US debt picture, abounding financial bubbles (like student debt), the dollar reserve standard breaking down, a deteriorating domestic business environment, political uncertainty, fracturing geopolitical relations, a socialism juggernaut loose on the land… shall we go on?
Instead, help yourself to our comprehensive commentary about these and many other topics. The mainstream media may be uncertain, but you will understand why we view higher gold prices as a certainty.
If you would like to know more about recent market action and learn how you can protect yourself and your family with precious metals, call your RME Gold broker. If you do not have one, simply call our office and you will be connected to one of our knowledgeable gold and silver professionals
At $22 trillion of debt, the benchmark the US government hit just days ago, we’re up in the nose-bleed section somewhere.
Just how bad is it? In an earlier post we pointed out that the trillion dollar debt the US added in just the last eleven months was more than the Republic accumulated through the Revolutionary War, the War of 1812, the Louisiana purchase and Seward’s Folly, fighting the Civil War, the Spanish American War, two world wars, Korea and Vietnam, and putting a man on the moon.
The US did all that without accumulating a national debt of $1 trillion.
Now we add a trillion dollars of debt in less than a year.
It even gives you a glimpse at just how inexpensive gold is right now with respect to the unpayable US debt. We’ll get to that in a minute.
But first, a few bullet points.
The US debt is higher than the combined market value of all the Fortune 500 companies combined.
Just with the money the US spends on interest, it could run Canada or Mexico.
Debt from just one Trump term could pay for another World War II.
This is all happening, not during a depression or even a recession, but during “good times.”
Here’s the part the puts the price of gold into perspective.
The article points out that at today’s price, just the debt accumulated during the Obama years would be enough to buy all the gold that has ever been mined in history. “Every nugget pulled out of the Klondike, every ounce plundered from the Aztecs, every gold bar leach-mined out of Australia: it all adds up to about 190,040 tons, or 6.7 billion ounces. At the current price of about $1300, the world’s gold hoard would be just enough to pay off the US debt accumulated between 2009 and 2016.”
The US has a lot of irredeemable dollar debt out there. Let me put it another way. Think of an inverted pyramid, an enormous mass of debt all balancing precariously on a teeny-tiny tip of gold, which is real liquidity.
Talk about unstable!
Today’s gold price in so low in comparison to the debt mass resting on it, that it is easy to see how a world-wide awakening to this unsustainable debt binge will create a gold rush of unprecedented proportions.
Call your professional RME gold broker to find out how to beat the rush.
The US is in denial. Its debt binging is obviously a chronic condition like alcoholism or drug addiction. It obviously needs help.
We can’t let this benchmark event pass without remarking on it.
The US national debt hitting $22 trillion, I mean.
It’s quite an achievement. All of that money, all $22 trillion of it, had to be borrowed. And borrowed it was, despite the fact that every lender knows it can never be paid back – except by borrowing more tomorrow.
It’s sort of like a Ponzi scheme. It’s quite an achievement for a sketchy borrower!
The US broke the $22 trillion borrowing ceiling on Monday, February 11.
Just to review, its borrowing reached $1 trillion during President Reagan’s first term. It broke above $10 trillion at the end of Bush the Younger’s presidency. And hit $20 trillion at the end of Obama’s tenure.
Imagine that. The national debt doubled during the Obama presidency. Who would have thought?
Think about this for a moment. America won its independence in the Revolutionary War, fought the War of 1812, made the Louisiana purchase and that of Alaska, fought a Civil War, the Spanish American War, two world wars, Korea and Vietnam, and put a man on the moon – all without accumulating a national debt of $1 trillion.
And yet the debt climbed another trillion dollars in just the last 11 months. (It hit $21 trillion last March.)
Well, the only thing changing about the debt trajectory is that it keeps getting steeper.
Worse, still, is that there is no coalition in Congress to do something about it. Out of 535 members of Congress, only 7 voted last year to reduce federal spending.
So, I think we can all see where US debt binge is headed.
The importance of the rush of the world’s central banks to buy gold cannot be over-emphasized. After all, how could a class of gold buyers that already own 30,000 tons of gold and are intent on acquiring more not deserve our full attention?
We think that this move to gold is a megatrend in the making, but one that is being largely overlooked by others. We want our clients and readers to be among to most informed about it.
Central bank gold buying is not just gold positive. Because much of the money that they are using to purchase gold comes from their dollar reserves, it is dollar negative as well.
As an example, Russian dollar reserves have fallen over the last ten years from about $180 billion to around $10 billion today. On the other hand, its gold reserves have jumped from 40 tons in 2006 to nearly 2000 tons today.
Recently we reported on what we described as “aggressive” gold buying by China, boosting its gold position by 75 percent in 3½ years.
Like Russia and China, many central banks having been adding to their gold reserves right along, but it is notable that the central banks of countries that have been absent from the gold market for years are buying again. That includes India, Thailand, the Philippines, Egypt, and Poland.
Here is a brief description of the trajectory of central bank gold buying as reported by the World Gold Council:
“Central bank gold reserves are rising. Net purchases totaled 351.5 tons in the first 10 months of 2018, up 17 percent year-on-year and the strongest showing since 2015. Momentum is growing too, with net purchases of 148.4 tons in the third quarter alone, up a full 22 percent year-on-year.”
Little noted in the popular press, foreign gold buying foreshadows changes in the US dollars’ status. The dollar and its risks are the unstated focus of their analysis when foreign central bankers explain their new gold rush.
A Russian central bank official says gold is a “100 percent guarantee from legal and political risks.” Hungary, which has increased its gold holdings by ten times in recent years, describes gold “as a major line of defense under extreme market conditions or in times of structural changes in the international financial system or deep geopolitical crises.”
We spotted a foreign news story the other day that is right out of the paper money fraudsters’ playbook. We wanted to highlight it for you because it is a play that governments and central banks run again and again, seeking to deflect blame from themselves for their destructive practices.
Turkey’s monetary policies have been like those of most of the world: its central bank has been destroying the purchasing power of the currency with money printing.
Why does money printing destroy purchasing power?
Here’s a recent comment by economist Don Boudreaux: “Wealth is goods and services; wealth is not money. And so to create more money without creating more goods and services is to create, not more wealth, but only more inflation — along with the distortions and uncertainties that inflation unleashes.”
That’s it in a nutshell. So, Turkey’s money printing is destroying the lira. The annual inflation rate hit about 25 percent in the last quarter. Food prices have been rising at a 30 percent rate and higher.
But what we wanted to call to your attention is the way the government is scapegoating others for its own currency destruction. The government is on a tear, issuing fines and demonizing farmers, wholesalers, vendors and anybody else it can for high food prices. It calls them terrorists and traitors.
President Erdoğan says, “The government will finish off those terrorizing wholesale food markets in no time, the way it finished off those terrorists in caves.”
All of this will drive commerce to the black market, and suppress production, in turn driving prices higher still.
We see the same pattern often and elsewhere. And not just in places like Turkey and Venezuela. When the British were busy destroying their currency in the 1950s, Harold Wilson, the eventual prime minister, blamed “the gnomes of Zurich” for their crisis. Nixon blamed international money speculators when he took the dollar off the gold standard.
Consider this just an early warning about events to come here in the US, where money printing has been escalated to heights that make Turkey’s problems look insignificant. When the effects become conspicuous, and our own government begins looking for scapegoats for its monetary malfeasance, you will know that draconian policies are close at hand.
Just over two weeks ago gold broke through the $1,300 per ounce level. At the time we described for you the technical picture for gold, writing, “Gold’s bullish outlook is also confirmed by a look at the charts. This week gold’s closely watched 50-day moving average broke above its 200-day moving average. This ‘crossover’ is a widely regarded bullish indicator.”
Gold has had no difficulty staying above $1,300 since then, closing in New York on Friday at $1,318.
Now a similar technical picture is developing in the silver market. Silver’s 50-day moving average turned up sharply about three months ago. Now it is within just a few cents of moving above its own 200-day moving average. As with gold, this crossover is taken by chart-watchers to be an important bullish indicator.
It has been more than three years since the last time silver’s 50-day moving average broke above the longer-term average, and in fact it was a technical event that heralded a powerful move higher in silver.
In the space of just a few months from its 2016 crossover, silver climbed from below $15 to over $23 dollars per ounce.
We think the economic background, the fundamentals that impact the dollar, are much more bullish now that they were three years ago!
Those fundamentals include Federal Reserve policy confusion, years of unassimilated money printing, obvious turmoil in the stock markets, and rising geopolitical temperatures.
The socialist juggernaut that has been unleashed in this country looks to us to be unstoppable as well. It should be kept front and center in your financial planning. The only thing it can deliver is poverty… and much, much higher gold and silver prices.
The US Treasury’s borrowing needs are about to explode, as we wrote last week, and for more reasons than growing deficits.
Consider the convergence of some of the contributory factors:
The Fed has proposed that it will clean up its balance sheet, swollen by Quantitative Easing (QE), with Quantitative Tightening (QT). That means when bonds in its portfolio mature, the Fed isn’t rolling them over into new bonds as it had done along the way during the QE phase of its operation. But the Treasury can only redeem bonds today – including the Fed’s maturing bonds – by selling new bonds tomorrow. The net effect of QT is that a much bigger supply of bonds needs to be absorbed by a straining market. For 2019, the Fed planned to reduce its holdings by $600 billion.
At the same time, and as we have been warning, the global dollar reserve standard is winding down. In 2000, 72 percent of global foreign exchange reserves were in dollars. Now it is only 62 percent. Like reducing the presence of the Fed in the Treasury market thanks to QT, the falling appetite for US debt from foreign central banks means reduced buying presence in the market as well.
Well, what could be worse than the removal of two major buyers – the Fed and foreign central banks – from Treasury auctions?
How about this. At the same time buyers are disappearing, the Treasury has more bonds to peddle. A lot more.
Let me repeat that last part. The Treasury is looking at having to sell trillions of dollars of additional bonds because now the US is looking at trillion-dollar annual deficits each year as far as the eye can see.
More supply. Fewer buyers.
To cut to the chase: There will be buyers for all of those bonds. But only when they pay far higher interest rates.
And higher rates increase the cost of funding government debt. They widen the deficits, which means even more bonds must be peddled. Or taxes must be raised, which is another drag on the productive and tax-paying economy, once again widening the deficit.
Because reducing spending is off the table, everything the government does about the deficit and debt from this point forward perversely widens the deficits.
We have written this piece so far without resorting to a cliché about “a perfect storm.”
But that is exactly what it is.
Last week we wrote that “some Treasury advisors are aware of the incremental, intersecting borrowing demands ahead. But they aren’t trying to figure out how to stop it. They are scratching their heads trying to figure out how to keep the game going.”
Typically, these “solutions” will require that certain individuals, plans, funds and institutions must hold US Treasuries whether they want to or not. That may mean savings accounts, retirement plans, trust accounts, and investment businesses. Of course, nobody has to mandate good investments.
Only those you wouldn’t choose must be mandated.
In times like this, only gold offers shelter from the storm.
Sometimes key insights and financial news, things that shed light on the value of the dollar, the solvency of the country, and gold, come our way at a furious pace.
As part of our commitment to keep our clients and readers informed, we occasionally assemble them in one post.
Cities Can’t Pay Their Bills
“According to a recent analysis of the 75 most populous cities in the U.S., 63 of them can’t pay their bills and the total amount of unfunded debt among them is nearly $330 billion. Most of the debt is due to unfunded retiree benefits such as pension and health care costs.
