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The United States Of Hubris
The U.S. Government is following the propaganda formula used by Joseph Goebbels that was devised by Sigmund Freud’s nephew, Edward Bernays. The basic idea is to keep repeating a lie enough times so that eventually the masses believe it. The “Russia hacked the election” propaganda is the perfect example. Hillary Clinton first mentioned it in reference to “Russia hacked the DNC emails” during one of the debates. That lie transformed into the “Russia hacked the election” false-narrative repeated every 30 seconds on Fox News, CNN and the greater mainstream media. In truth, to this day not one single shred of evidence has been produced to support the claim. And yet, the lie perpertuates and the public fears Russia. Charles Dickens could not have scripted a better socio-political parody.
This guest post is from “Antonius Aquinas:”
This year, as of yet, North Korea has not been responsible for a single death of a foreign national. Nor has the tiny communist state ever used a nuclear weapon against an enemy like the US did with its immoral and hellish destruction of two Japanese cities, Hiroshima and Nagasaki at the conclusion of WWII.
On the other hand, since the start of the Trump Presidency, US-backed forces have been responsible for the deaths of some 3700 civilians in Mosul, Iraq.** This is not to mention its murderous armed strikes in Yemen and Afghanistan. Nor is American aggression limited to direct military action, but its arms supply sales to despots and its puppets has escalated tensions and makes conflicts that do break out much more brutal.
Fortunately, for the future of global peace, US hegemony is coming to an end. The nation is hopelessly broke while its welfare/warfare economy is beyond reform and faltering badly which means that when the inevitable collapse does happen, it will mean the end or a serious pull back of the Empire. A similar situation took place in Great Britain in 1945 after it took part in another senseless global conflict which liquidated the British Empire once and for all.
Click here to read the rest: The United States of Hubris
Wave Good-Bye To The Dollar’s Reserve Status
“Paper Money Eventually Returns To Its Intrinsic Value – Zero” – Voltaire
Set aside all other financial, economic and political concerns continuously shoved in our collective faces by the mainstream media. It’s a distraction – to a large degree intentional.
These are the ONLY events that matter right now: this, “China Begins To Reset The World’s Currency System,” and this, “Venezuela Is About to Ditch the Dollar in Major Blow to US: Here’s Why It Matters.”
Once the dollar is no longer regarded or used as the reserve currency, third-world poverty will engulf everyone in this country below the upper half percent wealth stratum…except those who possess a fair amount of physical bullion. I just bought more gold and silver coins from a friend yesterday who had an uncontrollable urge to get their house painted and needed to sell some to me to fund it. It won’t matter what the house looks like in a couple years but they would never take my word on that.
The level of assumed entitlement in this country by the middle class is absurd…
All the money and all the banks in Christendom cannot control credit…Money is gold and nothing else – JP Morgan’s 1912 Congressional testimony on “the justification of Wall Street”
Trump has suggested permanently removing the Treasury debt-ceiling. The Treasury debt-ceiling is the last remaining barrier to the ability of the Fed and the Government to create an infinite amount of fiat currency. Debt that is issued behaves exactly like printed currency until that debt is repaid. The non-repayment and continued issuance of the amount of debt outstanding is the critical point to understanding this concept. Since the early 1970’s, the Treasury debt outstanding has grown continuously.
Printed Treasury certificates created in this manner behave no differently than printed currency. This is a reality that economists completely ignore. Most analysts who think they understand monetary economics look upon this concept with disdain. The continuous issuance of an increasing amount of credit of any type is no different that outright currency printing (until the amount of outstanding credit is paid off, which it never has been since the demise of Bretton Woods in 1971).
Removing the debt-ceiling gives the U.S. Government, in conjunction with the Fed, the power to print an unlimited amount of Treasury notes. Historically, a large portion of these notes have been funded with recycled petro-dollars. The “QE” implemented by the Fed funded $2.5 trillion of the Treasury issuance. I don’t know where the funding for the next round will come from unless the Fed prints a lot more money. I suspect it will. The price of gold (and silver) spiked-up on Friday in correlation with the announcement of Trump’s proposal. That’s your warning shot…
Is Novo Resources Worth $600 Million At This Point?
