Monday, July 17, 2017

The Logic of a Modern Gold Standard - Is it Even Possible?

In last week’s Insight, I analysed the current geopolitical situation and concluded that it was now in the interest of the Shanghai Cooperation Organisation to break from the US dollar completely, by establishing a new monetary and banking systemi. By linking the yuan and rouble to gold, the SCO’s principal currencies would be insulated from manipulation by means of dollar currency rates, and their use as a weapon to undermine the Sino-Russian partnership. This article addresses some of the practical difficulties of establishing such a sound monetary system.

A return to sound money will require a radical reform of financial markets, as well as the laws and regulations under which banks and investment houses work. The weaknesses of the current fiat-money system must be identified and understood by reforming governments. It also amounts to no less than discarding the entire evolution of mainstream economic thinking that has evolved in the welfare-states since the 1930s.

Revolutions of this sort normally occur after a major economic and financial failure, when the shortcomings of received wisdom are so glaringly obvious that it loses all credibility. Just occasionally, this can happen without the crisis occurring first. It appears, from what we can deduce as observers, that the assembly of the Asian and East European continent into a self-contained economic and financial unit presents such an opportunity. That was the thrust of last week’s article.

For those who have a thorough understanding of sound money and the benefits it brings to an economy, the opportunity presented by Asia rejecting the West’s unsound money system should be welcomed. The lunacy of expanding the quantity of money as a cure-all for every economic malaise, real and imagined, has led to the widespread expansion of debt to unsustainable levels. It is no exaggeration to say that the global financial system, being based on the dollar, is now exposed to a final collapse, worse than that of the financial crisis of 2008-09, and leading inevitably to the destruction of the fiat currencies we use today.

The destruction of unsound money will not happen overnight. It will come from the central banks’ response to the next global debt crisis. In such a crisis, the banking system, being geared through the fractional reserve system, will cease to exist without central banks bailing it out with unlimited quantities of raw money.

There is little point in trying to predict the timing of this increasingly certain event, or how the crisis will first manifest itself. We know that the credit cycle progresses remorselessly from rescue, to recovery, to bust. The bust is yet to come. The bust, thanks to the groupthink imposed by forums such as G20 meetings and central banks liaising through the Bank for International Settlements, is increasingly a global affair.

If China, Russia and the SCO can grasp the opportunity to escape the unsound money-system of the Western establishment, they will at least partially insulate three billion people from a global currency disaster. That will ultimately benefit the rest of humanity. We must applaud that, even though the introduction of sound money policies in Asia will almost certainly bring forward the crisis in the indebted welfare-states; that is going to happen anyway. For this reason, the change from unsound monetary policies to the rigid rules of sound money must be progressed in such a way that blame is not apportioned to China and Russia for the monetary disaster that will befall us. Instead, we should be grateful that a significant core of global economic activity will escape widespread monetary destruction. The return to a gold standard and the insulation from financial catastrophe that China and Russia will hopefully provide should guide us in our post-crisis monetary reform.

The effect on commodity prices

By remonetising gold into the monetary system of a large economic bloc, demand for gold will be increased. We saw the reverse of this effect on silver in the period 1875-1900. When most countries with a silver standard demonetised it in in favour of gold. In the late nineteenth century, its price relationship with gold moved from exchange ratios corresponding approximately to Sir Isaac Newton’s ratio of 15.5, to considerably higher levels through a collapse of the silver price. Today the ratio is over seventy. The reason for the relative collapse in silver was not hard to understand. The removal of its use as money (except as coin tokens) meant it was then priced for alternative uses. While industrial uses of silver over the years have changed, its value as an industrial metal was always considerably less than for its former use as money.

Thus, it is with gold, demonetised from the financial system, but with an added twist. Under the cover of limited convertibility with the dollar, the dollar was continually debased following the ban on public ownership of gold under the Gold Reserve Act of 1934. Since the official price was raised to $35, the quantity of dollars and dollar credit has increased at a monthly compounding annualised rate of about 5%, until the last financial crisis, when that rate sharply accelerated to 12%, measured by the fiat money quantity. The monetary arrangements were set by the Roosevelt administration and then by the Bretton Woods Agreement. The objective was to permit the expansion of the quantity of dollars, while retaining the pricing stability of gold. The removal of gold from the monetary system after the Nixon shock in 1971 was the inevitable conclusion of this dishonest arrangement, following which the gold price naturally rose, measured in dollars. Today, gold is approximately $1200 in its current demonetised form.

There can be little doubt that the remonetisation of gold for the currencies of a significant portion of the world’s population will drive up the price of gold against the other currencies. This is the reason I recommended that a period should be permitted for the gold price to adjust, before the rate of exchange with is set, first the yuan and then roubles.

