first majestic silver

Is The Tide Turning For Precious Metals? (Part II)

March 26, 2015

In our new book The Silver Manifesto, David Morgan and I not only discuss the debt bomb waiting to explode in most every western world economy but also the fact that the Fed will NEVER willingly hike interest rates by any material degree because (i) the monetary policy in place isn’t conducive to economic growth, instead promoting vast misallocations of capital and (ii) because the U.S. economy is a debt based economy which needs constant debt financing, the Fed would never hike interest rates as the cost of servicing the interest on newly acquired debt would spiral out of control, thereby causing deficit spending to go through the roof. Substantially higher deficit spending would necessarily require even more debt accumulation and the cycle would repeat itself.

The rest of this article has to with part (i) in that we have begun to see the wheels begin fall-off the U.S. economy. In Chapter 5 and 6 we provide an in depth analysis and explanation regarding exactly how fractional reserve banking works, which is necessary to understand Chapter 7. This chapter provides what we’ve been told to be an excellent explanation of Austrian Business Cycle Theory (ABCT). For those who are unfamiliar with ABCT, it is the only correct explanation of the modern day business cycle, precipitated by the central bank. It is worth noting since Ludwig von Mises published his Theory of Money and Credit (almost exactly the time when the Federal Reserve was founded), it has accurately forecast every economic recession.

We also forecast the U.S. economy has either entered a recession or will do so Q1 2015 or Q2 2015 (final print) based on the fact that in a fiat monetary system, the money supply is a remarkably accurate leading indicator of GDP growth on a forward looking basis. This is discussed in-depth in Chapter 8, in addition to illustrating why it has a perfect track record since Nixon closed the gold window). Back on point, our forecast was/is for “headline official GDP growth” to show the economy is or will soon be contracting no later than Q3 2015.

Prior to this we make a strong argument the U.S. has never recovered from the recession that began in 2007. This is because Real GDP is measured by taking nominal GDP and deflating that by the C.P.I. However, if you deflate nominal GDP by the C.P.I. determined using the calculation both using the formula in 1980 and that in 1990, the U.S. has contracted every quarter from 2007-present using the 1980 C.P.I and all but one or two using the 1990 calculation. Obviously the government wants the C.P.I to be as small as possible hence more frequent substitutions, geometric weighting and hedonic weighting, each of which have been included over time, post 1980.Our forecast regarding an “official recession” beginning in Q1-Q2 2015 is looking to prove accurate (although anything can be manipulated) by looking at some of the major economic data sets beginning at the start of the 2014 holiday shopping season to present.

· The holiday shopping season in 2014 was the weakest since 2008. This speaks volumes as the U.S. in a consumer based nation, with consumption accounting for roughly 70% of GDP.

· The labor market continues to worsen in spite of a few “headline news releases” with December U.6 above 11.00% and that which takes into account everything regarding employment put together by John Williams of Shadowstats at 23.00%. January U-6 notched higher to an 11.30% unemployment rate and Shadowstats number at 23.20%. February U-6 and Shadowstats improved 0.10% over January but such is expected as seasonal hires are still present through part of January.

· January retail sales contracted 0.79% (-0.79%) prior to December downward revision and contracted 0.71% (-0.71%) following December’s downward revision.

· January 2015 industrial Production contracted 0.30% (-0.30%) month over month.

· January 2015 housing starts contracted 2.0% (-2.0%) month over month.

· Trade deficit widened significantly in January and February, which will weigh quite heavily on Q1 GDP growth/contraction.

· February automobile manufacturing contracted 0.60% (-0.60%) over previous month

· February housing starts drop like a rock, seeing a 17% (-17.00%) contraction for the month!

· February industrial production contracted 0.36% (-0.36%) month over month.

· February retail sales contracted very substantially at 0.58% (-0.58%) over January which also contracted.

· Durable goods orders contracted 1.35% (-1.35%) over January and 2.06%(-2.06%) net of prior period revisions.

Does this really surprise anyone? The mainstream pundits are still touting the U.S. economy continues to “improve” when they should be talking recession. The Fed is still trying to convince everyone, hikes in the Fed Funds rate/overnight borrowing rate are imminent. Janet Yellen, at the press conference post FOMC meeting, implicitly said no rate hike until at least 2016. This was followed by different members of the FOMC saying the opposite and the same. One has come out and said “June rate hikes are likely” and just today Charles Evens said no rate hikes in the near future. These contradictory statements are obviously coordinated in trying to convince the market rate hikes are coming soon but at the same time convincing them otherwise.

When this does occur, it will almost guarantee the precious metals bull market will be in full force shortly after. There are numerous causes that will result in the precious metals bull market resuming with a vengeance, including such things monetary and fiscal policy is other major world economies, investment demand (notably from China and India and numerous other factors but the U.S. economy being recognized for what it truly is, a farce, will be key driver.


Courtesy of

Chris Marchese is the Metals, Mining, and Equity analyst for and contributor to many websites and podcasts dealing with precious metals and economic concerns. Chris is the coauthor of The Silver Manifesto a recent publication dealing with nearly every aspect of the silver market.

Nearly 40 percent of all gold ever mined was recovered from South African rocks.
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