Spring is here and my life has gone into hyper-drive with grandkids’ baseball games and track meets, wood hauling-splitting-stacking, yard maintenance, etc., so I will just say that there is an enormous amount of knowledge in this letter that I hope you take advantage of, and that this email’s “subject title” comes from the article immediately following the linked articles by Alasdair Macleod titled If You’ve Got Gold, You’ve Got Money; If You Haven’t Got Gold, You’ve Got a Problem.
Take care and have a great week.
Eight "New Normal" Charts That Are Insanely Abnormal–and Dangerous
May 4, 2016 by Charles Hugh Smith
Is there anyone on the planet who’s actually stupid enough to believe these New Normal charts are healthy and sustainable?
Anyone questioning the sustainability and rightness of The New Normal is immediately attacked by the mainstream-media defenders of the crumbling status quo. Not only is everything that broke in 2008 fixed, everything’s going great globally, and anyone who dares question this narrative in a tin-foil hat conspiracy nut or simply an annoyingly doom-and-gloomer who recalcitrantly refuses to accept the positive glories of official statistics: low unemployment, rising valuations of stock market Unicorns, etc.
But the New Normal is anything but normal; all the readings of artificial life-support and manipulation are off the charts. If the New Normal were indeed a return to normalcy, we’d see a rapid and sustained decline in official life-support of the economy.
Instead, we see official life-support efforts rising to new and dangerous levels. The only reason stocks are at nose-bleed valuations globally is massive, sustained intervention on multiple levels.
We also see increasing dependence on debt to sustain increasingly weak growth. The New Normal is all about diminishing returns on additional debt.
The New Normal is also about the loss of institutional credibility. The Federal Reserve denies it makes policy decisions based on the stock market, but as soon as stocks start tumbling, the Fed’s leadership hits the airwaves with a media blitzkrieg, frantically assuring the world that the Fed will do "whatever it takes" to keep stocks at absurdly overvalued levels forever.
It once cost the equivalent of a new auto to attend a highly regarded public university. Now they cost the equivalent of a new house–and a mansion at that. In the pre-New Normal world of academia, the highest paid employees were senior professors (other than the university president).
Now under-assistant deans are paid $250,000 each while new tenured professors scrape by on $75,000, and most of the teaching (the actual purpose of the university, ahem) is done by academic serfs paid $35,000 to $45,000 a year, with few benefits and no pensions. (A fancy title masks the serfdom: adjunct professors.)
Meanwhile, the quality and value of the education has reached such low levels, a large percentage of student debt-serfs gain no real knowledge and many don’t even graduate.
Here’s how all those billions of dollars in administrative salaries get paid: with debt enabled by the federal government. If this looks remotely sustainable or healthy to you, please get your eyes checked immediately:
Diminishing returns on soaring debt is the hallmark of The New Normal. Bank credit has shot up like a rocket, but GDP has been subpar:
The recent surge of hope in global stock markets is largely the result of soaring credit expansion in China. The New Normal boils down to this: paper over non-performing loans (NPL) and debt that will never be paid back with new loans.
Debt and (not much) deleveraging (McKinsey & Company)
China’s debt to GDP is another New Normal manifestation of diminishing returns on new debt: every government and central bank is dumping more credit into their economies in the vain hope that more credit will spark "organic growth." Unfortunately for the New Normal cheerleaders, more credit chokes "organic growth."
The New Normal can only be propped up by massive central bank purchases of stocks and bonds. Look at the assets that have been purchased by the Bank of Japan in the past four years: up from 1.2 trillion yen to 4 trillion yen.
The New Normal means central bank balance sheets only go up, they never come down. Everyone knows that if central banks tried to sell even a sliver of their trillions in assets, global markets would promptly crash.
The New Normal is stagnant income for the bottom 95% and fewer people working. In The New Normal "recovery," the percentage of the population with a job has advanced all the way back up to where it was 40 years ago, in the late 1970s.
Is there anyone on the planet who’s actually stupid enough to believe these New Normal charts are healthy and sustainable? I doubt it. Rather, the apologists, toadies, apparatchiks and flacks are being well-paid to cheerlead, and the "leadership" (using the term lightly) of the discredited institutions are terrified of what will happen when people finally catch on.
