by Bill Holter, JS Mineset:
A reader recently sent me these charts. I do not know who put this collection together to give credit to but I do want to say these charts pretty much tell the WHOLE STORY!
Please note each graph has grey shaded areas which identify recessions. What we need to focus on is what has happened since the last “official” recession of 2008/2009. I put the word official in quotation marks because it is clear something has gone very wrong since 2009, have we really recovered?
Taking these charts and grouping by commonality we have; student loans/federal debt/money supply, food stamps/labor force participation/worker’s share of economy/median income/home ownership, I would put healthcare costs on their own.
Starting with the first grouping “debt and money supply” we can see an explosion in each chart since 2008. This clearly depicts the efforts made at reflating the system. Massive amounts of debt have been taken on and accompanied by a gross quadrupling or more of the money supply. Funny how the money supply has exploded yet the dollar has strengthened versus foreign currencies since then. I will finish with the chart which I believe is the reason for this anomaly.
The second group, let’s call this income/cost of living also shows unprecedented deterioration. Less people working …for lower wages and thus unable to afford a home …or even the ability to feed themselves! How is this “better”? Clearly, the standard of living is far more stressed today than when we entered the 2007/08 beginning of the Great Financial Crisis.
Lastly we have healthcare costs as a cherry on top of this “poo pie”. If more debt and fixed costs along with less employment and income available to service the newfound debt were not enough, healthcare costs of 10% or more of income should be enough to put a dagger in the heart of the American dream.
These charts are very easy to decipher and understand, even a 4th grader who must budget a weekly allowance can understand it! However, apparently Wall Street cannot understand this. I would say the same about Washington and those who “pull their strings” but I don’t believe it to be the case. I have said for years now, policy implemented could not have been by mistake and thus must be planned because no one could be so STUPID to have done the things our “leaders” have!
As for Wall Street, I actually think CNBC has guests on who actually believe the pabulum they spew. In fact just today I heard a guest say he was super bullish because now we have QE behind us, we can get back to normalization and sound footings … Really? Would we have even “arrived” here today with markets still opened were it not for the $ trillions pumped in by the various QE’s?
I promised one last chart. “Velocity” or lack of, explains a lot of what has already happened. When velocity returns it will also explain a lot, we’ll get to that in a moment.
You will notice velocity was cratering during 2008, it experienced a brief bounce and has done nothing but continue lower since then. This is explained by the previous and subsequent buildup of debt. People were feeling the “bite” of debt leading up to 2008. As asset prices began to drop, people started to hold back on spending and began to hoard cash as a safety net to be able to pay on debt. This strategy has continued. To offset the lack of velocity, the Fed was forced to “push” more money into the system. Which brings us to where we are now, more debt, less income and more $ trillions of money supply in the system.
I believe the lower velocity accounts for strength in the dollar. Richard Russell called the debt buildup in terms of dollars a “synthetic short”. This short being covered at a time of record low velocity has caused the rise in the dollar. This by the way has occurred while foreigners have offloaded over $1 trillion of reserves in the past year and soaked up most likely by the ESF.
In my opinion, a defining event is just about to happen. Because the Fed blinked and forced an unjustified rate hike, one of two things will happen. Either they stay the course (and maybe hike again), in which case asset markets will implode to unrecognizable levels. Or conversely the Fed blinks again and actually does further QE and pushes rates negative. In this case I believe they will finally get a reaction from velocity. I believe velocity will shoot straight up and probably to new high levels as “non-credible” monetary policy will spook a run out of dollars! A reversal by the Fed will begin the game of hot potato where owners will want out of dollars while they still can.
Switching gears entirely, it looks like the COMEX finally did make delivery of most of the 6.44 tons they owed for December delivery. I say “finally” because it makes no sense to wait so far into the month since the previous owner had to pay storage. If it was truly available, there was every incentive to deliver on day one or two …which they did not. Now, COMEX sits with a whopping 2.3 tons left of registered gold (73,000 ounces) coming into the February delivery month. As of tonight, there are still 114,219 Feb. contracts open which represents 11.4 million ounces! Yes of course, much of this open interest will either roll or evaporate as it has over the last two years …but with three trading days left there is 11.4 million ounces contractually open and only 73,000 ounces available for delivery!
I do want to point out the highly unusual! Today was options expiration for gold, in the past I want to say gold was ALWAYS hit and hit very hard on this day so as to make the call options either cheaper or worthless. This did not happen today as gold is now up over $20 in the last two days. Also, COMEX has NEVER EVER gone into an active delivery month with such a small amount of registered gold available. In fact, I cannot remember a time when the registered category was ever more sparse than it is now.
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