It is also important that China, in the first instance, announces it has sufficient gold for the standard to stick, so that it has no need to acquire further bullion from the markets. It is likely, however, that other central banks, particularly the Reserve Bank of India, will want to build their own gold reserves, rather than accept a gold-backed yuan as backing for the rupee. These are political, rather than economic, judgements. India has for some time tried to acquire as a national asset the physical gold held by its citizens and the Hindu temples, with little success. India’s requirements for gold to back its own currency in the SCO is too great to be satisfied at current prices through market purchases. Furthermore, other Asian central banks will also want to add to their gold reserves.

We can conclude therefore that the remonetisation of gold will, with a high degree of certainty, lead to a substantial increase in the dollar price. On this basis alone, the dollar prices of energy and all industrial commodities will be heavily influenced by the decline of the dollar relative to gold. But there is a further consideration. The expansion of derivative markets since the 1980s has amounted to a synthetic supply of commodities generally, suppressing prices below where they would otherwise be without that synthetic supply. We are acutely aware of this effect in gold and silver, but it is not confined to these precious metals.

As the world’s largest importer of energy and industrial materials, this price suppression has been to China’s benefit, so far. Doubtless, China has been broadly content for dollar suppression of commodity prices to continue in the ordinary course of business. Maintaining a stable yuan/dollar rate has also allowed Chinese-based manufacturers to profit from export markets generally, setting in motion a wealth-transfer accumulation in favour of Chinese citizens. But things are changing. Most obviously, President Trump is determined to stop China from running an export surplus with the US, likely to lead to trade tariffs and barriers.

Fortunately for China, she is now almost ready to discard America as a strategic market, building on trade in Asia instead, and with Europe via the overland rail link. The days of exporting cheap goods are over, and the economy is being upgraded towards a greater content of technology, automation, and quality. The similarities with the development of the Japanese economy between 1950 and 1980 are striking. Additionally, China is causing an industrial revolution to occur throughout the Asian continent. In conjunction with Russia (which is along for the ride) Asia, through the SCO, is becoming an integral part of China for economic purposes.

It is now in China’s interest for imported commodities to be as cheap as possible, rather than the yuan being a held as a competitive currency to foster exports. Furthermore, the rapid expansion of bank credit since the great financial crisis has led to an accumulation of bank deposits that is likely in time to reduce the purchasing power of the yuan, unless this tendency is offset by a rise in the exchange rate.

This is the underlying logic for anchoring the yuan to gold. In doing so, the cost of imported commodities will fall at the same time as China faces price inflation pressures from earlier monetary expansion.

The economic effects

Preventing a fall in the purchasing power of the yuan will be a growing priority, as China’s middle classes increase in their numbers. Not only are factory workers and businesses accumulating wealth, but the Chinese authorities plan to redeploy yet more people from the land into the cities. This will add as many as 200 million people to the urban areas to alleviate a looming labour shortage.

The shortage of labour is bound to be reflected in higher wages for a population already holding in aggregate an uncomfortable quantity of cash deposits. The rate of increase in prices has so far been modest, with the CPI annual increase falling from 4.6% in 2010 to under 2% last year. It will be increasingly likely that prices will now rise at a faster pace, the consequence of a shift in preferences from holding excess money to owning goods. In short, the next phase of progress for China, in accordance with the current five-year plan, will require the purchasing power of the yuan to be stabilised.

This is the economic reason for the yuan to go onto a gold standard. It is likely to be a popular move with the people as well, who have been encouraged to accumulate gold in recent years. A golden yuan will reward savers, and it is savings that drive successful economies. Witness Germany and Japan in the post-war years, and compare them with the Keynesian failures of consumption-driven economies, notably that of the UK. Furthermore, the yuan will need enhanced credibility from gold, if it is to become the trade currency of choice throughout Asia, because gold is regarded as the saver’s money throughout the continent.

Modern economists will say that a sharply revalued yuan will undermine the terms of trade. This is to misunderstand the origins of trade imbalances, which arise principally from differentials in rates of growth of money supply and savings. So long as these are unaffected, a rising currency rate does not alter the balance of trade, only affecting the short-term profitability of exporting businesses. The response of an exporting business to a rising base currency is to invest in more efficient production to restore margins. Again, this is confirmed by the empirical evidence of Germany and Japan in the last century. China is already automating labour-intensive functions to a degree never seen before, rapidly improving output per worker.

The balance of trade will only deteriorate if the savings rate deteriorates, and if China’s savings rate remains significantly higher than those of her trading partners, she will continue to run a trade surplus, even on a stronger dollar/yuan rate. Furthermore, China, with the addition of the other SCO members, is due to become the largest internal market the world has seen since Roman times, marginalising the trade balance issue anyway.

