Q: Hi! I have always wonder why the British Pound is valued so high above our dollar.

Bill Holter's Answer:

Thank you for your question Carolyn, I will try to answer even though I am no expert on foreign exchange.  First, the pound used to be valued much higher versus the dollar than it is now, I can remember when it was over three pounds to the dollar.  Without looking at British money supply, debt ratios, trade balance and GDP, my guess is as with all fiat currencies, these all factor in to the cross valuation.  Generally speaking, the various currencies have been in a race to the bottom via devaluations to support the export sector versus competitors.  It is this reason that I believe we will soon see some fireworks between Japan (who is devaluing purposely and with a vengeance) and other export driven Asian nations as they will not stand for having their sales undercut.

I do want to mention one other "tidbit".  One British Pound Sterling used to actually be just this ..."one pound of British sterling silver." (Though the Pound is the longest fiat currency still in use, it has no backing of metal whatsoever other than by name.)   Originally one pound of silver was broken down into 240 pence (240 pennies), now one pound is broken down into 100 pence.  The term "sterling" came about nearly 900 years ago when the coins were minted 92.5% silver content as a standard.  How much is one pound of silver worth today even with depressed silver prices?  My point is this, the British Pound is not "valued so high" as you say unless of course you value it versus other fiat currencies which have also devalued drastically.  Hope this helps?

Q: Many knowledgeable people have stated that they cannot understand why things have not collapsed already.  It is common knowledge that Central Banks Collude with one another to keep the party going and everything propped up.  Question; It appears that market forces do not work any longer, everything rigged and engineered, so why could "they", TPTB, not keep things going for as long as they want it to keep going . A year, five years, a decade or longer until such time as they want to take the system down or modify it to suit them?

Andy Hoffman's Answer:

Because reality is catching up to them. As I wrote in "2008 is back, with one temporary exception" (http://blog.milesfranklin.com/2008-is-back-with-one-temporary-exception) two months ago, piece by piece, the PPT-supported stock market is detaching from reality.  Heck, oil prices were $90/bbl. then, compared to $63/bbl. today.  Global economies are crashing, as are currencies, commodities - and now, many junk bonds.  Social unrest is accelerating, which is why Scotland, Catalonia and Switzerland had their referendums - and why Japan and Greece have "snap elections" next week.  Central banks are losing control - including the Fed, which desperately wants to remove "considerable time" from its policy statement at its meeting next week (regarding the timing until raising rates), but rates are plummeting in the faces, even as they desperately try to prop them up. 

In other words, just like the paper PM markets, which are detaching from the record demand for physical gold and silver, the government-supported stock market is detaching from reality.  Watching the Chinese stock market plunge 6% today, the Greek market down 13% (yes, in one day) and Europe down 2-3% whilst the Dow is held at -1% all day, before a prototypical "hail mary" rally should tell you all you need to know of how desperate they've become.  No one's paying attention anymore, and pretty soon the last remaining shreds of their credibility - and ability to hold back the tide of reality - will be gone forever.

Record Demand for Physical Gold And Silver

David Schectman

Quotes of the Day

Following a recent pattern of uneven, but still heavy overall movement of metal coming into and moving out from the COMEX-approved silver warehouses, [last] week's physical turnover of silver surged to 7.3 million oz, the highest weekly turnover since September. Total COMEX silver inventories rose by 700,000 oz to 177.7 million oz.  Stated differently, this week's physical silver turnover in the COMEX warehouses was ten times greater than the net increase in total inventories.

Remarkably, this has been the pattern for the full year (and longer) in that there has been a frantic and consistent turnover or churn in COMEX silver inventories while the total level of inventories remains mostly flat. It's a pattern that has never occurred previously in other COMEX metals and is strongly suggestive of overall supply/demand tightness; but the most peculiar aspect of the turnover is that it is hardly mentioned, even though the data are published daily and easily retrieved. Very recently, there has been a pickup in COMEX gold warehouse movements but more in the way of steady withdrawals than in the frantic turnover seen in the COMEX silver warehouses.

- Silver analyst Ted Butler, Butler Research, December 6, 2014

Jim Grant Sums it All Up in 2 Stunning Paragraphs

Imagine trying to explain the present-day arrangements to your 20-something grandchild a couple of decades hence - after the crash of, say, 2016, that wiped out the youngster's inheritance and provoked a central bank response so heavy-handed as to shatter the confidence even of Wall Street in the Federal reserve's methods...

