first majestic silver

The Ugliest Economic Data I’ve Ever Seen (Part 2)

August 18, 2016

It’s Thursday morning - and there are nearly a dozen “PM bullish, everything-else-bearish” headlines worthy of distinct articles.  Such as…

1. This shocking, and hilarious, segment of the John Oliver show, depicting how subprime auto lending has officially reached the destructive lunacy of the 2007-08 subprime mortgage market. Not to mention, subprime student lending, as a whopping 37% of the $1+ trillion, government-underwritten student loan “market” is now delinquent.

2. Obamacare is literally on the brink of collapse, with insurers losing $2 billion in 2015 alone, and pulling out of the program en masse

3.The “shocking” news that Central banks, led by China and Japan, have sold a whopping $335 billion of U.S. Treasuries this year, suggesting the only “buyers” are a covertly acting Fed, and leveraged speculators betting on “QE to Infinity”

4. Yesterday’s “boy who cried wolf” FOMC minutes, which said absolutely nothing incremental. Naturally, PMs were smashed in the immediate aftermath – but came back with a vengeance; where they were stopped cold at, what do you know, the Cartel’s maniacal “lines in the sand” at $1,350 gold and $20 silver, respectively.  Good for Craig Hemke, in writing a brilliant article about what I have been saying for years – not to mention, yesterday’s Audioblog – of how the “minutes” publication process, including Fed governor speeches directly before and after, has become a de facto jawboning (and PM attack) operation.  Unfortunately for the powers that be, few, if any, people are paying attention anymore, as the Fed’s credibility is essentially dead.  Which is probably why the money markets don’t anticipate an actual rate hike until mid-2017, and why interest rates are hovering near all-time lows.

5. Portugal’s only remaining “investment grade” credit rating is on the verge of being stripped, putting the “P” in PIIGS on the cusp of a dramatic funding crisis

6. Hillary Clinton’s ongoing health saga – as discussed here, by Dr. Drew Pinsky – which frankly, could wind up being the most destabilizing geopolitical and financial market issue of 2016

7. Accelerating criticism of negative interest policy across the globe – as everyone from savers, to insurance companies, pension funds, and money market funds face dire financial consequences.

8. A renewed plunge in Deutsche Bank stock, after having barely “dead cat bounced” higher. Per last month’s article, “the Powers that Be, 2016 – lower highs, and lower lows,” the PPT may be having success propping up the “Dow Jones Propaganda Average,” but not critical stocks like Deutsche Bank; i.e., the world’s “most systematically dangerous institution.”

9. The surging popularity of Austria’s far right, anti-EU Presidential candidate, Norbert Hofer, who is all but assured of winning the Prime Ministership in October.

10. This morning’s crashing Philly Fed component data, including a seven-year low in the employment index.

That said, all those headlines combined don’t hold a candle to what I’m about to discuss – which, per today’s article title, is obviously quite bad.  What exactly am I referring to?  Well, here’s a hint.  This article could just have easily been “part II” of what I wrote three weeks ago; i.e., “the clueless Bank of Japan exemplifies the awe-inspiring, irreversibly destructive power of the printing press.”

But first, recall April 14th, 2015, when I penned “the ugliest economic data I’ve ever seen,” in response to China’s March imports and exports plunging 12% and 15% year-over-year.  Of which, I concluded the following.

“Frankly, it is difficult to find a better measure of global trade activity than Chinese exports; and when combined with ugly Chinese import data, the picture is one of worldwide recession, if not depression. This is why global ZIRP, NIRP, and QE programs are all but guaranteed to accelerate; likely, right now. Moreover, the expanding economic carnage is why I am loudly predicting a dramatic – perhaps imminent – Yuan devaluation; i.e., the political, economic, and social “big bang to end all big bangs.” To a man, it is difficult to conceive how the most blatant currency manipulators on the planet are not actively planning to de-peg the Yuan from the “helium balloon” the dollar has become; as not only is China’s manufacturing market share being stolen by Japan and other currency immolating nations, but competition is becoming fiercer due to inexorably weakening economic conditions.”

