The Miles Franklin Newsletter
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From The Desk Of David Schectman
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The Chris Powell comment back in 2008 that "there are no markets anymore...only interventions" needs to be cast in stone and on display in front of all the New York Stock Exchanges, JPMorgan -- and the CME Group in Chicago. I, amongst others, have called this a "Frankenstein market"...but it's now way beyond that, as a free market no longer exists in anything.
– Ed Steer
Lately, we’ve been pointing to a deep hole – a $21 trillion hole of debt.
When you’ve dug yourself into a hole, the first thing to do is to stop digging. No American president in 50 years has been able to do that. –
Bill Bonner.
David's Commentary:
It really appears that after a six-year bear market gold and silver have reversed course and are either already in the early stages of a new bull market or will be shortly. The timing will be determined by other markets. Will the Fed increase rates, or hold tight, or reverse course and lower them? Will the stock market continue to move up, or is this just a dead-cat bounce and it will head down hard again? How will the U.S. dollar fair? Will it hold steady or will it fall? These are the things that will determine how gold and silver will perform in 2019.
There are two opposing forces that will determine the outcome. On the one hand there are those who have a vested interest in holding back the price of gold and silver, led by JPMorgan and the PPT; and then there are the fundamentals, budget deficits, the economy, debt, market liquidity, interest rates, the trade war, government gridlock, etc.
It is my opinion that the major markets, the stock market, the US dollar and the bond market (a proxy for interest rates) cannot be managed long-term by the big banks, or the Fed, the Treasury and PPT. These are all potential black swans, circling around us, that will spark a renewed interest in gold and silver, who lay in wait to be the next go-to assets. It is coming. It must happen. It should happen this year. Even it is delayed a bit, I still expect gold and silver to perform well this year. It’s just a matter of how well they will perform.
Don’t lose sight of the fact that when gold and silver are moving up, and in a strong bull market, paper assets, including stocks, bonds and currencies, tend to move in the opposite direction. In other words, not only will gold and silver be rising, stocks and the dollar will be falling. At the moment, precious metals and stocks and the dollar are all holding their own at the same time. By holding their own, I mean they are more or less treading water. That will not last. One side or the other will shine. We think it will be precious metals, though as I recall, Larry Edelson was of the opinion that BOTH the stock market and gold will rise at the same time. Could be. But if the dollar is falling, even a rising stock market will not be enough to hold back gold and silver. But gold will do even better if the stock market is falling.
Americans are “dollar-centric.” For us, everything revolves around the dollar. But we are only a portion, albeit a large portion, of the global markets. I bet not one in ten of our readers is aware of the following: “Gold hits an all-time high in 72 currencies.” No, most of our readers assume gold is still a long way off of its all-time high of $1,900 set in 2011. But that is just a DOLLAR high. Since then, yes, gold has fallen, but the dollar rose substantially against most of the other currencies, so the drop in dollar gold was countered by a loss of purchasing power against the dollar by those currencies. The result is that gold is at an all-time high to most of the rest of the world.
Not on the list are the British Pound, the Swiss Franc, the Euro and Chinese Yuan - but we are not far off in all of those currencies either. Gold only lags in US Dollars - and not all of us live in the U.S.
That makes gold attractive as an asset, especially if our stock market trends down.
Jimmy Edwards, Managing Director – Fixed Income – Capital Markets, Raymond James Financial, Inc. has released some excellent research on the state of the world economy. It’s very different from the typical Wall Street euphoria. This should be considered absolutely must reading.
We are in / close to an economic slowdown across the world. The U.S. is the lone shining star….at least for now. China now accounts for more total global trade than the United States does, and the fact that the numbers for the global economy’s number one trade hub are falling this dramatically is a major warning sign as Data from China showed imports fell 7.6 percent year-on-year in December while analysts had predicted a 5-percent rise. Exports dropped 4.4 percent, confounding expectations for a 3-percent gain. German’s November industrial activity plunged the most since 2009. I have always found that M1 and M2 / the flow of money are one of the best future indicators of the economy…as so does Dr. Lacy Hunt. The Fed raising only makes a bad liquidity situation worse. Time to rethink… and lock in yield and future income and yields and rates head down.
