first majestic silver

Overwhelmed By Reality

January 17, 2015

Chalk this up as another article I hadn’t planned to write, but was inspired by the incredible events of the day.  To wit, following the momentous events I discussed Wednesday, today’s historic Swiss National Bank announcement – and epic Euro plunge – has shifted the global economic meltdown into sixth gear.  Sorry if it’s a bit rushed, but I’m on a schedule today, and just want to espouse my thoughts.

In a nutshell, I was dead on when I wrote three months ago that “2008 is back.”  Only this time, there’s no turning back; as Central banks have no remaining “dry powder,” credibility, or ability to “save” anything.  To wit, just 2½ years after Draghi said he’d do “whatever it takes” to save the Euro, it sits on the precipice of collapse.  Let alone Japan, which after doubling the money supply over those same two years, and announcing plans to increase it further, is experiencing it’s ugliest debt, deficit, GDP, income, and inflation numbers of the post-war era.

Of course, it wasn’t just the Euro that collapsed today – and the Swiss stock market, for that matter.  Essentially, everything plunged to the netherworld – screaming deflation, deflation, deflation.  Except, of course, gold and silver; which have always been the best assets to own during crises, and always will be.  Yes, the Cartel threw everything in its arsenal at them, but gold still rose $30/oz, and more than 4% in Euros.  Silver, too, held its ground, as the CRB Index plunged another 1.3%; ominously, led by crude oil, which completely collapsed following the paper short squeeze initiated by the U.S. government Wednesday afternoon to rescue the “Dow Jones Propaganda Average.”

In fact, as you can see in the three-day chart below, they goosed WTI crude from $46/bbl to nearly $49/bbl in the last hour of Wednesday’s trading, and as high as $50.50/bbl early Thursday morning.  However, prices were “overwhelmed by reality” Thursday afternoon; and as I write this section Thursday evening, it is trading at an even $46/bbl – having lost all the past 36 hours’ gains.  Frankly, I don’t think it’s possible to generate a more bearish technical reversal.

Of course, where reality is truly seen is in the oil patch itself, where massive job losses are being announced as we speak.  It’s no coincidence that weekly jobless claims exploded higher this morning, or that the Philly Fed Index employment component plunged into the abyss.  Heck, I see that Schlumberger, the world’s largest oilfield service company – and a major part of my life for a decade – just announced 9,000 job cuts; not to mention, write-offs of its U.S. shale and Venezuelan heavy oil operations.  Currently, roughly 550,000 highly-paid workers are employed by the U.S. energy industry; and you can bet that many, many of them will be laid off.

Changing gears, the day’s top story will be certainly be remembered as the Swiss National Bank abandoning the suicidal Euro peg that has brought nothing but economic woe and astronomic debt to the nation that, once upon a time, was the world’s most renowned financial steward.  Frankly, even England’s “Brown Bottom” – when Gordon Brown sold most of the UK’s gold at $250/oz – pales in comparison to the financial destruction the Swiss National Bank has needlessly brought upon Switzerland.  And thus, like a spouse that cheats on you, it’s unlikely to ever be fully forgotten, let alone forgiven.

That said, in spite of itself, Switzerland will survive – and compared to the rest of Europe – thrive; as despite its recent history of idiotic decisions, at least it was smart enough to remain “neutral” of the Euro.  To wit, today’s Euro collapse is “one for the ages” – slicing through decade-old technical support levels like they weren’t even there.  Whether or not Greece decides to withdraw from the Euro in the coming months, the world’s largest currency is going down – and doing so, in a big way.  Mario Draghi will only fuel the fires if he announces the “massive” QE program Goldman Sachs predicts next week.  But even if not, the inflation Europe is about to endure due to the Euro’s collapse – amidst a horrific, expanding recession – will likely yield massive social unrest and geopolitical tension throughout the continent; particularly in the PIIGS, but also “walking dead” nations like France.  No, the Swiss peg abandonment wasn’t even close to being the day’s biggest story.  Clearly, the Euro’s Ruble-like freefall was.

Then again, how about the waterfall decline of the U.S. 10-year Treasury yield – which, also, I have been predicting for the past year.  Following Tuesday’s breach of the 1.89% “flash crash” low of October 15th, we closed at 1.85% yesterday – only to plummet an astounding eleven basis points today, to 1.74%.  And thus, with bond yields, commodities, currencies, and now equities crashing, it’s only a matter of time before the inevitable “Yellen Reversal” ushers in “QE to Infinity.”  As for stocks, the PPT did their best to hold the Dow to just a 100-point loss, even as the NASDAQ plunged far more dramatically.  However, even the Cartel’s best efforts couldn’t prevent gold’s surge, particularly against the Euro.  To that end, it’s only a matter of time before it breaks to new all-time highs against the majority of the world’s currencies; and when it does, the final obstacle – of doing so in dollars – will be ready to be challenged.

Back to the Swiss National Bank – and its soon-to-be-vilified lunatic of a Chairman; there truly aren’t words to describe the mess they created in senselessly linking the Franc to the dying Euro, or the financial carnage caused in de-linking it.  For months, I have highlighted how not only has Switzerland’s debt exploded since the link was created, but the SNB’s balance sheet became so horribly bloated, it put the Fed and Bank of Japan to shame.  Today alone, the SNB may have experienced one of the largest-ever Central bank losses; in ending one of the great financial follies of history – second only to the very same SNB selling 1,500 tonnes of gold at $300-$500/oz.

Better yet, the same “hedge bombs” that are historically short U.S. Treasury bonds, had massive short positions in the Euro as well.  In other words, everyone lost – including Swiss holders of gold, as Franc-priced gold plunged due to the dramatic currency revaluation.  And of course, Swiss stockholders, as the Zurich market suffered its biggest decline in 25 years.  And the irony of it all, is that when Thomas Jordan was busily spreading anti-referendum propaganda two months ago, the two main reasons he gave for the necessity to reject it were explicitly, that the SNB needs financial flexibility to maintain the Euro peg; and implicitly, that a yes vote would likely cause the Swiss stock market to crash!

As for the title of today’s article, it couldn’t refer to a simpler concept.  Which is, as I first espoused in last month’s “unstoppable tsunami of reality,” that “Economic Mother Nature” can only be held off for so long.  In other words, just as the London Gold Pool in 1968 – and EVERY counter-trend manipulation throughout history – the Franc/Euro peg was, plain and simple, “overwhelmed by reality.”  Trust me, the SNB desperately wanted to maintain it, irrespective of how damaging it was to Switzerland.  However, it was on the verge of bankrupting itself trying – as the endless supply of Euros finally swamped the SNB’s ability to stay solvent.

Thus, when anyone tries to tell you the stock market can be “permanently” propped – or Precious Metals suppressed; simply look to what happened to the Swiss National Bank today, and realize that all manipulations – particularly in Precious Metals – can, and must, come to a hideous, catastrophic end.


Courtesy of

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.

The melting point of gold is 1337.33 K (1064.18 °C, 1947.52 °F).
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