Economic Crisis: The Walls Are Closing In
Followed by 2017, when the Dutch, French, German, and likely Italian elections will have the same result. Not to mention, the increasingly likely GrExit, if Greece can’t (or won’t) obtain the €86 billion of principal payments it owes the Troika by July. Throw the in explosive currency and trade wars depicting the final stage of history’s largest, most destructive fiat Ponzi scheme, and you can see why I believe 2017 will be remembered as the year of money printing, draconian government actions, and monetary revolution.
The increasingly dangerous “two-step” being attempted by the current incarnation of “powers that be”; in a desperate attempt to kick the can that last millimeter; and in the process, steal as much of the world’s wealth as possible; reminds me of Richard Gere singing “Razzle-Dazzle” in Chicago – by using his charm, charisma, and con-man skills to fool the judge, jury, and public. Only in this case, we’re not speaking of the smoothest actor in Hollywood, but Keystone Kop bankers; hack politicians; and, well…Donald Trump. Serially, ‘da bums are being thrown out of office – whilst those that aren’t losing all credibility, at an exploding rate.
At what point does the charade of Greek “bail-outs” end, resulting in the default of its €450 billion of debt (plus €200 billion off balance sheet) – catalyzing a cascading currency crisis of second and third world nations, when investors start predicting “who’s next?” To that end, what says “catastrophe waiting to happen” more than the below chart – of how cumulatively, the dozens of nations considered “emerging markets” have seen their debt to (upwardly manipulated) GDP ratios surge from 210% to 430% in just the past five years alone; as on average, their fiat currencies have plunged to new all-time lows. And yet, due to the soon-to-collapse “central bank puts” known as NIRP and “QE to Infinity”; and historic, unprecedented equity market “support”; investors have never been so complacent. Not to mention, as Western equity and fixed income markets are trading at all-time high valuations – amidst, for all intents and purposes, all-time low fundamentals; and insolvency, if today’s massive Credit Suisse loss, and announcement of 6,500 layoffs, is any indication.
Or how about the recent comments from everyone from Mario Draghi himself; to Germany’s Vice Chancellor; America’s newly appointed European Union Ambassador; and now European Commission President Jean-Claude Juncker; who all have, in recent weeks, suggested the end of the European Union is nigh. The latter of which, espoused yesterday that he wasn’t running for re-election because he believes the BrExit will prove to be the EU’s death blow, “because the British will be able to divide the other 27 member states without great effort.”
But best of all, on this “Humphrey-Hawkins Day” – when Janet Yellen must deliver a de facto FOMC statement to Congress, amidst not only such terrifying geopolitical issues; but the uncertainty of what the Trump Administration might do; and the danger of (10-year) interest rates rising above the 2.5% “economic line in the sand” that will ultimately destroy the world, starting with the U.S. government. And oh yeah, exploding inflation – worldwide; in large part, due to the ad hoc “oil PPT’s” efforts to prevent the mass implosion of the planet’s largest industry – which ultimately, MUST occur amidst history’s largest crude oil glut.
Just one hour before her testimony, she was “blind-sided” by the biggest PPI inflation surge in five years; up 0.6% in January, and even 0.4% “excluding food and energy’ – in both cases, double the Street’s expectations. Clearly, energy prices were a big part of the surge; however, energy prices are not part of the core, which surged as well; in large part, due to the exploding rent and healthcare costs caused by other overt and covert government and Central banking “policies,” and their intended and unintended consequences.
This, one day after Chinese inflation was reported to have surged to a six-year high; and two days before German inflation hit its own six-year high – in the latter case, simultaneous with a massive 3% plunge in industrial production that screams stagflation at the top of its lungs.
The “walls are closing in” on said “elites” – starting with Whirlybird Janet today, who must “razzle dazzle” in Richard Gere-like fashion, if she wants markets to actually believe that 1) the economy is “recovering” – when hard data is collapsing, and Treasury tax receipts declining for the first time since 2009; 2) the Fed will raise rates three times this year, despite said economic collapse – and oh yeah, Donald Trump espousing that the dollar is “too strong”; 3) inflation is “transitory” (because oil prices will eventually go down?); and 4) record high stock and bond valuations are “reasonable,” even in the face of surging inflation and her expectation of Fed rate hikes.
If you believe she can do that – and in the process, hold Precious Metal prices in check (particularly as silver just surged above its 200 DMA), I have a bridge in Brooklyn to sell you. My friends, “the walls are closing in” – on the powers that be, Donald Trump, and any other persons and/or institutions people still have “hope” and/or “faith” in. And thus, with mathematical certainty, the monetary end game’s inevitably arrival is becoming more and more imminent with each passing day.
SPECIAL BULLETIN Gold and Silver: Opportunity of a Lifetime?
Over the past 39 years, we have rarely used the words “Opportunity of a lifetime.” However, we feel there is a good chance of another one in progress. It is in the Gold/Silver markets. But it will be a very volatile ride. That’s the character of this sector. In 1977, when we started the WELLINGTON LETTER, we were correctly bullish on gold. It soared from around $120 when we recommended it to over $800 over the next 3+ years.
