Category Archives: Precious Metals

“Low Inflation” In Not “Good” – It’s Pure Propaganda

Analysts who advocate a monetary policy that targets “low inflation” are the equivalent of chickens in the barnyard rooting for Colonel Sanders to succeed.   This idea that a low level of inflation being good for the economy is beyond moronic.

The fiat currency money system era was accompanied by the erroneous notion that a general increase in the price of goods and services is “inflation.”  But technically this definition is wrong.  “Inflation” is the “decline in the purchasing power of currency.”  This decline occurs from actions that devalue a currency.  Rising prices are the visible evidence of ongoing currency devaluation.

Currency devaluation occurs when the rate of growth in a country’s money supply exceeds the rate of growth in real wealth output.   Simply stated, it’s when the amount of money created exceeds the amount of “widgets” created, where “widgets” is the real wealth output of an economic system.

In ancient Rome, the currency devaluation occurred when the Roman Government began to “shave” gold and silver coins which enabled it to increase the amount of coins produced from mined gold and silver in order to finance Government spending.  When spending continued to exceed the amount of currency produced, the Government increased the money supply by diluting gold and silver coins with cheaper and more abundant metallic additives.

In the United States currently, currency devaluation occurs through both money printing, which has been cleverly disguised for propaganda purposes as “quantitative easing,” and by the continuous growth in credit creation.   Debt issued behaves exactly the same as printed currency until that time at which the debt is repaid, not by more debt issued, but from money that has been accumulated by the debtor in order to repay and retire the debt.

The U.S. Government has not reduced the amount of debt issued for decades.  Apologists will look at the Treasuries outstanding chart on the Fed’s website and argue that the debt level declined ever so slightly in the late 1990’s.  But this was achieved through accounting gimmicks, not an outright reduction in Federal debt outstanding.

Notwithstanding this, the total level of debt in the U.S. system has been continuously increasing for many decades.  While it’s argued that this is debt and not money supply, it is a fact that debt issued spends just like printed money until the debt is repaid and retired. Thus, currency devaluation has been occurring in the United States on a continuous basis since at least 1913 (founding of the Fed).

Back to the erroneous idea that “low inflation is desirable.”  I defy anyone to research this and present a rational explanation that has ever been offered.  The best I could come up with is “low inflation is good for the economy.”  That is unadulterated ignorance.  That phrase means that “it is good for the Government to devalue the currency.”  Why is it “good” for a consumer to pay higher prices, i.e. more money for goods and services on an ongoing basis?

Inflation, where “inflation” means the true definition, is a subtle mechanism by which the elitists redistribute wealth.   Printing money  benefits those who are closest to the money faucet to the detriment of those who are “downstream” from the flow of new money supply (or credit created).  The banks are always first in line at the money faucet.  The Federal Reserve was erected for that purpose.  The creators of the Fed were all owners of the biggest banks in the U.S. at the time plus the political puppets of those owners.   Go look up the roster of men who founded the Fed for yourself if you don’t believe me.

After the banks, the Government is next in line.  And after that all of the companies that benefit from Government largess.  Inflation, even “low inflation” is not beneficial to anyone other than those who are in a position to take advantage of the currency devaluation mechanism.  Period.  Anyone who tries to argue that “low inflation is good” and that a low inflation target should be a primary goal of the Fed’s monetary policy is either someone who is in position to benefit from that policy (banks, politicians, big corporations etc) or is tragically stupid.

Bonds Are Currencies – A Derivative Of Currencies

I saw a thought-provoking retweet on Mark Yusko’s twitter feed and I wanted to clarify the idea conveyed:  “When bonds yields nothing, they aren’t much different than currencies.”

This comment is somewhat misleading because bonds are indeed a derivative of currencies. It’s basic financial economics that Mark Yusko learned in the same Robert Leftwich finance course at U of Chicago that I took.

The tweet references sovereign-issued bonds. Sovereign bonds are simply a sovereign’s currency issued to investors who are willing to bear the “time value” risk connected to the sovereign, where “time value risk” is the sum of “credit risk” – the risk of getting repaid – and “opportunity cost” – the foregone cost of spending that capital now or investing it in an alternative asset that might yield more.

Together, in a free market, those two costs equal the interest rate of a sovereign bond. From there, all bonds that are priced off the sovereign bond curve are 2nd order derivatives of a sovereign currency. In that sense all bonds are a derivative of currencies.