In the July 27th issue of the Mining Stock Journal, I discussed briefly the run-up in Novo Resources‘ stock (NSRPF, NVO.V). At that point the stock, which had gone parabolic, was trading at US$1.93 for a $225 million market-cap. In defiance of any type of fundamental valuation logic, Novo continued straight up, high-ticking at $4.71. Currently as I write this, the stock is trading at $3.26. At $4/share on a fully diluted basis (the warrants and options are currently well in the money) the stock sports a $656 million market cap. This is absolute insanity for a company which does not have any proved resource beyond 495,000 of indicated/inferred resource at a project (Beatons Creek) not related to the news flow from the project (Karratha) that is driving the run-up in the stock. Investors are throwing money into this stock with little to no understanding of the meaning behind the contents of the news being released. (Click in image to enlarge):
To be clear, I’m not suggesting that Novo is not for real. It very well could be. What I’m stressing is that very little is known about what Novo may or may not have at Karratha based on the information that has been gathered by the Company and released to the public. Just like the pretty pictures of beautiful gold nuggets from outcroppings at Karratha that Novo has put in its corporate presentation, I can show you pictures given to me from the management at Eurasian Minerals from its Koonenberry project in Australia of beautiful gold nuggets collected from “coarse gold” samples. That was eight years ago and the project has not been advanced from that time.
In general, it is unlikely that anything above an inferred mineral resource can be estimated from surface sampling and assaying that has been on Karratha’s coarse gold environment. While coarse gold can be indicative of a high-grade gold-bearing system beneath the surface, the presence of very high grade nuggets of coarse gold do not guarantee it. Economic grades of gold are generally contained within discrete ore shoots and are surrounded by low-grade material. The presence of coarse gold can complicate the exploration process.
I exchanged emails with a senior officer at another mining company with an Australian presence to see if he had any knowledge or thoughts on Novo’s situation. He said that Quinton Hennigh (Chairman) “has a real nose for this stuff.” But, as I have suggested above, he admitted that only underground drilling (much deeper than the couple of bulk samples produced from trenching) will tell us where the real source of the gold is, assuming it’s there to be found.
This is a project that will take years to explore and assess. I’m guesstimating at this point the project would be 8-10 years away from transitioning into a commissioned mining operation. Between now and then there’s is a substantial amount of expensive exploration and de-risking that needs to occur. Again, the presence of high-grade course gold-bearing nuggets does not guarantee that an economically mineable resource exists below the surface.
I’m not trying to discourage anyone from taking a shot at Novo. But the odds that it’s the next large deposit discovered (in excess of 10 million ozs) is small. My view is that this would be a great risk/return proposition if the stock were still under a $30-50 million market cap. For my risky investment allocation, I think Precipitate or Mineral Mountain represent better risk/return speculative bets than Novo at a $600 million market cap.
NOTE – Subsequent Event: It was announced on September 5th that Kirkland Lake (KIRK, KL.TO, market cap of US$3.4 billion) would be investing up to $56 million for up 7.7% of Novo’s stock in a private placement. While this is a positive event in terms of providing the Company with additional funds for drilling, we still need to see drill results – and a lot of drill results. This does not change my overall view that the stock price has run ahead of itself given what is known about the potential mineralization on the project. I would sell into the move higher today and wait for the stock to pullback to a lower level before taking a longer term position in the Company’s stock.
The stock closed at US$3.26 today (Thursday). In the last issue of the Mining stock Journal I recommended selling it at US$3.76. The stock is down 25.4% from its high-close (US$4.33) and 30.7% from its all-time high trade ($4.71). I’m not recommending avoiding the stock at all. This could be a very interesting speculative play. But it’s a function of the cost to invest. At $600 million, I will let others bear the exploration risk. If the stock were to pullback below $2 – and it might not – I will probably talk to my partners about putting some in the fund. I think the $1.40 area is a good entry point but it may never trade that low again.
If you want to learn more about Precipitate Gold or Mineral Mountain, or several other promising junior exploration companies, please follow this link for information about subscription newsletter: Mining Stock Journal
The Coming Run On Banks And Pensions
“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said. – Executive Director for the Kentucky Association of State Employees, Proposed Pension Changes Bring Fears Of State Worker Exodus
The public awareness of the degree to which State pension funds are underfunded has risen considerably over the past year. It’s a problem that’s easy to hide as long as the economy is growing and State tax receipts grow. It’s a catastrophe when the economic conditions deteriorate and tax revenue flattens or declines, as is occurring now.
The quote above references a report of a 20% jump in Kentucky State worker retirements in August after it was reported that a consulting group recommended that the State restructure its State pension system. I personally know a teacher who left her job in order to cash completely out of her State employee pension account in Colorado (Colorado PERA). She knows the truth.