Then, when gold dropped through $694 to the downside, we declared it a bear market. Our recommendations to buy put options on many of the popular mining firms made fortunes for some of our subscribers. Using cycle studies, we predicted in 1981 that the bear market might last 20 years and then should be followed by a 30 year bull market. We said we had no idea what would cause a 30 year bull market. Now we know. The 20 year bear market prediction turned out to be right on target as the next bull market started in 2001.
We have done a lot of thinking about the precious metals and the longer term prospects. One year ago, in our February 18, 2016 issue, we wrote about the 2011-2015 decline possibly having been a cyclical bear market in the longer-term secular bull market. If that is correct, much higher highs are ahead. In fact, at the time, we wrote it could go to the $2700 area, just by a technical measurement. Gold is currently at $1225. As you can see, there could be a huge opportunity for Gold. It’s a possibility, not a forecast.
This long-term chart of Gold below goes back to the start of this secular bull market in 2001. Note that since 2014, it has formed a bullish, potential inverse “head and shoulder” pattern. If it can close decisively above $1400 we would become even more bullish.
Currently that analysis is still operative. Let’s give you an update of our thinking. The chart of the GOLD MINERS ETF (GDX) below shows a very nice, long-term bottom on these stocks (shaded area). We could see it going to the $40 area. Then we have to look for a potential, meaningful correction.
OUR CONTRARIAN VIEW ON GOLD Our view for about 40 years has always been contrary to the common thinking on gold. Popular opinions are:
1. Gold is a crisis hedge. We disagree. It actually declined from over $800 to around $250 from 1981 to 2001, or twenty years. That period saw some incredible crises, such as the Thailand default, the Russian Default, the Long Term Management hedge fund bankruptcy that required a Federal Reserve rescue mission, among others.
2. Others say that gold is a fear hedge. We disagree. They never specify the fear. Is it nuclear war, a terrorist attack, a Greek or Italian debt default? Well, none of these influenced gold for the longer term.
3. Lately we hear that fears of rising interest rates rise are bearish for gold. We disagree. Actually, it’s vice versa. Interest rates rise when inflation fears rise. And rising inflation is bullish for gold as it is a “store of value.”
Our view is that gold is a hedge against a loss of confidence in currencies. What could trigger that? The $21 TRILLON of central bank credit creation of the past seven years that has been stuck in the banks, not being lent out. If something changes, and banks start lending again in a normal fashion, that would be inflationary. All the additional credit would compete for goods and assets.
What could cause this? One example: A repeal of Dodd-Frank, and loosening other regulations that have basically stopped bank lending for the average person or business. An increasing availability of credit could unleash another speculative binge in the markets and perhaps in some sectors of the economy. Additionally, price pressure would come from tariffs on Chinese goods. So many products are made in China. A general tariff on Chinese imports would cause a big rise in the CPI. Furthermore, they are talking about a “border adjustment tax, ie: BAT.” It’s estimated that would lift retail prices by 9%-10%. Consumers won’t like that. And finally there is the “America First” agenda, which would push the cost of producing goods much higher. Companies would hike prices to make up for that. Paying workers in Mexico $8 per hour for assembling a car would go to around $40 per hour (total) for a US worker. Someone has to pay for it, and that is the consumer.
Because of greater availability of money, it would be like the late 1970’s when rising inflation, due to very easy money, actually caused stocks and the precious metals to be bought. Inflation soared, along with interest rates, making real assets, and even stocks, inflation hedges.
CONCLUSION: our subscribers had a chance to make big profits with our contrarian advice in the late 1970’s when Wall Street expressed opposite views. Right now we see many similarities to that same market environment. Of course, we need more confirmation. The new Administration is only a few weeks old. However, so far we see signs that we could see a significant inflationary blow-off if the trends of the late 1970’s are repeated.
In 1978, the new Fed chairman, G. William Miller, said he would not fight inflation by tightening money (less credit), but by raising interest rates. With that statement, we gave the inflation warning. We predicted that gold and silver would soar.
We also predicted that general stocks would become inflation hedges, something that was totally contrary to what Wall Street said. Our thinking was that companies could raise prices, consumers would increase buying to beat price increases, and that would exacerbate inflation. We were correct in our prediction while Wall Street was wrong, as inflation and interest rates went double digits.
If our work and clues are correct, then we have some absolutely superb opportunities ahead in the precious metals sector. I remember the bull market that started in 1977. We saw it go from around $120 to over $800. The profits of our subscribers were incredible, especially as we also recommended call options on the miners. We don’t recommend options anymore because they always lead to extreme greed. We don’t want to encourage greed. We see strong similarities between 1978 and now. In her testimony before Congress on February 14–15, 2017, Fed chairperson Janet Yellen said that the Fed has two missions: employment and inflation. The latter is not the usual inflation mission of the Fed, namely keeping inflation down. Now it is to push inflation up. In her testimonies there were some revealing statements. She basically said the Fed would not tighten money by decreasing the Fed’s balance sheet, but by “raising interest rates to keep the economy in balance.” That’s just like Fed Chairman G. William Miller in 1978, which was followed by soaring precious metals prices. Of course, history doesn’t necessarily repeat, but it often “rhymes” as a famous author once said.