“This year, pension debt accounts for $189.1 billion, and other post-employment benefits (OPEB) – mainly retiree health care liabilities – totaled $139.2 billion,” the third annual “Financial State of the Cities” report produced by the Chicago-based research organization, Truth in Accounting (TIA), states.”
“… Student loan debt has been cited as one of the reasons for declining homeownership and, only projected to worsen over time, economists worry that it could pose other serious financial risks.”
Gold: The Bubble Alternative
“The essential attribute of gold is that it is a contra central bank asset. It’s the one asset that can’t be influenced, manipulated, created or destroyed, for that matter, by the central banks. It’s the one asset that history has proven, without a doubt, can retain its value regardless of the mayhem and financial disorder caused by governments…
“Gold is the alternative asset to a bubble ridden financial system that is driven by the central banks.”
– David Stockman, quoted in USAWatchdog, 2/6/19
UN Warns of Currency Wars
According to the UN report, continuing or hiking tariffs between [the US and China] would have an unavoidable impact on the “still fragile” global economy, including disturbances in commodities, financial markets and currencies.
The UN trade conference report said, “One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service. Another worry is that more countries may join the fray and that protectionist policies could escalate to a global level.”
… A currency war occurs when nations deliberately depreciate the value of their domestic currencies in order to stimulate their economies.
Bad News for 25 Million Americans Who Expect Their Pensions Are Funded
“Total unfunded liabilities at U.S. state and local public defined benefit pension plans are about $1.4 trillion — more than three times their pre-financial crisis level. After a decade of strong investment returns, the funded status of public pension plans continues to worsen. The next economic downturn will deliver the coup de grâce to some public pensions. As the probability of defaulting on promised benefits increases with falling asset prices and bloated pension liabilities, retirees nationwide will face the grim prospect of receiving greatly reduced benefits during their golden years.”
– The Hill
Central Banks Own Gold
“If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute.”
Central Banks Continue AgressiveAcquistions of Gold
The world’s central banks were aggressive gold buyers in 2018, according to a new World Gold Council report. The banks’ gold acquisitions jumped an astonishing 74 percent over the year before.
Altogether central banks added 651.5 metric tons to their official gold reserves in 2018, according to the WGC.
Driven in part by the central bank buying, the most in 50 years, overall gold demand jumped 4 percent for the year,
Alistair Hewitt, the WGC Head of Market Intelligence, summed up the findings:
“Gold demand rose in 2018 and, although the US dollar gold price was down 1% over the year, it outperformed many other financial assets. Worries about a slowdown in global growth, heightened geopolitical tensions, and financial market volatility saw central bank demand hit its highest level since Nixon closed the gold window in 1971, the volume of gold in European-listed ETFs reach a record high, and annual coin demand leap 26 percent.”
Demand for gold ramped up dramatically toward the end of the year. Zeroing in on the last quarter of 2018, October-November-December, the WGC reports, “Overall demand increased 16 percent in Q4 21018, compared with Q4 2017, while total investment demand grew 35 percent Q4 2018 from Q4 2017.”
“I don’t see any of the risks that investors and central banks are worried about fading anytime soon and I expect gold to remain an attractive hedge in 2019,” said Hewitt.
The world’s central bankers are much more aware of the dollar and debt problems of the United States than are most American citizens. They are taking steps to reduce their chances of being fleeced by fundamentally dishonest Federal Reserve practices. Few Americans are taking the same kind of steps.
Our professional RME Gold brokers believe that educating as many Americans as possible is part of our job. If you have family members, friends, and colleagues that would like to learn why central bankers around the world are moving aggressively into gold, we can be of help. Have them contact an RME broker right away.
A Bloomberg story begins with this headline: U.S. Treasury Set to Borrow $1 Trillion for a Second Year to Finance the Deficit.
A trillion here, a trillion there, and pretty soon you’re talking about real money.
That phrase, adapted from a quote attributed to the late Illinois Senator Everett Dirksen sometime in the 1960s, shows you just how far we’ve come. Because the line actually was, “a billion here, a billion there, and pretty soon you’re talking about real money.”
How quickly we went from measuring federal spending by the billions to the trillions.
Well, a billion dollars isn’t what it used to be.
In fact, the 1960 dollar has lost 88 percent of its purchasing power.
How did the dollar lose so much value?
Simple. The Fed created a lot of money and credit out of nothing. As a sort of shorthand, we say the Fed “printed” a lot of dollars. The chart below is a rudimentary illustration. The blue line on the chart below depicts the growth of the US money supply since 1960 (M1: basically spendable cash, and cash equivalents like checking accounts and other demand deposits, travelers’ checks).
The gold-colored line tracks the gold price, pulled ever higher by the trajectory of the Fed’s money printing.
The Bloomberg story describes the Treasury Department’s plans to “maintain elevated sales of long-term debt to finance the government’s widening budget deficit, with new issuance projected to top $1 trillion for a second-straight year.”
Don’t ever forget that when the government borrows, it crowds out other borrowers. Every dollar the government borrows is a dollar taken out of the private wealth and job creating economy. It is true that the government spends the money it borrows, but at best government spending is just a wash. At its worst it is a black hole for the wealth of the American people such as when, for example, it pays people not to work or not to grow crops; or it spends money to blow up schools and bridges in foreign countries and then spends more to rebuild them; or it squanders the money in private subsidies for cronies, bailouts for banksters, or windfalls for beltway bandits.
Mainstream news sources mostly are missing the bigger government borrowing story. There is more to it than just the growing deficit that needs to be borrowed. Several incremental additions to the government’s borrowing needs are converging at once.
It’s a train wreck in the making.
We don’t know how far the fiscal and monetary insanity will go in this country but note that some Treasury advisors are aware of the incremental, intersecting borrowing demands ahead. But they aren’t trying to figure out how to stop it. They are scratching their heads trying to figure out how to keep the game going.
More about all of that in a future post. In the meantime, remember that one of these days even a trillion dollars won’t be what it once was. That is not an exaggeration. Not too long ago, watching its currency be destroyed, people in Zimbabwe were asking themselves what come after a quadrillion.
Better to own gold and not have to worry about such things.
Q:How many Venezuelan bolívars does it take to buy an ounce of gold?
It’s a good joke because no one we know, or can reasonably imagine, would be willing to trade perfectly good gold for bolivars, knowing full well that the bolivars taken in exchange today will likely be worth much, much less tomorrow.
But the condition of the Venezuelan economy and the suffering of the Venezuelan people is hardly the stuff of jokes. It is a human horror story only made worse by the fact that it is not the result of some unavoidable natural disaster like a flood or an earthquake. The deprivation forced on the country’s 32 million people is manmade. It was entirely foreseeable. And entirely unnecessary.
It is the inevitable consequence of policy choices made by Venezuela’s autocrats Hugo Chavez and Nicolas Maduro and their henchmen of the left.
Actually, as an exercise only, a price for gold in Venezuela could be established by calculating the “official” bolivar/dollar exchange rate and applying it to the dollar price of gold. In that case, you could come up with a gold price somewhere in the neighborhood of 323,000,000 bolivars per ounce.
But even that price is fraudulent since the official currency we are using to make this calculation was itself the lowest valued currency in the world and last August was replaced with a new bolivar at an exchange rate of 100,000 of the old bolivars for one new one.
Currency prices calculated in millions, billions, and trillions and monetary units that have been subject to exchanges and replacements reveal the ruination of a country. It is a fascinating field for monetary archeologists, like digging through the ruins and artifacts of ancient civilizations.
But no history of economic ruin or catalog of its inevitable economic failure is ever enough to demonstrate to ideologues that socialism is the pathway to calamity. Not the decades of contrast between East and West Germany. Not the differences in living standards between North and South Korea. Not the Soviet failures or the experiments of Pol Pot and Fidel Castro.
Not the prolonged suffering of Venezuela.
Nothing looks likely to stop the socialist juggernaut in the United States. It has begun to take hold in a manner frightful to behold.
In a forthcoming commentary I will have more to say about the prominent figures of the modern American socialist movement, politicians like Alexandria Ocasio-“Chavez”-Cortez, New York Mayor Bill “Hugo” de Blasio, and Elizabeth “Maduro” Warren.
Their prominence and the spread of socialist ideas is a really good reason to start attending to your precious metals portfolio today. The left is determined that America should tread the path of socialism and become the next Venezuela. Socialism’s manifest failures are not enough to dissuade them from trying to tank what is left of our prosperity and charting a ruinous course for Americans.
Millions of impoverished Venezuelans wish they had transferred their wealth into gold and silver while they still could. Before their Hugos and Maduros took over.
Gold broke through $1,300 an ounce on Friday, roaring up $22.70 on the day, and closing in New York at a seven-month high of $1302.50.
That’s the second time in this new year that gold has punched through $1,300. At the beginning of the month it tested that level but didn’t hold.
This time it held.
We see that as a highly significant technical event. It appears the new bull is finding its legs. We advise our clients to take any pauses along the way as a good thing, a chance to get in before the price powers through to a new and higher trading range.
Gold’s strong move on Friday was confirmed by silver as well.
Silver rose 3 percent on Friday, up $0.45 per ounce to close at $15.75.
That is more than a confirmation. It was a ringing endorsement.
Technically speaking, gold’s bullish outlook is also confirmed by a look at the charts. This week gold’s closely watched 50-day moving average broke above its 200-day moving average. This “crossover” is a widely regarded bullish indicator.
It is not just the price action that is bullish. It is not just the technical picture that is bullish.
The economic and monetary fundamentals are unreservedly bullish as well.
Since we have described fundamentals in detail in our blog posts and alerts, we will simply point to three things we feel it is essential our clients know:
Key geopolitical players like China and Russia are aggressively adding gold to their reserves. See our comments HERE and HERE.
Gold is at or near all-time highs in many of the world’s currencies. More HERE.
The stock market remains highly precarious. Review our call of the market top and other comments HERE, HERE, and HERE.
If you would like to know more about recent market action and the reasons that precious metals are an imperative for protecting yourself and your family, call your RME Gold broker. If you do not have one, simply call our office and you will be connected to one of our knowledgeable gold and silver professionals.
Just last week we reported to you on Russia’s aggressive gold acquisition.
We wrote, “Russia, seeking to protect itself from a dollar crisis, continues to reduce its holdings of US Treasury bonds while beefing up its gold stock at an accelerated pace. The Bank of Russia, the central bank, bought 8.8 million troy ounces of gold in 2018, increasing its total gold holdings by 14.9 percent.”
Now we have the latest from China.
After a two-year lapse in reporting on additional gold reserves, China now shows it added ten tons of gold to its reserves in December. That’s the first reported increase since October 2016.
Like Russia, China’s gold acquisitions can only be described as aggressive. From 1,054 tons in June 2015, it now boasts reserves of 1,852.
In other words, China has grown its official gold holdings by 75 percent in 3½ years.
As you might suspect, China’s has reduced its investments in US Treasury debt at the same time. From August 2017 until October 2018, that part of its portfolio shrunk by five percent.
Bear in mind, that these numbers from the People’s Bank of China reflect official state holdings. But many observers agree that there has been a tremendous flow of gold into private hands in China as well, mostly from Europe and the West.