But the problem with under-funding is significantly worse than reported. Pensions are run like Ponzi schemes. As long as the amount of cash coming in to the fund is equal to or exceeds beneficiary payouts, the scheme can continue. But for years, due to poor investment decisions and Fed monetary policies, beneficiary payouts have been swamping investment returns and fund contributions.
Pension funds have notoriously over-marked their illiquid risky investments and understated their projected actuarial investment returns in order to hide the degree to which they are under-funded. Most funds currently assume 7% to 8% future rates of return. Unfortunately, the ability to generate returns like that have been impossible with interest rates near zero.
In the quest to compensate for low fixed income returns, pension funds have plowed money into stocks, private equity funds and illiquid and very risky investments, like subprime auto loan securities and commercial real estate. Some pension funds have as much as 20% of their assets in private equity. When the stock market inevitably cracks, it will wipe pensions out.
As an example of pensions over-estimating their future return calculations, the State of Minnesota adjusted the net present value of its future liabilities from 8% down to 4.6% (note: this is the same as lowering its projected ROR from 8% to 4.6%). The rate of under-funding went from 20% to 47%.
I can guarantee you with my life that if an independent auditor spent the time required to implement a bona fide market value mark-to-market on that fund’s illiquid assets, the amount of under-funding would likely jump up to at least 70%. “Bona fide mark-to-market” means, “at what price will you buy this from me now with cash upfront?”
For instance, what is the true market price at which the fund could sell its private equity fund investments? Harvard is trying to sell $2.5 billion in real estate and private equity investments. The move was announced in May and there have not been any material updates since then other than a quick press release in early July that an investment fund was looking at the assets offered. I would suggest that the bid for these assets is either lower than expected or non-existent other than a pennies on the dollar “option value” bid.
At some point current pension fund beneficiaries are going to seek an upfront cash-out. If enough beneficiaries begin to inquire about this, it could trigger a run on pensions and drastic measures will be implemented to prevent this.
Similarly, per the sleuthing of Wolf Richter, ECB is seeking from the European Commission the authority to implement a moratorium on cash withdrawals from banks at its discretion. The only reason for this is concern over the precarious financial condition of the European banking system. And it’s not just some cavalier Italian and Spanish banks. I would suggest that Deutsche Bank, at any given moment, is on the ropes.
But make no mistake. The U.S. banks are in no better condition than their European counter-parts. If Europe is moving toward enabling the ECB to close the bank windows ahead of an impending financial crisis, the Fed is likely already working on a similar proposal.
All it will take is an extended 10-20% draw-down in the stock market to trigger a massive run on custodial assets – pensions, banks and brokerages. This includes the IRA’s. I would suggest that one of the primary motivations behind the Fed/PPT’s no-longer-invisible hand propping up the stock and fixed income markets is the knowledge of the pandemonium that will ensue if the stock market were allowed to embark on a true price discovery mission.
Like every other attempt throughout history to control the laws of economics and perpetuate Ponzi schemes, the current attempt by Central Banks globally will end with a spectacular collapse. I would suggest that this is one of the driving forces underlying the repeated failure by the western Central Banks to drive the price of gold lower since mid-December 2015. I would also suggest that it would be a good idea to keep as little of your wealth as possible tied up in banks and other financial “custodians.” The financial system is one giant “Roach Motel” – you check your money in but eventually you’ll never get it out.
China Begins To Reset The World’s Reserve Currency System
It’s a strategic move swapping oil for gold, rather than for U.S. Treasuries, which can be printed out of thin air. – Grant Williams
A report released by the Nikkei Asian Review indicates that China is prepared to release a yuan-denominated oil futures contract that is convertible (backed by) physical gold. The contract will enable China’s largest oil suppliers to settle oil sales in yuan, rather than in dollars, and then convert the yuan into gold on exchanges in Hong Kong and Shanghai.
This is a significant step in removing the global reserve currency status of the dollar and resetting the the global economic and geopolitical “landscape.” Over the past several years, China has quietly established yuan-based currency exchange facilities, which has set up the ability to implement this new non-dollar trade settlement financial instrument. According to the Brookings Institute, 34 Central Banks around the world have signed bilateral local currency swap agreements with the PBoC as of of the end of September 2016, including the major oil-producing countries. With this new contract, China’s largest oil suppliers will now be able to transact directly with China, and other oil importing countries, using yuan which are directly convertible into gold to settle the trade.