Quantitative easing – when a Central Bank prints money and uses that money to buy sovereign bonds for the purpose of controlling interest rates – removes the market’s ability to price “time value risk.” Western sovereign bonds have been driven down to zero – below zero on a real interest rate basis. Western sovereign bonds arethereby simply interchangeable with a country’s currency. There’s almost no difference between holding cash or holding a 30-day T-bill , or even a 2-yr Note, other than the inconvenience and transaction cost of buying and selling the bond.

The point of this is to reflect on the fact that bonds are indeed currencies – currencies with the added feature of time value risk. An investor buying the bond is willing to exchange current spending/consumption in order to lend money to the sovereign issuer.  The interest rate is the amount paid to bear the time value risk. The interest earned is paid in more of the sovereign currency.

QE has destroyed the market’s natural function of pricing time value risk into the capital markets which in turn has reduced most bond investments to the equivalent of holding currency in the pocket sans the benefit of compensation for bearing time value risk. This has in turn forced a flood of money of Biblical proportions into the the non-currency assets that are moving higher at the greatest velocity – primarily stocks. Right now primarily tech stocks.

Eventually the QE intervention will fail – it always fails and history has confirmed this fact ad nauseum. When that failure occurs, and I believe that point of failure is closer than most are willing to accept, there will be an asset crash of Biblical proportions.

Is more difficult to see the truth or accept the truth?…

Overnight Paper Attack On Gold – Why This One Was Different

Once again there was an overnight “flash crash” in Comex gold futures trading.  This time it occurred at 3:56 a.m. EST at one of the quietest trading periods of the roughly 23 hour electronic trading day.  India has gone sleep. The Shanghai Gold Exchange has been closed for about 90 minutes and the London markets are just beginning to function.  I guess someone decided it was a good time to unload close $500 million worth of paper gold into the Comex’s Globex electronic trading system (click to enlarge):

The graph above is the Comex August paper gold derivative, sometimes referenced as a “contract.” The $500mm million number is from Zerohedge and likely includes all the contract months. At exactly 3:56 EST a clearly motivated seller decided it was the best time to unload 2,741 August pieces of paper gold, driving the market down $4.50 instantaneously. If the gold were actually physically delivered into the buyer, that chunk would be 274,100 ozs, or roughly $360mm worth of gold. It’s doubtful that amount of gold is actually sitting in the Comex “registered” vaults (yes, I know what is allegedly reported to be in the vaults).

INTERESTINGLY, the very next minute, some entity BOUGHT 2,373 August paper gold contracts, nearly offsetting the amount of contracts sold. That’s why the price snapped right back up. Also interesting is the fact that the apologists on behalf of those manipulating the paper gold market were dead silent as to the source of this large sell – i.e. there were not any reported “fat finger” excuses.

The question I have is whether or not the flash crash sale was perpetrated to induce the hedge fund black algos to mechanically sell, assuming stop-losses were triggered, to enable the buyer to buy 2,373 contracts at a lower price. We know for sure, based on the recent COT reports, that the bullion banks are feverishly covering their short position, with the bank swap dealers now net long gold. Concomitantly, we know the hedge funds are dumping longs and going short.

Unfortunately, whoever decided to implement this operation strategically executed it one day AFTER the reporting cut-off date for Friday’s COT report. It’s a neat little maneuver the bullion banks have doing for years as a method of covering up their “tracks in the snow.” It will be impossible to analyze what occurred overnight when the COT report a week from Friday is released. The “winds” will have blown snow over the tracks.

That said, it certainly feels like there’s real buyers of gold and silver accumulating positions at these levels.  I know from looking at the data on a daily basis that the Indians are actively importing gold  currently.  For  now, it looks like the General Sales Tax “boogieman” was a non-event.  China is actively buying, albeit it’s somewhat seasonally slow on the SGE.

What is of interest, at least to me, is the fact that the market has a bullish tone in what is normally one of the slowest seasonal periods of the year.  In another month the Indians will be gearing up for their peak buying period.   Also of note is that fact that U.S. retail coin buyers have ramped up their appetite considerably for silver eagles and, more of note, for some reason India is importing silver right now in unusually large quantities.   I have not been able to track down a link yet, but yesterday Reuters referenced an article in the Economic Times hard copy edition titled, “Silver Imports May See Three-Fold Rise as Low Price Drives Demand.”