I expect you'll wind up saying something like this:

"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.

We put the cart of asset prices before the horse of enterprise.

We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.

We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017)."

"We seem to have miscalculated."

- Jim Grant, December 7, 2014

"By purchasing gold, China and Russia have indicated that they understand how fragile things are and that they're getting ready for the demise of the dollar," Rickards told The New York Times.

"At the same time, other countries have been watching what they're doing and are saying to themselves, 'If things are really that bad, then we better get our gold back,' possession being nine� tenths of the law."

- Jim Rickards, December 6, 2014

Today's Featured Articles

Alan Feuer (The Golden Age)

LeMetropole Caf� (The Secret Connection Between Saudi Arabia and Japan)

Richard Russell (I believe a great speculative third phase lies ahead for this bull market. The coming third phase will see the stock market climb far higher than even the bulls think possible.)

Zero Hedge (Angry Eurodollar Traders Have Had Enough: "This Is The Year The Fed Is Going To Lose Credibility") (Gold Surges To October Highs, Snaps Japanese Linkages)

Jeff Clark (7 Questions Gold Bears Must Answer)

Ed Steer (3 Critical Reads)

Bill Holter

Loss of Control

December 10, 2014

Many who will read this work have been sitting patiently waiting for the house of cards to collapse.  For me personally, I confess the current maniacal financial bubble has gone on much longer than I ever imagined.  What did we miss?  Are we wrong or just early?  In my opinion, we were early, mathematically correct yet the "rules" changed.  For my part, I can say that I missed just how much "leverage" could be used to extend the game.  In the current instance, we are not even talking about garden variety leverage.  We live in a world where leverage is leveraged, leveraged again and again and again.  We have personal, public and "private" (OTC) leverage. The garden variety leverage is bad enough as is sovereign leverage, but the real problem are derivatives piled on top of derivatives with collateral which in many cases no longer even exists.  Too much leverage in the past has always led to burst bubbles.  All bubbles eventually burst ...and it looks like this one is bursting now.   

While I originally thought about talking of Venezuela and Ukraine today, and making a comparison and wondering which one will bankrupt first, it dawned on me ...the current bubble is busting right now!  From a big picture standpoint, the Fed was forced to stop QE because they were taking too much collateral from the system.  The baton was then passed to Japan because the Germans said "nien" to the ECB.  QE3 started in Sept. 2012 ...which is exactly the point in time where the world of asset valuations was turned further upside down.  Call these last two years the "last gasp" or whatever you'd like, the world does not have the ability to reflate any further and in fact, the "bubble of all bubbles" looks to be deflating piece by piece, let me explain this.

Oil is arguably the most important commodity on the planet from a financial standpoint.  Oil has collapsed in price by over 40% in less than 3 months.  There are many repercussions from this, oil exporting nations are watching as their coffers run dry and  the economic activity from lower prices means lower individual employment.  From a financial standpoint the oil derivatives outstanding have already killed someone (we just don't know who yet) and the "underpinning" of the dollar has been weakened.  My last point needs an explanation.  The dollar is otherwise known as the "petrodollar" because petro revenues have been for years recycled back into dollar assets, lower oil revenues means lower recycling.  This action had already begun while oil was still over $100 per barrel as less demand for dollar assets was evident.  Now, on top of less "willingness" on the part of petroleum exporters to recycle, they have less (or none) to recycle.  No problem because the Fed will just monetize you say?  Think again!

Look what is currently happening.  The reflation of the reflation of U.S. real estate is failing.  Oil has deflated 40%+++.  High yield credit is in an outright crash and already at record "wides" to Treasuries.  The euro and yen have deflated drastically ...even against gold.  The Chinese stock market dropped over 5% last night, this is like a 900 point drop in the Dow.  They changed their "collateral rules" and now only AAA and AA credits can be used as collateral.  While speaking of China, let's not forget their shadow banking system which has basically now been frozen solid.  Commodities across the board have been hammered lower while growth rates across the globe (except of course the U.S. as we lie about every economic report) have either slowed drastically or turned negative.  The "reflation" is clearly failing!  There is no way around it, we are watching a credit contraction unfold.   