Meanwhile, China is experiencing its slowest economic growth since 1990. The official growth number for China in 2018 is nevertheless positive, up 6.6 percent. (That’s still about twice the expected 2018 US GDP growth rate.)
A deterioration of US-China trading relations threatens to suppress China’s growth even more. President Xi has even warned his countrymen recently against “black swan” (entirely unexpected) and “gray rhino” (visible, but underestimated) economic developments.
Slowing growth strikes fear in the heart of China’s leaders. The single greatest concern of Beijing’s party bosses is of a restive population, now used to an improving standard of living. At this stage of its development, widespread unemployment among the urbanized populations would rock the nation to its core.
Should Beijing feel the need “stimulate” its slowing economy, it has a trillion dollars of resources in the form of US Treasury instruments that will be the first to be spent.
We offer that observation without further comment now, but will will have more to say about China’s impact on the dollar in days and weeks to come.
For now, we will just note that your best protection against our own black swan and gray rhino events is ownership of precious metals.
Sam Zell, realestate billionaire, is buying gold for the first time in his life.
It’s enough to make us sit up and take notice. Sam Zell is a real estate billionaire many times over. His Wikipedia entry repeatedly uses the word “largest” to describe Zell’s accomplishments.
His company, Equity Group Investments, Wikipedia tells us, “was the genesis for three of the largest public real estate companies in history, including: Equity Residential, the largest apartment owner in the United States; Equity Office Properties Trust, the largest office owner in the country; and Equity Lifestyle, an owner/operator of manufactured home and resort communities. With their entry onto the public markets in the 1990s, Zell became recognized as a founding father of the modern real estate industry. In addition, Zell has created a number of public and private companies in various other industries.”
“In 2006, the Blackstone Group announced the purchase of Zell’s Equity Office Properties Trust for $36 billion, which was the largest leveraged buyout in history at the time.”
Now Sam Zell is buying gold.
In a Bloomberg TV interview a few days ago, Zell observed that “the amount of capital being put into new gold mines is a most nonexistent. All of the money is being used to buy up rivals.”
“Supply is shrinking and that is going to have a positive impact on the price,” he said.
“For the first time in my life, I bought gold because it is a good hedge.”
Russia Agressively Adding to Their Physical Gold Position
Russia, seeking to protect itself from a dollar crisis, continues to reduce its holdings of US Treasury bonds while beefing up its gold stock at an accelerated pace.
The Bank of Russia, the central bank, bought 8.8 million troy ounces of gold in 2018, increasing its total gold holdings by 14.9 percent.
Russia is serious about gold
Although its economy is only about 13 percent the size of China’s, with its latest purchases, Russia has now surpassed China to become the world’s fifth largest holder of gold.
Russia’s disinvestment in dollar instruments and emphasis on gold reserves is in part a response to the US-driven sanctions regime. Gold, Russians note, is not subject to political interventions the way paper money or government securities are. Russian president Putin has said the US dollar monopoly is “not reliable.”
Russia has made gold production a priority and is now the third largest world gold producer, after China and Australia. The United States is fourth.
In a recent post I noted that gold is still the real reserve currency of the world and cited as evidence the rush of central banks to build their gold reserves ahead of the coming crisis.
Total foreign holdings of US government debt securities exceed six trillion dollars. The largest of those foreign creditors of the US are China and Japan, each with more than a trillion dollars of US debt securities.
The threat of both increased trade conflict and militarized disputes between the US and China is very real. In that case, as the Russian example illustrates, rising tensions carry the very real prospect of massive Chinese disinvestment in the dollar and accelerated purchases of gold – the only real alternative to their dollar holdings.
In that case, gold’s dollar price will climb to unimaginable heights.
Currencies are Being Inflated to Eventual Worthlessness
In our last post, we wrote that “A hundred years ago a dollar bought roughly 0.05 ounces of gold. Today the dollar buys only 0.00077 ounces of gold.”
“Something changed, but it wasn’t the gold.”
Of course, the same kind of value destruction that has taken place with the dollar has taken place with currencies around the world. That is why gold today is at or near all-time highs in 72 world currencies.
Currencies are being inflated to eventual worthlessness.
In our last post, we explained that a rising price is not inflation. It is simply a rising price. If the price of oranges goes up because of a freeze in Florida, that is not inflation.
If recent technological advances make new electronic miracles, like flat-screen HDTVs, more affordable, that is not deflation. It is a drop in prices in one sector.
The classical economists understood this. They understood that inflation is a monetary phenomenon. Sustained price increases throughout the economy reflect state meddling or corruption of the supply of money and credit. Governments engage in these practices for a number of reasons. They may wish to spend more and hide the increased taxation of the people by simply printing the money. They may wish to devalue unpayable government debt by devaluing the unit of account of that debt and pay it down with cheaper money. Or the may wish to subsidize powerful financial interests and cronies with an inside line on monetary interventions.
Sometimes they may wish to do all those things at once.
This explains why governments hate gold. The cannot print more gold or wave a policy wand and double the amount of gold in government warehouses. Gold provides financial discipline on states and politicians.
Politicians and governments around the world have gotten away with their monetary shenanigans for a long time, but the game in almost up.
Preferences are shifting everywhere. They are shifting from paper money to gold. Ross Norman, the CEO of Sharps Pixley in London, reports that the price of gold is at an all-time high or within a few percent of an all-time high in 72 currencies around the world. That means that each of those currencies buys less.
It means that those currencies are all falling against the most reliable monetary standard in history: gold.
Inflation has been Unchained Around the World
If currencies buy less gold, they will eventually buy less of just about everything else.
That goes for the dollar, too.
We recommend that you keep your wealth in real money that cannot be corrupted by politicians and central banks. And we recommend that you make the move now, while you can.
They deny it. They suppress it. They even ignore it.
Then it bursts out into the open and suddenly it can’t be ignored any longer.
I’m talking about rising prices. Those of us that watch the economy like a hawk keep a close eye on things like the consumer and producer price indices. We pay attention to the money supply figures and Fed finagling. The statist economist tell us there’s no inflation, even while the rising costs of healthcare, insurance, education, and especially taxes are on display wherever you look.
As the saying goes, who are you supposed to believe, the government or your lying eyes?
But when inflation bursts out into the open in other venues, it’s time to believe your own eyes.
A couple of examples this week:
The cost to mail a letter will jump 10 percent later this month. The Postal Service is hiking the price of a first-class stamp from 50 cents to 55 cents. The average price of Priority Mail will climb 5.9 percent.
But that’s an old-fashioned government service. It’s snail mail, a remnant of the pre-digital economy.
What about the new economy?
Prices are going up in the new economy as well. Netflix is raising prices across the board. Its standard plan is going up 18 percent. And that, by the way, is not the plan that snail mails DVDs to your home and therefore has to raise prices because of higher postal rates. No, that is an all-digital plan for HD video.
Other pent-up price hikes will follow.
Now, what does the government say? It says inflation is tame and cites the new producer price index numbers reported this week.
Let me unravel this just a little. Even though food prices took a pretty good jump, energy prices were lower. Gasoline, as you may have noticed at the pump, is sharply lower. So, thanks to lower gas prices, the overall index is lower.
If the price of a single good or service goes up or down, it is not inflation or deflation. If the price of asparagus goes up it may be because of the weather, a flood, a poor crop, an infestation, farmers switching to more profitable crops, or for some other reason. But it should not be called inflation.
By the same token, if energy prices fall it is not disinflation. It is simply a lower price, in this case thanks to increased US production and the easing of restrictions on Iranian exports.
Real inflation is a monetary phenomenon, a policy consequence of the authorities. But confusing the definitions helps the guilty parties, the monetary machinators, escape blame for their malpractice.
When we say the price of gold is rising, we would be more accurate to say that the purchasing power of the dollar is falling. After all, as a monetary standard, the dollar is just a flash in the pan, compared to gold, the monetary standard of the world for a very long time (and incidentally still the real reserve currency of the world. For evidence of that look no further than the rush of central banks to build their gold reserves ahead of the coming crisis).
In fact, the dollar is about as reliable as a monetary standard as an elastic yardstick or a rubber band ruler. Consider that a hundred years ago a dollar bought roughly 0.05 ounces of gold. Today the dollar buys only 0.00077 ounces of gold.
Something changed, but it wasn’t the gold.
You might see a trend there.
This erosion of purchasing power is not limited to the dollar alone. Failure is the ultimate fate of paper money everywhere and at all times. More on that in my next post. Inflation Unchained: Part Two.
During that period, about six weeks ago, the ratio hit a high for this cycle of just under 87 to 1. Since then, the ratio has moved lower, showing a marked downward bias in the last three weeks.
The wisdom of our recommendation to trade gold for silver at these levels has been validated by silver’s stronger performance and a drop of almost five points in the ratio.
Trading the gold/silver ratio is a time-honored strategy that involves switching your position into the precious metals that are relatively undervalued and promises the most appreciation.
With Friday’s close, the Gold/Silver Ratio is 82:1. For now it continues to favor shifting your precious metals investments out of gold and into silver. At some future date, when the ratio moves lower, the strategy will involve trading that silver back into gold WITH A NET INCREASE IN THE TOTAL NUMBER OF OUNCES OF GOLD YOU OWN!
We recommend this strategy as a means of growing your precious metals holdings over time without making additional investments. Its chief advantage is that you are always holding precious metals, either gold or silver.
We still think there is still time at these levels to employ this strategy.
Please take a minute to review our earlier posts about the Gold-Silver Ratio.
Trading the Gold-Silver Ratio is a preferred strategy. It is one I have used myself for many years. Your RME broker will explain to process in easy to understand terms.
Take a listen to our latest commercial, although it’s nothing new to readers who have already been listening for the past several months…
Washington is a land of hypocrites. You probably don’t need any convincing but let me give you one example because it is relevant today.
In 2010, Congressman Ron Paul’s bill to audit the Federal Reserve had 320 sponsors in the House of Representatives. No surprise that it had so many sponsors. Their constituents were losing their homes and jobs right and left, while the Wall Street cronies were getting bailed from the latest Fed-created market collapse.
So, the Audit the Fed bill had a lot of sponsors. But when the vote finally came up, it only received 198 votes and so it failed to pass.
Sponsors voted against their own bill. The Fed, said Dr. Paul afterwards, “is a very powerful institution.” It had gone to work and stopped the measure dead in its tracks.
We later learned that during the Great Recession, while Americans were losing their homes and savings, the Fed had secretly loaned more that $16 trillion to some of the largest and most powerful banks and financial institutions in the world, including foreign banks and governments.
No wonder the Fed so desperately resists an audit.
I have written lately (see here) about the way the Fed quietly booms and busts the economy for its own purposes. A small example of that power was on display on Friday, January 4, when a word or two from Chairman Powell sent the stock market climbing for several consecutive days.
Our economy is made to rock back and forth on the words of unknown, unelected, and mostly invisible bureaucrats. The financial community and the markets ricochet around waiting for the next throat clearing from some Fed official in the Marriner Eccles building.
America used to be on the gold standard. Now, says Jim Grant, we are on “the PhD standard.”
Speaking of the PhD standard, the head (another PhD, of course) of the New York Fed, the most influential of the Fed regional “banks,” recently announced that inflation is too low! Sure, just print a few trillion more and watch what happens. They still haven’t figured out how to dispose of the previous trillions they printed. The PhDs can’t even agree among themselves on what to do. There is nothing objective about monetary meddling.
