It’s Tuesday morning, and the way things are going, this bronchitis could
be with me for some time. Fortunately, I can still type – and think.
However, clinically speaking, I am “light-headed” due to my inability to
breathe normally. And thus, while you’ll still get the gist of my thoughts
this week, they may be a bit “jumbled” at times.
That said, it’s one of those increasingly common mornings where the MSM
appears to have simply “given up” trying to interpret how stock and bond
prices can continually rise into the a “wall of worry” so large, it climbs
through the heavens, to strata far above even god’s lair. Oh, there are
plenty of “horrible headlines” to go around; but at this point, care of the
unprecedented, government-sponsored financial bubbles spanning all corners of
the planet, the financial media – and even Wall Street itself – doesn’t even
bother reporting them anymore; much less, analyzing them.
Again, what could be more damning than the NASDAQ trading at its
internet-mania highs above 5,000, but CNBC’s viewer ratings at an all-time
low, down 75% from when the NASDAQ traded here 15 years ago? Oh, the “1%” are
still watching; but as for the rest, we’re just trying to put food on the table
– and worry about how to provide for our families in a “zero inflation”
environment in which the cost of living is soaring. And heck, that’s
just here in the States, where a “flight to liquidity” has dramatically boosted
the dollar’s international purchasing power; compared to the hundreds of
nations experiencing historic currency implosions; partly due to the
Fed’s merciless inflation exportation, and partly the participation of nearly
all governments in the “final currency war.”
Before I get to today’s topic – which I just hinted at above – I have
several things to discuss. However, the first is an afterthought to
yesterday’s vehement Harry Dent refutation, the “Deflation” Boogeyman. In it, I noted how my analysis was cut
short by my three page daily writing limit. However, one additional point
needs to be addressed today – as it is too important to ignore, and too close
to an important tenet of my “investment thesis.” Not to mention, it’s an
issue near and dear to my heart, given my “prior life” as a Wall Street
commodities analyst.
To wit, Dent claims “another argument gold bugs throw around is that,
at current prices, gold is now at production cost. There’s no way it can go
lower from here,” they say. “Quite honestly, only a miner could say that with
a straight face…as when there’s deleveraging, financial assets and goods
don’t fall back to fair value…but way below in a crash and financial crisis.”
(To wit), “isn’t fracked oil way below its cost of production? That hasn’t
stopped oil from sliding inexorably down. Nor will it stop oil from falling
as low as $10 or $20 a barrel…”
First off, the price of gold – and particularly silver – is not just below
“production cost” for the vast majority of primary mines, but the long-term
sustaining cost of the entire industry. Care of nearly two decades of Cartel
price suppression – which I assure you, wouldn’t ever cross Dent’s mind – the
industry has not only made essentially ZERO material discoveries, but has all
but stopped exploring altogether. Throw in the exponential cost increases
involved in exploring, developing, and producing – which expand dramatically
as cash starved nations start to consider Precious Metals “strategic
resources” (see the recent experience of Venezuelan and Greek mining
projects), and our expectation that “peak gold” has already passed is nearly
unassailable. Moreover, given current expectations of the world’s
largest gold miner, Barrick Gold, I wouldn’t be surprised if Precious Metals’
production profile looks eerily similar to that of shale oil in the coming
years; albeit, a tad less dramatic.
More importantly, his comparison between Precious Metals and shale oil
“holds no water” – to paraphrase Mona Lisa Vito in My Cousin Vinnie.
To wit, whilst nearly all shale oil producers have production costs – and
certainly, long-term sustaining costs – above $56/bbl, the vast majority of
global production is far more efficient. True, heavily socialized OPEC
producers – like Saudi Arabia, for instance – base government spending budgets
on prices as high as $100/bbl; and thus, are forced to drain currency
reserves to “pay the bills” despite profitable oil production. However, from
a pure economic standpoint, the industry’s average cost of production
is closer to $20-$40/bbl than today’s $56/bbl. And thus, it wouldn’t surprise
me one bit – “oil PPT” and all – to see crude oil trade that low in the
coming years. Heck, I all but predicted as much myself, in January’s “direst prediction of all.”
In other words, whilst the financially “deformed” U.S. shale industry may be well
below its production costs, the global oil industry is decidedly not.
Equally importantly – as discussed in February’s “supply response” – global energy demand is decidedly
weakening, whilst gold and silver demand, as noted yesterday, is at or
near all-time highs. In fact, irrespective of the heinous Cartel’s vicious,
relentless, capping activities, the gold “bear market” ended more than a year ago in
nearly all countries – except, of course, the one whose “reserve currency” is
attracting dramatic inflows of “fear capital.” Sometime soon, perhaps very
soon, said “New York Gold Pool” will be overwhelmed by
reality as well; and when it does, we will truly see just how bass-ackwards
Dent’s reasoning is. But then again, this is the man who at the top of the
internet bubble in 1999, predicted Dow 41,000 and NASDAQ 20,000 by – get this
– 2008; followed by his equally wrong-footed prediction, in April 2011, that
the Dow would fall to 3,000 by – drum roll please – 2014.