Collapse In Global M1 Signals A Worldwide Recession Has Arrived…or is Close
By Zero Hedge - By now everyone has seen some iteration of this chart showing that the annual change in central bank liquidity is now negative. Another way to visualize just the Fed's balance sheet contraction is courtesy of this chart from Morgan Stanley which shows specifically which assets - Treasury’s and MBS - are declining on a monthly basis. When it comes to markets - where the events of December were a vivid reminder that just as QE blew the world's biggest asset bubble, so QT will deflate it - there is a simple explanation of this negative effect of QT on Markets - in terms of both flow and stock - and it is laid out as follows from Morgan Stanley.If we were headed for a major global recession, these are exactly the types of news stories that we would expect to see.
We also continue to get more indications that the U.S. economy is slowing down significantly. For example, sales of new homes in the U.S. were down 19 percent in November and
18 percent in December
…Sales of newly built homes fell 18 percent in December compared with December of 2017, according to data compiled by John Burns Real Estate Consulting, a California-based housing research and analytics firm. Due to the partial government shutdown, official government figures on home sales for November and December have not been released. Sales were also down a steep 19 percent annually in November, according to JBRC’s analysts.
Unfortunately, the answer appears to be ominous. In fact, global money supply growth (using M1) is now flirting with the lows seen in mid-2008.
As the following BofA chart shows, global money supply has declined rapidly over the last year and a half. And while some economies, such as China, are now pivoting back to supportive measures, BofA's Barnaby Martin warns that high global debt will constrain economies’ enthusiasm for engaging in further rounds of stimulus. Meanwhile, as the chart below suggests, lower money supply growth has often pointed to weaker global economic momentum going forward. In fact, if one uses Global Industrial Production growth as a proxy for the global economic expansion, or contraction, the World is now almost certainly in a recession; the only question is when will economists acknowledge it.
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The message from the chart has also been heard loud and clear in high frequency economic indicators (at least in those countries where the government is not shut down and where data is still being reported), with the number of consecutive days of negative global data surprises now approaching the longest since the financial crisis.
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And just to confirm that the collapse in Global M1 growth is a major problem - perhaps the biggest for the global economy - Morgan Stanley shows the following chart which confirms that every time M1 has dipped negative - as central bank liquidity injection either slowed or went into reverse - there has been a financial crisis: whether the 2015 EM and Manufacturing Commodity Recession, the Sovereign Debt Crisis of 2011, the Global Financial Crisis and US Housing bubble burst of 2007/2008, the Tech Bubble burst of 2000 and so on.
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Needless to say, the above charts confirm that the key variable for the global economy is not whether the Fed stops hiking or starts cutting rates (although any further rate hikes will surely have an adverse impact on global liquidity), but whether the Fed - and other central banks - pause their balance sheet shrinkage, and once again start actively injecting liquidity into the global system, or soon enough we will be looking for the best description of "[insert here] crisis of 2019."
German Industrial Production Plunge Stokes Recession Fears In Europe's Largest Economy
Mere hours after German Economy Minister Peter Altmaier
assured the German public
that the country's economy will continue to expand despite a recent raft of discouraging economic data, official data - unlike the US, Germany's government is open and economic data continue to be reported - showed
German’s November industrial activity
plunged the most since 2009,
confirming a weak factory orders print from Monday and sparking fresh fears that Europe's largest economy may have entered a recession during Q4 just as Mario Draghi was preparing to end the ECB's purchases of government bonds. According to
Bloomberg
,
industrial production fell for a third month in November (-1.9% m/m, and -4.9% y/y) with weakness in everything from consumer goods to energy.
In another warning sign for the bloc, the data was released alongside a eurozone-wide sentiment reading which showed that economic confidence had slumped late last year. "The latest data, even assuming a bounce back in December, mean industrial output probably contracted in the fourth quarter. The decline is big enough to have a meaningful impact on GDP growth, and creates a risk that the economy shrank again."
The dismal IP reading confirmed a just as ugly German factory orders print from Monday which tumbled far more than expected in November.
Orders slid 1% from October, and posted a year-on-year decline of 4.3%, the biggest drop in more than six years
Jimmy Edwards – Managing Director - Fixed Income Sales - Capital Markets - Raymond James Financial, Inc. –
jimmy.edwards@raymondjames.com
– Direct Line 1- 866-776-4948
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And I’ll wrap up today’s daily with an excellent essay on gold, from the long-term perspective, the only way to look at gold unless you are brave enough to day trade it.
Egon von Greyerz
TIMES A-CHANGIN’ – BUT GOLD PERMANENT
Long term holders of gold have a different perspective of the world. They are not believers in instant gratification. Nor do they believe that a world based on money printing and debt can create sustainable wealth. They also know that the socialism which has spread like a plague in the Western world only works until you run out of other people’s money.