We can therefore be sure China will continue to have a trade surplus, even with the yuan tied to gold. More worrying is the destabilising effect of introducing sound money on the other (unsound) currencies. If, as I suggested in my earlier article, China imparts a 4% yield to gold through the mechanism of an irredeemable bond yielding that rate on a currency-gold convertible basis, the effect on markets with gold lease rates of about 0.25% will be to drive the gold price sharply higher. This is another reason there must be a period between the announcement of the new gold standard and its implementation.

The effect on the dollar’s purchasing power would be to undermine it relative to that of gold. It will not take very long for this to be reflected in the dollar prices of other commodities, because commodity prices tend to be more stable expressed in gold than in fiat currencies. The undermining of the dollar’s purchasing power against commodities may not be immediate, but it is likely to accelerate as markets adjust to these new price relationships, making price inflation the dominant problem in America. The rise in interest rates that is bound to follow will certainly lead to systemic difficulties for the American banks.

Bank regulation

The reintroduction of sound money will have a major impact on the way banks operate. Fortunately, the Chinese government owns the major banks, so it can dictate banking policy without the repercussions that the Americans would face in the same situation from a powerful banking lobby. This is the crux of the argument in favour of a monetary system based on sound money, because the state must restrict the growth of bank lending to supress the credit cycle.

The degree to which sound money can be mixed with unsound money banking practices is necessarily very limited. If China embarks on a gold-backed yuan, it cannot continue to use unbridled credit expansion as a monetary or economic tool.

The history of the gold standard in the nineteenth century clearly showed that the expansion of bank credit always ended in a credit crisis. To avoid the crisis, the solution is to do away with bank credit. It is an open question whether the Chinese would be bold enough in its banking reform to do this, and whether they understand that the business cycle is in fact no more than a credit cycle. On this point hangs the durability of a sound-money arrangement.

If China does grasp this nettle firmly, it will need to separate deposit-taking from loan business. For customers, there must be a separation of spending liquidity from their savings. Spending liquidity can be maintained in cash or electronically in a custody account at a state bank, for which there will necessarily be service charges and no interest paid. Savings are recycled to borrowers through lenders who are forbidden to lend money they do not possess, only lending money they have already had pre-committed for the purpose. In short, public savings do not become the property of a lending bank.

Insurance companies are already in this business, as are peer-to-peer lenders. There will be plenty of alternative sources of funds for borrowers in an economy without fractional reserve banking, and modern advances in financial technology make both deposit-taking and the loan business cost-effective.

The arrangements of a banking system based on sound money are relatively simple to understand. The restrictions to its introduction lie elsewhere, because the global banking system as currently constituted has too many vested interests for sound-money systems to be adopted by Western governments. Bank regulators and bank executives have no experience of how a sound-money system works, instead seeking to control lending risk in a highly-leveraged fiat-money system. The essential flaw in this approach is to assume a state regulator understands commercial risk. And because the regulator is out of his depth, the system is always open to being gamed by the banks, while regulators are under political pressure not to admit to the presence of systemic weaknesses.

It is not only the regulators and the bank executives who are locked into a banking system that must ultimately fail. The economists that advise them are firm believers in the expansion of bank credit as a means of encouraging business activity and consumer spending. Keynesians and monetarists alike view the support of sound money policies as a form of mental aberration. But this is more than anything else a reflection of how far state-driven thinking has become removed from the realities of the markets.

Concluding remarks It is one thing to advocate sound money policies to replace the unsound money we all use today, but it is another to implement them. It requires a new revolution in economic thinking, and an understanding of why sound money matters with respect to prices. Its introduction is likely to disrupt the currencies and economies of the countries that remain with unbacked fiat money systems. Furthermore, if a sound-money arrangement for a currency is to be long-lasting, it will require the end of fractional reserve banking.

The purpose of this article has been to draw attention to just a few of the practical difficulties in reintroducing sound money. Sound money is radically different from what we have today, and so the only chance it will be reintroduced for the Western currencies is in the wake of a financial crisis so great that these unsound currencies are destroyed.

While this outcome is increasingly likely, no government or central bank is likely to give up easily the power of creating money out of thin air. This is certainly true in the West’s welfare-states, where there are enormous future commitments, considerably greater than can be covered through taxation. It is less true in China, Russia, and the member-states of the SCO, who could relatively easily adopt gold backing for their currencies, for the long-term benefit of their economies.

However, it would be a stretch of imagination to assume that the Chinese and Russians, as leaders of the SCO, fully grasp the implications with respect to monetary reform of this nature. Instead, the move towards gold backing for the yuan and then the rouble, if it happens, is likely to be on strategic grounds, or politically motivated.

