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The ECB, Literally Going Off the Rails

by Andy Hoffman, Miles Franklin:

First, I’m going to explain something I’ve learned from watching Precious Metal markets, tick for tick, for the past 14½ years – back to times when the dissolution of the Euro, hyperinflation, or a collapse of the global banking system weren’t even considered, much less a strong possibility. Back then, financial markets were, by my estimation, roughly 60% “freely traded” – but significantly less so for Precious Metals; compared to, perhaps, 25% today, on all fronts. To that end, I have not only compiled reams of empirical data about market movements, but practical experience of what drove them. Which is why I respectfully disagree with one of our industry’s best analysts, regarding his view of drives markets today – i.e., Central banks algorithms, causing the HFT computers that comprise more than 80% of trading to move them like puppets on a string.

Generally speaking, I agree with his premises.  However, to say Central banks are not the primary mover of markets – as opposed to mere facilitators – doesn’t makes sense, as the vast majority of HFT volume emanates from entities like Goldman Sachs and JP Morgan.  Which, at the least, are government “affiliates”; and more likely, full-fledged “partners.”  How else could their “trading desks” be profitable essentially every day – compared to the historical trading average of roughly half the time – if they weren’t fully aware of what algorithms were coming; as opposed to simply reacting to market movements?  Not to mention, the fact that the “dead ringer” algorithm supporting the “Dow Jones Propaganda Average” – which I first wrote of four years ago – occurs at exactly the 10:00 AM EST time stamp of the Fed’s “open market operations.”  And oh yeah, the fact that countless Central banks – including the Banks of Japan, China, and Switzerland – are now overtly monetizing stocks.  Moreover, saying something as black and white as markets are moved entirely by the dollar/yen, VIX, or other “algo du jour,” ignores the subtleties of market rigging I have carefully watched, every second of every day, since 2002.

Frankly, I could care less about the stock market – as ultimately, Iknow it will be devalued by either a crash or hyperinflation; resulting in dramatic declines in real terms, relative to physical Precious Metals.  However, I still watch its each and every move, to gauge its relationship to other markets; most importantly, Precious Metals.  And if there’s one thing I’ve learned over the years, it’s that such manipulative algorithms never work “two ways.”  In other words, it’s completely fallacious to say gold and the Dow trade opposite to them, certainly in terms of scope.  To wit, I have watched dozens of instances of the Dow rocketing higher on the most minute decline in the yen/dollar exchange rate; but barely any instances of PMs surging when the yen/dollar rises.  And conversely,  Dow declinesattributed to yen/dollar rises never seem to be as large as PM declines attributed to yen/dollar declines.  And then there’s the equally large amount of times when such “rules” are completely ignored, with the Dow surging despite no material movement – or at times, a decline – in the yen/dollar exchange rate.  Whilst conversely, gold, often doesn’t rise at all when the yen/dollar rises; but oftentimes, declines despite the yen/dollar rising.

In other words, such algos are used more to promulgate propaganda regarding what moves markets than anything else, particularly paper Precious Metals.  In a nutshell, the government has created numerous algorithms to generate strong – and importantly, uncapped – stock buying; and equally strong declines in Precious Metals, with all related strength capped.  Basically, the term I “coined” years ago to describe how such algorithms function is “gold is whatever is down, whilst stocks are whatever is up.”  Which essentially means, that on any given day, gold “trading” is tied to whatever the powers that be want the propaganda to pick up on – be it rising (or falling) oil prices; Deutschebank stock; the VIX; dollar/yen; or anything else they deem in their best manipulative interest.  The point being, that you shouldn’t worry so much about what the yen/dollar’s near-term future might be; or the VIX; oil prices; or otherwise.  As trust me, the frustration, angst, and rage you are feeling about what the Cartel has done over these past two weeks will soon pass – to be replaced by excitement; hope; and eventually, the financial gains that must come your way, for having chosen wisely in the final currency war.  Simply focus on the fundamentals; and buy physical, not paper, gold and silver; and you’ll be fine – as unquestionably, the bull market has returned.  And by the way, given that, according to reports last night, Japan’s upcoming “helicopter money” announcement may not be $100 billion, but $200 billion, pray tell why Precious Metals should “fear” a falling yen/dollar, should it subsequently result?

Speaking of insane, my head is on the verge of exploding, watching the dramatic explosion of terrifying political, economic, and social events encircling the planet – in this, the terminal stage of history’s largest; most destructive; and for the first time, global; fiat Ponzi scheme.  From the unquestionably staged Turkish coup attempt – which in its wake, is enabling Erdogan to carry out a Stalin-like purge of all perceived threats; to Japanese helicopter money; borderline criminal “non-GAAP” accounting of U.S. corporate earnings; Obamacare’s unfathomably destructive power; the utter lunacy – care of the aforementioned, maniacal interventions – offinancial market valuations; and the explosion of debt, of all kinds, as the insidious ramifications of zero and negative interest rate policy work their destructive power, on a world already on the verge of financial collapse.

To that end, this morning’s ECB meeting is exposing everything I warned of in April’s “myth of QE to infinity”; of how Central banks’ fallibility is being exposed, front and center, regarding the fact that even open-ended monetization schemes have their limits.  And not just due to the economic implosion, hyperinflation, social revolutions, and geopolitical conflicts they engender.  But simply speaking, when you’ve bought all there is to buy, there’s nothing left to monetize.  And when that happens – which shortly, both the ECB and Bank of Japan are about to realize – the “Wile E. Coyote” moment, when the world realizes the jig is up, will rapidly descend on financial markets and political regimes alike.

In a nutshell, the ECB’s insane, open-ended €80 billion/month QE program – just like the Fed’s QE3, which it was modeled after; is running out of bonds to buy – just like QE3, in which more than half of U.S. mortgage-backed bonds were monetized, and a third of U.S. Treasuries.  However, in the ECB’s case, the situation is far direr – as not only is the EU on the verge of collapse as we speak, but rates are so negative, the ECB has extremely limited options to keep the bond Ponzi going.  Which is probably why the Euro is so close to a major technical breakdown; enroute first, to its all-time low, well below dollar parity; and eventually, its complete dissolution.

At the start of his press conference, Draghi vehemently expressed his “readiness, willingness, and ability” to “use all available tools” to LOL, “save” the Euro.  However, four years after he initially said he’d do “whatever it takes…and believe me, it will be enough,” the Euro is further from being “saved” as any time in its pathetic, 17-year history.  And considering Draghi’s options for continuing history’s largest monetization Ponzi – from lowering rates below the current -0.4%; to proclaiming all bonds – government, corporate, and junk alike – to be eligible; to ignoring limits on specific countries’ holdings; it couldn’t be clearer just how close we are to the entire world realizing the jig is up.  And when it does, Central banks’ vast holdings of historically overvalued bonds will crash like Wile E. Coyote with an Acme Anvil tied to his tail.  As will the currencies they are denominated in – against real items of value, like physical gold, silver, and platinum.

P.S.  Just as I was about to hit “send,” Draghi’s press conference ended, with what may well be not just a prophetic statement of thehyperinflation to come, but the catalyst to end the recent, egregious Cartel paper raids.  To wit, when asked about the ECB’s plans for collapsing European banks, he espoused, counter to current ECB rules prohibiting bailouts, that “public backstop is a measure that would be very useful, and should be agreed with the Commission according to the existing rules.”

Yay!  More money printing and bailouts.  That’ll work!

Read More @ MilesFranklin.com

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