Lo and behold, said Yuan devaluation occurred four months later – just 24 hours after I published “the upcoming, cataclysmic, financial big bang to end all bangs,“ in response to China’s July imports and exports plunging by an additional 12% and 4%, respectively.  Not quite the “big bang” just yet, as so far the devaluation has been just 6%.  But certainly a start – which must accelerate further, given the ongoing, accelerating collapse of global trading activity.  And don’t forget for a second what financial markets did in response to a mere 6% Yuan devaluation – pushing the PPT to the edge, before it “saved the day” with unprecedented (until then) market manipulation.  And oh yeah, the very ZIRP, NIRP, and QE programs I guaranteed four months earlier.  Which have been dramatically accelerated since, in both the East and West, with each new systemic shock – like the Fed’s telegraphed rate hike in December, and June’s “surprise” Brexit vote.

Well, here we are a year later, and the global economic data is far worse.  During this time, China’s economic and equity bubbles have significantly deflated, whilst its imploding neighbor, the “Land of the Setting Sun,” is on the brink of collapse.  This week’s “surprise” Japanese 2Q GDP reading of ZERO is only straining the credibility of the now 3½ year old Abenomics program further, as it has clearly failed across-the-board.  To wit, not only is the Japanese economy collapsing, but the BOJ can’t even get the Yen to decline, no matter how negative it takes rates, or how many stocks and government bonds it monetizes.  Or, for that matter, no matter how much fiscal stimulus Shinzo Abe promises, or how many times it delays the sales taxes that, LOL, were supposed to “pay” for Abenomics.

To that end, last month’s announcement that the BOJ will buy enough equities in the next 18 months to become the top holder of most of the Nikkei components rings of sheer desperation – and yet, didn’t even cause Japanese stocks to rise.  Although ironically, the Yen decidedly has – to a three-year high, as cancerous “carry trades” are being unwound the world round, leaving Central banks as the only remaining buyers, in a horrifyingly distortive scenario that has near-term catastrophe written all over it.

That said, even I was taken aback by last night’s Japanese trade data for July, depicting year-over-year declines so dramatic, the aforementioned “ugliest economic data I’ve ever seen” – i.e, China’s March 2015 trade data – pales in comparison.  Which is, that Japan’s imports not only declined for a 19th straight month – compared to just 15 months during the 2008-09 crisis – but by a whopping 14% year-over-year.  However, Japan’s July exports can be considered amazing versus its imports, which plunged by…wait for it…an astounding 25%!  Worse yet, its trade balance with China, traditionally one of its largest trading partners, collapsed by an incredible 44%, depicting not only the aforementioned implosion of global trade, but an alarming acceleration of the hostile breakdown of Sino-Japanese relations.  Which frankly, are as at risk of devolving into a military war – focused on the disputed Senkaku islands – as a currency and trade war.

Back in April and August 2015, the obvious conclusion was that the PBOC would respond to collapsing import and export activity by devaluing the Yuan.  However, Japanese “response” is far more difficult to predict, as Japan has already taken rates negative, expanded its suicidal equity QE program, maintained what is already the world’s most lunatic bond QE program, delayed its sales tax proposal indefinitely, and even announced a new “helicopter money” fiscal stimulus program.  All to no avail, as not only have Japanese equities gone nowhere, whilst its economy has plunged, and debt exploded, but the Yen has, LOL, been the world’s best performing currency.  That said, Japan will unquestionably do something, particularly now that its citizenry just gave a resounding vote of confidence to Shinzo Abe’s Liberal Democratic Party.

In other words, if you think China’s response to collapsing trade data was destabilizing – and ultimately, a massive failure – just wait until Japan pulls out its “nuclear option” in the coming months.  Or perhaps, weeks, given that the BOJ has already telegraphed a dovish plan-of-action for its upcoming September 21st meeting.  Which frankly, has the potential to “re-define” the concept of “PM bullish, everything-else-bearish.”  Which is why, more vehemently than ever, I urge you to act while you still can, as this Fall promises to be an historically dangerous one, politically, economically and monetarily.

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.

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