That was the assumption in my original Insight article, published last week. This is a move that, if it happens, will be driven by evolving geopolitical interests, which appear to have accelerated since President Trump came to office. That being the case, we can only assume that once introduced, a sound-money yuan, or a rouble backed by gold, will be just the start of a revolution in economic thinking, exposing Keynesian and monetarist myths that are now so obviously undermining the future of the welfare-states.

- Source, Alasdair Macleod

Friday, July 14, 2017

Bitcoin Price Suppression?


Cryptocurrencies are a threat to the U.S. dollar. Economist Jerry Robinson cautions investors the rules of the game can change. “Anything that challenges U.S. dollar dominance, is going to be heavily regulated.” 

Cryptocurrencies are under-owned by investors, Robinson says. Only about three percent of U.S. retail investors have exposure to cryptocurrencies. Robinson predicts we’re still in “the early innings” of the boom/bust cycle in cryptocurrencies. 

But remember: the rules of the game can change! Robinson says cryptocurrencies could be regulated and suppressed. Stay tuned to learn Robinson’s strategy to prepare for rule changes in the investing world…

- Source, SD Bullion

Monday, July 10, 2017

Real Physical Gold vs Manipulated Paper Gold


Long time readers of The Daily Coin may remember we interviewed Peter Boehringer, the architect for the German Gold Repatriation Movement. Peter has been skeptical of the information provided by the Bundesbank since day one. Bundesbank, Germany’s Central Bank, has never once produced a gold bar serial number, an assay or any actual tangible proof that Germany has ever received any of the gold they requested from clutches of the Federal Reserve. 

This would have never been a question as Germany would have all their gold had World War II turned out different and the Germans feared the Russians would steal their gold. So, they allowed their gold to be moved to the New York Federal Reserve and France for “safe keeping”. I feel confident the Germans were strong-armed by the “allies” after WWII and forced to give up a portion of their gold. Even in the 1940’s, it seems, “Russia did it” was the meme of the day. – but I digress.

- Read More on Sprott Money, Here


Thursday, July 6, 2017

Prepare For Asset Price Declines of 50 to 75%


Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.

Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt -- which essentially steals prosperity from the future and consumes it today.

Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%.

- Source, Peak Prosperity

Monday, July 3, 2017

Alasdair Macleod’s Market Report: Half-Year Blues

Gold and silver prices were hit on Monday by a $2bn sale of Comex gold futures at about 0400 hrs EST, when US traders were not around to challenge it. Rumours of a “fat finger” appear wide of the mark. More likely it was a too-big-to-fail bank taking out all the stops to window-dress its books ahead of the half-year accounting deadline.

Derivative markets in gold and silver are generally directionless, so it is a good time for this sort of operation. Consequently, gold is down $13 from last Friday’s close, and silver off about five cents, in early European trade this morning (Friday). Since 31st December, gold is up 8.25% and silver 4.65%. Silver’s underperformance is notable, though it appears to be finding a base.

It is time to look at gold priced in the major currencies, which is our next chart.


This chart exposes the relative weakness of the dollar, because the performance of the gold price in the other currencies has been more disappointing. Priced in euros, gold is up only 1%, and in sterling and yen, less than 5%. While global physical ETF holdings have remained generally stable (meaning the public are holding their positions) there can be little doubt that public interest in Europe, the UK and Japan is subdued.

That may be about to change. Recently, year and half-year ends have proved to be turning points. They are also the time when accounts are made up, and traders’ bonuses calculated, which is almost certainly why markets have been weak ahead of the event, recovering afterwards. Importantly, for Asian value buyers this half-year effect and dollar weakness means gold is now up less than 5% in Indian rupees, and up only 5.4% in Chinese yuan. Besides central bank buying, physical demand from these important sources appears to be putting a floor under the gold price.

A separate consideration is what is happening in base metals. Earlier this year, the Chinese authorities decided to take out the investment funds (aka wealth management products) which were front-running the state’s purchases of industrial materials. Copper, the bell-weather for industrial demand, had run up sharply to $2.74 per pound before the State intervened in February, falling to as low as $2.48 in mid-May. Since then, WMPs have been absent from the market, and under the influence of dollar weakness, the copper price has recovered back to $2.68.

This indicates that China’s deliberate attack on Chinese speculators, who were creating bubbles, has generally succeeded and is behind us (we must reserve judgement on crypto-currencies), and state buying programmes aimed at stocking up for infrastructure spending in both China and for the Silk Road projects has resumed. Aluminium, lead, nickel and zinc are all confirming copper’s improving trend.

These developments could be giving some relative support to the silver price, as dealers note firming base metal prices. In any event, silver appears under-priced, with the gold-silver ratio back up at 74.8. This is our last chart.


All in all, there appears to be a better-than-evens chance that precious metals will recover from current depressed levels in the coming weeks, as the half-year accounting affect passes, and sentiment begins to reflect the influence of rising base metal prices.

