by Andy Hoffman, Miles Franklin:
Yesterday (Wednesday) morning, I wrote “everything they do now is about market manipulation.” As, having watched the powers that be’s’ “response” to the extreme financial turmoil caused by Brexit – i.e., the same response as to August’s Yuan devaluation, December’s Fed rate hike, and February’s ECB and BOJ NIRP/QE announcements; I realized that the entirety of their “crisis response” regards the support of “favored” markets like stocks and bonds, and suppression of “unfavorable” ones like Precious Metals. To the point that it has become, frankly, embarrassing to watch.
To wit, amidst the unequivocally worst global economy of our lifetimes, featuring record, parabolically surging debt; a full-blown currency crisis; geopolitical instability unparalleled in the post-war era; an expanding European banking crisis, to the point that governments and corporations alike are begging for bailouts; and the lowest commodity prices since the 2008 crisis; no financial shock is unworthy of catapulting “last to go” stock indices like the “Dow Jones Propaganda Average” to new all-time highs. That is, when QE, ZIRP/NIRP, and even “helicopter money” have become official, nearly universal government policies.
As I wrote yesterday, it is no longer supposition as to how this occurs – particularly when institutional equity flows have been negative for four months, and corporate buybacks have dramatically declined. As, at this point, many Central banks – such as the Japanese, Chinese, and Swiss – are overtly purchasing stocks; whilst those that aren’t doing so overtly – like the Fed – are clearly doing so covertly. To wit, the “dead ringer” algorithm on the “Dow Jones Propaganda Average,” which I first wrote of four yearsago. Which, in some way, shape, or form, occurs on roughly 75% of all trading days; with yesterday’s being particularly egregious – as amidst oil prices plunging below key support; horrific Chinese trade data; plummeting European bank stocks; and a nearly full reversal of the prior day’s Treasury yield gains; the PPT stillmanaged to close the Dow in positive ground, at a new nominal high.
As for Precious Metals, the powerful strength the paper silver market has demonstrated – against a Cartel desperate to cover record short positions – has been something we haven’t witnessed since 2011. This is why I have for the first time in 14½ years started to believe the Cartel’s demise is imminent, even if we still have to endure financial ignominy on the way to our inevitable “victory.” Such as last night; when, in the ultra-thin Globex paper market, it again stopped silver from breaching the all-important $20.50/oz level – i.e., its 50-month moving average – that will ultimately prove to be the Cartel’s undoing. Which subsequently, was followed by this morning’s equally blatant attempt to re-establish $20/oz as resistance, amidst an essentially “news-less” backdrop. Since silver “shocked” the Cartel by surging above $21/oz on Independence Day Eve, it has been “repelled” from $20.50 a whopping 12 times, amidst what may well be the “final battle” for Precious Metal market control.
Today, on a day when Germany sold negative yielding 10-year Bunds for the first (and decidedly NOT last) time, I want to follow-up yesterday’s commentary, in response to a reader’s comment suggesting that due to my statement that Central bankers’ will hyperinflate financial markets if need be, their manipulation can continue indefinitely.
To the contrary, what I said was not that they will “win,” but simply that the “end game” of their world-destroying – and suicidal – actions would be financial market hyperinflation, as opposed to 2008-style “deflation.” In other words, a Venezuelan-style crash, in real-terms. Which throughout history, has proven to been how essentially all fiat regimes have met their demise; let alone, this, history’s largest; most destructive; and for the first time, global fiat Ponzi. And again, I am simply speaking of the end game forfinancial markets, not economies; the latter of which will, in a world of hyperbolic money printing, experience equally terrifying surges in “need versus want” prices, and plunges in those of hopelessly oversupplied goods and services.
In the aforementioned reader’s email, he asked if “Central bank and corporate buybacks can provide a ‘Bridge over Troubled Waters’ until business and profits recover.” Regarding the former – yes, Central banks can monetize stocks until the cows come home. However, per the Venezuelan stock market chart above, that doesn’t mean the economy will recover, or that the currency will maintain its purchasing power – particularly when debt goes “supernova” in the process. Regarding the latter, corporate buybacks have already slowed dramatically – amidst the highest corporate debt levels in U.S. history, and rapidly weakening economic activity. Unlike Central banks, corporations cannot print money to buy stock back with. Thus, whilst Central bank’s “monetization limit” relates to hyperinflation, corporations’ limits are there balance sheets. And oh yeah, that little old thing calledfiduciary duty!
Moreover, there are other “practical” issues Central banks run into when attempting to manipulate markets, starting with the “myth of QE to infinity.” Which is, the inevitable scarcity of things to monetize that the ECB is running into in the government bond markets (causing it to add corporate bonds to its “buyable” list); and the Bank of Japan in the stock markets, per the recent news that it owns more than 50% of all Japanese ETFs, and a “top ten holding” in more than 90% of the largest 225 stocks. Heck, through its “QE3” program of 2012-14, the Fed became the not-so-proud owner of 50% of all U.S. mortgage-backed securities, and more than a third of all outstanding Treasuries.
Which brings me to the next “practical difficulty” of QE to infinity; i.e., the inadvertent march towards communism that occurs when the State, via its Central bank, owns major positions in equities as the Bank of Japan does. I mean, what if its latest “helicopter money” campaign pushes BOJ equity ownership significantly higher? At this point, it will be forced to participate in corporate governance; as clearly, the option of selling is not possible, when owned in such gargantuan amounts, at record valuations.
Then there’s the issue of bankrupt entities like Deutschebank, the entire Italian banking sector, and countless financial zombies the world round. Which, given surging debt defaults resulting from the collapsing global economy – from corporations like U.S. energy producers, to nations like Puerto Rico – are getting weaker with each passing quarter. In other words, some things simply can’t be “papered over” – which is probably why the stock of Deutschebank, Europe’s largest (and “most systemically dangerous”) bank, hit a new all-time low last week, just as the “Dow Jones Propaganda Average” was on the cusp of a new, PPT-engineered high.
Last but not least, there’s that teensy, weensy issue of paper versusphysical markets. Trust me, the powers that be are not happy about Precious Metals having not only broken their “bear market” trends, but being the best performing assets of 2016. Or, for that matter, the ugly, expanding decline in crude oil prices, despite the “oil PPT’s” best efforts to goose prices higher. This, despite the Dow’s “record high”; relentless “recovery” propaganda; and a desperate need to prevent Donald Trump from upsetting the status quo, by becoming President.
Frankly, all they have “accomplished” is a blunting of the rate of PMs’ rise – which thus far, has been enough to prevent the all-out buying frenzy that will occur when smashes like today are no longer technically feasible. The reason being, that record high physical demand, falling production, and razor-thin above ground inventories have tightened the PM markets so much, it has become nearly impossible to “mask” it with paper shorting. Which not only exacerbates these violently bullish trends, but puts the “commercials”’ record level of paper shorts in increasing jeopardy of being “squeezed” into oblivion. Let alone, when so many potential “black swans” are swimming around; such as, for instance, uncertainty related to what might be an historically contentious Republican convention next week.
Hopefully, this article cleared up your understanding of what I believe to be the most likely scenario for future financial market movements – as history’s largest, most destructive fiat Ponzi scheme progresses through its terminal stage. Clearly, there are countless moving parts to consider – any of which, could abruptly change the probability of such movements; but NONE that can alter the mathematically certain “end game” of global currency devaluation – yielding massive real losses in most financial assets, and gains in items of real value like physical gold, silver, and platinum.
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