It is little more than whim and caprice cross-dressing as rationality.
No wonder paper money always comes to a bad end.
No wonder we prefer the impartiality of gold.
By the way, a new bi-partisan audit the Fed bill has just been introduced in this session of congress by Representative Thomas Massie, H.R. 24, the Federal Reserve Transparency Act.
Take a listen to our latest commercial, although it’s nothing new to readers who have already been listening for the past several months…
Gold’s bullish performance in the face of political, geopolitical, and economic confusion is exactly what we have been expecting and writing about.
Now, even though they would like to, Wall Street – the money center banks and brokerages – are finding gold hard to ignore.
Political, geopolitical, and economic confusion? Sure. You can’t miss it:
The US government shutdown
Divided government, including the Democrats’ takeover of the House
The socialist juggernaut in American politics, personified by figures like Alexandria Ocasio-Cortez and Bill DeBlasio
Mixed messages in US foreign policy (in or out of Syria, Afghanistan, Iraq, Yemen?)
The decline of America’s and the dollar’s global economic dominance
Unpayable national debt
Stock market gyrations
Shifting interest rate messages from the Fed
All of these, and other challenges too numerous to name (okay, I’ll name a couple more: the pension crisis and the looming student loan crisis) are forcing Wall Street to acknowledge gold as a safe haven and alternative to the dollar and the wobbling stock market.
Goldman Sachs has “raised their price forecast for gold, predicting that over the next 12 months, the precious metal will climb to $1,425 an ounce – a level not seen in more than five years.”
A New York analyst with Standard Chartered, the British international bank, says “investors are not only closing bearish bets (on gold) but are also adding to their bullish positions.”
Cantor Fitzgerald analysts says, ““We expect the safe haven bid, and to a lesser extent, gold’s inflation hedge properties, to remain key drivers of the metal’s price in 2019, complemented by a resurgence of physical demand.’’
Now, with political, geopolitical, and economic confusion at every turn, is the time to speak with an RME Gold broker about prudent steps you can take to protect yourself and your family in the New Year.
Take a listen to our latest commercial, although it’s nothing new to readers who have already been listening for the past several months…
The flatlining stock market was jolted into an appearance of life at the end of the week by two electro-cardio interventions:
The first jolt was the release of the employment numbers. The Drudge Report shouted the news with this headline: “JOBS UP BIG! +312,000. RECORD NUMBER WORKING.”
More voltage came from Federal Reserve Chairman Jerome Powell, who said the Fed is “listening closely to the markets.”
Translation: “All those interest rate hikes we’ve been promising? Well, we’re not that committed to them after all.”
You could almost hear the famous words of Ronald Reagan that tell you everything you need to know about political behavior: “When I feel the heat, I see the light.”
Powell has been feeling a lot of heat, from both Wall Street and from the Oval Office.
The Friday run up on the Dow of 746 points had traders sounding like Gene Wilder in Young Frankenstein: “It’s alive! It’s alive!”
Not so quick there, boys!
As usual, there is more to both of these stories than meets the eye. For example, jobs may have been up 312,000, but the labor pool grew by even more. It grew by 419,000.
If the workforce increased faster than the number of jobs, unemployment must have grown. And it did. The unemployment rate actually rose in December 0.2 percent. If you factor in all the people who have given up or dropped out of the labor force, the unemployment rate is much, much higher than the headline number.
As for Chairman Powell, slowing the pace of Fed interest rate hikes may cheer the floor traders and trigger some stock algorithms, but it can’t mask the real weakness in the economy. It can’t mask the fact that Apple lost $463 billion in market capitalization since October.
That’s not just a little arrythmia; that’s a massive market coronary event.
Powell’s shift amounts to a “so what?” That’s according to Michael Shedlock of Global Economic Trend Analysis. He agrees that our “economic imbalances are staggering following decades of Fed officials blowing repetitive economic bubbles of increasing amplitude.”
For more on those staggering imbalances and the reasons we were able to alert you to the top of the stock market in the Fall, go here, here, and here.
One more thing: Gold traded briefly above $1300 an ounce before it pulled back while the Young Frankenstein moment in the stock market played out. As I noted in my latest radio commercial, gold is up more than 10 percent since August, while the stock market is in trouble. In fact, the Nasdaq Composite is down almost 30 percent.
Take a listen to our latest commercial, although it’s nothing new to readers who have already been listening for the past several months…
A Few Words about the Last 6 Months of Gold and Silver Charts…
Gold, as I mentioned last week, remains above its 50-day moving average (MA), and moved decisively above its 200-day MA about the same time the Dow Industrials broke down below its 200-day MA. (The moving average is the average closing price over a given number of days.)
The stock market picture is grim. Both the 200-day and the 50-day moving averages have turned down. In fact, the shorter term 50-day moving average broke below the 200-day shortly before Christmas.
If you understand that the trend is your friend and that these trends reflect some long-term economic realities, comparing price action to these longer-term moving averages demonstrates that the trend is not a just a flash in the pan: It is sustained.
Silver has been above its 50-day MA since the beginning of December. Now, like gold, it has moved above its 200-day MA.
To state this differently, the picture for precious metals is bullish. The picture for stocks is bearish. Our previous posts will provide you an “intelligence briefing” on why this is so. Please review them carefully. And if you have any questions, simply call your RME broker. They are here to help you protect your wealth and to profit.
One wrong move, one little slip by the Federal Reserve, and the money supply and price inflation could explode.
That’s not just my view. I’m citing the views of a former chairman of the Senate Banking Committee. In a Wall Street Journal article this week, former Senator Phil Gramm and a co-author, an economist at Texas A&M, spell out just how vulnerable we are to a monetary policy error by the Fed.
They write, “A small error by the Fed in following market interest rates could cause a large change in the money supply.”
For those of us familiar with the Fed’s 105-year track record of policy errors, that is not a comforting thought. In fact, the Fed seems to have missed every major turn in the economy in its history, especially big ones like the exploding of the 2008 housing bubble.
Just to refresh your memory, neither Ben Bernanke nor Alan Greenspan saw the housing bubble when it was in formation. And when it burst, Bernanke expressed the view that it wouldn’t seriously affect the economy.
Wouldn’t seriously affect the economy? The unemployment rate doubled as eight million American lost their jobs, four million homes were lost in foreclosure, and 2.5 million businesses went under.
The authors trace today’s extreme vulnerability to the Fed’s decision to pay banks for keeping deposits with the Fed, a component of Quantitative Easing. “When the subprime crisis caused financial markets to freeze up in 2008, the Fed responded by pumping liquidity into the banking system. It also did something that was not widely discussed at the time and even a decade later is almost never taken into account: It started to pay interest on reserves, in essence paying banks not to lend.”
Imagine that. With millions of businesses shuttering their doors, with billions of Americans out of work, instead of doing the works that banks are supposed to do, ferreting out credit-worthy borrowers and lending money that fuels growth, the Fed induced the banks to park assets with the Fed, and paid them a risk-free interest return to do so.
That is a demonstration of absurdity not seen since FDR ordered crops plowed under and farm animals slaughtered, even while millions of impoverished Americans desperately needed affordable food.
“[T]he danger posed by the Fed’s bloated asset holdings and the resulting massive level of excess bank reserves is that with a full-blown recovery now under way, the demand for credit will accelerate and force the Fed to move quickly to raise interest rates on reserves or sell securities to sop up excess reserves,” writes Gramm
The prospect of the Fed losing control is outsized during this juncture of stock market volatility, new interest rate regimes, trade wars, exploding deficits, and political turbulence. When the Fed performs in its usual inept manner, gold rises.
You don’t have to live on the razor’s edge. Speak with an RME Gold broker today for find out how to protect yourself in the New Year.
The end of the year calls for new year predictions, so here are 10 things you won’t see in 2019…
10. The Federal Reserve won’t stop managing the monetary system to benefit the banks that created it to serve their interests in the first place.
9. Foreign central banks won’t increase their dollar holdings, although they will increase their gold holdings.
8. Congress won’t reduce federal spending; it won’t stop creating trillion-dollar deficits; and, it won’t make a serious attempt to reduce the $22 trillion debt.
7. The Washington establishment won’t hold most of its members to the same legal standards that it applies to the ordinary people.
6. Washington Republicans and Democrats won’t stop trying to divide the people to win elections. They will, however, concentrate their attention on smaller divisive issues while the fundamental issues of America’s freedom and prosperity go unaddressed.
5. The establishment’s lapdog press won’t bother to report accurately on the fate of the dollar. Nor will their reporting on gold be accurate.
4. The establishment lapdog press won’t blame the nation’s monetary problems on the Federal Reserve and the nation’s money manipulators. It will blame the people instead.
3. While Washington may commission a study, launch a new bureau, or even appoint a bureaucrat, nothing meaningful will be done about the declining lifespan of the American people.
2. Monetary and fiscal policy won’t stop shrinking the American middle class.
1. In an economic crisis, such as Venezuela, you won’t see people standing in line to exchange their gold for paper money like dollars. It’s always the other way around.
How accurate do you think these predications will be when we look back on them at the end of 2019?
We’ll review them then. In the meantime, all we can say is buy gold, and have a Happy New Year!
It’s not hard to see that confidence in the Federal Reserve is collapsing. Usually the Fed quietly booms and busts the economy for its own reasons and escapes unnoticed for it, like a thief in the night.
But President Trump has changed that, unleashing a firestorm of criticism on the Fed and Chairman Powell.
Economic policy writer Stephen Moore, a Trump campaign advisor, said this weekend that the Fed is “the swamp,” and the Trump should drain it.
Another economic commentator, Robert Wenzel, points out that “since Trump has intensified his tweets about the Fed over the last month, it has been good for the price inflation hedge, gold.”
You don’t have to look far to find those that believe the Fed’s recent policies of interest rate hikes and the crashing of the stock market are little more than political acts by the Washington establishment targeting President Trump.
Certainly, the Fed is the “Mother” of all establishment institutions.
Look at it this way: money is 50 percent of every commercial transaction. And the Fed is in charge of the value of the money. So, its policies reach into everything, everywhere, all the time.
Gold, of course, in the “un-Fed.” The Fed can’t press a button and create more gold overnight like it does with paper money. It can’t stop people around the world from preferring gold.
So, when confidence in the Fed is failing, people turn to the un-Fed. To real money. They turn to gold.
Let me sum up this commentary by citing an observation about gold prices the other day from financial blogger Mike “Mish’ Shedlock:
“I believe much higher prices are coming, sooner, rather than later, as confidence in the Fed and central banks in general dives.”
Here are a few things you need to know about bear stock markets, some bullet points from CNBC:
A “bear market” is when stocks see a 20 percent decline or more from a recent high — but they’re also marked by overall pessimism on Wall Street.
Since World War II, bear markets have lasted 13 months on average, and stock markets tend to lose 30.4 percent of their value.
During those conditions it usually takes stocks an average 22 months to recover, according to analysis from Goldman Sachs and CNBC
Those are averages. But just as successive financial crisis in our era have been deeper than the ones before, successive bear markets have grown worse. (Note that the 2008 Great Recession was much more painful that the Crash pf 2000-2001.) It is because the manipulation and malinvestment that causes these conditions goes uncorrected, the scale of our serial crises grows.
