The Miles Franklin Newsletter
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Bill Holter-The Holter Report
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Infinity is here!
Jim Sinclair coined the phrase "QE to infinity" back in 2009. Few at the time really understood what he meant but then came QE 2, Twist, and QE 3. The premise was that the Fed (central banks in general) could never really tighten credit or monetary conditions in the future without imploding financial markets and ultimately the real economy. Now that the tightening cycle has been hastily aborted (for exactly the reasons Jim originally laid out), the world is right back to where it left off with QE 3 ...QE to infinity is already here!
As it stands now, every central bank on the planet is in "easing mode". The easing has already brought forth something that 20 years ago was unthinkable ...negative interest rates. I have written several past articles on the topic of negative interest rates, they are archived for your review. The world currently ex US has seen sovereign bond yields average drop below zero for the first time ever
https://www.zerohedge.com
It seems as if this is only the beginning!
I say only the beginning because it is clear the doubling down efforts by central banks has not worked. The global real economy is again sputtering even with central bank's life support efforts. Liquidity is again quite tight which should not be the case while central banks bid for credit, but why? Even though central banks have flooded auctions with bids, the real economy is not generating the necessary cash flows needed. Tariffs and trade wars have arisen for the simple reason the "economic pie" is no longer expanding and in order to service the now gargantuan debt requires each player to have a larger slice of the stagnant (shrinking?) pie. China's retaliation today is just a small reminder of such.
Now that the fallacy of monetary policy can cure all is discredited, what's next? The winds of fiscal policy deficit spending have suddenly begin to blow because "zero" has been breached! No matter how big and important sounding the words are to describe and cheerlead negative interest rate policy ...everybody knows. Everybody knows that everybody truly knows negative rates are a complete joke and in fact a perfect illustration that the currencies themselves have no value. It is by no coincidence gold is trading at all time highs in no less than 73 major currencies. It will not be long before "73" will be replaced with "ALL" currencies!
So fiscal stimulus is next? There are a few pesky questions without valid answers that allow "infinity" to enter the equation. First, sovereign balance sheets were not exactly pristine back in 2008 but they are disasters now. 100%+++ debt to GDP ratios litter the globe now. 20 years ago, 100% debt to GDP was the entry portal to banana republic status. Today, 100% is considered "clean"? Hardly!
The real rub is this, who exactly will purchase the debt offered by sovereign treasuries? Let's look at the US. The US Treasury is already running $ trillion annual deficits, fiscal stimulus will only increase this number and probably substantially! Will China fund our deficit as they had since 2008? Does Japan even have the ability? Does anyone on the planet have the ability to fund US deficits ...not to mention all the other sovereigns coming to market? The answer of course is no, the only entities with the ability to fund the coming credit issuance are the various central banks. In a word ...MONETIZATION! Not just behind the back monetization, what comes is in your face monetization that cannot nor will be hidden. Even the common man will understand central banks are creating new currency out of thin air and thus diluting (to zero) already issued currency.
QE to infinity is no joke. It is very real and it is already here and just getting started. Think about how much credit issuance will be needed to backstop existing debt, not to mention the cesspool of over $1 quadrillion worth of derivatives? "Infinity" is an unfathomable number but the best way to understand it is to look at and define/understand its opposite. The opposite of infinity is "0". Most everyone knows and can understand "zero" as a concept. In the real world, infinity is not what people will understand. What they will understand is the value of their fiat currencies approaching and eventually reaching zero value or purchasing power.
I will leave you with something to think about. Societies are based on currencies used to perform business transactions. Currencies are also the base for savings and pension arrangements. Many things financial can and have been swept under the rug for many years. Failing currencies cannot be hidden because the common man uses them every day. The common man will immediately see and feel if his currency is failing. How can central banks monetize insolvent treasury debt without destroying the issued currency? And what does that mean for all things denominated and saved in said currency?
The end of the monetary fiat road is not nigh folks ...it is already here! I have tried to illustrate and explain over the years how all monetary roads lead to gold. It looks like "liability capital" will all now merge in to a super highway leading directly to gold and silver ...where no liability exists!
This article was originally posted for subscribers at www.jsmineset.com
Standing watch,
Bill Holter
Holter-Sinclair collaboration
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Gary Christenson-Contributing Writer For Miles Franklin
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It’s Not the Destination, It’s the Journey
From Ralph Waldo Emerson: “It’s not the destination, it’s the journey.”
His insight applies in life, investing, analysis, the S&P 500 Index, gold, silver and others. Consider these examples.
You have $10 million to invest in a business and are searching for a manager. CEO #1 and CEO #2 have both amassed a personal fortune over $100 million. Which one do you choose?
CEO #1 built three companies over the past 30 years and grew revenues and profits most years. S/he built a loyal customer base and stockholder equity.
CEO #2 ran three companies into the ground, escaped through bankruptcy and then won $120 million in the Powerball lottery.
Both have a large personal fortune, but CEO #1 looks like a better manager.
How you arrive at your destination is important. It is path dependent.