As Alasdair Macleod asserts, “It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either.”
Since 1973, OPEC oil has been quoted and traded using to U.S. dollars, otherwise known as “petrodollars.” The “recycling” of petrodollars into U.S. Treasuries has been the life-blood of the U.S. economic and political system. In addition to reducing a major source of funding for the the U.S. Government’s enormous deficit spending, the introduction of a gold-backed yuan oil futures contract is an important step toward removing the dollar as the world’s reserve currency. More significantly it reintroduces gold into the global monetary system.
While the new gold-backed “petroyuan” will allow oil producers to sell oil for gold rather than Treasuries. Furthermore, it reduces the ability of the U.S. Government to impose its will on the rest of the world. It’s a strategic step toward not only ridding the world of its dependence on dollars, but also of reducing the ability of the U.S. to exert global economic and financially tyranny. I would also argue that it’s one of the primary reasons behind the inability of the western Central Banks to drive the price of gold lower recently.
Gold Breakout Signals A Financial Hurricane Coming Onshore
I found it amusing that Mohamed El-Erian wrote an opinion piece for Bloomberg which asserted that gold is not much of a “safe haven these days.” His thesis was entirely devoid of material facts. His underlying rationale was that safe haven capital was flowing into cryptocurrencies rather than gold. I guess if one has a western-centric view of the markets, that argument is a modicum of validity. However the scope of the analysis omits that fact that the entire eastern hemisphere is converting fiat currency at a record pace into physical gold that requires bona fide delivery outside of western custodial roach motels.
Elijah Johnson invited me onto his podcast sponsored by Silver Doctors to discuss why the financial upheaval beginning to engulf the United States will be much worse than the 2008 “Big Short” crisis. We also discussed by the precious market has always been and will continue be the best place to seek shelter from coming financial hurricane:
If you are looking for ways to take advantage of the next move higher in the precious metals bull market, you can find out more information about the Mining Stock Journal using this link: Mining Stock Journal subscription information.
“Stock Market?” What Stock “Market?”
“There are no markets, only interventions” – Chris Powell, Treasurer and Director of GATA
To refer to the trading of stocks as a “market” is not only an insult to any dictionary in the world that carries the definition of “market,” but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system. By the way, without free markets you can’t have a free democratic political system.
The U.S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U.S. Government via the Treasury’s Working Group on Financial Markets – collectively, the “Plunge Protection Team” – via “quantitative easing” and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market. Capitalism does not work without free markets.
Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan). In response to this belligerence, the even more geopolitically belligerent U.S. is testing nuclear bombs in Nevada. The world has not been closer to the use of nuclear weapons since Truman used them on Japan. The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.
To compound the problem domestically in the U.S., the financial system is now staring down a potential financial catastrophe that no one is discussing. The financial exposure to the tragedy in Houston is conservatively estimated at several hundred billion. Insurance companies off-load a lot of risk exposure using derivatives. The potential counter-party default risk connected to this could dwarf the defaults that triggered the AIG and Goldman Sachs de facto collapse in 2008. The stock “market” should be down at least 20% just from the probability of this occurrence. Forget the hurricane issue, Blackrock estimates that insurance investment portfolios could lose half a trillion in value in the next big market sell-off. Toxicity + toxicity does not equal purification. The two problems combined are the equivalent of financial nuclear melt-down.
Last night after the news had circulated of the missile fired by North Korea, the S&P futures dropped over 20 points and gold shot up $15. As I write this, the Dow is up 50 points, the SPX is up over 3 points and gold has been taken down $20 from its overnight highs. Yet the two catastrophic risks above have not changed in potential severity. Pushing around the markets is another propaganda tool used by the Government in an attempt to control the public’s perception. In the words of the great Jim Sinclair, “management of perception economics,” or “MOPE.”
The good news is that, while the systemic puppeteers can control the markets in general, they can’t control the individual parts. There has been a small fortune to be made shorting individual stocks. Today, for instance, Best Buy reported earnings that predictably “beat” the Street estimates but it warned about future sales and earnings. The stock has plunged 11% from yesterday’s close. The Short Seller’s Journal featured Best Buy as a short in the May 28th issue at $59. The target for this stock is $12.50, where it was in 2013. I recommended some January 2019 puts as high probability trade to hit a home run on this idea.