All in all, there appears to be a better-than-evens chance that precious metals will recover from current depressed levels in the coming weeks, as the half-year accounting affect passes, and sentiment begins to reflect the influence of rising base metal prices.

- Source, Gold Money

Thursday, June 29, 2017

Obama Secretly Set A War With Russia Into Action Before He Left Office

Barack Obama was either very secretively cunning, or someone in his administration was. Before there was an investigation into “Russian hacking,” which we’ve seen no shred of proof even happened, the former president ordered a retaliation against our Cold War foe, which could lead to war.

Before the tears of the saddened liberals dried after Donald Trump beat Hillary Clinton to become the 45th president, Obama was at it with his “pen and phone,” determined to destroy any chance Trump had at being a success. Obama, who was upset that Hillary Clinton would watch Donald Trump inaugurated as president, decided to shift blame to Russia. He authorized a covert cyber operation to deploy “implants” in Russian networks that could be triggered remotely in retaliation to any future cyber aggression by Moscow, The Washington Post reported Friday.

Since we have yet to see any evidence that Russian hacked the election, and admission from intelligence officials confirmed that no votes were changed because of the fabricated “meddling” story, Obama’s ticking time bomb of cyberwarfare could blow up in our faces. After demanding the NSA infect Russian networks with the implants, he also made said implants difficult to remove. Should the Russian government attempt to undo the actions of the emotional temper tantrum by Obama, they will be extremely discomforted.


The implants, developed by the NSA, are designed to hit Russian networks deemed “important to the adversary and that would cause them pain and discomfort if they were disrupted,” a former U.S. official told The Washington Post. Note the use of the word “adversary,” almost as if Obama’s goal was to begin a war with Russia. And to make matters worse, “U.S. intelligence agencies do not need further approval from (President) Trump, and officials said that he would have to issue a countermanding order to stop it,” the Post reported. “The officials said that they have seen no indication that Trump has done so.”

These implants could be “activated” if Russia interferes with another election, which is code for: should Trump win re-election in 2020. They could also be used if Russia takes action against the United States, although there is no reason to suspect that they would. Vladimir Putin does not see the US as an enemy, so it appears that Obama is simply attempting to incite a war with the former Soviet Union. It’s not really a secret that Obama and Putin didn’t like each other.

Putin is coming out of this looking like the bigger man. He’s taken the evidenceless blame on his country with a grain of salt. Democrats and their warmongering leader, Obama, seem to insist on poking the Russian bear. Putin has so far, downplayed the retaliations against him, and his attitude regarding the media hysteria, which is leading to an another war, is actually cool and calm compared to those in our own government. Actions taken by Barack Obama during his term could result in a war with Russia, in which the left with blame on Donald Trump.

- Source, Mac Slavo

Monday, June 19, 2017

Harvey Organ - This Thing is Going Down in September!


Harvey Organ Joins Us to Issue A Warning On the Markets This Fall:

“This Thing is Going Down in September…”

Will Gold and Silver Rise Again After the Latest Rate Hike?
“I Want My Real Metal!”: Something Fishy is Going On in EFP Paper!

“26 Days”: Harvey Breaks Down Andrew Maguire’s Cryptic Comments on the Gold Markets

- Source, Silver Doctors

Sunday, June 18, 2017

Chinese Gold Imports up 50% as Investors Seek Safety from Currencies

China with the worlds largest population is also the largest gold producing country on the planet and they still had to import more gold to satisfy investors as they exchange their currencies for gold.

Please read the rest here; China's Gold Imports Seen Jumping 50% as Haven Demand Booms



Friday, June 16, 2017

Saxo Bank's Steen Jakobsen 60% Chance Recession In The Next 18 Months


Steen Jakobsen is back on, Chief Investment Officer of Saxo Bank, returns to the podcast this week to share with us the warning signs of slowing economic growth he's seeing in major markets all over the world.


Monday, June 12, 2017

Putin Warns Of Hot War & Nuclear Holocaust: I Don’t Think Anyone Would Survive


With tensions among the world’s super powers mounting in places like Ukraine, Syria, North Korea and most recently Qatar and Iran, it may only be a matter of time before someone pushes the red button.

When they do, all bets are off, and as we’ve learned from the assassination of Archduke Ferdinand in June of 1914, once the trigger is pulled there’s no going back and hundreds of millions of lives, perhaps billions, will hang in the balance.

Considering that Russia is closely allied with Syrian President Assad, has a direct interest in maintaining control of Ukraine’s former Crimea region, and its ties to Iran, ignoring the possibility of a global war in coming years could be a devastating oversight.

We are, in fact, at war right now. But just as was the case from the 1960’s through the end of the 1980’s, it is a “cold war.” There have been no direct troop engagements that we know of between the Russians and the United States. But look to cyber space and it should be clear that there is a battle taking place on a daily basis. Moreover, as we’ve previously reported, nuclear war may well be on the horizon, because the confrontations taking place on the geo-political stage are no longer just talk.