Yet, gold has bottomed?  How could this be?  Gold surely should be close to or even under $1,000 if you listen to the Dent's and Armstrong's of the world?  Let me put this together for you.  Everything is "controlled".  By "controlled" I mean "price."  The price of everything is controlled.  I could have said "hidden."  The "hiding" process began in 2008-09 when the Fed took all sorts of toxic (insolvent) paper on to their balance sheet.  They did this to hide their values.  Yes, they did this to get liquidity into the banks but in my mind their primary reason was to get these assets off the market so they could not be used as "comps" are in real estate.  They carry these on their books at par when they could not even get .18 cents on the dollar when they tried to sell them.  Do you see?  This is where the scheme kicked into high gear.  

Back to gold, how could it possibly be going higher if all of a sudden asset values are declining or deflating?  First, gold has also been "priced".  Gold, more than any other asset (except silver) HAD to be "priced."  It had to be suppressed because the numbers on the thermometer had to be altered to foster confidence.  As you know, I absolutely believe gold's price has been "made" on the paper markets.  Nothing else could explain a falling price with increasing and greater demand than supply.  If other markets are being lost control of, then so are gold and silver, they are only moving away from being controlled and towards a natural price.

It looks like to me that "confidence" if it is not broken yet, will very soon because control is being lost in too many of these markets.  Was the price drop in oil a "control" measure by the U.S. to punish Russia?  I believe yes, this was "our" plan but not "THE" plan.  As I wrote a week ago, we may have thought it was our bright idea but I am sure the new Chinese/Saudi relations are as big of a factor, if not greater.  Because so many different markets now begin to tell a story opposite of the "official" story, it tells me that "control" is now beginning to slip.  If you doubt this, think to yourself "why have we had extraordinary measures" for six years?  Why are we still six years later talking about recovery?  What happened to the "expansion" phase?  It's like the Dutch boy with all of his fingers and toes in the dike, leaks are springing up everywhere and with each one more control is lost!  If I am correct and this is true then we will either see massively convulsive markets or an outright closure and re set of prices.   

Please remember this, volatility will create more volatility just as a small fire or fires in a dry forest will spread and create more fire.  Volatility will create losses and losses will create bankruptcies.  It is these bankruptcies which will turn winners on the other sides of trades ...also into losers.

Quite simply, we have lived through the greatest Ponzi scheme of all time where leverage of over 100 to (probably 1,000 to one when all is said and done) has been employed for control.  The recent volatility suggests that control is finally being lost.  If this is true and I firmly believe it is, we are on the doorstep of the worst financial panic event in all of human history.  The sad part is the humanity.  Only a small percentage of the global population ever even played in this game but everyone will be affected by it!  

The Essence of Fiat Destruction

December 9, 2014

I could have gone so many different directions this morning as soooo many scary things are occurring simultaneously. However, the key theme is what hit me like a "ton of bricks" as I awoke at 3:00 AM - i.e., the "Great Deformation" of economic activity and financial markets caused by fiat currency hyper-inflation. The catalyst for this revelation was this article by David Stockman, which I read in preparation of discussing the utter collapse of energy prices we warned of two months ago - with oil prices still above $80/bbl. - titled "crashing oil prices portend unspeakable horrors." Not to mention, last week's "shale oil 2015 = subprime mortgages 2008" and Audio blog, "crashing oil and currencies, America's death knell"; and the commentary I wrote 20 months ago of the shale oil fraud - based on ten years of experience as an energy analyst - titled "unending energy independence hype."

After reading his article, it became crystal clear that fiat currency regimes initially create highly inflationary environments, as the "unused credit card" of unfettered money printing is "charged up" by individual, corporations, municipalities and sovereign nations alike; until, inevitably, the brick wall of "diminishing returns" on such debt is reached. Shortly thereafter, "deflation" sets in; as the massive mal-investment caused by such borrowing - aided by Wall Street "leverage," of course - causes economic stagnation, default and social unrest. At this point, the true Ponzi scheme nature of fiat currency takes center stage, when Central banks attempt to "postpone" said defaults with "QE to Infinity" schemes that ultimately destroy any remaining purchasing power.

