The Co-Existence Of "Scarcity Assets"

July 27, 2017

On this day before yet another FOMC propaganda event, how can stock futures not be higher - given that, per the well-documented "pre-FOMC drift" manipulation scheme, for the past decade, stocks have enjoyed their biggest gains the days before and during FOMC announcements.  Conversely, how can Precious Metals not be suppressed - per the 87th "2:15 AM" EST attack of the past 1,002 trading days - i.e., the open of the ultra-thinly traded London "pre-market" paper trading session; in this case, with the dollar down, to its lowest level in more than a year?  Which interestingly, is rapidly reversing as I edit.

 

For those that don't yet understand the illusion today's rigged markets are, it's difficult to believe anyone with a few brain cells, and no ulterior motive, doesn't realize the only reason the "Dow Jones Propaganda Average" rises so relentlessly, and volatility-free, is the "dead ringer" algorithm I wrote of in April 2012; by which, it "coincidentally" bottoms around the time of the Fed's 10:00 "open market operations" at 10:00 AM, before steadily rising through the rest of the day; in most cases, ending with a "Hail Mary" surge.  To wit, the last eight days trading - when either a "dead ringer" or "variations thereof" algorithm guided "trading."  And BTW, does anyone think it a "coincidence" that 10:00 AM EST happens to be the London PM gold "fix?" Or, as I have deemed it years ago, the Cartel's "key attack time #1?"

Yes, despite a mere 3% chance of a "rate hike" tomorrow - and just 8% in September; no doubt, Whirlybird Janet will do her best to "dial back" the hyperinflationary prepared remarks from her Humphrey-Hawkins Congressional Economic testimony last week; i.e., her "Ding Dong, the Fed is dead" speech.  Why, you ask?  Frankly, the only "explanation" I could come up with is to give the Cartel some soundbites to tie their paper PM-selling algorithms to - despite not a shred of evidence that the Fed will actually do anything hawkish; or that higher nominal rates have any historical correlation to lower Precious Metal prices.  Let alone, now that physical gold and silver markets are so tight; and anticipated to get much tighter, in both gold and silver; with paper prices at their lowest-ever inflation-adjusted levels, at a time when Central bank money printing has, cumulatively speaking, never been greater; and is about to get much greater, given the terror Yellen and her sociopathic Keynesian peers are currently experiencing, in (rightfully) worrying about the cyclical and secular pressures creating the biggest deflationary threat of modern times.  I mean, consider how ludicrous quantitative easing has become; as depicted, in spades, by the chart below - of European corporate credit spreads (over sovereign bonds) since the ECB started, in March 2016, monetizing corporate bonds.

Consider that the last two Fed "tightening cycles" - of the Fed Funds rate - ended with the 2000 and 2008 market crashes.  And subsequently, consider that the U.S. national debts in 2000 and 2008 were $5 trillion and $10 trillion, respectively - compared to $20 trillion today.  How about that for "poetic symmetry?"  And by the way, given the Ponzi-like nature of the National Debt; as well as interest rates that practically speaking, cannot go materially lower, pray tell how we won't have a $40 trillion debt a decade hence.

FYI, in the past week, due to increasing "debt ceiling fears" - of the potentially bloody Congressional debate it will engender no later than September, short-term T-bill rates spiked yesterday to their highest level since...drum roll please...the heart of the late 2008 Financial Crisis.  In other words, while TPTB will, as usual, attempt to create the illusion that the Fed is in "control," the fact remains that Whirlybird Janet must continue to be; like Mario Draghi and Haruhiko Kuroda - whose own uber-dovish comments last week continue to reverberated throughout the monetary world; in Donald Trump's words, a "low interest rate person."  Unless, of course, she wants the system to collapse.

It's time to follow up yesterday's discussion of how the "unprecedented liquidity explosion" we are witnessing will inevitably yield an historic bull market in scarcity assets.  And by "scarcity assets," I mean anything that displays "monetary properties" due to their ability to preserve wealth over time.  Clearly, this is a very broad description, given that many presumed "scarcity assets" - like prime real estate, fine art, and rare antiques are not only illiquid, but subject to sharp downward valuations at any given time - for a variety of reason, like financial crises - which do NOT negatively impact true monetary assets like gold and silver.  And no, physical PMs did not decline during the 2008 crisis - as only the paper markets, due entirely to Cartel suppression (for the very purpose of preventing this perception) declined in its early stages.  That is, until physical premiums reflexively surged - in gold's case, to 30%; and silver's 100%; before the paper markets recouped their losses in early 2009, several months before the stock market's ultimate bottom in March 2009.

Take a look at these two charts carefully.  Which show, that from the time the crisis commenced with Lehman's bankruptcy in September 2008; to the Citibank bailout in March 2009 - which coincided with the Fed "doubling down" on QE1, finally stemming the market's crash; the Dow plunged from 12,000 to 6,500, or 46%, whilst gold was completely unchanged in the high $900s.

 

Today, gold and silver's "monetary properties" are more relevant than ever, given the aforementioned, historic, global liquidity explosion created by Central banks since the 2008 crisis.  Which, together with unprecedented market manipulation, has "achieved" an historic windfall - in the form of "dotcom valuations in a Great Depression Era" - for the "1%"; but at the cost of parabolically rising, and eminently unpayable, debt; decimated fiat currencies; historic wealth inequality; and unprecedented oversupply that will take years, if not decades, to unwind.

In other words, there's no shortage of overvalued assets to be sold, against a "monetary scarcity" universe so tiny, it will at some point re-define the term "golf ball through a garden hose."  So to all the "goldbugs"; and other sound money advocates, let's all realize that were are all on the same team, fighting for the same, eminently winnable cause of decentralized, non-inflationary money!

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Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.

According to the Talmud you should keep one-third of your assets each in land, business interests, and gold.