This Feels Like the Action in 2008 Right Before the Collapse

Doc asked me last minute to fill-in for Eric Dubin, who’s M.I.A. somewhere on the shoreline of southern France, on Silver Doctor’s Metals and Markets weekly podcast. Among other topics we discussed why the current trading action in the precious metals paper market feels very similar to trading in the spring/summer of 2008 – ahead of the great financial collapse crisis and why the Fed/bullion banks are making it obvious that they seek  to scare investors away from buying precious metals with their “shock and awe” price-takedowns.

But one big difference between now and 2008 is that these “zip-line” vertical drops in the paper are being met with aggressive buying from the eastern hemisphere physical buyers, thereby limiting the size, intensity and duration of the price-hits.

As of the latest COT report release Friday which details the constituent trader positions through last Tuesday, the trader positions are moving toward a highly bullish set-up for gold and silver. In silver, the hedge funds are now net short silver futures and the swap-dealer segment of the bullion bank positioning is net long. In gold, the hedge funds have aggressively reduced their net long position and the swap dealers are long to a relatively large degree. Historically, this position shift has preceded major bottoms.

In the latest Mining Stock Journal, I present a silver producer who’s stock that was ruthlessly taken recently. I review the details in-depth, including my conversation with the CEO, and discuss why this is an opportunity to buy into a major producing company at irrationally low price level based on the facts of the situation. I also lay-out the call options I put into the fund I manage in large quantities to bet that my assessment has good probability of being correct. You can find out more about subscribing here:   Mining Stock Journal info.

After subscribing to Brent Cook for 3 months, I was underwhelmed.  Resubscribed to you a few weeks back and sure am glad I did so. You are one the few straight shooters still out there. Keep up the great work. I think we are right on the cusp of a serious market break, thus the war drums.  – subscriber “Chris

The Gold Industry is in a Deep State of Dysfunction, Delusion and Denial

Stewart Dougherty is back with scathing commentary about the big mining companies – Barrick, Newmont, Goldcorp, etc – and their unwillingness to fight the obvious intervention in the gold and silver markets by western Central Banks and Governments.

While the Fed and other Deep State puppets have floated subtle memes that there is a noble purpose behind the control of gold, such as to support the dollar and preserve confidence in their (disintegrating) financial and monetary system, these are nothing but contrived and coagulated lies designed to cover up the biggest financial crime in history. – Stewart Dougherty

In 1980, the Financial Deep State realized that there existed an extraordinary opportunity for serial plunder and profiteering: the manipulation of the gold and silver markets. They immediately mobilized to exploit it.

During the subsequent 37+ years (we are now well into the 38th), the Deep State manipulators have criminally looted the gold and silver markets, pocketing astronomical profits for themselves in the process, all of which have come from real victims on the other sides of their fraudulent trades. While literally billions of people worldwide have been financially damaged by this crime, many of them severely, not one of the perpetrators has spent so much as ten seconds in jail for the global looting spree they have conducted. This is because precious metals price fraud is a state-sponsored crime.

While in this article we will concentrate on gold from here on, the exact dynamics we describe also apply to silver. The only difference between the two is that the price carnage in silver has been far worse than it has been in gold, on a percentage basis.

As a consequence of the unrelenting gold price manipulation, gold has been thrust into two severe bear markets that have lasted for more than 27 of the past 37 years, or more than 72% of the time.

The first bear market ran from 1980 until 2001, during which the gold price was savaged from $850 to $250 in nominal dollars, a plunge of 71%. Inflation-adjusted to today’s dollars, the carnage was even worse: it collapsed from $2,674 to $344, an 87% implosion.

In 2001, in the midst of unprecedented (at the time, but far worse now) economic, financial and monetary pressures, gold embarked on a ten year rise to a nominal (although not inflation-adjusted), all-time high of $1,925. The Financial Deep State had its hands full then with other, more pressing matters (such as keeping its global financial and monetary Ponzi schemes from disintegrating), and was forced to take its eyes off of the gold ball. It is impressive what gold can do when it is freed from the chains of greed, looting, and official corruption.

By 2011, after employing its signature techniques, including rampant counterfeiting and reporting fraud, the Deep State had returned the errant financial genies to their poison bottles, and was able once again to focus its attention on its favorite, most profitable crime: precious metals price rigging.

For the 6+ years since, gold has been slammed into a second major bear market, during which its price has been crushed from $1925 to $1050, a collapse of 45%. It has recovered somewhat to $1210 at the time of this writing.