Currently, the entire world is amidst the second stage - of "deflation" - as four decades of mal-investment from the four corners of the globe implode. No matter where one looks, this process is accelerating; and care of the liquidity the world's "reserve currency" still holds, the dollar is seen as "strengthening" - when in actuality, the entire global fiat currency regime is collapsing. A process, we might add, which is dramatically accelerated by the "final currency war" - as governments take the politically expedient, but economically suicidal tack of devaluing their currencies in the name of "job creation" that never materializes. To that end, look no further than last week's Swiss "no" vote - which in essence, doomed Switzerland to the same horrific fate as its European brethren. Not to mention, today's horrific 6% plunge in the Chinese stock market, as the centrally planned Yuan had its biggest one-day decline since December 2008; which, undoubtedly, is the PBOC's response to Japan's maniacal implementation of "Abenomics II" last month.

In yesterday's "lemmings for the ages," we wrote of how such mal-investment - and the "Central bank put" implicitly underlying it - catalyzes historically overvalued financial markets. Abetted, of course, by the suppression of precious metal prices - which care of Larry Summers' "Gibson's Paradox" theory disables the inflation "barometer" money printing naturally increases. Stockman's article, mirroring my aforementioned reference to the subprime mortgage crisis of 2008, brilliantly describes how the same "deformation" that created the 2000s real estate bubble - and frankly, the 1990s equity bubble before it - caused a shale oil bubble so large, it's bursting could have dramatically direr ramifications. Not to mention, as the world's debt structure is so much onerous, the economy so much weaker, geo-political tension so much more acute, government approval ratings so much lower, and the ability of Central banks to "bail out" failures essentially non-existent as their balance sheets have already blown up to unsustainable levels.

To that end, nothing makes me happier than being able to utilize the experience of my prior life as a Wall Street oilfield service analyst. I worked just as hard as today - actually, harder, as I was young, single and ultra-ambitious; and until the ramifications of the "tech wreck" set in, I was actually optimistic about the world's future. During those ten years, ending in 2005 when I moved on to the mining industry, the most widely read work my team produced was the "E&P Spending Survey" we published bi-annually to gauge global oil and gas spending trends. By far, the most important was the year-end report, like the one depicted below. In it, we personally surveyed hundreds of companies from around the world to tabulate cumulative E&P capital expending expectations for the following year. Back in 2000, the outlook was extremely bullish; and by the way, note the "long-term oil price expectation" of $23/bbl.

And thus, when considering whether the Fed will raise rates in 2015 - as Treasury yields plunge toward historic lows, and the national debt explodes - think of how the all-out collapse of America's only productive business might "influence" their thinking. Not to mention, as the entire global economy collapses - starting with commodity-based nations, but ultimately encompassing every aspect of economic activity. Today, for example, the Baltic Dry Index has fallen to its lowest December level since 2008; which in and of itself, proves what we wrote in "2008 is back, with one temporary exception." And thus, we ask, can TPTB really maintain the aforementioned "exception" - of goosed stock markets - much longer? Or, for that matter, will they be forced into doing so via "Weimar-izing" it with hyper-inflation, sooner rather than later?

Yesterday, in our view, was a very important day. Within a matter of hours, oil prices dramatically collapsed to as low as $63/bbl. Moreover, the entire market impact of Friday's historic NFP lie was completely reversed - with stocks declining, Treasury yields plunging, and precious metals surging. In fact, for all the beating it's taken from the MSM and Cartel, gold is now up for the year - whilst, conversely, the "market darlings" of the Russell 2000 are down. As the old saw goes, when something won't go down, it can only go up. And never has this been truer, in our view - particularly given that gold and silver are trading well below their respective costs of production, amidst the most violently bullish fundamental environment of our lifetimes.