The New Normal is not sustainable. Ramping up intervention and new debt to ever-more unprecedented levels will only serve to destabilize the economy and society– a foolishly dangerous path indeed.
https://www.youtube.com/watch?v=EMfCjNuOfbU This is a rather lengthy, and worthwhile (50+ minutes) Greg Hunter interview with Larry Nichols who is a very interesting political insider. He voices some fascinating thoughts (most of which dovetail very closely with my own thoughts) regarding our current state of political affairs. I will say however, I (and many others far more qualified than I) disagree with his negative opinion about the value of holding gold in a banking crisis. I do agree with him there is value in holding a reasonable amount of cash for crisis situations (especially in the short term), but I also believe there will be great merit in holding physical precious metals outside of the banking system for such situations as well (especially for one’s longer term financial well being).
http://kingworldnews.com/dr-stephen-leeb-5-8-16/ Here’s a quite short, very worthwhile interview on King World News with Dr. Stephen Leeb. All you have to do is read his bio, and you know he’s worth a listen.
Alasdair Macleod: If You’ve Got Gold, You’ve Got Money; If You Haven’t Got Gold, You’ve Got a Problem – The Daily Coin
By Rory Hall 5 days ago 2563 Views No comments
May 5, 2016
Akin to ancient Rome, the United States has over-extended herself. She has created a climate that could easily be transformed into a war on a slight pretext. Wars, as it is well known are also a means a nation can extricate itself from debt and financial responsibility. – The U.S. Endgame, Jeremiah Johnson (nom de plume, retired U.S. Special Forces, excerpt from Zero Hedge
One would have to be blinded from either denial or ignorance not see the escalating political and military tension between the U.S. and Russia/China. While the U.S. media spins the story into a tall-tale in which BRIC nation leaders are the provocateurs, the truth is that the U.S. has transformed its illegitimate “war on terror” into war on the world in a last-gasp attempt hold onto the economic and geopolitical hegemony it has enjoyed for several decades.
When you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. – Francisco’s “Money Speech,” from “Atlas Shrugged”
If you reread that passage, think about how it applies to the Patriot Act, Homeland Security Act, Wall Street, the Justice Department and Hillary Clinton. It’s pretty obvious the U.S. is collapsing economically, politically and socially.
Perhaps the one last chance at saving the United States is embracing the truth – the truth as it is and not the “truth” the U.S. Government would have you believe. But economic and political truth is seeded in honest money – think about the Federal Reserve, the Comex and the political elitists in the context of this passage from “Atlas Shrugged:”
Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. – Francisco “Money Speech”
The San Francisco Fed’s “President,” John Williams was blowing his weekly smoke on Monday. He said that higher interest rates would trigger “big movements downward” in asset valuations. He didn’t exactly discover plutonium with that revelation. But with his comments, Williams inadvertently admitted that the policy makers were responsible for creating what is now the biggest asset bubble in history. This is not going to end well.
The Shadow of Truth hosted Alasdair Macleod for a discussion which ties into the ongoing financial, economic and political collapse of the United States. Alasdair offers some original insight into the manner in which the inevitable geopolitical and financial “reset” might unfold: https://www.youtube.com/watch?v=X1wLiWs7_i4
Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns – or dollars. Take your choice – there is no other – and your time is running out – Francisco “Money Speech”
There are a lot of opinions out there about whether the rout in commodity prices are over or if they may pull back again. Some people point to the price of oil recovering substantially and many other commodities also rising in the past few weeks.
While I would like to think that the worst is behind us I still see that the economy, worldwide is continuing to slow down meaningfully. The reason that this is so important at this time is that not only are Japan and the EU still pumping trillions into the markets, but China, in an effort to arrest their own economic calamity, just went an additional $1 trillion in debt in the first quarter of 2016.
With trillions of dollars worth of currencies being "printed up" and spent to pay interest due, maturing bonds, newly issued bonds, stocks and etfs the world economy still continues to grind to a halt.