What makes gold the most obvious wealth preservation investment and insurance against a false financial system is its permanence. The proof of this is indisputable since gold is the only money that has survived for 5,000 years. Ephemeral financial systems and currencies come and go, so do empires. But gold survives them all. As JP Morgan stated: “Money is gold and nothing else”.
WHY BET AGAINST A 5,000 YEAR SUCCESS
Anybody who doesn’t understand gold, neither studies nor understands history.
There is nothing magic about gold, it is just real money. But since it is the only surviving currency why bet against a 5,000-year record? Gold is not an investment, it is a store of value
and at times a medium of exchange.
It is quite astonishing that the immense wealth which has been accumulated by the top 1% in the last few decades is based on Alchemy and fake money. This has been a fake Golden Calf that in this era has been worshipped since the early 1980s. Since that time real money, or gold, lost its luster totally as financial assets were leveraged to the hilt. But things started to change in the early 2000s.
GOLD HAS OUTPERFORMED ALL ASSET CLASSES THIS CENTURY
During periods of financial wizardry which we have experienced since the Fed was created in 1913, gold might seem like a barbarous relic and much less interesting than leveraging assets with the help of credit. What few investors realize is that in real terms, investment markets topped in 1999. As real terms can never be measured in fiat money, only real and permanent money can be used as a measuring stick. And that is of course gold.
If we look at the Dow/Gold ratio (the Dow index divided by the gold price), it topped in 1999 at 44. It reached an interim bottom at 6 in 2011 as gold peaked at $1,920. That was a massive 86% decline in the ratio and a virtual wipe out of stock investors, measured in real terms.
As the chart shows below, stocks then recovered but only by 50% of the decline against gold.
Thus in spite of a massive stock market rally between 2009 and 2018, the Dow index has still lost over 50% against gold since 2000.
(Dividends are not taken into account, nor is any gold lending).
STOCKS TO FALL RAPIDLY AGAINST GOLD
Technically it now looks like the downtrend of stocks against gold has resumed. Since the peak in October, stocks have lost 20% against gold. But this is just the beginning.
Eventually the ratio will most likely decline to below 1 where it was in 1980 and probably below the long-term support at 1/2.
That would be a massive 97% decline of the stock market from here, in real terms, which is gold.
So that is the magnitude of the potential asset destruction that the US and the world will experience in the next 2-6 years. But like any prediction, we will only know afterwards.
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GOLD AT ALL TIME HIGHS IN MANY CURRENCIES
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Gold in US dollars is up 10% or $120 since the bottom in August 2018. Still, clearly a long way from the 2011 top at $1920. But the temporarily strong dollar doesn’t reveal the true picture of gold. For that we need to look at gold in other currencies. We know of course that gold in Argentine pesos or Venezuelan bolivars has made exponential moves.
Less known is perhaps that gold is at or near the highs in many currencies like Norwegian and Swedish kroner or Canadian dollars. And in Australian dollars gold made a new quarterly closing high in December 2018
which is very significant. Major moves normally start in the periphery so what is happening with the gold price in various currencies will eventually spread to all currencies. It would not be surprising to see new highs in gold in all currencies in 2019, including against the US dollar. But remember it won’t be a straight move and there will be a lot of volatility.
GOLD – SILVER RATIO CONFIRMS STRONG UPMOVE COMING IN METALS
The other major predictor for the precious metals is the Gold/Silver ratio which I often have mentioned. Real sustained moves up in gold and silver only happen when the Gold/Silver ratio falls which means that silver moves up faster than gold. The ratio made a new high at 87 at Christmas and has moved down 6% in 7 trading days. We still need to see validation of this move, but long-term momentum indicators confirm that a major move down has started.
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RISK GREATER THAN ANY TIME IN HISTORY
What we do know is that risk in asset markets and in the financial system is now greater than any time in history due to the
size of global debt of $250 trillion, plus unfunded liabilities and derivatives of another $1.75 quadrillion giving a total risk of over $2 quadrillion.
Once this risk starts to manifest itself in defaults, the money printing undertaken by central banks will dwarf any QE program of the past. The big difference between today and 2007-9 is that next time the fake money created will have no effect. The magnitude of the problem and the money creation will have the same consequences as in any hyperinflationary economy. It will totally debase the dollar and other currencies until they are all worthless.
What is clear is that times are changing. Bob Dylan, the Nobel laureate described the course of events that we will see next already 55 years ago in his 1964 song:
THE GREATEST DEPRESSION EVER?