Action has already been taken by both sides:


Putin and the Russian people believe the U.S.’s actions are going to lead to a nuclear conflict initiated by the United States. The leadership of the U.S. is made up of politicians who began their careers as Marxist-Socialists. Traitors now have their fingers on the triggers of the nuclear warheads, aided by “yes-men” of the general staffs who will not remember their oaths to the Constitution of the United States and the American people. They will ignore that these charges take precedence above any orders given by a petty, dope-smoking, Marxist community organizer of dubious citizenship who was “emplaced” into office to destroy the country.

Instead of statesmen and diplomats, we now have self-interested, politically-motivated belligerents backing Russia and other nations into corners and pushing them toward war. How long the war of words will be continued is unknown; however, when the missiles begin to fly you can be certain of something. You can rest assured that the men who spoke those words will be in bunkers and other safe places and out of harm’s waypaid for by the American taxpayer.

Full Report: Nuclear War Is On The Horizon: “This Is Not Just Talk… Action Has Been Taken”

Indeed, those who push the buttons will likely be in bunkers well before the missiles hit their targets. That’ll likely be the case on both sides.

For the rest of us?

Vladimir Putin has made clear how it will play out:

The Putin Interviews between the Russian leader and the Oscar-winning director, which will be screened on Showtime, were shot between summer 2015 and February this year and give an extraordinary insight into one of the most powerful men in the world.

Stone asked Putin whether the US would be ‘dominant’ in the event of a ‘hot war’ between the two nuclear powers.

‘I don’t think anyone would survive such a conflict,’ Putin said.

- Source, Mac Slavo

Friday, June 9, 2017

UK Election Chaos Sparks Selling Spree In Bonds & Bullion

Because nothing says sell safe-havens like a shocking election result in the nation at the center of European Union chaos...

Exit Polls signal May failure... sell Gold


At least bonds initial reaction made some sense... but since then it's been Sell the dip in yields and buy stocks... because more QE will paper over any political cracks, we're sure...


Some have suggested that this is due to the May colatilion implying a 'softer' Brexit, implying less global turmoil, implying less need for safety? We remind those 'thinkers', like pregnancy, there's no half-Brexit.

- Source, ZeroHedge

Monday, June 5, 2017

Stocks, Bonds, Euro, and Gold Go Up

The jobs report was disappointing. The prices of gold, and even more so silver, took off. In three hours, they gained $18 and 39 cents. Before we try to read into the connection, it is worth pausing to consider how another market responded. We don’t often discuss the stock market (and we have not been calling for an imminent stock market collapse as many others have).

The initial reaction in the US equities market (futures, as this was before the opening bell) was down. But it was muted, and then in a few hours turned around and the market ended even higher.

Each stock represents a business. Presumably, if jobs growth was disappointing then this is bad for stocks on two grounds. One is that companies hire based on their revenue expectations. Slow or no hiring means slow or no revenue growth. The other is that people who aren’t hired don’t buy as much, and so there is a feedback loop into sluggish business revenue growth.

However, the stock market disagreed. It said let’s cut the earnings yield a bit more, from 3.94% to 3.93%. This presumably means that earnings are set to take off (or it could mean that everyone from wage-earners who pour their surplus into the stock market to older speculators are not thinking about earnings yield).

Not only did the stock market go up, so did the euro. As did US Treasury bonds. And, finally, gold and silver. What is the one thing that these all have in common?

It is possible to borrow to buy these assets.

We read this as a garden-variety day of credit expansion. Folks, this is how the monetary system issupposed to work, according to mainstream economic thought. Based on <insert story du jour>, people borrow to buy assets. This creates a wealth effect, as rising asset prices makes people (at least those who own those assets) feel richer. When they feel richer, they go out to eat more, buy more Rolexes and Porsches, and that employs everyone else. Or so their theory goes.

Stock analysts have a wealth of material to study the fundamentals of public companies. We leave that work to them. We have a theory, model, and now a robust software platform to study and calculate the fundamentals of gold and silver.

We will show charts of the fundamental prices we calculate. But first, a look at the prices of the metals and gold-silver ratio.


Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It moved up a bit, though down on Friday.

In this graph, we show both bid and offer prices. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.


For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.


We had a dropping price of the dollar (the mirror image of the rising price of gold), and a slightly falling abundance (the basis) and slightly rising scarcity (the cobasis).

Our old model shows an increase in the gold fundamental price of $19 ($1,267 to $1,286). Our new software also shows an increase, though smaller and at a higher level ($1,330 to $1,334). We plan an article to discuss this difference.

Now let’s look at silver.