Other recent winners include Chipotle, General Electric, Tesla (short at $380), Bed Bath Beyond in December at $47 and may others. The more the PPT interferes in the markets to keep the major indices propped up, the more we can make from shorting horrendously overvalued stocks that can’t hide from reality. There’s very few investors and traders shorting the market, mostly out of fear and the inability to do fundamental research. The Short Seller’s Journal focuses on the areas of the stock market that are no-brainer shorts right now. You learn more about this product here: Subscription information.
I really truly look forward to every Monday morning when I get to read through your SSJ. Again, last nights one was great. I have added to the BZH short position and I have had a lot of success adding to CCA each time it has tagged its 200 dma from below. I have done it four times now and each time it has sold off hard within the next several days. I plan to do the same again if it tags it again this time as it has bounced again. – subscriber feedback received earlier this week (James from England)
Is The Precious Metals Sector Set-Up For A Big Run?
I had not noticed until I looked mid-day today (Thursday, Aug 24th) and saw that the HUI index was above 200. It ended up closing just above 200. I want to see it hold above 200 dma and move higher from there before I get excited. But the chart has become mildly bullish. GDX, which is a larger representation of the large-cap mining stocks, looks even more bullish that the HUI:
I’m not big advocate of using chart “technicals” to forecast the next move in any market, but many traders, hedge funds and investors use them and they can become “self-fulfilling prophecies.” You can see that GDX (same with HUI and GDXJ) has been trending sideways since early February in a pattern of rrowing volatility. Chartists look at this as a pattern that predicts a big move in either direction. I’ve drawn in a white downtrend line through which the GDX appears to have climbed over. It’s also now above its 50/200 dma’s (yellow and red lines, respectively). I’m not ready to declare a “break-out” yet, but I’m feeling optimistic going into the eastern hemisphere’s biggest seasonal period for accumulating physical gold:
The gold chart above is a 2-yr daily for the price of gold as represented by the Comex continuous gold futures contract. Since April the price has been hitting its head on $1300. I remember when gold attempted to break above $400 in late 2003/early 2004. It took several attempts to get up and over $400. Around that time Robert Prechter had predicted that gold would drop to $50. How well did Prechter’s charts work then?
There’s one of many catalysts away from sheer eastern physical demand or an errant tweet
from Trump that can push gold a lot higher in conjunction with the U.S. dollar index quickly falling a lot lower. The most pressing issues currently are the rising geopolitical tensions between Russia/China and the U.S., the upcoming Treasury debt-ceiling battle and, what is becoming more apparent by the day, a deteriorating U.S. economic and financial system.
Speaking of physical demand, extremely negative ex-duty import premiums have been
observed in India. Many of you may have read standard gold-bashing propaganda pointing to that as evidence that India’s new sales tax is affecting gold demand. But quite the contrary is true. As it turns out, there was a loop-hole in the Goods and Services Tax legislation that scrapped a 10% excise duty on imports from countries with which India had signed a Free Trade Agreement. Currently Indian gold importers appear to be sourcing gold from South Korea, which enables buyers to avoid the 10% import duty entirely. Until the Indian authorities move to close this loophole, we won’t have good feel for how much gold is flowing into India until the official monthly statistics are released. Based on the import trend in June and July, there continues to be an usually large amount of gold imported into India this summer. It will likely pick up even more as we head into the India festival season this fall.
The above commentary is from the latest issue of the Mining Stock Journal. For those of you with huge profit in Novo Resources, I provide some information about Novo that is not in the analyst reports. It includes some technical information about the nature of the assay results produced up to this point. The issue contains analysis in support of buying two primary silver producers whose stocks have been sold off well below their intrinsic values. New subscribers get all of the back-issues. You can find out more about the MSJ here: Mining Stock Journal information.
Where Is The United States’ Gold?
A concocted public relations scheme – an event which resembled the annual Punxsutawney ground-hog viewing tradition – in which the Treasury Secretary emerges from Ft Knox and proclaims, “the gold is safe” does not provide any evidence whatsoever.
On cue, Jim Rickards followed up with a half-baked apology for the unwillingness of the U.S. Government to force a bona fide audit of the public’s gold being “safekept” in the Fed’s custody.