Even with all the stimulus there are less jobs in manufacturing, shipping rates are falling, sales are falling, profits are falling and it appears many people no longer believe the happy talk coming from the financial game shows. This is global. It is not just limited to the USA. It is actually worse in many places than here.
To put what China just did into perspective, as a nation, it had $500 billion in debt in the year 2000. By year-end 2015 they had amassed over $30 trillion in debt. (David Stockman) While that type of debt being incurred in such a short time looked like an economic miracle it was really nothing but a debt bubble.
Much of the debt incurred during this time was used to build ghost cities and empty airports, malls and highways. In other words it is unproductive debt. A productive debt creates an asset that will produce an income stream and ultimately retire the debt. Currently, China has so much debt that will likely not get repaid it will be interesting to watch. Hopefully the people will not have to suffer as much as I fear they will.
This bubble that started to implode in 2015 and it appears to me that the $1 trillion in new debt conjured up in the first 3 months of 2016 is the Chinese scheme to make it appear that they are indeed solvent while without massive money "printing" it is likely that the collapse that will eventually likely come would have already taken place.
It appears that commodities got a bid when China went all-in to save their economy. To me, this looks like it certainly helped short-term but appears to be unsustainable for any longer period of time.
At the peak of our Fed’s "printing" madness they were putting $1 trillion mostly into our bond markets- so they say. China just did that in 3 MONTHS! This does not appear to be a strategy that will have a long shelf life.
So yes, commodity prices have risen- likely because China has once again put a massive bid under those prices. The question has to be how long can they get away with it.
Even with this massive stimulus during the first quarter of 2016 Chinese consumption of petroleum fuels dropped from the first quarter of 2015 by 2%. It seems to me if an economy is growing its use of energy should also be rising. This also causes concern for the projected growth in demand for these products and makes me cautious about the longer-term outlook for the price of oil.
Many other commodities have also rallied and it appears that China is behind most of the rise in prices as their commodity pits look similar to the stock pits of two years ago where speculation is rampant and is leading to sharply higher prices- at least for now.
Since we can’t know how far the Chinese and other players can go we can only suggest that caution is warranted at this time.
In my opinion, gold and silver have also benefitted from this action but, it appears to me to be much more sustainable than the other commodities because gold also acts as a currency. It is something that all counterparties on the international stage will accept as payment. Many times when turmoil breaks out it is THE desired asset of choice.
I think it is important to point out that if central planners go the "helicopter money" route there will likely lead to high inflation and a substantially higher gold price. (Silver also- possibly even more so because there will likely be a pickup in sales and silver is used in most electronic products).
If the helicopter money doesn’t materialize it is likely that the economic slowdown we see today will morph into a deflation not seen since the 1930s. It appears that way because all of the efforts taking place now are not getting the results desired already.
In this case, I believe gold will go up exponentially even if it falls first. I say that because if we have a shakeout in the stock and bond markets (as I would expect) to restore faith in the system the people calling the shots would have to back the system with an asset that is trusted- likely gold, silver, or both.
Don’t forget that in the great depression as stocks lost 90% of their value, bonds became worthless and cash was king, the US government re-priced gold from 20.67 per ounce (price paid when Roosevelt confiscated it) to $35.00 (when the government had the gold). By government decree gold went up 75% in value. By the way, the couple of mining stocks that existed at that time increased by 525%. They couldn’t confiscate the ounces in the ground and it was like holding an option on the gold price.
I expect a similar revaluation at some point but with a much larger change because of the unprecedented money "printing" globally that was not even possible in the 1930s here.
I also believe that it will be China who will do the revaluing at this time. They and their allies appear to have the lion’s share of the gold and they are now trading gold daily at the Shanghai Exchange (with physical gold settlement- not cash like in London). It appears that the stars are aligned for China and its allies (Russia, India, Iran, South Africa, Brazil, etc.) to start calling the shots in this market.
This is a change that few understand and it is big as the power moves from paper markets where anyone can manipulate the markets if they have enough cash-(Being provided in unlimited amounts by central banks) while in China you have to settle with physical gold. This should lead to a price that is determined by supply and demand and not by fiat interventions.