One of the ways financial crises announce themselves is with volatility, and in fact turbulence has been the key to our markets during this period. So, if you will forgive me, I’d like to quote myself from this blog back in October:
“Sometimes, in the face of a stock market sell-off, powerful forces will be put to work trying to stem the tide: central bank operations, guidance about future policies, plunge protection team money shuffling.”
“Remember that all such interventions only make the ultimate problem worse. With each new manipulation, the money we use becomes less resilient, and less reliable. And in fact, nothing can stop economic reality from eventually asserting itself.”(October 25, 2018)
One other point for those of you who are technically minded. Gold has been above its 50- day moving average since November. It has now moved decisively above its 200-day moving average. That is usually a very bullish indicator.
We’re flattered at the number of our clients and readers that have reached out to comment on our calling the top of the stock market last fall.
And our repeated recommendation to ”take any stock market profits and move them into gold.”
There’s an old saying that nobody rings a bell at the top of the market. They didn’t have to. When you’ve been watching these things as long as we have, they don’t have to ring a bell. We could see the coming stock bloodbath on our own.
We were so concerned that we sent out a Special Alert on September, Warning Signs Flashing Red! We don’t do that often, but we realized the Fed had stovepiped about all the wealth to Wall Street that it could. We urged immediate action, writing, “Warnings that go unheeded do no one any good. This is already the longest bull market in stocks in history. Can it go on forever? No.”
As evidence, we cited a bear market indicator that was at its highest level in a half century!
A few weeks later we asked, Is the Fed About to Tank the Stock Market? We asked what should have been the obvious question: “Today’s sky-high stock prices are the result of years of massive interest rate manipulation by the Fed on the downside. If lowering rates drove the markets to these levels, what will a regime of higher interest rates do?”
It was clear to us that the Fed was intent on “driving a stake thru the heart of the market.” It was such a certainty in our eyes that we were left only to ask whether the Fed was doing this on purpose or simply as a continuation of 105 years of Fed blundering.
We don’t claim to be psychic, much less foolproof. But we’ve seen it all before. For example, we remember Alan Greenspan driving down interest rates in the early 90s to provide cheap liquidity for the banking sector. It was good for Chase Manhattan and JPMorgan, but it created a brutal stock market bubble that burst later taking trillions from the American people.
We’ve seen it all before. The bubbles and the bailouts. The cronyism and Keynesianism.
So, when the S&P 500 peaked at 2940 in September our clients had already been warned.
The Dow Jones Industrial Average peaked at 27,000 at the beginning of October. As you know from the screams of anguish in the canyons of Wall Street, it’s been mostly downhill ever since.
On October 9, within days of that top, but before in was evident to the whole world that the stock market was in trouble, we cited Ron Paul. “We have the biggest bubble in the history of mankind. The bubble is bigger than ever before. There’s no avoidance of a correction….”
We agreed and wrote, “What can informed people do to protect themselves from a brutal stock market correction? We recommend our clients buy gold.”
We kept the warnings and Special Alerts about the stock bubble coming for months writing, “Those of our clients that have enjoyed the stock market run over the last ten years are strongly encouraged to move profits into gold now.” See here,here, and here.
Now the Dow is off 4,555 points. Nobody’s portfolio should have to suffer that kind of loss.
But our clients had already been prepared. Gold’s low this year was $1,167. Earlier this week it touched $1,270 before settling a little lower.
Our job is to help our clients protect themselves and profit. So, we’re pleased to hear your kind comments.
The problems for this stock market are far from over. The need to own gold is becoming hard to miss. We have a long way to go.
So, President Trump’s objections notwithstanding, the Fed raised interest rates once again on Wednesday.
That’s its fourth rate hike this year.
The Fed does not seem to realize the stress the US economy is under: stress from stock market volatility, political uncertainty, trade wars, threatened hot wars, growing deficits, big debt, global de-dollarization, and high taxes.
But what about the tax cut we got last year? How can I include high taxes as a major stress on the economy when we got the Trump $1.5 trillion tax cut last year?
Remember two things:
First, the tax cut was supposed to pay for itself with all the new growth it would unleash. But instead, economic growth is now slowing, not increasing. (Third quarter GDP growth was slower than second quarter growth.) Hence, we have run an astonishing $1.3 trillion deficit over the last 12 months.
Second, remember the words of Milton Friedman: the amount of taxation is equal to the amount of government spending. Let me state that differently. Every dollar the government spends must come from somewhere. It either comes from open, overt taxation, from the hidden taxation of inflation, or from borrowing, which itself comes at the expense of other borrowers in the form of higher interest rates (and still ultimately must be paid back by overt or hidden taxation).
The point is that if government spending is growing (and, boy, is it growing!), then taxes are climbing. That adds to the load the already overburdened economy must carry.
There is no indication that the Fed understands the stress the economy is under. That means when a crisis strikes, when reality becomes clear, the Fed will overreact.
It always does. It drives rates artificially low and creates bubbles like the dot com bubble and the housing bubble. Or it drive rates unrealistically high and kills off whole sectors of the economy like housing or automobiles.
Why did the Fed raise interest rates this time?
A better question than why the Fed raised interest rates is this: why is the Fed meddling in interest rates, up or down?
Interest rates, like all prices, should be determined by the law of supply and demand. When prices reflect actual conditions of supply and demand, good things happen. When the price of money, interest rates, are set by politicians or bureaucrats, bad things happen.
Interest rates should be determined by what able borrowers are willing to pay and by what creditors are willing to loan.
When the Feb sets rates instead of the market, it creates distortions. Sometimes (the last ten years), it sets rates to help troubled banksters, while it crushes people on fixed incomes. Sometimes (today), it sets rates to try to offset the harm from its prior credit meddling, money printing, or Quantitative Easing.
As the economy slows, tax receipts decline. Government social spending climbs. The deficit widens. Then the Fed, to make up for its past meddling, overreacts and does something stupid.
In the current scenario that boils down to printing money like mad.
That’s where we are. That is why gold is moving up. That is why informed people are buying gold.
They used to call him “The Maestro.” That would be Alan Greenspan, the former Chairman of the Federal Reserve.
Greenspan knows something about bubbles, having engineered several of them during his 18 plus years as the chief money manipulator. The worst of the bunch was the housing bubble that burst in 2008.
Now the Maestro is warning about the current stock market bubble. The bull market is over, he says.
Suppose stocks were to run up a little from here, Greenspan speculates. If so, then investors better “run for cover.” He warns that that would make the inevitable drop more painful.
We’re moving into a stagflationary environment, says Greenspan. That’s a combination of weak or non-existent economic growth combined with climbing prices – price inflation.
Greenspan was even more explicit a few years ago when he warned publicly that the ending of the dollar’s role as the global reserve currency – a development that I have been writing about, one that is unfolding now — would result in wiping out the middle class and a quadrupling of the cost of living!
A few days ago, Bank of America reported that the exodus from the stock market was the second biggest ever, as investors pulled $27.6 billion from equity funds in a single week.
When investors run for cover from crashing markets and paper currency crises, where can they go? “Gold is a currency,” Greenspan advised a couple of years ago. “It is still by all evidence the premier currency. No fiat currency, including the dollar, can match it.”
In times of turmoil, of teetering debts and defaults, in times of overburdened borrowers, in times of monetary stress and international tension, in times of market crack-ups and breakdowns, gold offers protection, privacy, and profit. “Intrinsic currencies like gold and silver are acceptable without a third-party guarantee,” says Greenspan.
When its time to run for cover, call RME Gold and speak with one of our knowledgeable brokers for advice specifically tailored to you needs.
The recent bounce in gold has so far happened without a similar move in silver. That might be about to change, according to Saxo Bank A/S.
Ole Hansen, head of commodity strategy at Saxo Bank, tracks the ratio of gold to silver and said the recent moves “point in favor of higher silver prices.”
That’s the lead of a Friday, 12/14 story in Bloomberg News.
The objective is to hold the precious metal poised for the most rapid appreciation. Because silver is underpriced relative to the gold price, it’s is a favorable time to trade gold for silver. You don’t want to miss the opportunity to add to your precious metals holdings without investing additional money. Put your gold to work for you!
I have written about this opportunity several times lately, here and here. Now I’d like you to hear about it from Denmark’s Saxo Bank.
The story, “Bulls Lining Up for Gold Means Now May Be a Good Time for Silver,” says, “The ratio has been stretched out in recent months, showing that silver is the cheapest relative to gold in 25 years. Hansen said the trend is starting to reverse, with the ratio falling below a 50-day moving average this week. That means that silver is outpacing gold after months of lagging behind. The white metal is up 2.3 percent this month to $14.53 an ounce, compared with a 1.1 percent advance in gold.
Learn how to grow the number of ounces of precious metals in your portfolio. Trading the gold-silver ratio is a simple strategy, one that many of our clients and I have used for years. Talk to us about how we can help you get the most out of your metals!
A recent Reuters Business News headline advised readers that, “Foreign buyers find U.S. Treasuries less appealing.”
This may be news to their readers, but not to ours. We have talked and written about this many times. In many ways the US is shooting itself in the foot, driving the rest of the world away from reliance on the greenback, by imposing sanctions, embargoes, restrictions, and even asset freezes on foreigners conducting business in the dollar.
All that is true enough. Yet even if dollar commerce and trading were entirely free of political oversight and bureaucratic meddling, the world would continue move away from dollars (and US debt instruments) at some rate.
That is because of the economic fundamentals. Since the dollar is not real wealth in itself like gold or silver, it is only valuable as an IOU (although some wags have called it “an IOU nothing!). Dollar holders assume that their dollars are valid notes, ones that people will accept in exchange for goods today, tomorrow, and for many tomorrows thereafter.
But if the rate of that exchange for real goods and services is not reliable, other units of exchange, time-tested currencies like gold, become more desirable.
When we are at the point that the US government can only pay its bill by creating more dollars, existing dollars become worth less. The dollar’s exchange rate for real goods and services declines.
This is what happened when President Nixon repudiated America’s promise to always exchange gold for its dollars. The US was clearly printing more dollars to fund its welfare/warfare state than there was gold to exchange.
The US was like someone writing checks for more money than in his account. Individuals who write bad checks can end up in prison.
With that in mind, here’s a quick review of some of the US government’s accounts.
The visible US national debt today is $21.85 trillion. That’s roughly $67,000 per person in America. Or $268,000 for a family of four.
That’s big money for most Americans.
Over the last 12 months, since this time last December, the federal debt has grown by $1.363 trillion dollars.
That is so alarming that Washington politician’s hair should all be on fire! Instead it is quiet as a mouse. There is little or no coalition in congress to control the raging debt growth.
Meanwhile, the invisible debt of the US, the unfunded liabilities of the government, promises it has made to pay for things like Social Security, Medicare, and veterans’ benefits, runs somewhere between five and ten times the visible debt.
Those are some of the numbers that explain fundamental reasons why foreigners’ faith in the dollar is in decline.
For those fundamental reasons, as well as the political reasons mentioned earlier, there is a global movement away from the dollar.
Today’s movement out of the dollar is just a trickle. It will eventually be a flood. No one can say when that will be, only that it is drawing nearer.
That is why foreign central banks and governments, and individuals around the world buy gold.
Researchers at the Federal Reserve know what they have done to the Millennial Generation, and it isn’t pretty.
But don’t expect them to stop.
Ryan McMaken at the sound money, free market Mises Institute has examined a new Fed report on how the Millennial Generation is doing at this stage of their lives compared to prior demographic groups, the Gen X’ers and the Baby Boomers.