Bill “Midas” Murphy asked my opinion on Rickard’s white washing of the topic:
This is why I don’t read Rickards. I don’t know what his deal is anymore. He was a front for the Pentagon’s goal to circulate the idea of the SDR replacing the dollar as the reserve currency. This is because they know the dollar is toast but the dollar is still the largest percentage share of the SDR so the U.S. would remain in control over the world’s reserve currency if it were to be the SDR.
Now Rickards has pimped himself out to Agora, which really devalued Agora in my opinion. And he’s ripping off the public with his gold letter subscription. Total scam. I’ve had subscribers to my Mining Stock Journal tell me his subscription service is a farce.
He really butchered the truth there with that article. While it’s true that a gold leasing transaction does not have to entail the actual transfer of physical gold from the lessor to the lessee, often it does. Goldman recently did a lease-style transaction with Venezuela that transferred possession of VZ’s gold to Goldman.
The U.S. would have to audit to the gold if the public forced the issue. Ron Paul tried several times to force the issue on behalf of the public and the Fed spent millions in lobbying money to get Barney Frank to quash Paul’s efforts. The Fed hired Linda Robertson, formerly a lobbyist for Enron, to assist with the effort to snuff out any attempt to legislate an audit. That’s why the Government has never ordered an audit of the PUBLIC’s gold. You don’t spend millions to derail legislation just because you’re worried it will elevate the importance of gold to the public. That’s complete foolish babble but coming from Rickards makes it sound legitimate.
That’s Rickards’ modus operandi. Offer up some half-baked justification to support his argument because he knows a majority of his audience will nod their head robotically in agreement rather than question the assertion. Does he ever offer proof? Who are his military contacts? Why are we supposed to accept the legitimacy of his assertions with blind faith, especially considering that the “tracks in the snow” suggesting the contrary have been visible for many years. Certainly well before Rickards’ handlers thrust him under the spotlight of the gold investing, truth-seeking community.
As for the actual physical transfer of gold, if gold under the Fed’s control has not been used to satisfy eastern hemisphere delivery demands for several years, how come it took so long for Germany to get its gold bars back, allegedly? Especially given that it took Hugo Chavez just 4 months to repatriate 160 tonnes of gold that was held at several Central Bank vaults around western Europe? From all accounts, the gold bars Germany originally sent to the U.S. for “safekeeping” after WWII are not the same bars that were returned, assuming they were actually returned. Again, why does anyone accept with blind faith anything coming from any Government, especially the U.S. Government?
A small portion of the public, led by a high-ranking, long-time Congressman have demanded several times in the last decade to see bona fide evidence that the gold owned by the Treasury, which means the citizens of the U.S., is physically sitting in the various Fed vaults and is unencumbered by any form of counter-party claim. The fact that the Government refuses to do this can only lead to one conclusion – and it’s not Rickard’s half-baked apology.
This is a topic that was put to rest in my mind more than a decade ago. Some of the gold may be physically sitting in the various Fed vaults “safeguarded” by the military, but most of it is now sitting in the form of refined kilo bars in Chinese vaults or as highly-prized gold jewelry draped around Indian wives.
To counter Rickards’ “military sources” reference, I received this email last night from a reader:
Back in February 2011, I ran into a Kentucky good ole boy who worked at Fort Knox in rural Kentucky. Fort Knox was also an Army Military depot as well as gold storage which it is/was famous for.
Several months before February 2011, the Army made a decision to transfer the Army Military Depot at Fort Knox to other military depots and my Ky guy no longer had a job and had to transfer and relocate to keep a Federal Gov’t job. So that’s what he did, he relocated and how I ran into him.
So I asked him…”Does Ft Knox have any gold there because I have heard there may no longer be any gold there.”
His response: “That’s been the rumor on the Base for some time…but the only people that would know for sure are the people who have clearance to get into the vault.” He didn’t have anything else to add or say because he worked on the military depot part of the base. But this is 6 plus years ago and I believe him because it just came spontaneously out of his mouth. It sent shivers down my spine when he told me this.
This is how I feel about what he said: People can’t keep a secret…just human nature….a worker can tell his spouse, a spouse can talk to a friend…and before you know it, it’s all around the base. Spreads like a wild fire. This is in rural KY so rumors and news like this will never get any national publicity legs so it just stays local.
The Debt Bubble Is Beginning To Burst
There will be numerous excuses issued today by perma-bull analysts and financial tv morons explaining away the nearly 10% drop in new home sales. Wall Street was looking for the number of new homes, as reported by the Census Bureau, to be unchanged from June. June’s original report was revised higher by 20,000 homes (SAAR basis) to make this month’s huge miss look a little better. The primary excuse will be that new homebuilders can’t find qualified labor to build enough new homes to meet demand.