It is interesting to me that China’s stock crash of 2015 was eerily similar to the US markets crash in 1929. The policy responses were eerily similar to our policy responses in 1929-1930. (The arrests of short sellers not included) I also believe their way out will be similar to our way out then. Re-value gold to introduce confidence back into the markets that has been lost because of the "money printing" and interventions into just about every asset imaginable.
Said simply from where I sit regardless of what path the central planners take- gold and silver win.
How will your portfolio fare in either case? If you don’t know you better ask pretty soon!
Mike Savage, ChFC Financial Advisor
2642 Route 940 Pocono Summit, Pa 18346
Raymond James Financial Services, Inc. Member FINRA/SIPC
I was talking to a Member recently about how he gave a gold coin to each of his grandchildren on their birthdays.
His daughter – their mother – called and said, "You know, Dad, they’d really appreciate something more usable… something they could play with. Like a toy."
To this, he responded, "That’s not my job. It’s my job to provide them with something I think is valuable. That they can use. If you want, you can take them to the pawnshop and sell the coins. Then they can buy whatever toys they feel like."
To me, that perfectly sums up gold.
Some people find it boring and dull.
In essence, they think gold is a rock. A pretty rock, but a rock just the same.
In reality, it’s so much more. Gold will constantly rise in value… A piece of gold today will be worth more 10 and 15 years from now.
And it has a rich history.
For 5,000 years, humans have been infatuated with gold. The first discoverer of gold is lost in the mists of time. But gold is found around the world… And every culture has seen gold as something special.
Even the gold-silver ratio dates back to 3100 B.C. According to the code of the first pharaoh, Menes, "one part of gold is equal to 2 1/2 parts silver in value."
The emergence of gold as physical money took place around 700 B.C. in the form of the Lydian merchants’ electrum coins (63% gold, 27% silver).
There are few things that have sustained their value for as long as currencies made out of precious metals have.
Physical currencies like these retain value – and even increase it. You can hold gold. You can hold silver. You can touch them and store them.
Once our forefathers introduced notes, that luxury went away.
Modern currencies are paper – promises – and have only one truth: devaluation. All currencies eventually march toward being worthless… which, in turn, makes gold more valuable. That’s exactly why the dollar and gold have an inverse relationship.
I’ve long had a love-hate relationship with gold, just like I do with cash.
Gold doesn’t pay a dividend. It isn’t a company. It has jewelry and dentistry and industry applications, but those are finite. Because gold is finite.
But its biggest upside is as a counterbalance against the ultimate demise of every currency.
And despite my desire for gold to be more exciting, I’m not stupid.
Gold does what a good investment should: nothing. It sits there and appreciates in value over time.
Despite the collapse in gold prices from late 2012 to the start of 2016, gold is up 354% since the start of the new millennium.
Although those all-time highs seem like a distant memory… with gold hanging around $1,300 per ounce, it’s posting an epic start to the year.
Gold just registered its best first quarter in three decades. In the first quarter alone, the precious metal gained 17% – outperforming the broader markets, currencies, bonds and a host of other commodities.
The U.S. Mint saw sales of gold coins increase 51% year over year during the quarter, while inflows into gold-backed ETFs had the second-strongest quarter on record.
Now, at The Oxford Club, we’ve always stated that a portion of your portfolio should be allocated to gold. For example, in The Oxford Communiqué’s Gone Fishin’ Portfolio, the gold portion – the Vanguard Precious Metals and Mining Fund (VGPMX) – is up more than 66% this year. And in the first quarter, it was one of the best-performing mutual funds, gaining more than 29%.
The Gone Fishin’ Portfolio as a whole is up 6.29% year to date, driven largely by the precious metals allocation. And that performance puts it way out in front of the Dow, the S&P 500, the Nasdaq and the Russell 2000.
You don’t have to be a gold bug to understand the value and opportunities the metal presents. Gold is part mythical, part conservative investment strategy.
Every culture in the world – every human who has come into contact with the metal – shared the same thought: "This is something special." And for more than 5,000 years, it has remained valuable, through the rise and fall of empires, through the birth and bankruptcy of countless companies, and through the turmoil of markets.
Solely for that reason, it has to be a part of every investor’s portfolio.