Gold, Silver and Currencies Commentary:
Argentina has defaulted on its debt many times in the past 70 years. Venezuela’s currency is in freefall. The unofficial exchange rate (the real rate) is currently about 8,000 bolivars to one US$. The exchange rate seven years ago was 2 – 4 bolivars to one US$. Ugly consequences result from bad economic decisions. The reality per CNN is:
“Violent protests are growing, the economy is spiraling further out of control and Venezuelans are suffering through shortages of food and medicine. And the bolivar, already worth next to nothing, keeps losing value.”
Gold and silver have been money and a store of value for thousands of years. Gold is safe and yet institutions snapped up Argentinian (dodgy?) bonds payable in 100 years. Venezuelans who depended upon bolivars instead of gold and silver are suffering.
Apparently the attractive lie (pay you in 100 years) was more desirable than the truth (gold will be valuable for the next 100 years, bolivars will be long gone, and Argentinian bonds will become waste paper).
Fed chair Yellen isn’t worried about a crash in our lifetime. Her opinion should encourage thinking individuals to anticipate a crash.
Argentina and Venezuela are two examples of fiscal and monetary disasters. There are many more. Consider Illinois – no budget, Los Angeles pensions and homeless, New Jersey pensions, Chicago debt and pensions, Deutsche Bank, Italian banks, and others.
Illinois can’t pay its expenses or pension costs and the U.S. government is in better condition only because it can “print” the needed dollars. Expect more bad management, increasing debt, broken promises and ongoing dollar devaluation. The attractive lie – “All is well! Remain confident.” – is wearing thin.
Gold and Silver Markets:
From Zero Hedge: “Jim Grant Explains The Gold Standard”
“Government’s ability to give itself a raise by inflating the currency was restrained somewhat by the Bretton Woods system, which guaranteed the international value of gold at a fixed number of dollars.
“Nixon [1970 – 1971] yearned to be free of this restraint so he could spend dollars more freely, and not have to worry about their value in gold.
“Nixon’s move was, in short, the final and total politicization on money itself, and, as Grant notes, ‘The Ph.D. standard is … a political institution.”
Summary: A gold standard, even a fuzzy one, required discipline from governments regarding their total expenses. The solution was to remove the financial ties to gold, spend freely, hire academics (The Ph.D. standard) to promote a digital and paper system, and heavily reward those who support the scam. This self-inflicted ruin works until it collapses…
The silver to gold ratio tells us that both silver and gold prices in mid-2017 are inexpensive and ready to rise. Buy when the ratio is low, lighten up when the ratio approaches 0.03.
Supposed Big News:
The Fed Raised Rates by 0.25% on June 14, 2017. From Reuters:
Market June 13, 2017 June 28, 2017
Dow 21,328 21,454
S&P 2,440 2,441
NASDAQ 6,220 6,234
Gold 1,269 1,249
Silver 16.77 16.73
Dollar Index 96.68 95.74
It seems that the financial world created a huge “fuss” over the Fed rate hike. Was it a distraction? Perhaps it was a diversion from ongoing bubbles in stocks and bonds, falling dollar index, Washington political gridlock, central bank saber rattling, massive and unpayable debt, Trump’s political agenda less likely to pass, very low GDP growth and much more. The dollar has fallen substantially since January 1, especially in the past three days.
Central banks promote their fiat currencies and discourage the use of gold, silver, and cryptocurrencies.
Date Event Comment
June 14 Fed Raises Rates Yada Yada Yada
June 21 Cryptocurrencies crash Coincidence?
June 26 Gold and silver flash crash “Fat finger” excuse?
Questions: Why do these “fat finger” events only push gold, silver and cryptocurrencies downward? Has anyone seen a spike higher in gold and silver caused by a “fat finger?” Central banks create trillions of dollars from “thin air” to purchase and support stocks and bonds. Do they also create billions of dollars to crash prices in Bitcoin, Ethereum, gold and silver?
James Rickards: “Why The Fed Will Fail Once Again”
“My models show that bonds, Bill Gross and gold have it right and that stocks are heading for a fall.”
Mohamed El-Erian: “The Fed No Longer Has Your Back”
“The longer markets discard the Fed’s reconfirmed policy guidance, the greater the potential for asset markets to be disappointed by a central banking community that is shifting from being best friend to becoming a lot less supportive.”
Anthony B. Sanders: “Shiller Fear CAPE Ratio at 1929 Black Tuesday Levels”
“Robert Shiller, the Novel Laureate in economics from Yale University, has a cyclically-adjusted price-earnings ratio termed the CAPE ratio. And it just rose to the same level as black Tuesday of 1929, the famous stock market crash.”
Zero Hedge: “Spot the Odd One Out”
Gold Stock Bull: “How to Profit From Irrational Low-Inflation Exuberance”
“Government, central banks, commercial banks, and politicians want increasing debt and currency in circulation. They will get what they want. Prices will increase.”
MN Gordon: “An Open Letter to the Fed’s William Dudley”
“History will prove this policy tactic [rate hikes] to be a complete fiasco. But at least the Fed is consistent in one respect. The Fed has a consistent record of getting everything dead wrong.”
Zero Hedge: “Yellen: “I Don’t Believe We Will See Another Crisis In Our Lifetime”
“Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios.”
“I don’t believe it [another financial crisis] will [occur].”
Really? What about $217 trillion in global debt that can never be repaid, trillions more in derivatives, high price to earnings ratios for stocks, margin debt, Jim Rogers’ prediction, and ten others not shown?
Business Insider: “Jim Rogers: The worst crash in our lifetime is coming”
[The crash will occur] “Later this year or next.”
John Mauldin: “Mad Hawk Disease Strikes Federal Reserve”
“When a person or an organization fails – and of course we all do – the best response is to show some humility, identify the problem, and modify the strategy. The Fed is doing the opposite.”
James Rickards: “Why the Fed Will Fail Once Again”
“The Federal Reserve has done almost nothing right for at least the past twenty years…”
“… the Fed is using obsolete and defective models such as the Phillips Curve and the so-called ‘wealth effect’ to guide policy.”
Gold and Reality:
Gold is moving to China, Russia and India, away from London and New York. What do Asian leaders know that the West refuses to acknowledge?
The Fort Knox Bullion Depository has not been audited since the 1950s. Is the Depository nearly empty?
JP Morgan: “Gold is money. All else is credit.” But today we think credit is money (it is not) because we can buy things with credit. This delusion will end badly.
Ayn Rand: “We can ignore reality but we cannot ignore the consequences of ignoring reality.”
An attractive lie leading to self-inflicted ruin … or the truth?
THEATRE OF THE ABSURD:
“When it becomes serious, you have to lie.” Jean-Claude Juncker, leader of EU in November 2014.
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.” Benjamin Bernanke, March 28, 2007. Note: Central bankers can be wrong…
Argentinian bonds payable in 100 years, Beanie Babies, over-priced stocks, bonds “paying” negative interest, self-inflicted ruin…
Gold and silver bullion and their stocks?
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Article by Gary Christenson, The Deviant Investor