This morning, these trends have expanded further. Commodity currencies are collapsing, global stocks and Treasury yields are plunging, and "chinks in the armor" exposing themselves for the world to see - such as GREECE, which we continue to view as a "black swan" event waiting to happen. This morning alone, we kid you not, the Greek stock market is down 11%; and worse yet, its benchmark 10-year government bond yield has surged from 7.3% to 8.0%. Next Wednesday, just three days after a potentially earth-shattering Japanese "snap election," the same will occur in Greece. And lo and behold, the pesky "Syriza" party - intent on defaulting on Greece's $400+ billion of debt - is leading in the polls. Gee, I wonder what will happen to the daisy chain of European banks' PIIGS debt holdings if that occurs; much less, the even larger derivatives colossus underlying it - which we assure you, has only grown larger since nearly destroying the world in 2008 and again in 2011. Yes, DEFAULT will be one of the key financial themes of 2015 - in shale oil, sovereign nations, and otherwise; which is why, frankly, one must own at least some precious metals in their portfolio.

Not to mention, an all-out global revolt against Central banking, which is probably why Germany, Holland - and shortly, Belgium and France - are demanding repatriation of their gold. Moreover, if not for last month's historic propaganda and market manipulation efforts, Switzerland would be joining China, Russia and the entire Eastern Hemisphere in aggressively purchasing it in the open market. To that end, yesterday's quote from a senior executive of a major trading firm may well be 2014's most prescient that "(2015)is the year the Fed is going to lose credibility - when it gets to March or June, and they announce why they're not raising rates."

To conclude, on the topic of the re-emergence of precious metals, it was quite remarkable to see one of the world's "classiest" MSM cheerleaders - the New York Times - publish an article titled "the Golden Age"; as despite employing the king of Keynesian-ism himself, Paul Krugman, its editors clearly realize which way the winds are blowing.

And oh yeah, it's official. The U.S. Mint's 2014 Silver Eagle sales just surpassed 2013's record level - having sold more ounces in the first eight days of December, than the entirety of December 2013! Sales of 2014 Eagles will end on Friday, and we can't wait to see how large demand will be for the new 2015 coins. Give us a call at 800-822-8080, and we'll be happy to give you a quote!

PROTECT YOURSELF, and do it NOW!

Call Miles Franklin at 800-822-8080, and talk to one of our brokers.  Through industry-leading customer service and competitive pricing, we aim to EARN your business.

Radio Appearance with John Stadtmiller - December 9, 2014  

December 10, 2014

Andy Hoffman joins John Stadtmiller of the Republic Broadcasting Network to discuss the unemployment report, retail sales declining, oil prices plunging, the U.S. dollar, gold and silver.  To listen to the interview, please click on link below.

Andy Hoffman - Republic Broadcasting Network - December 9, 2014 

_____________________ 

Hello Global Recession 

December 9, 2014

Andy Hoffman joins Kerry Lutz of the Financial Survival Network to discuss  oil prices, plunging currencies worldwide, record demand for gold and silver, the stock market and unemployment rate.  To listen to the interview, please click below.

The Golden Age - www.nytimes.com

By ALAN FEUER DEC 6, 2014

YOU would have thought by now - 43 years after President Richard M. Nixon scrapped the gold standard - that gold's role as an economic instrument was over. After all, the mighty metal that once held sway over the global monetary system was supposed to have, by this point, finally been reduced to just another asset peddled on the Internet.

But in fact in recent weeks, gold has experienced a renaissance of sorts, quietly re-emerging as the centerpiece of a handful of initiatives in Europe, Asia and the Middle East. On Dec. 1, voters in Switzerland considered - and eventually rejected - a populist plan to force its central bank to buy gold in a controversial bid to stabilize its currency. Russia and China both made headlines by snapping up enormous stores of gold. In late November, Marine Le Pen of France, a nationalist politician, called on her government to start amassing gold, and the Netherlands followed suit, revealing that same week that it had repatriated $5 billion of its own gold from a vault in New York City owned by the Federal Reserve.

Even the Islamic State, it appears, has become intrigued by gold. Declaring last month that it wanted to avoid "the tyrant's financial system," the group released a statement announcing that it was planning to produce a line of custom-made gold coins.

What's going on here? Like almost everything concerning gold, the experts don't agree. Some have interpreted the metal's mini-comeback as an indication that financial Armageddon, in the guise of runaway inflation, is approaching. Others have read the recent moves as a symbolic way for central banks and governments to make a show of strength in nervously uncertain economic times.

"Holding gold, for people and for governments, reflects our anxieties about the future," said Michael Bordo, a professor of economics at Rutgers University who specializes in monetary history and policy. "Even though it might seem somewhat retrograde, to many investors, having it on hand is something safe."