So now is the time to “start swimmin” as the greatest wealth destruction in history is beginning. But most of the investment world hasn’t even begun to understand how serious it will become. Because the coming implosion of stocks, bonds, property and virtually all other asset markets is just one aspect of the coming super bear in the world economy. Still, it will be enough to create the greatest depression ever as stocks decline by 75-95% and debtors default.
The coming collapse of financial markets will have a major impact on all aspects of society. Firstly there will be mass unemployment. Most countries massage the employment figures. US real unemployment is around 22%. The 3.9% unemployment reported last week is pure fiction. There are 96 million Americans capable of working who are not in the workforce. But they are conveniently excluded from the fake statistics. The real figure in the coming depression is likely to be well above the 25% that the US experienced during the 1930s. The same will happen in all industrialized countries.
ONE PAY CHECK FROM MISERY
Most people in the West live from pay check to pay check. With credit card, mortgage, student and car debt to finance, they would quickly default once their pay check stops coming in. In 1980 the average American had a debt which was 2x his monthly wage. Today it is 5x. Over 50% of US children live in a home that receives help from the Federal government.
Until now socialism has taken care of virtually everyone who couldn’t make ends meet. In Europe we have had socialism in most countries for decades. Gradually the US has now also become a socialist country. And socialism has appeared to be the perfect political system for creating eternal wealth and buying votes. The only problem is that socialism only works until you run out of other people’s money.
As government debt and interest rates rise together, more and more money needs to be printed to finance defaults, failing banks, derivatives exploding, rapidly rising government expenditure including social security payments, imploding pension funds, collapsing tax revenues etc.
The list of holes to plug will be endless.
GLOBAL RESET WOULD FAIL
As hyperinflation takes hold and money printing makes most currencies worthless, governments will attempt to create crypto based electronic money, but this will just be another form of fake money and won’t succeed. I don’t think there will be a global orderly reset because major powers will not agree. China and Russia will do their own thing and so will the US. The EU will probably be in a total mess at that time as will the Euro. Banks in Italy, Greece, Spain, France, UK and Germany etc. will all fail.
DON’T TRUST THE FINANCIAL SYSTEM
Any money in the bank anywhere in the world will either be lost through insolvency, bail-ins, or total debasement of the currency. Many of the other assets held in a bank could face a similar fate.
Cassandras are never liked, neither before the event they predict nor after it has happened. I have often stated that I hope that my forecasts are wrong because if they come true it will be devastating for the world. Most people will only be wise after the event. What is clear is that the risks are massive and wealth protection means taking steps before the event and that time is now.
The most important asset human beings have been gifted with is their brain and their genes, including their health. Anything material we can lose, however well we protect it. But survival depends mostly on how you use your brain, as long as you are healthy of course. Even the best plans can go wrong. Remember “The times they are a-changing” and unforeseen events will happen out of the blue. Thus we must be prepared for the unexpected and react as necessary. It will not be a static and easily predictable course of events. There will be panic moments and there will be seemingly quiet times. But the trend will be very clear which means strongly down of the world economy and financial markets. It might take ten years or longer. Nobody knows. What is important is to surround yourself with a supportive group of friends, family as well as other people who will be useful like trusted financial experts, doctors, farmers, tradesmen etc. And remember that: THIS TOO SHALL PASS
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
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Andy Schectman and Mickey Fulp On Trading The Precious Metals Ratios...Chris Marcus
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To buy or sell gold, silver, platinum, or palladium call Miles Franklin today at 1-800-822-8080
Andy Schectman and Mickey Fulp On Trading The Precious Metals Ratios
With unprecedented manipulation continuing to occur in the precious metals market, some investing anomalies have appeared. Which Andy Schectman, Mickey Fulp, and Chris Marcus discussed in this video about trading the precious metals ratios.
They discussed the opportunity available in the gold to silver ratio. What people would be well served to know about regarding the platinum to palladium ratio. And how investors can take advantage of these market anomalies.
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It’s a great video for anyone invested in the precious metals space, so click to watch now!
To access to Mickey’s research as The Mercenary Geologist
visit:
http://mercenarygeologist.com
To trade any of the precious metals ratios call Miles Franklin at 1-800-822-8080 or
visit:
Get Miles Franklin’s detailed report on why the price of silver is set to explode:
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About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
We are rated A+ by the BBB with zero complaints on our record. We are recommended by many prominent newsletter writers including Doug Casey, Jim Sinclair, David Morgan, Future Money Trends and the SGT Report.
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