In silver, there is a slight increase in abundance and decrease in scarcity as the price has risen.

Our old model shows an increase in the silver fundamental price of $0.05 ($16.12 to $16.17). Our new software, however, shows a decease and not a small one ($17.97 to $17.62). Here is a graph.


Note that the fundamental price (new software platform) is rangebound from early March. It is considerably less volatile than the market price, which is what we would hope for.


- Source, Sprott Money

Friday, June 2, 2017

John Mauldin: We are coming to a period I call the Great Reset

We are coming to a period I call the Great Reset. As it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world: global debt, especially government debt, and the even larger bubble of government promises. We are talking about debt and unfunded promises to the tune ofmultiple hundreds of trillions of dollars – vastly larger than global GDP. We are also going to have to restructure our economies and in particular how we approach employment because of the massive technological transformation that is taking place. But let’s keep the focus for now on global debt and government promises.

All that debt cannot be repaid under current arrangements, nor can those promises ultimately be kept. There is simply not enough money and not enough growth, and these bubbles are continuing to grow. At some point, we’re going to have to deal with these issues and restructure everything.

Whether the catalyst is a European recession that spills over into the US, or one triggered by US monetary and fiscal mistakes, or a funding crisis in China, or an emerging-market meltdown, the next recession will be just as global as the last one. And there will be more build-up of debt and more political and economic chaos.

President Trump is a fairly controversial figure, but I think most of us can agree that Trump is going to make volatility great again. The Great Reset will bring an increase in volatility, and the correlation among asset classes will once again approach 1.0, as it did during 2008–2009.

If I’m right about the growing debt burden, the recovery from the next recession may be even slower than the last recovery has been – unless the recession is so deep that we have a complete reset of all asset valuations. I don’t believe politicians and central banks will allow that. They will print and try to hold on as long as possible, thwarting any normal recovery, until markets force their hands.

But then, I can think of at least three or four ways that politicians and central bankers could react during the Great Reset, and each will bring a different type of volatility and effects on valuations. Flexibility will be critical to successful investing in the future.

So let’s sum up. In my opinion, the entire world is entering what I call the Great Reset, a period of enormous and unpredictable volatility in all asset classes. I believe that diversifying among asset classes will simply diversify your losses during the next global recession. And yet, active management seemingly has not been the answer. So what do we do?

I think the answer lies in diversifying among noncorrelated trading strategies that can invest in any asset class. For a reasonably sophisticated investment professional with sufficiently high assets, there are any number of ways to diversify trading strategies.


Tuesday, May 30, 2017

Tensions Grow - Turkey Refuses To Grant Germans Access To Incirlik Airbase


While Angela Merkel is busy sowing the seeds of the next cold war between Germany and the Trump administration (and therefore the US, if only for the next three and a half years), a troubling flashpoint for Germany continues to grow in Turkey where on Tursday, Turkey's foreign minister said it is not possible to allow German lawmakers to visit troops stationed at Turkey's Incirlik air base now, although he said Ankara may reconsider if it sees "positive steps" from Berlin. It was not immediately clear just what Turkey's expectations, monetary or otherwise, were from Merkel for it to change its view.

"We see that Germany supports everything that is against Turkey," Mevlut Cavusoglu told a news conference in Ankara. "Under these circumstances it is not possible for us to open Incirlik to German lawmakers right now ... If they take positive steps in the future we can reconsider."

Turkey has prevented German lawmakers from visiting the roughly 250 troops stationed at Incirlik as part of the U.S.-led coalition against Islamic State, saying that Berlin needs to improve its attitude first.

According to Reuters, Cavusoglu also said the issue would be discussed with German Foreign Minister Sigmar Gabriel, who is due to visit Turkey on Monday. Ties between the NATO allies deteriorated sharply in the run-up to Turkey's April 16 referendum that handed President Tayyip Erdogan stronger presidential powers.

The recent deterioration in relations between Germany and Turkey developed when Germany, citing security concerns, banned some Turkish politicians from addressing rallies of expatriate Turks ahead of the referendum, infuriating Erdogan. Ankara responded by accusing Berlin of "Nazi-like" tactics. Germany has also expressed concern about the widespread security crackdown that followed last year's failed coup in Turkey. More than 100,000 people have been sacked or suspended from their jobs and more than 40,000 people jailed.

German officials said this month that 414 Turkish citizens with diplomatic passports and other government work permits had requested asylum since the attempted putsch. Berlin's interior ministry has confirmed that asylum requests had been approved for a number of the applicants, a move that angered Ankara.