The Fed report concludes that, “Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth.”
Here’s one quick fact from the Fed’s researchers that provides a general idea of the overall findings.“Average real labor earnings for young male household heads working full time [were] 18 percent and 27 percent higher for Generation X and baby boomers, respectively, than for millennials.
“A common response in the media has been to blame Millennials for buying ‘too much avocado toast,’ or for having too many other luxury tastes that render them incapable of building wealth. That may be true of the minority of Millennials who spend much of their lives on Instagram, but the Fed report itself concludes that the consumption patterns of Millennials are not significantly different from those of other groups when incomes and other factors are taken into account.
“In other words, Millennials are not any more profligate than the Baby Boomers or Gen X’ers who came before them.”
“Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth.”
– Ryan McMaken, Mises Institute
So what is behind the diminished circumstances of our fellow Americans?How about contrived interest rates that have made savings a losing proposition?Capital formation, the engine of growth, just doesn’t make sense in a funny money regime of bailout bills, stimulus spending, Quantitative Easing, “injection of liquidity into the banking system.”It makes less sense with each unbalanced budget, record deficit, and debt ceiling increase.
The gradual impoverishment of the people is inevitable when the monetary system is governed by bureaucrats and the self-interest of those they serve, instead of by the reliable impartiality of gold.
“All of this, of course, happened on the Fed’s watch, and was just the latest example of how the myth of Fed-engineered economic stability has always been a myth.
“So, we have a group of workers who start out their careers in a bad labor market, brought on by more than 20 years of money-pumping by Volcker (later in his term), Greenspan, and Bernanke.
“But once those Millennials were able to get jobs, they then were faced with a world that was particularly hostile to saving, home purchases, and investment for lower-income workers.
“Our current situation is marked by endless monetary activism marked of near-zero interest rates and asset inflation which rewards those who already own assets, and have the means to access higher-risk investment instruments that offer higher yields.
“Meanwhile, banking regulations have been re-jiggered by federal politicians and regulators to favor established firms and the already-wealthy.”
Fed chairmen brag about their “powerful tools,” but those tools have given us slow growth and reduced earnings.
LIfe Expectancy Drops for Third Year in a Row
Meanwhile, it looks like 2018 will be the third straight year that American life spans have decreased.No surprise there.Prosperous people live longer than impoverished people.Ever notice how neatly the shorter life span trend overlays with the bureaucracies’ massive intrusion into the health care field?In other words, Washington is doing to our life spans just what it has done to our money.
What can you do?The government is not likely to return to an honest money standard, one that lubricates commerce and enables savings and capital formation.One that allows people to “live long and prosper.”
But you can begin to insulate yourself from some of the effects of the Fed’s malperformance, including the slow grinding impoverishment of the people that lowers their life spans, by owning gold.
Déjà Vu (noun): 1) a feeling that one has seen or heard something before. 2) something overly or unpleasantly familiar.
The headline of The Drudge Report December 4, 2018 screamed “DOW DIVE.FEAR, SLOWING ECONOMY.BANK STOCKS FLASHING.”
The thing is, we had already seen a lot of these gut-check plunges in 2018:October 9, off 678 points; October 24, down 608 points; November 12, a loss of 602 points; November 20, down 551 points; December 1, down 679 points.
And the December 4 selloff of almost 800 points.That’s a single day loss of more than 3 percent, the fourth largest single day point loss in stock market history. Two trading days later it was down another 558 points.
It is simply oxymoronic to describe a market with this volatility as a stable and welcoming investment environment for the American peoples’ savings and future prosperity.
A Bloomberg’s headline said, “It’s the Worst Time to Make Money in Markets Since 1972.”It summed up its story with these words: “There’s nowhere to run.”
Of course, there is somewhere.But we don’t expect the mainstream news media and the financial press, mesmerized as they are by the shiny ties and the titles of Washington bureaucrats and Federal Reserve officials, to have anything but antipathy for gold, its thousands of years of being the world’s most reliable standard of value notwithstanding.
Their attitude is easy enough to explain.Politicized money feeds the dreams of the political ambitious, while gold leaves power-hungry operators powerless. That is because gold cannot be manipulated like interest rates and monetary conditions, to the benefit of their influential contributors, Wall Street “banksters”, and other cronies of the State.
So, they will not tell you to turn to gold when the economy shudders and shakes and the stock market has become a thrill ride of unexpected plunges.
But we will.
To do so, we have selected three dramatic stock market collapses in the modern era that resemble today in many ways.You will learn that gold soared while the stock market was a chamber of horrific losses.
The 1970’s: The Stagflation Decade
One young man who had started to learn about markets before Uncle Sam sent him to Vietnam, came home and wondered if every stock in America had had a stock split.That’s because during 1973 and 1974, while he was otherwise occupied, the stock market had fallen in half.
What happened?First, Nixon had repudiated the dollar’s convertibility to gold.Since OPEC producers discovered that they were to be paid in dollars that could be printed endlessly without restraint, oil prices began to rise.Domestically, businesses were staggering under Nixon’s wage and price micromanagement.And the Federal Reserve changed interest rates like a madman.It engineered more than 20 interest changes some years.The official inflation rate hit 12.2 percent in 1974.
Of course, the stock market fell in half.Of course, gold was the place to go.
Incidentally, while the stock market fell in half in 1973 and 74, the pain wasn’t over then.Although it struggled to recover, it fell again.In the year and a half between September 1976 and March 1978, the S&P500 fell 19.4 percent.During the same brief period gold rose 54 percent.
The 1970s became known as the Stagflation Decade:a combination of stagnate economic growth and inflation.You could have seen it coming as early as 1971 in the overreaching intervention of Nixon’s economic policies, and in the collapsing of the stock market, evident in 1973.
Incidentally, like today, the presidency was in turmoil.President Nixon was forced to resign in August 1974.
The ownership of monetary gold only become legal for Americans in 1974.With the excitement of that development, which resulted in an initial frenzy much like a hot stock initial public offering, gold settled down to just over $100 an ounce in 1976.But as a safe haven alternative to the battered stock market and the economic turmoil all about, gold started running up from there.And it just kept running, up to $850 by January 1980.
Suppose you had decided to just “ride it out,” and you stayed in the market during the whole brutal period?From its 1974 low, it took eight years for stocks to return to the high they had hit in 1972.But because the intervening period had been characterized by high inflation, in real terms, or in terms of purchasing power, it would have taken more than 20 years to restore your wealth.
Early 2000’s and the DotCom Bubble
In the late 90s, you couldn’t walk into a Starbucks without hearing people talk about the money they were making in stocks with names better off forgotten… Pets.com…InfoSpace… eToys.com…. WorldCom… Drugstore.com… DrKoop.com….Some of the companies were not much more than business plans scrawled on a cocktail napkin.Others with no revenue somehow became hot IPOs.Internet companies were being valued for their “eyeballs,” or how many people would supposedly visit their web pages.
Those of us that objected to companies with no profits being valued higher than companies that actually made a lot of money selling real products and services, were told that it didn’t matter because this time “it was different.”
But it’s never different.The fundamental laws of economics still applied then.Just as they apply today.
The dot com rage was just one of Federal Reserve Chairman Alan Greenspan’s bubbles.When it popped it cost American investors $5 trillion.
The Nasdaq composite index peaked in March 2000 at just over 5,100 points. It fell to 1,300 in less than two years.It took 4,800 internet companies down with it.The broader market measured by the S&P 500 fell 49 percent.
It was a bloodbath.
The attacks of 9/11/2001 gave fuel to the gold market; the gold price immediately jumped, as it does in a crisis.But there was more to it.First, Greenspan gunned the money supply.Then, on March 16, 2002, Vice President Cheney paid a visit to Saudi Arabia.His message was clear.The United States was going use 9/11 to roll-out a larger war in the Mideast.The empire was going to go for broke.And the financiers of the world now knew it.
Congress, having heard Cheney’s explanation that “deficits don’t matter,” raised the national debt ceiling time after time.
But it came to pass that deficits do matter.Ignited by the stock market crash and fueled by Greenspan’s money printing and wild deficit spending, a new gold bull market roared ahead.
Gold had seen a low of $253 in the summer of 1999.Some people date the beginning of the gold bull market to the year 2001 with gold around $260 an ounce.Either way, by December 2005 it had more than doubled to $520.By March of 2008 it was over $1000 an ounce.
What about those that decided to ride out the Nasdaq crash?For them, it was a long fifteen years waiting for the market to return to its old highs.
What if instead they had moved prudently out of stocks in 1999 or 2000 before the market plummeted, but when it was clear that, like today, stocks were in an unsustainable bubble?And what if they had then moved their gains into gold before the prices took off?
And if you didn’t do it then, what if you had another chance to do it now?
2008:The Great Recession
Since deficits didn’t matter, when George W. Bush came into office the national debt wasless than $6 trillion.When he left, it had climbed to $11.35 trillion.Bush had presided over seven increases in the national debt ceiling in eight years.
When he left, the country had just entered the worst economic downturn since the storied Great Depression.Greenspan had been at it again.To compensate for the popping of the prior bubble, the dot com bubble, the so-called “Maestro” cut interest rates 13 consecutive times between the beginning of 2001 and the middle of 2003, driving the Fed funds rate to 1 percent, and leaving it there, below the inflation rate.
He had created the housing bubble!
With trillions of dollars of unsupportable real estate loans being made with a that cost free money, it was what someone described as a bubble in search of a pin!
Now, here is the part that today’s investors need to know.The Fed began raising interest rates.Sound familiar?The pin had been found!
After a year at one percent, the Fed raised rates 17 times, to 5.25 percent by June 2006.
The Great Recession began knocking at the door.Mortgage delinquencies climbed and Wall Street powerhouses – like Bear Stearns and Lehman Bros. with their subprime mortgage hedge funds – began to crumble.The Panic of 2008 ensued.
Here’s what happened to the stock market.From its high in October 2007, the S&P 500 fell for 17 months.It lost 56.4 percent of its value.The Dow Industrials fell from 14,198 in October 2007 to 6,443 in March 2009, a loss of more than 54%.
Gold, on the other hand, soared. From its low of $713 in the fall of 2008, it raced to $1900 an ounce three years later.(Silver, incidentally, did even better.From a low of $8.80 that fall, it raced almost $50 an ounce in April 2011.)
We have chosen these three stock market crashes to illustrate where we are today and the future that is being signaled to us by today’s extreme market volatility.
Each of these crashes was preceded by a monetary policy binge: the reckless delinking of the dollar from gold in the 1970s, the joyride of the dot com bubble, and mortgage the bubble.
Just as the Fed responded to the popping of the dot com bubble with the creation of another bubble that ended badly, today’s stock market has been frothed to its present high levels by another money creation mania, Quantitative Easing, a madcap policy to offset the damage from the popping the mortgage bubble.
You should note that the carnage will be worse this time.Much worse.That is because the Quantitative Easing bubble is so much bigger that anything before.The Fed today owns $1.7 trillion of toxic mortgage securities it bought to take off the books of its crony banksters.It owns another $2.3 trillion of federal government debt, purchased to make Washington’s deficit spending easier.Each of these trillions of purchases was paid for by creating “money” out of nothing more that digital bookkeeping entries.
This money creation represents the biggest bubble in the history of the world.At the same unfortunate time, the United States is the biggest debtor in the world.