Continue reading on NYTimes.com.

12/8 Ivan Lo - The Secret Connection Between Saudi Arabia and Japan - www.lemetropolecafe.com

Ivan Lo, The Equedia Letter

The Secret Connection Between Saudi Arabia and Japan

Dear Readers,

Coincidence is often described as a remarkable concurrence of events or circumstances without apparent causal connection.

However, we often forget to include the word "apparent" in our use of "coincidence".

As I mentioned in my last letter, "The Hidden Epidemic Behind Ferguson," control of power in our modern era is no longer maintained or enacted through invasion or dictatorship because modern society supports freedom.

That is why global power is now maintained through strategies that involve misdirection and deception. Like magic.

The art of misdirection is the most powerful tool that rulers use to make its citizens believe they are voting/fighting for the right causes.

JFK said it best:

"For we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence--on infiltration instead of invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas by night instead of armies by day. It is a system, which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations.

 Its preparations are concealed, not published. Its mistakes are buried, not headlined. Its dissenters are silenced, not praised. No expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the Cold War, in short, with a war-time discipline no democracy would ever hope or wish to match."

Misdirection often blinds its audience to the real problems. I talked about this last week re: the Ferguson case, whereby rulers turn citizens against each other in order to maintain rule; because, of course, a unified revolt cannot take place if the people aren't unified.

This week, I want to talk about the "apparent" coincidences happening all over the world; from falling oil prices, to more "black" men being killed by "white" cops, to more central bank stimulus. The more you see these coincidences, the more you begin to realize that the causal connection between certain political events becomes much more "apparent."

Once you finish this Letter, you may begin to see the not-so-coincidence, coincidences.

A World of Covert Coincidences

Merriam-Webster's second definition of the word coincidence is:

"the occurrence of events that happen at the same time by accident but seem to have some connection."

However, in global politics and finance, what appears to be an accident rarely ever is.

Before I get into the covert economic coincidences of world politics involving oil, I can't help but write a small continuation from my last letter about the riots springing up all over America as a result of the non-indictments of police officers who killed unarmed "black" men.

Less than a few days after my Letter about the Ferguson case, America is presented with yet another decision not to indict a white New York police officer over the death of an unarmed black man, Eric Garner.

Thousands of protestors swarmed the streets of New York, with protests spreading throughout America; from Boston to Oakland, from Chicago to Dallas.

Last week, I clearly stated that the Ferguson case is being used to blind America to the real problems facing our society; that it was used as a way to turn American citizens against one another*.

(*Some argue that the Michael Brown protests were a unified revolt, with "white" people joining the protests. But what unified revolt involves burning down innocent local businesses?)

Is it a coincidence that just a few days later, we're presented with yet another Ferguson-like case that just happens to be the primary focus of the big media conglomerates?

While America should be raising questions about the excessive force being used to detain suspects, America should not be protesting or rioting against racial discrimination.

Let's not fuel ignorance. Change comes from unity, not stupidity.

Let's Make One Thing Clear

The big media outlets continue to publish the obvious, yet misguided, reasons for oil's tumble; from OPEC's attack on US fracking, to excess supply in the market.

Let's make one thing clear: oil is everywhere and it always has been.

In 2009, the big media outlets published numerous articles on peak oil with dramatic headlines such as:

"Warning: Oil Supplies are Running Out Fast"

Of course, this was during a time when oil prices had fallen dramatically as a result of the 2008 crisis. But just as quickly as prices had fallen, they immediately climbed following reports that the world was running out of oil.

Here we are a few years later and instead of running out of oil, the media tells us we have too much.

Has demand dropped so significantly, and supplies increased so dramatically, to cause the price of oil to fall so sharply?

Oil is (apparently) a finite energy supply, and the demand for it is relatively inelastic with respect to price because it has few direct substitutes. That should mean the price of oil should never drop so sharply - ever.

Yet, oil has fallen nearly 40% this year.

The Supply and Demand for Oil

While agencies have found innovative ways to explain declining oil demand, the world has never consumed more oil.

In 2010, the world consumed a record 87.4 million barrels per day. This year, the world is expected to consume a new record of 92.7 million barrels per day.

Global oil demand is still expected to climb to new highs.