Monday, May 29, 2017

Over The Last Decade The US Economy Has Grown At EXACTLY The Same Rate As It Did During The 1930s

In this article, I am going to show you that the average rate of growth for the U.S. economy over the past 10 years is exactly equal to the average rate that the U.S. economy grew during the 1930s. Perhaps this fact shouldn’t be that surprising, because we already knew that Barack Obama was the only president in the entire history of the United States not to have a single year when the economy grew by at least 3 percent. Of course the mainstream media continues to push the perception that the U.S. economy is in “recovery mode”, but the truth is that this current era has far more in common with the Great Depression than it does with times of great economic prosperity.

Earlier today I came across an article about President Trump’s new budget from Fox News, and in this article the author makes a startling claim…

The hard fact is that the past decade’s $10 trillion in deficit spending has produced the worst economic growth as measured by Gross Domestic Product in our nation’s history. You read that right, in the past decade our nation’s economy grew slower than even during the Great Depression. This stagnant, new normal, low-growth economy is leaving millions of working age people behind who have given up even trying to participate, and has led to a malaise where many doubt that the American dream is attainable.

When I first read that, I thought that this claim could not possibly be true. But I was curious, and so I looked up the numbers for myself.

What I found was absolutely astounding.

The following are U.S. GDP growth rates for every year during the 1930s…

1930: -8.5%
1931: -6.4%
1932: -12.9%
1933: -1.3%
1934: 10.8%
1935: 8.9%
1936: 12.9%
1937: 5.1%
1938: -3.3%
1939: 8.0%

When you average all of those years together, you get an average rate of economic growth of 1.33 percent.

That is really bad, but it is the kind of number that one would expect from “the Great Depression”.

So then I looked up the numbers for the last ten years…

2007: 1.8%
2008: -0.3%
2009: -2.8%
2010: 2.5%
2011: 1.6%
2012: 2.2%
2013: 1.7%
2014: 2.4%
2015: 2.6%
2016: 1.6%

When you average these years together, you get an average rate of economic growth of 1.33 percent.

I thought that was a really strange coincidence, and so I pulled up my calculator and ran all of the numbers again and I got the exact same results.

The 1930s certainly had more big ups and downs, but the average rate of economic growth during that decade was exactly the same as we have seen over the past 10 years.

And of course the early 1940s turned out to be a boom time for the U.S. economy, while it appears that our rate of economic growth is actually slowing down. As I noted yesterday, U.S. GDP growth during the first quarter of 2017 was just 0.7 percent.

But you don’t hear any talk like this on the mainstream news, do you?

Instead, they tell us that everything is just peachy.

I often wonder what things would be like right now if Barack Obama and his minions in Congress had not added more than 9 trillion dollars to the national debt. By stealing all of that money from future generations of Americans and spending it now, Obama was able to artificially prop up the U.S. economy. If we were able to go back and remove 9 trillion dollars of government spending from the economy over the past 8 years, we would be in a rip-roaring economic depression right now. For an extended analysis of this, please see my previous article entitled “The Shocking Truth About How Barack Obama Was Able To Prop Up The U.S. Economy”…

But even though we have been adding more than a trillion dollars to the national debt each year, and even though the Federal Reserve pushed interest rates all the way to the floor during the Obama era, the U.S. economy has not grown by three percent or more on an annual basis since 2005.

When you take an honest look at the numbers, there is no way that anyone can possibly claim that the U.S. economy is doing well. The best that you can say is that we have been staving off a complete economic meltdown and another Great Depression, but of course the measures that our leaders have been taking to do this have just been making our long-term problems even worse.

I feel bad for President Trump, because he has inherited the biggest economic mess in U.S. history. When we finally reach the point when it is impossible to artificially prop up the U.S. economy any longer, he is going to get most of the blame, but he won’t deserve it.

It is not going to be possible for Trump or anyone else to fix our system, because it was fundamentally flawed from the very beginning. The Federal Reserve was designed to create an endless spiral of government debt, and since the day it was created the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent.

If we truly want to fix the economy, the Federal Reserve must be abolished. If I was President Trump, I would look to start issuing debt-free U.S. currency just like President Kennedy did in 1963 as soon as possible.

In addition, we need to push tax rates as low as possible. Personally, I would like to see the day when the personal income tax is completely eliminated and the IRS is shut down. The greatest period of economic growth in all of U.S. history was when there was no income tax and no Federal Reserve. America once thrived in such an environment, and I believe that we can do it again.

Of course we need to also dramatically reduce the size and scope of the federal government. Our founders intended to create a very limited federal government, but instead the left has just kept pushing to make it larger and larger.

Businesses all over America are being strangled to death by mountains of federal regulations, and if we could just get the government off of their backs the business community could start thriving again. There are quite a few government agencies that could be shut down entirely, and I think that the EPA would be a good place to start.

Once upon a time the United States showed the world the power of free markets and capitalism, and if we want to make America great again, we should go back and do the things that made America great in the first place.

But would the American people be willing to go down that path?


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