SO WHAT? SHOW ME!
Amazon stock
sold for under $7 in June 1998 and over $100 in April 1999. It rose by a factor of 14 in only 10 months. Examine the chart from that time.
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The upward path was not sustainable. Amazon stock crashed after the “Dot.com” bubble and fell over 90% during the following two years. It then rose to over $2,000 by 2018. What happens next to this high-flying stock?
Crude oil
sold for $51 in January 2007 and bubbled higher to $147 in July 2008. It rose by a factor of 2.9 in 18 months.
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The upward path was not sustainable. Crude oil prices crashed to $36 five months after its bubble high.
Silver sold for less than $5 in 1977 and bubbled higher to over $50 in January 1980. It rose by a factor of 10 in 2.5 years.
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After the bubble peak, silver crashed to under $11 in five months. Blame the Hunt Brothers, blame COMEX, blame manipulation by Wall Street, blame whatever, but $50 in 1980 was unsustainable. Silver prices for the paper contracts on COMEX fell to a low of $3.51 over the next 20 years.
The paths to highs and lows are important.
The above are a few of many unsustainable price advances and declines.
Examine the 10-year bond market yield for several decades.
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Bond yields rise and fall but the long-term trend has been down for years. Will 10-year yields and mortgage rates fall further or is this a triple bottom?
Over $16 trillion in global sovereign debt now “pays” negative yields. This is crazy, but profitable for the front runners who assume central banks must lower yields and increase the value of those fiat-debt bonds.
The 100-year Austria bond is another example. Large paper profits for a few resulted from buying those bonds. However, the chart of the bond looks like the three unsustainable rallies described above.
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Will bond yields continue lower or will bonds crash and drive interest rates higher?
Intelligent analysts argue both sides of that debate. We prefer to avoid the subject and look at something that makes sense.
WHAT MAKES SENSE IN THIS CRAZY WORLD?
1.
Unfortunately, less and less. From
Fox News
:
San Francisco has declared that such words as “offender” and “addict” are no longer acceptable. A “convicted felon” will become known as a “justice-involved-person” or a “formerly incarcerated person.” A juvenile delinquent will now be called “a young person with justice system involvement.”
2.
Bonds are bought not for their yield, but because central banks are “gaming” the financial system and forcing yields down, which pushes prices higher. Front-running works until it doesn’t.
3.
Will heavy-handed central bank interest rate interventions end well?
4.
President Trump asked, “who is our bigger enemy, Jay Powell or Chairman Xi?” He asks a good question. The U.S. does not need a central bank.
5.
Gold sells at all-time high prices in many currencies, but not the U.S. dollar.
6.
China, India, Russia and other countries buy gold every month.
7.
Gold is real money with no counter-party risk. Europe, Japan and the U.S. issue more debt (unpayable) and demand that interest rates stay low so debt will grow exponentially higher. Counter-party risk and currency risk will overwhelm many $trillions of sovereign debts.
Yet people buy dodgy debt instead of real gold or silver. Strange.
Examine the long-term chart of silver and note its 200-week moving average.
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For contrast, examine the long-term chart of the S&P500 Index and note its 200-week moving average.
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Markets are path dependent
. Both silver and the S&P will move higher as governments and central banks devalue digital currencies and levitate stock and bond markets, but which market has more potential to rise higher?
ANSWER:
Silver prices
are a few percent above their 200-week moving average but have been
below
the average mostly since 2013.
The S&P is 15% above its 200-week moving average and has been
above
the average mostly since 2011.
The S&P might not crash until after the 2020 election. But is that a healthy bet given recent market action, trade wars, tariffs, currency wars, shooting wars, negative interest rates, extreme leverage, corporate debt, under-funded pensions, over $22 trillion in official national debt, unfunded liabilities of $100 - $200 trillion, and the plethora of economic, social and political nonsense that bombards us every day?
CONCLUSIONS:
- Bond yields are too low but may go lower. Depending on central banks to force rates lower is a dangerous game. Expect a nasty reversal… someday.
- Debt, spending, and deficits are climbing out-of-control. Expect tears.
- San Francisco is… different.
- Gold and silver have no counter-party risk. Counter-party risk destroyed many people and investments during the 2007-08 crash. Expect the crash of 2019?-2022? to be worse, while gold and silver will soar as the purchasing power of fiat currencies crashes.
- Silver recently crossed above its 200-week moving average. The S&P 500 Index is well above its 200-week moving average.
- Gold and silver bullion have no counter-party risk. Russia and China convert dollars to gold every month. Perhaps we should as well.
- Results are path dependent. It’s not the destination, it’s the journey.
- How we arrived helps determine what we can expect.
Miles Franklin
will exchange digital and paper dollars for real gold and silver bullion.
Or you can buy a bond that yields next to nothing and will repay you with devalued currency units.
The path is important. There is little point in becoming a billionaire if billion-dollar bills are less valuable than toilet paper.
Gary Christenson
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Private Safe Deposit Boxes
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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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