first majestic silver

State Of The World In One Horrifying Chart

July 12, 2014

All-time high stock valuations – caused by Central banks covertly buying half the world’s equities. All-time low yields, caused by Central banks covertly (and overtly) monetizing every toxic bond imaginable. Housing bubbles galore, caused by Central banks printing money and handing it to Wall Street. Record low market volatility, caused by Central banks not allowing weakness. Record Rolls Royce sales, whilst Wal-Mart sales plunge and social unrest abounds. Record real inflation, plunging real income, and bottomless real unemployment, whilst government propaganda trumpets “recovery.” And last but not least, a raging, irreversible global currency war, with billions of people in utter rebellion against a “reserve currency” they know has been so abused, it has brought the world to its breaking point. What could possibly go wrong?

Two words – Espirito Santo!

It’s Thursday morning, and as I prepare to embark for Freedom Fest in Las Vegas, Europe is collapsing anew – just as the Miles Franklin Blog has anticipated since Draghi gave it a “stay of execution” by promising to do “whatever it takes” exactly two years ago. Unfortunately, printing trillions of dollars – both overtly, and covertly via Federal Reserve swaps that channel capital into insolvent banks “off balance sheet” – has done NOTHING to improve the economy; but instead, has accelerated real inflation, and collapsed the global economy further. This morning’s news that Japanese machine orders plunged by a record 20% in May alone; followed by abysmal Chinese trade data, and horrific European industrial production reports, puts any remaining hope of the “recovery” that never was to rest. And now that the banking system is again being exposed for what it is – i.e., completely and utterly insolvent – the odds that “the big one” has commenced are sky high. Not to mention, that Jim Sinclair’s expectation of $2,000-$3,500 gold by year-end just may be achieved – and with it, the end of the world as we have known it.

Blah, blah, blah, yesterday’s FOMC minutes said nothing incremental, as usual. However, I found it quite interesting that after ten straight post-FOMC minutes rate rises, not only did Treasury yields fall, but plunged into oblivion. Just 12 hours later, the benchmark 10-year yield is on the verge of breaching 2.5% to the downside, as the realization that six years of maniacal money printing, market manipulation, and propaganda was a sham, masking the terminal stage of history’s largest Ponzi Scheme.

In the past two weeks, we have “pounded the table” of how, one by one, European banks stocks were falling apart, crashing through multi-year uptrends created by the aforementioned government intervention. Starting with last year’s revelation – care of FDIC Vice Chairman Thomas Hoenig – that Deutschebank was “horribly for various reasons, banks from Barclays to Paribas have fallen apart, and last week we saw the seizure of Bulgaria’s fourth largest bank, and explosion of loan loss reserves at Austria’s largest. However, when the history books are written, it may well be Portugal’s Espirito Santo receiving the dubious honor of catalyzing the world’s terminal “Lehman moment.”

Frankly, we are shocked that anyone could be surprised that the largest bank in one of the worst PIIGS nations (Portugal, Italy, Ireland, Greece & Spain) could be failing. Or, for that matter, that European bond yields have fallen to multi-decade lows for any reason other than government bond monetization. I mean, for all the hype about Central bank fostered real estate bubbles in “1% hotspots” like London, New York and Vancouver, no one speaks a peep of the continuing collapse in “non-1% hotspots” – like, for instance, most of America.

To wit, most PIIGS real estate continues to decline, such as bubble poster child Spain; and as you can see below, Portugal’s real estate just stopped falling recently, following years of vicious declines. That is, until now – as with the nation’s largest lender about to go bankrupt, and the European economy collapsing, take a wild guess which way those lines are about to turn. I’ll give you a hint – GRAVITY. And thus, unless the ECB, Fed, and all other Central banks accelerate QE to “Infinity,” the toxic real estate assets on bank balance sheets the world over will be exposed. And no, changing accounting rules to enable them to “mark to fantasy” won’t work this time around.

Yes, Espirito Santo’s bankruptcy may well catalyze the “end game” we have warned of for years; and fortunately for investors, at a time when Precious Metals prices have been brutally suppressed for years – to the point that gold and silver trade well below their respective costs of production. In other words, there has NEVER been a time in recent generations where the cost of protecting oneself was so inexpensive; a condition, we note, that could change in a heartbeat.

As for just how bad the situation is – not what it will be, but what it is now – the chart below describes the horror perfectly. Simply put, it is the price of the Franklin Templeton “Double Tax Free Income Fund”; or, in layman’s term, a municipal bond fund holding everything from local, to municipal, to sovereign debt. Sure, Central banks have propped up such entities for six straight years. And sure, said accounting rules have enabled them to pretend they were healthy, when in fact they were insolvent. However, the laws of “Economic Mother Nature” cannot be repealed; and thus, in seeing this fund’s price break below the 2008 lows, it couldn’t be more ominous. We strongly believe such action represents the state of the vast majority of global financial institutions; and thus, could not be more vociferous in our support of Jim Sinclair’s advice to GOTS, or “Get Out of The System.” Just this week, Spain announced a retroactive “deposit tax” on bank deposits; and we assure you, when all is said and done, the term “bail-in” will be as ubiquitous as “bailout.”

In our view, the Espirito Santo collapse – which as we speak, is rapidly spreading across Western financial markets – may well be a seminal event in our lifetimes. Sure, TPTB will do all they can to “contain” it, but clearly Pandora’s Box has been opened. Thus, if not Espirito Santo, something equally horrible will finish the job, and likely soon.

Yesterday, a reader asked if the Fed’s potential “end of QE” this Fall symbolizes a better than expected economic situation. To which I replied, not only is most QE done covertly, but the overt part is only utilized to stabilized markets, not economies. And thus, you can be sure that when the Espirito Santo contagion spreads to the “Dow Jones Propaganda Average,” Whirlybird Janet will indeed experience her inevitable “Jimmy Shaker Day”; i.e., when she is forced by falling markets to overtly increase QE.

As for the gold and silver markets, which are surging this morning, Eastern investors have been buying physical precious metals at a record pace for years, but Westerners have been largely lulled to sleep by the aforementioned market interventions. Our guess is such complacency is about to do a 180-degree reversal; and when it does, don’t be surprised if the miniscule inventories of actual physical metal rapidly disappear, as they did at times during 2008, 2001, and 2013 (particularly silver).

And by the way, for those fearful of how increasingly aggressive, rights-impinging governments might respond to a catastrophic financial crisis, we cannot be more confident in our Brink’s storage program in Montreal. Brink’s is NOT a part of the financial system; and in pricing per ounce, as opposed to per bullion value, we believe Miles Franklin’s storage option offers the best protection solution in the Western hemisphere.


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 world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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