first majestic silver

What Will Be The Fed’s Excuse(s) This Time?

November 1, 2016

There’s a rising tide of discontent sweeping over America, just as it has in Western Europe, most of South America and the Middle East – which shortly, will consume China, Japan, and the rest of the world.  In some cases, it’s due to actual, specific crises – as in “vulnerable” second and third world countries like Venezuela, Brazil, Turkey, Cyprus, Greece, Syria, and Iraq.  In others – particularly, “first world” Western nations, defined largely by the power of their printing presses – it’s the cumulative impact of years of relentlessly disastrous monetary, fiscal, and foreign policy, creating unprecedented post-War political instability; widespread poverty and helplessness; creeping rights forfeiture; and wealth disparity not experienced since feudal times.  In the past two years, elections have served as rallying cries for discontent – sometimes proactively, such as the referendums in Scotland, Greece, Catalonia, the UK; and next month, Italy; and sometimes, as a matter of course, per the regularly scheduled elections as in Spain, Portugal, France, Germany, and the United States.

Frankly, I doubt there’s ever been a time where more people were angry with their governments; and trust me, it’s no coincidence that this is fomenting as the tell-tale signs of the terminal phase of history’s largest, broadest, most destructive fiat currency Ponzi scheme are upon us.  That is, crashing economies (see today’s horrific construction spending report) and currencies; hideous industrial and commodity oversupply; exponential money printing; and draconian, Frankenstein-like Central banking “experiments” like negative interest rates; quantitative easing; helicopter money; and potentially, if Jim Rickards is right, the most diabolical, “99%”-destroying experiment of all, SDRs, or IMF Strategic Drawing Rights.  Which, if enacted (as a “nuclear option”) would combine hyperinflation, globalism, capital controls, and totalitarianism at one fell swoop.

To that end, I cannot overemphasize that my expectation of a Trump landslide – first predicted the day after the BrExit – is becoming more of a fait accompli with each passing day, even if the Clinton-led “powers that be” (as they did prior to the BrExit) are pulling out all imaginable stops, legal and (predominantly) illegal, to prevent it.  Heck, the leading national poll, which just one week ago gave Hillary a whopping 13-point lead, now has TRUMP in the lead!

And yet, the (rigged) financial markets are still pricing in a Clinton victory.  Which is to say, they are inadvertently assuming that the rigging, which most market participants are too stupid to see, will continue ad infinitum – despite the weakest economy in generations, declining corporate earnings, and the highest stock, bond, and real state valuation of all time.  And no, that is not hyperbole, as even Goldman Sachs admits P/E multiples – utilizing historically low quality earnings as the denominator; not to mention, the aforementioned, declining trend – are in the 97th percentile of the historic range.  To that end, believe it or not, October represented the biggest month for global merger and acquisition activity of all time – and if that doesn’t signal a meaningful top, I don’t know what else does.

As for bonds, negative rates in much of the Western world says it all; as well as Treasury bonds barely above 250 year lows here, despite the Fed’s comical propaganda of an imminent December rate hike pushing yields inexorably higher – and in the process, destroying the economy by increasing borrowing costs; pressuring asset prices; and walloping corporate earnings, care of the resultant dollar surge.  Incredibly, no one is paying attention to the historic outflows from equity and high yield bond funds, as well as major private equity firms selling real estate positions, right in plain sight.  Let alone, the carnage that falling oil prices will bring, particularly after OPEC’s jawboning of an, LOL, “production freeze” at all-time high levels is permanently put to rest November 30th.  Or heck, when the other “twin tower” pre-election lies, of an improvement in Deutsche Banks’, and much of the European banking sectors’ solvency, is inevitably “called out.”

To that end, this very morning at the gym, right next to my locker I overheard a man who I believe was a doctor, lamenting how the government is literally killing his business.  To wit, he said that given surging tax rates, particularly payroll taxes, he is now paying more than 50% of his income to Uncle Sam.  Which, in turn, is prompting him to lay off employees and severely cut overhead.  Which, by the way, if he is in fact a doctor, these trends that dramatically worsen in 2017, given Obamacare’s runaway expenses, and new draconian laws, making it more difficult for doctors to collect revenue from insurance companies.  Throw in the explosive costs of medical school, medical equipment, and malpractice insurance, and you can see why doctors will shortly become an extinct species, at a time when an aging population needs them most.  Let alone, as Obamacare promises to insure tens of millions more people, despite no actual revenue to fund it – other than the Fed’s printing press, of course.  That is, until the Fed imminently implodes upon itself, along with the rest of the world’s dying Central banks.  Which frankly, may well occur this year, if an “unexpected” Trump victory catalyzes the type of global political, economic, monetary, and financial market chaos I anticipate.

Which brings me to today’s topic, as the world careens – in my view, imminently – toward the “Minsky Moment” when Central banks cumulatively, irreversibly, lose all remaining credibility, prompting an historic, worldwide currency crisis for the ages.  As in, what we are reading of today as “worst case” scenarios – as in, say, Venezuela – will become more the rule than the exception.  And frankly, all it takes is a single statement from the Fed that it is no longer anticipating interest rate hikes in the foreseeable future; let alone, if crashing post-Trump victory markets prompt discussions of rate cuts and QE4; to make this happen.  Which, in my view, will occur if Trump wins; and if not, will occur in 2017 irrespective – as the global economy continues to crash, per the incontrovertible laws of Economic Mother Nature.