Just as it triggered the collapse of the housing bubble and brought the stock market to its knees with its higher interest rate regime, today the Fed is raising rates again.And once again the stock market is gyrating wildly.It is virtually shouting that there is no safe space to be found in stocks.
As of writing, USA Today has just published a piece headlined, “Stocks are plunging.Here’s what you can do.”Speaking as the establishment voice that it is, the newspaper says nothing about gold’s exemplary profit performance in these episodes.But it does advise you to “control your emotions,” as though the fault is somehow with you instead of with the boom and bust makers in Washington.And it tells you to think long-term.
We advise you to think long-term as well.Over the long-term of this survey, the market has crashed, crashed, and crashed again.Each time the monetary authorities create a new bubble to cushion the pain of the prior one.Each new bubble pops in succession.This, the biggest-of-all bubbles, will end like the rest.
As we have been telling you since last Fall just before these monster sell-off sessions got underway (-678 points, – 608 points, -602 points, -551 points, -679 points, -799 points,-558 points), the system is blinking red.
As with each of the prior crashes, there is only the safe haven of gold.
“I know of no way of judging of the future but by the past.” – Patrick Henry
Sometimes the things that move the markets the most violently – gold, silver, and other markets as well – are things that aren’t on most people’s radar screens.
Front and center in the attention of economic and financial news observers is the on-again, off-again trade war with China.I do not dispute in the least its significance.It is very important for many reasons, not least is the US dependency on foreign creditors like China to fund it exploding debt needs.
No less significant is a remark made by a Chinese official the other day, that trade wars can readily become shooting wars.It is an oft-repeated adage, but one to remember.
While all eyes were on the G-20 summit in Argentina, and the high drama of the US-China decision to apparently kick the next escalation of their trade war down the road, I want to turn your attention to something else.
The prospect for a military confrontation with Iran continues to mount.The aim of the US sanctions regime against Iran is to stop all Iranian foreign oil sales. It won’t work, of course, even though National Security Advisor John Bolton insists that US sanctions on Iran will be “aggressive and unwavering.”
In a televised address this week, Iranian President Hassan Rouhani said, “If one day they (the US) want to prevent the export of Iran’s oil, then no oil will be exported from the Persian Gulf.”
It is not the first time in the current environment that Rouhani has made that threat, a clear reference to Iran’s willingness to close the Strait of Hormuz.
A third of the world’s sea-borne oil moves through that chokepoint. US officials like to talk knowingly about how they can keep the Strait open.They are fooling themselves in overestimating their own capacity and underestimating their opponents.This seems to be a congenital defect among US strategists, the geniuses who thought the Iraq war of 2003 would be over in days.
In any event, if things get hot over the Strait of Hormuz, it will realign the major powers of the world, creating explicit new alliances and sorely test America’s geopolitical dominance.It will change the dollar’s role in international trade and send energy prices to crippling highs.
It will send gold prices soaring.
A hot showdown over the Strait of Hormuz is beginning to look like a certainty.Buy gold and watch this one closely.
With the turn of the calendar page to December, the holiday season is underway.Here and throughout the Western world it means a jump in consumer spending for Christmas presents.
But the approach of the New Year means something else in other parts of the world.Itoften means a big, cyclical jump in precious metals prices.
The gift giving cycles in Asia are behind this pattern.Gold is a traditional and prized wedding gift in India and elsewhere in Asia, so manufacturers, jewelers, and the people themselves often start buying at the beginning of the year for spring weddings.
The Indian government, like many governments, has often been at war with the people’s traditional desire to own gold.It prefers people to hold only government printing press money that can be devalued at will, to the benefit of the state and at the expense of the people.
But the people will not be denied and the precious metals tradition wins out each time.The calamity of India’s paper money call-in and exchange two years ago further discredited the state and its monetary authorities.The attempt to demonetize the common currency was so disastrous that it will linger in the memories of the Indian people for a long time…and add fuel to their appetite for gold.
Year after year we see a surge in gold prices at the beginning of the year.For that reason, we recommend that you take action now on your planned precious metals acquisitions.
I have been warning about the overvalued stock market for some time.Because we are clearly moving into a very troubling economic period, I have suggested you take profits you have in stocks and move them to the safety of gold.
The problems that I have described are so apparent that even the Federal Reserve itself is now warning about them.So today, I will borrow from a story on CNBC describing a new report by the Fed.The headline reads:
“Fed warns that a ‘particularly large’ plunge
in market prices is possible if risks materialize”
Here is a Federal Reserve chart showing price movement of the Dow Industrial Average over the last couple of year.Note the double-top it has put in at around 27,000.
Now I urge you to carefully read the story:
The Federal Reserve issued a cautionary note Wednesday about risks to financial stability, saying trade tensions, geopolitical uncertainty and a buildup in corporate debt among firms with weak balance sheets pose strong threats.
In a lengthy first-time report on the banking system and corporate and business debt, the Fed warned of “generally elevated” asset prices that “appear high relative to their historical ranges.”
In addition, the central bank said ongoing trade tensions, which are running high between the U.S. and China, coupled with an uncertain geopolitical environment could combine with the high asset prices to provide a notable shock.
“An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general,” the report said. “The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels.”…
The report further noted that the Fed’s own rate hikes could pose a threat. A market and economy used to low rates could face issues as the Fed continues to normalize policy through rate hikes and a reduction in its balance sheet, or portfolio of bonds it purchased to stimulate the economy.
Sometimes, when it becomes virtually undeniable, an economic calamity announces itself in advance. It is as though there are warning signs, in bold, red letters, screaming about the stock market so loudly that even the Fed can no longer whistle past the graveyard.
The failure of a currency is not a pleasant thing.
It is usually accompanied by widespread social unrest, crime, impoverishment, and ruin.
Venezuela is like a laboratory experiment in currency failure – something going on before out very eyes.Of course, a lab experiment is useful only if something is learned from it.
Yet there is no evidence that our monetary and fiscal authorities are learning anything at all from Venezuela’s monetary fiasco, running an annual inflation rate now of about 46,400 percent.
Of course, Venezuela didn’t have to ruin its economy and impoverish its people with its own laboratory experiment in bad-faith money.It could have learned from other modern inflations, such as in Hungary in 1945-46 in which prices doubled every 15 hours!Even the famous frenzied Zimbabwe inflation was only about half that rate.
The Venezuela tragedy continues to play out year after year, without a course correction, a return to honest money.Accounts of the suffering of its people would fill countless book and endless documentaries.Here are a few observations from a recent USA Today report on Venezuela.
“You would need a stack of money to even pay for a tomato,” says one 19-year-old mother who finally fled across the border into Columbia with her 1-year-old daughter in her arms.“You would need a big stack of money,”
Three million other Venezuelans like her have fled the country, a million to Columbia, half a million to Peru, and the rest to other South American countries.“Without shelter and without jobs, throngs of immigrants sleep on the streets and beg for money and food,” USA Today reports.
“At sunset each night, young Venezuelan women gather in Bolivar Plaza or by churches, looking to sell their bodies for sex.”
What is the fundamental difference between any failed currency and the US dollar?Except for degree, not much.Like other currencies that have in time returned to their ultimate commodity value (what is the value of little rectangular pieces of paper, especially those that have already been printed on?) the US dollar in unbacked and issued without restraint.
If you think that is an exaggeration, let me point you to the trillions of dollars the Fed created out of thin air to buy government bonds and toxic mortgage securities from the money center banks in the years between 2008 and 2015.That’s money printing on a Venezuelan scale!
Incidentally, that money still hasn’t been assimilated into the general economy and reflected in consumer prices.
But it will be.
Meanwhile, Reuters is reporting on a trend we have discussed:foreign investors, both sovereign and private, are turning up their noses at US Treasury offerings.Reuters reports the weakest foreign participation in US auctions in a decade.
Just when the US needs to borrow the most.
If they aren’t buying US debt, what are they buying?
Gold, of course.
So is anyone who has learned from monetary laboratories like Venezuela.
When a Legendary Investor Speaks, We Should Listen.
Jim Rogers deserves his reputation as a legendary investor.
Right now, Rogers says the next bear market in stocks will be “the worst of my lifetime.”
Rogers knows something about stock bear markets. The bear market of the 1970s was brutal for stocks, but during that period when Wall Street was suffering, the Quantum Fund, which Rogers co-founded, turned in a performance that was simply astonishing.1970 to 1980 the Quantum Fund climbed an eye-popping 4,200%. During the same ten-year period the S&P 500 managed to rise only 47%. “Nobody we know has ever been right about every turn in multiple markets, but we often look to Jim Rogers for his enviable record at foreseeing the broad, sweeping turns of the markets, including the Mortgage Meltdown and the Panic of 2008.”
So why does Rogers think the next bear market will be so rough?Here are some of his thoughts from a recent interview with Portfolio Wealth Global:
“The federal government, for better or worse, has been gigantically deficit spending.The Federal Reserve, the central bank, has had a lot of loose money around.So all of this money is going somewhere and it is going into the American stock market.”
“When the problems come, and they will come, I assure you, everybody is going to be looking to blame somebody.They’ll blame foreigners, they’ll blame banks, they’ll blame rich people, they’ll blame someone.”
“The situation now is America, the United States, is the largest debtor nation in the history of the world.Whenever that has happened historically, whenever someone gets massive amounts of debt, excesses set in and then you have a problem.Every country in history that has gotten itself in this kind of debt situation, has had a crisis eventually or a semi-crisis.”
“So, yes, it’s coming.”
“First of all, I should remind you we have always had financial setbacks, economic problems every five or ten years throughout history, so there’s nothing unusual about it.”
“It’s coming again.The next time its going to be really, really bad because the debt is so much higher now.”
“We had a crisis in 2008 because of too much debt.Since then the debt has gone very, very high everywhere in the world.So, the next economic problem is going to be the worst in my lifetime.”
Rogers understands the role of gold in an honest and stable monetary system and has been a great advocate for everybody owning gold. Speak to your RME broker about a sensible plan to protect your wealth from the next crisis.
The Drudge Report headline Thursday morning read, “STOCKS ERASE GAINS FOR YEAR; TRILLION WIPED OFF TECH; GOLDMAN: BOOST CASH.
Another wave of selling in the stock market was no surprise to our readers.
It’s been a rout in Nasdaq stocks.We have already pointed out the good times are over for the popular FANG stocks — Facebook, Amazon, Netflix, and Google.
Meanwhile Goldman Sachs has dialed down its forecast for the stock market to merely “a modest single-digit absolute return” in 2019.
Forecasting a single-digit return may be optimistic for the likely performance of the stock market.
Morgan Stanley recommends trading the stock market “like it’s a bear market rather than a bull.”
Our recommendation is to not trade it at all.We recommend safety first.When destructive market forces have been unleashed, we prefer the shelter of gold to playing dodge ball in the stock market.
And make no mistake.Destructive forces have been set loose, including the Fed’s new interest rate regime.
Bigger still is the growing trade war.When Goldman Sachs says to prefer cash, it is apparently stuck in the old paradigm definition of cash, the post-war Bretton Woods agreement.King Dollar.The Reserve Currency of the World.All that.
But all that is history.Much of the world is dissatisfied with the dollar reserve standard.Much of the world is moving slowly away from it with bi-lateral and multi-lateral trade deals and settlement option.Many nations are stockpiling gold reserves.