During the entire 37+ year period, and particularly during the 27+ years of outright price annihilation, the major gold miners have done precisely nothing to expand the market for physical gold via advertising, direct marketing or any of the other proven demand-creation techniques. They have also done nothing to support gold’s price in any way, or to take action against the criminal price manipulators.

The industry’s sole innovative effort during this period was to have its association, the World Gold Council, get behind a gold ETF, GLD. The management of this ETF was…

Illinois On The Brink? The Whole Country Is On The Brink

The biggest problem facing Illinois is the public pension fund problem.  I don’t care what the “official” number is for the degree to which it is underfunded.  I can guarantee that even without marking-to-real-market the illiquid investments like private equity funds, derivatives, commercial real estate trusts and other assets that do not have truly visible markets, collectively the public pension system in Illinois is at least 60-70% underfunded.   Then apply a realistic assumed actuarial rate of return on assets, which would be lower than the current assumption (likely 7.5% ad infinitum) and the underfunding goes to 80%. The problem is unsolvable without a complete and drastic restructuring.

I was in a Lyft ride today and the driver happened to be from the northwest suburban area of Chicago.  There’s a lot bad things happening in that State that are not reported in the mainstream media.  All road public road work has been halted except toll roads.  The gun violence has worked its way from the South Side up through downtown into the Gold Coast neighborhood and is winding its way north.

He said that his old house at peak prices in northwest burbs was worth over $500k.   The current resident has it offered for $250k.   Housing and real estate prices are plunging.   He has a good friend who consults with Sears and the expectation is that SHLD could file bankruptcy any day (Short Seller Journal subscribers were shown this idea on April 2, 2017 at $11.49 – it’s been as low as $6.20 since then).

It’s not just Illinois.  The entire system is crumbling beneath the surface.  As long as the mainstream media isn’t reporting the truth, the “truth” can’t be that bad, can it?  The truth is worse than any of us can possibly know.

There’s a 1%/99% in this country that’s different than the assumed meaning for that term. For 99% of the population, economic reality and systemic truth has been covered up and kicked down the road for so long that this segment of the populace is willing to believe there may well be a such thing as a “free lunch.”  To 99%’ers, it’s inconceivable that the grim-reaper could or ever would show up to collect.  Of the 1%, a small percentage not part of the insider elite can see most of the truth and can imagine that the whole truth is far worse than what can be perceived from publicly available information.  The balance of the 1% are the insiders.

I stated in 2003, after watching the tech bubble collapse and the housing bubble inflate, that the inside elitists were going to keep the system propped up with printed money and easy credit until they had swept every last crumb of middle class wealth off the table and into their own pockets.  I also said that nation’s retirement assets would be last crumbs remaining.  Enabling pension underfunding is another form of debt used to confiscate wealth.  That’s why the catastrophic underfunding of pensions was allowed to persist.

For purposes of my analysis, anyone who does not have enough money in the form of cash in hand to buy a Federal politician or buy the direct phone number to the Oval Office is “middle class.”  There’s plenty of douche-bags running around with assets worth 8-figures but they don’t have enough spare change to buy their way in to the elitists’ card game.

We are at the point where the last crumbs are being swept off the table.  It looks like Illinois will be the first to fall but there will be several others that follow.  Part of the motivation by the Fed/Government to hold up the stock market like it has been doing is to keep the big State pension funds propped up for proper looting – like a prize-fighter being held up under the shoulders after passing out in order to deliver more punches to the face.

I suspect the time at which the system will be allowed to collapse is not too far off.  The only question for me is whether or not the “Mad Max” scenario engulfs the country before the outbreak of World War 3…

Paper Gold And Silver – A Tragic Reflection Of The U.S. Financial System

Dave, just a moment for some feed back on your Short Seller’s Journal. I just placed an order for 1oz gold eagles thx to my profits off Tesla and BBBY, thx as always. – subscriber email received today – Short Seller’s Journal information

Wow.  The hedge funds are almost net short silver contracts again, having had their algos steered into that predicament by the bullion bank market manipulation.  The fraudulent paper short position in both gold and silver – but especially silver – is many multiples larger than the available supply of physical metal that is supposed to legally back commodity derivatives.  This is evident from the Comex disclosures.

We have no idea what the total net short position would be including LBMA forward contracts and OTC derivatives.  That the entities who are paid by the public to prevent this continue to allow and enable this massive fraud is a tragic  commentary on the current U.S. economic, financial and political systems.