Anyhow, the Fed meets today and tomorrow, with essentially ZERO chance of taking incremental action.  Unless, of course, there truly is a conspiracy to hand Trump the election, as if they were crazy enough to raise rates a week before the election, with Trump already leading in the polls, Hillary’s chances rapidly fading, oil prices crashing, the dollar surging, and money markets assuming said zero chance of action, it would be like setting off a nuclear bomb in the stock, bond, and real estate markets.

Not that the impact would be any different in December, but at least it is, for some reason beyond me, “expected” to occur, per said money market odds.  And of course, if Trump wins, the current, LOL, 80% odds of a quarter point rate hike December 14th would instantaneously drop to zero; likely, per above, yielding said Minsky Moment, when the entire world realizes what I, and anyone with half a brain, have said all along.  Which is, that in a world drowning in debt; mired in depression; and amidst historic currency wars; there is simply no way to raise rates, even modestly, without prompting an all-out market crash.  Particularly, as noted above, when corporate earnings are falling, the economy is imploding, and financial asset valuations are at record highs.  Which, assuming the Fed is not forced into hyperinflationary action by crashing markets, brings to light the question of “what will be its excuse this time” – for either not raising rates; delaying the time of the perpetually imminent monetary tightening that never occurs; or perhaps, reducing rates?

Like a bad seed, Central banks always have something or someone else to blame their failures on – be it Congress for not enacting enough stimulative fiscal policy; the Chinese for devaluing the Yuan; oil speculators for pushing down crude prices; or heck, if Hillary Clinton gets into office, the “Russians.”  Best of all, was this Spring’s excuse to not raise rates in either May or June due to uncertainty surrounding the “upcoming BrExit vote.”  Which, even after the PPT re-goosed financial markets to new highs in the weeks after the vote, somehow didn’t yield a rate hike in July; or even September, after Stanley Fischer and half the post-Jackson Hole Fed speeches insisted it was inevitable.  To that end, the global economy is arguably worse today than in September; the dollar, care of relentless Fed jawboning, is much stronger, pressuring corporate earnings further; and oh yeah, an election that may well prove a “BrExit times ten“ is just one week away.

Yes, I know they aren’t doing anything tomorrow.  However, I’m curious to see if they note the “upcoming Presidential election” as a potential risk in their mind-numbingly moronic “word cloud,” so as to set the stage with a perfect catch-all excuse for December.  Not that they’ll need it if Trump wins – as under that scenario, the Fed may well be forced into “emergency action” before the scheduled December 14th FOMC meeting.  Which frankly, could just as well occur in the extremely unlikely event Hillary wins (which, as noted above, the “market” still anticipates), as the world realizes that an economy under Hillary Clinton represents America’s worst imaginable long-term fate.

To that end, will they mention the “upcoming Italian referendum” on December 4th– which, when all is said and done, will likely yield an anti-EU, pro-Five Star Movement Prime Minister?  Or the “upcoming OPEC meeting” on November 30th” – which, as noted above, will almost unquestionably yield no deal?  Or the “upcoming French election” in April – in which the anti-EU National Front Party is all but certain to take the Presidency?  Or the “upcoming German election” next October – when Merkel is sure to be unceremoniously defeated by a powerfully anti-EU coalition, led by the insurgent Alternative for Deutschland party?  Or will they just say nothing – as usual, hoping and praying for an economic absolution that never arrives?

I’ll bet on the latter, as anything otherwise would create fear of said Minsky Moment.  However, if they do mention the U.S. election, even briefly, it should be viewed as a blaring red siren that the Fed is already contemplating their return to overt easing – as opposed to the covert easing done today; i.e, monetizing Treasuries and stocks in secret, via the Fed’s daily “open market operations.”

Well, that’s enough for now, as the countdown to political Armageddon – and likely, liberation – is down to one mere week.  Other than to note that gold and silver held their 200 day moving averages, of roughly $1,266/oz and $17.25/oz, respectively, like superstars this past month, amidst a blindingly ferocious suppression campaign, highlighted by the named storm “Deutsche Bank Destruction” raid of October 4th, when China was closed for a holiday.  To that end, keep in mind that gold and silvers’ respective 50 MONTH moving averages of $1,303/oz and $19.83/oz – i.e, HUGE technical resistance levels – are just above today’s prices, with a slew of “PM bullish, everything-else-bearish” catalysts, as sampled above, on the immediate horizon.  Trust me, once prices rise above these levels this time, they won’t be coming back – particularly if Trump wins; i.e., “BrExit times ten.”

To that end, NEVER have I been more fearful of chaos in the financial markets – as prognosticated early this year, when I espoused that I didn’t think it possible to survive 2016 without a catastrophic financial event.  Let alone, the accompanying political, economic, and social ramifications, for not only America, but the world at large.  Thus, there has NEVER been a more opportune time to protect yourself with physical Precious Metals, given their historically high reward/risk ratios.  

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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