That movement has been low-grade, mostly unnoticed so far.But in a trade war it can erupt into a megatrend overnight.
And with that in mind, our view of cash is something more enduring than pieces of paper with government printing.
Our preference is gold.
Meanwhile, both the Dow Industrials and the S&P500 are trading below their key 50-day and 200-day moving averages.
Gold, on the other hand, is above its 50-day moving average.It is approaching it 200-day moving average.
Here’s the headline:US Household Debt Hits Record $13.5 Trillion As Delinquencies Hit 6 Year High.
A New York Fed report says that “that total household debt rose by $219 billion to reach $13.51 trillion in the third quarter of 2018—an increase of 1.6 percent, up from a rise of 0.6 percent in the second quarter. Balances climbed 1.6 percent on mortgages, 2.2 percent on auto loans, 1.8 percent on credit cards, and 2.6 percent on student loans this past quarter.”
“It was the 17th consecutive quarter with an increase and the total is now $837 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008. Furthermore, overall household debt is now 21.2% above the post-financial-crisis trough reached during the second quarter of 2013.”
Okay.Let me cut through all this.Total world debt is now approaching $250 trillion dollars.Government debt.Corporate debt.Consumer debt.
That a quarter quadrillion dollars!
And debt is climbing faster than productivity.
It’s one thing if debt is productive.Say someone borrows money to buy some equipment or capital goods that allow him to become still more productive.A farmer buys a tractor and cultivates more land.A shoemaker in the third world borrows for a machine that enables him to make more shoes than he could stitching them by hand.
But its something else again if the money is not used productively.Then the debt increases while the ability to service that debt does not.
That’s what happens when consumers borrow for consumption goods or fancy vacations.It’s what happens when governments borrow to buy votes with giveaway programs.
And that’s the situation today.Global debt is growing faster than productivity, faster than GDP.
As economist say, the marginal utility of debt is down. A dollar of debt is not producing a dollar of GDP.
It’s been a pretty bloody few weeks in the oil trading pits.From the high at the beginning of October of almost $77 per barrel, the benchmark price of West Texas Crude fell to around $55 this week.
A sell-off of that magnitude in any market is a big deal.
It’s a crash.
It’s important to us because for a few days earlier this month it looked like oil was dragging gold and silver down with it.
That sort of thing can happen when commodity futures traders see one commodity selling off, and dump their position in others “just in case”.Traders in markets with perfectly sound economic fundamental can sometimes liquidate their positions to meet margin calls in collapsing markets.
But as the week unfolded oil showed its first higher closes following twelve days of successive loses dating back to October 29.
Having shown their resilience in the face of the 28 percent bloodshed in oil, gold and silver showed gains as well by midweek.
The petroleum story revolves around both Russia and the Saudi ramping up production in anticipation of additional sanctions choking off more Iranian production.When the sanctions didn’t materialize as expected, the petroleum market was staring at oversupply.
For those interested in a little historical perspective, oil ran up to $145 a barrel in July of 2008 just before the economic meltdown that year.Five months later, as the crisis picked up steam, it broke below $31.
In October 2008, as the extent of the 2008 Great Recession was becoming clear, gold saw a low of $713.Savvy investors started moving in.Those prices have never been seen again.
When you find yourself deep in a hole, the best advice is to stop digging.
Governments that find themselves in a fiscally unsustainable situation must either stop digging or destroy their currencies.When the hole is too deep to climb out, you can be sure that a crisis looms ahead.
Of course, it goes without saying that gold is the prime alternative to a currency headed for destruction.
Today I’m going to cherry-pick a few numbers from a piece this week in the Wall Street Journal that will give you an idea just how deep the government’s fiscal hole is.It’s titled “U.S. on a Course to Spend More on Debt Than Defense:Rising interest costs could crowd out other government spending priorities and rattle markets.”
In the past decade, U.S. debt held by the public has risen to $15.9 trillion from $5.1 trillion, but financing all of that debt hasn’t been a problem. Low inflation and strong global demand for safe U.S. Treasury bonds held the government’s interest costs down.
That’s in the process of changing.
In 2017, interest costs on federal debt of $263 billion accounted for 6.6% of all government spending…. The Congressional Budget Office estimates interest spending will rise to $915 billion by 2028, or 13% of all outlays…
It will spend more on interest than it spends on Medicaid in 2020; more in 2023 than it spends on national defense; and more in 2025 than it spends on all nondefense discretionary programs combined, from funding for national parks to scientific research, to health care and education, to the court system and infrastructure, according to the CBO.
Debt as a share of gross domestic product is projected to climb over the next decade, from 78% at the end of this year—the highest it has been since the end of World War II—to 96.2% in 2028, according to CBO projections. As the overall size of our debt load grows, so too do the size of interest payments.
With President Trump’s firing of Jeff Sessions, the new acting Attorney General is Matt Whittaker.Whatever else he may believe and ultimately do in his new position, we have learned that Whittaker has a more sensible view of the nature of money, the Fed, and gold than 99.9 percent of the Washington bureaucracy.
Here are a couple of tweets from Whittaker in 2012 while he was in private law practice in Iowa.
On February 7, 2012 Whittaker tweeted:
“We need to begin to move to a gold/commodity standard.The Federal Reserve’s explicit goal:Devalue the dollar 33%.”
A few weeks later, on February 23, he tweeted:
“… the dollar is… fiat currency.There is no inherent limit as to how far the price of gold in dollars can rise.”
The next month, on March 23, Whittaker tweeted about gold again, this time making note of the Chairman of the Federal Reserve:
“Ben Bernanke’s shocking Gold Standard Ignorance.”
At least for now, Whitaker will directly supervise Robert Mueller’s Special Counsel investigation.Whittaker is likely to be a central figure in the Washington for the rest of Trump’s presidency.
2. WHAT THE ESTABLISHMENT SEES
I want to share with you the outlook of the head of BlackRock, the largest asset manager in the world.Blackrock was once called “the most powerful company that no one has ever heard of”.
Larry Fink is the CEO.His firm manages $6.4 trillion in assets.
At a conference in Singapore last week, Fink spoke about the $1.3 trillion dollar deficit looming in Fiscal Year 2019.
“If indeed we do have that $1.3 trillion deficit, and the economy isn’t growing at three percent, we’re going to have a far bigger crisis in the coming years.And then the fear of the ending of this (stock) bull market is probably going to be a reality.”
Fink says that forty percent of the US deficit is funded by “external factors.”And yet the US is fighting with its creditors worldwide.“Generally, when you fight with your banker, it’s not a good outcome.”
3. DOOMSDAY MACHINE!
David Stockman, US Budget Director under President Reagan, now says “the nation’s Fiscal Doomsday Machine is now unstoppable.”
Essential to Stockman’s argument are these points:
The Federal government’s current fiscal year budget already has a projected deficit of, says Stockman, $1.2 trillion.
The Federal Reserve will be dumping $600 billion in bonds as it tries to unwind some of its QE swollen portfolio.
Currency speculators can be expected to dump hundreds of billions more in Treasury instruments.
By our calculation, that amounts to some $2 trillion of US Treasury bonds that the market will have to absorb in the current fiscal year.That’s a pretty big task.
As careful watchers of the precious metals markets for a very long time, we have learned that when the government finds itself between a rock and a hard place, it does imprudent things and gold’s luster grows brighter
You may be cheered or dejected by the results of this week’s election.Certainly, there is something for everybody on the political spectrum to find either encouraging or discouraging in the outcome of Tuesday’s voting.
But our beat is money:the dollar, spending, debt, the Fed, and the monetary system.In short, all the things that impact precious metals and your financial future.And with that focus, we see nothing about Tuesday’s election that changes our trajectory in the least.
The dethroning of the dollar as the world’s reserve currency will continue apace.The implications for the value of the dollar and the American standard of living are enormous.
The trajectory for wars around the world is unchanged by the election.Almost nothing was said about the general thrust of foreign policy by candidates of either party.The outbreak of hostilities in the Persian Gulf, the South China Sea, or anywhere along Russia’s frontiers would be unquestionably bullish for gold.
As conspicuous in its absence as any real national debate about the Establishment’s foreign policy is the absence of any show of concern among the contenders about America’s trillion-dollar deficits and the national debt that is now closing in on $22 trillion.
America’s socialist drift has continued year after year, under both Republican and Democratic majorities.If anything, the crony capitalism best captured in the bankster bailouts beginning ten years ago – and supported by R’s and D’s alike – has left a sense of betrayal and disgust among the middle class in its wake that has been diligently exploited by the growing socialist movement.It should go without saying that socialism destroys prosperity, and that it usually begins that task by destroying the value of the currency.
There are other important items we could cite in evidence that the election changes none of the economic fundamentals:sky-high corporate debt, unpayable student debt, and a precarious stock market propped up by Fed interest rate machinations and stock buybacks.
Those of us who hope for more substance in our politics and more wisdom from the voters will cynically remember the old line, that if elections really changed anything, they’d make them illegal.
We take some comfort, however, in also remembering that gold and silver are the best protection from the financial and monetary folly of governments.
One day, not so many years ago, in the middle of testimony before the House Banking Committee, Federal Reserve Chairman Ben Bernanke was asked a question by committee member Congressman Ron Paul.
“If gold is not money,” asked Paul, “why does the Federal Reserve insist on owning it?”
It is an important question, one that gets right to heart of the contradictions in our monetary system.But Bernanke was quick on his feet.The Fed owns gold, he explained, because “it’s a tradition.”
Was the Chairman saying that the Fed feels obligated to abide by all kinds of monetary traditions, or simply monetary traditions having to do with gold?Or only the tradition that required the Fed to hold title to gold of the people of the United States?
Of course, Bernanke’s answer was simply balderdash.
The Fed insists on owning gold because it is the world’s premiere form of money, prized everywhere around the globe by both people and governments alike, and in both good times and bad.
Consider this.When the US government made it a felony for American citizens to own monetary gold under presidential executive order and the Gold Reserve Act of 1934, it wasn’t simply trying to demonetize gold, to force it out of the monetary system.It certainly wanted to eliminate gold as a competitor to its new paper money scheme, one that allowed it to print dollars without backing or limitation and to devalue that money when it suited the State.
It was serious enough about that objective.
But the government also wanted all the people’s gold for itself.So, the law threatened the people with fines of $10,000 and ten years imprisonment for its violation.
Rather severe threats for something that has no more significance than some old-time tradition, wouldn’t you say?
In reality, central bankers like Bernanke pretend that gold isn’t money, but in the real world, even among central banks, it remains money nonetheless.
When countries invade one another, the don’t rush to grab digital bookkeeping entries in which phony money is created out of nothing.Nor do the grab Christmas trees or maypoles or other symbols of traditions.
They rush to grab the gold.
Just recently Venezuela attempted to repatriate 14 metric tons of gold held by the British central bank, the Bank of England.It is gold that the South American socialist state has been using for “swap” operations.In other words, when it has borrowed from foreign institutions and central banks, they have insisted that Venezuela’s gold serve as the collateral for those loans.Because they are all really still on the gold standard.
Venezuela is finding getting its gold back to be very difficult indeed, thanks to US sanctions.That is because in their international operations nations and central banks are still on the gold standard.
The monetary authorities’ and central bankers’ manipulation of credit conditions and interest rates, their ability to boom and bust economies at will, is utterly reliant on people being persuaded that gold is not money.