OK, enough on this topic. Hopefully, you understand that the newsletter
industry has a distinct need to attract and maintain subscribers. As noted
yesterday, the means of doing so – aside from being the “one in a million”
investor with a long-term, above average track record – often involve a
variety of psychological tricks that prey on weak minds. Resist the urge to
believe what such “seers” claim – particularly if it involves claims of
“proprietary” knowledge; and instead, do your own due diligence. Trust me,
the alternative media – such as the Miles Franklin Blog - provides as
much free information as you could possibly require; none of which
compels you to make short-term speculative investments in historically
overvalued, rigged financial markets.
Back to this morning, the “horrible headlines” keep coming like Mike Tyson
jabs circa 1988; i.e., powerfully, and relentlessly. In China, where the PBOC
has unquestionably unleashed an equity mania no less powerful than the 1998
internet bubble, the concept of “7%” GDP growth is becoming so comical, even
the world’s most collusively criminal Central bankers are laughing. No, China
is unquestionably in a deep, expanding Depression – as history’s largest real
estate, construction, and credit bubble bursts right before our eyes. No
chart describes China’s real economic condition better than this depiction of freefalling freight
volumes; yet again, far worse than 2008. However, care of the PBOC’s
maniacal attempt at orchestrating a mythical “wealth effect” recovery via
stock market goosing, Chinese citizens are being herded from the largest real
estate bubble ever, to perhaps the largest equity bubble. Which sadly, is no
different in essentially any part of the supposedly “civilized” first
world; such as in the United States of Market Manipulation itself, where
goosed homebuilder stock prices and “sentiment” indices also stand in stark
contrast to economic reality – such as last week’s horrific housing
starts report, or this damning chart of freefalling
lumber prices.
Meanwhile, watching German and French stock surge whilst one of their
largest creditors, Greece, is on the verge of catastrophic,
continent-shattering default is one of the most surreal things I have ever
seen. This morning alone, the situation has clearly grown significantly
direr; as following yesterday’s imposition of Greek capital controls, it’s
looking more and more like May will in fact be the end of the line for
“anti-Grexit” propaganda. Greek bond yields are soaring anew, with July
2012′s “whatever it takes” spike highs clearly on the horizon; whilst the
Greek stock market is plunging toward its all-time low, led by none other
than what I long ago deemed the “world’s most important stock,” and “world’s
most insolvent financial institution” – the National Bank of Greece; down 11%
this morning alone, and 99.9% from its October 2007 high.
Yes, we are now in a “Twilight Zone to end all Twilight Zones” world –
where headlines like “Fannie Mae, Freddie Mac again offer 3% down mortgages”
and “more than half of global government bond yields below 1%” have become more
the rule than the exception. And no one seems to question world-destroying
bankers like Mario Draghi – who, fresh off this weekend’s “dumbest central banking statement ever,”
actually claimed “low rates for long periods increase financial stability
risks.” This, from the man who spearheaded the ECB’s charge not just to ZIRP
territory, but NIRP as well. Anyhow, despite
relentless – but clearly weakening – propaganda of “imminent” Fed rate hikes,
the reality of ZIRP (or NIRP) to infinity is slowly but surely seeping in. As clearly, in the terminal phase
of history’s largest Ponzi scheme – where global debt explodes exponentially
– the reality of the necessity of low or no interest rates is becoming
“mainstream” knowledge. Inevitably, the issuer of the world’s reserve
currency will be forced to admit as much overtly; and when this “Yellen Reversal” inevitably arrives, God
himself would have trouble leading the gold Cartel’s ragtag, ammunition-less
forces.
With that said, let’s move on to the “one chart that says it all” – of
just how pervasively government interference has engulfed what were once
freely-traded, rational expectations-based financial markets; and just how
dangerously overpriced essentially everything has become, care of history’s
most maniacal, global scheme of money printing, market manipulation, and
propaganda.
Per below, not only are there more financial bubbles today than ever, but
even the rate of growth in said “bubblicious” markets is bubble-like.
I’m sure it surprises no one that the chart started going parabolic after the
gold standard was abandoned in 1971; really parabolic; after the
global economy peaked at the turn of the century; and hyperbolic after
the financial system broke in 2008. This is a snapshot of history that
will one day be viewed in awe – particularly as the one market that should
benefit most from said money printing, Precious Metals, is at this point
in time “not allowed” to participate in the bubble party.
However, as sure as day follows night it will; and when it
does – likely, sooner rather than later – it will make up for a lot of lost
time; and then some.