But that’s nonsense. The reason that home builders can’t find “qualified” labor is because they don’t pay enough to compete with easier alternatives, like being an Uber driver, which can pay nearly double the wages paid to construction workers. I had a ride with a Lyft driver, a family man who moved to Denver from Venezuela, who to took a job in construction when he moved here. As soon as he got his driver’s license, he switched to Lyft because it was easier on his body and paid a lot more. If builders raise their wages to compete with alternatives, they’ll be able to find plenty of qualified workers but their profitability will go down the drain unless they raise their selling price, in which case their sales will go down the drain…which is beginning to happen anyway.
Toll Brothers, which revised its next quarter sales down when it reported yesterday, stated that new home supply is not an issue in the market for new homes. No kidding. I look at the major public builders’ inventories every quarter and every quarter they reach a new record high.
The real culprit is the record high level of household debt that has accumulated since 2010. The populace has run out of its capacity to take on new debt without going quickly into default on the debt already issued. Mortgage purchase applications are a direct reflection of this. Mortgage purchase applications declined again from the previous week, according to the Mortgage Bankers Association. In fact, mortgage applications have declined 14 out of the last 20 weeks. Please note that this was during a period which is supposed to be the seasonally strongest for new and existing home sales. Furthermore, since the beginning of March, the rate on the 10-yr bond has fallen over 40 basis points, which translates into a falling mortgage rates. Despite the lower cost of financing a home purchase, mortgage purchase applications have been dropping consistently on a weekly basis and at a material rate. I am considering using a firm such as debtconsolidation.loans so that I can the cost of one bigger debt and keep track of it easier!
The NY Fed released its quarterly report on household debt and credit last week. In that report it stated, “Flows of credit card balances into both early and serious delinquencies climbed for the third straight quarter-a trend not seen since 2009.”
The graph above is from the actual report (the black box edit is mine). You can see that the 30-day delinquency rate for auto loans, credit cards and mortgages is rising, with a sharp increase in credit cards. Perhaps people are using Credit cards to build credit or maybe their paycheck isn’t stretching far enough, whatever the reason, a lot more people are using credit cards. The trend in auto loans has been rising since Q1 2013. The 90-day delinquency graph looks nearly identical.
I’m not going to delve into the student loan situation. Between the percentage of student loans in deferment and forbearance, it’s impossible to know the true rate of delinquency or the true percentage of student loan debt that is unpayable. Based on everything I’ve studied over the past few years, I would bet that at least 60% of the $1.2 billion in student loans outstanding are technically in default (i.e. deferred and forbearance balances that will likely never be paid anyway). In and of itself, the student loan problem is growing daily and the Government finds new ways to kick that particular can down the road. At some point it will become untenable.
The auto loan situation is a financial volcano that rumbles louder by the day. Equifax reported last week that “deep subprime” auto delinquencies spiked to a 10-year high. Deep subprime is defined as a credit score (FICO) below 550. The cumulative rate of non-performance for loans issued between 2007 and Q1 2017 ranges from 3% (Q1 2017 issuance) to 30%. The overall delinquency rate for deep subprime loans is at its highest since 2007. To make matters worse, in 2016 deep subprime loans represented 30% of all subprime asset-backed securitizations.
Combined, the percentage of auto, credit card and student loan delinquencies and rate of default is as big or bigger than the subprime mortgage problem that led to the “Big Short.” To compound the problem, the nature of the underlying collateral is entirely different. A home used as collateral has some level of value. Automobiles have collateral value but a shockingly large number of borrowers have taken out loans well in excess of the assessed value of the car at the time of purchase. Unfortunately for auto lenders, used values are in a downward death spiral. Credit card and student loan debt have zero collateral value.
NOTE: The stock market has not priced in the coming debt apocalypse nor has it begun to price in at all the upcoming Treasury debt ceiling/budget fight that is going to engulf Capitol Hill before October. The Treasury apparently will run out of cash sometime in October. Supposedly the Fed has a back-up plan in case the issue can’t be resolved before the Government would be forced to shut-down, but any scenario other than a smooth resolution to the debt ceiling issue will reek havoc on the dollar, which in turn will send the stock market a lot lower. In my view, between now and just after Labor Day weekend is a great time to put on shorts.