Craig “Turd Ferguson” Hemke invited me onto his weekly subscriber podcast show to discuss the trading action in gold and silver, the catastrophe otherwise known as the Federal Reserve and the slow-motion train wreck occurring in the stock market:

TO LEARN MORE ABOUT THE MINING STOCK JOURNAL OR SHORT SELLER’S JOURNAL – CLICK IN IMAGE:

Why Was Gold Slammed And The Dow/SPX Pushed Higher?

Something ugly could be hitting the financial/economic system soon. To blatantly hit gold like this when no one is around is a sign of desperation. The FANGS had an brutal reversal today despite the squeeze higher in the broad indices. TSLA soared early on Elon Musk’s shameless puffery – which often borders on outright fraud – and reversed to the downside, while the SPX and Dow were being pushed higher by the Plunge Protection Team.  Both indices closed well of their higher.  Auto sales for June were once again well below expectations.  GM’s inventory soared despite a stated goal to reduce it inventory from over 110 days to 70.  A lot of workers will lose their jobs.  Household debt – mortgage, auto, credit card – will go unpaid…

The Trump Presidency is floating on the fumes of questionable sanity as an impeachment Bill is being sponsored in the House by 25 Reps. The case to be made that Trump is not mentally competent enough to have his index finger on the red button that launches nukes at Russia grows stronger by the day.

Doc and Eric Dubin invited me on to their weekly Money and Markets weekly market recap/analysis to discuss – today notwithstanding – very interesting trading action in the gold/silver paper “markets” in the west and the physical, real markets in the eastern hemisphere:

CLICK ON EITHER BANNER BELOW TO LEARN MORE ABOUT EACH

Pension Apocalypse Is Coming

“It’s unequivocal now: We are taking money from the new employees and using it to pay off this liability for the old employees,” said Turner, a Gov. John Hickenlooper appointee. “And some might call that a Ponzi scheme.”Denver Post, 6/27/17

The people in Denver who bother to read the news, especially the ones who are or will be dependent on the Colorado public employees pension fund (PERA), were greeted with a shock Tuesday. PERA is now admitting to be 42% underfunded, down from an alleged 38% underfunding last year. How on earth is it possible for the underfunding of a pension to increase during a period of time when the Dow, S&P 500, Nasdaq and fixed income markets are hitting or are near all-time highs?

And what about the valuations of these funds using realistic mark to market prices for the illiquid assets, like private equity, commercial real estate and OTC derivatives?  Harvard University is about to sell its private equity assets.  My bet is that the value received will be covered up as much as possible.  And we’ll never know where the fund was marked on its books.  But judging of the failure vs. expectations of the SNAP and Blue Apron IPOs, private equity investments are likely over-marked on the books by at least 15-20%. A market to market here would devastate the stated funding levels of every pension fund.

It’s not just Illinois, which is de facto bankrupt, and the Connecticut State pension fund, which is also de facto insolvent.  Nearly every State’s pension fund is severely underfunded, as well as most private funds.

That 42% underfunding for PERA, by the way, makes very generous actuarial assumptions about the assumed rate of return on assets vs. the assumed payouts. Those assumptions have been wrong for at least 20 years and will continue to be wrong. That’s why PERA’s – as well as most every other pension fund – has become more underfunded over the last year.

The quote at the top is from Lynn Turner, who was one of the few competent, if not respected, SEC commissioners in my lifetime. In my view, when politicians and public officials are willing to state the truth about a dire situation in public,  it implies that the situation is on the precipice and they want to be disassociated with it – i.e the rats are jumping ship.  Yesterday the Illinois State Senate minority leader resigned…

I would argue that the one of the primary reasons the Fed is working hard to keep the stock market propped up is because, if the Dow/SPX/Nasdaq were to fall 5-10% for an extended period of time – as in more than a month – the entire U.S. pension Ponzi scheme would blow up and decimate the financial system. It’s a literal black swan in full view.

This is explains the “V” rallies in the stock market when the market abruptly drops 1% on a given day – like Tuesday and Thursday this past week. The fact that the market reversed Wednesday’s overt Fed intervention on Thursday signals the possibility that the Fed is losing control.

Meanwhile, the paper price of gold has once again withstood a vicious overnight attack that began in London and continued when the Comex opened by holding up at the $1240 level and bouncing. This is the fourth time since the so-called Fed attack last week disguised by the fake news as the “fat finger” trade.