Take a look:

Equedia.com

If the price of oil is a true reflection of supply and demand, as the headlines tell us, it should reflect the discrepancy between supply and demand.

Since we know that demand is actually growing, that can't be the reason for oil's dramatic drop.

So does that mean it's a supply issue? Did the world all of a sudden gain 40% more oil?

Obviously not.

So no, the reason behind oil's fall is not the causality of supply and demand.

The reason is manipulation. The question is why.

Interconnected Global Politics

There are many reasons why oil producers would want to manipulate the price of oil higher. But why the heck would they manipulate the price lower?

The media outlets will have you believe that Saudi Arabia lowered prices to:

a)      stifle American competition because it knows shale production isn't profitable at lower prices and,

b) be more competitive with sales to the world's fastest growing oil consumer, China.

While both reasons seem logical at first glance, a closer look shows that clearly neither are really the case.

Why?

Because despite lower oil prices, US oil production will continue:

Via Bloomberg:

           "OPEC's price war against the American shale industry will erode drilling budgets, shrink profits and even bankrupt some companies. It won't do the one thing cartel leader Saudi Arabia wants: reduce U.S. production.

           ...Shale producers won't shut oil wells in response to the market's collapse because most still are profitable, and even those that aren't need to provide cash flow for debt service and other corporate expenses."

Also via Bloomberg:

        "The boom in U.S. oil production will live to see another week.

           ..."There's just so much momentum built up in the system right now and a lot of projects have already been funded," Kurt Hallead, co-head of RBC Capital Markets' global energy research team, said yesterday by telephone from Austin, Texas. "There are some projects that will continue on into the next quarter. Right now, you're seeing the smoke, and you won't really see the fire until about the second quarter."

Don't believe that Saudi Arabia is stupid enough to lose profits in order to fight a battle it likely won't win.

Furthermore, as I mentioned in my past Letter, despite Saudi Arabia's price drop, China hasn't taken advantage of more Saudi oil imports, but has significantly increased its imports from Africa, Columbia, and Russia.

Perhaps this will change, but it hasn't yet - likely because purchasing more oil from Saudi Arabia during this time would be a direct slap in the face to the suffering Russians, a Chinese energy ally.

So if Saudi Arabia didn't lower the price of oil to stifle the American Shale revolution, nor to stay competitive in the Asian markets, why the heck did they do it?

Global Political Tactics - It's Magic

A few weeks ago, I wrote a letter that gave insight on how the U.S. may have struck a deal with Saudi Arabia to lower oil prices in order to hurt Russia, while stimulating its own economy via lower energy prices:

The strategy of low interest rates to stimulate the housing market and consumer spending has exhausted. With QE coming to an end, what's left to stimulate the American economy?

As the holiday season nears next month, oil prices continue to fall, with global oil prices posting a fifth consecutive weekly loss.

Is it simply a coincidence that oil's decline has come on the heels of the end of QE?

Is it possible for the United States to manipulate the price of oil to further stimulate growth?

... Over the last year, Qatar and Saudi Arabia have been urging for U.S. support to unleash airstrikes on Syria.

On September 11, Saudi Arabia finally inked a deal with the U.S. to drop bombs on Syria.

But why?

Saudi Arabia possesses 18 per cent of the world's proven petroleum reserves and ranks as the largest exporter of petroleum.

Syria is home to a pipeline route that can bring gas from the great Qatar natural gas fields into Europe, making billions of dollars for Saudi Arabia as the gas moves through while removing Russia's energy stronghold on Europe.

Could the U.S. have persuaded Saudi Arabia, during their September 11 meeting, to lower the price of oil in order to hurt Russia, while stimulating the American economy?

... On October 1, 2014, shortly after the U.S. dropped bombs on Syria on September 26 as part of the September 11 agreement, Saudi Arabia announced it would be slashing prices to Asian nations in order to "compete" for crude market share. It also slashed prices to Europe and the United States."

Following Saudi Arabia's announcement, oil prices have plunged to a level not seen in more than five years.

Is it a "coincidence" that shortly after the Saudi Arabia-U.S. meeting on the coincidental date of 9-11, the two nations inked a deal to drop billions of dollars worth of bombs on Syria? Then just a few days later, Saudi Arabia announces a massive price cut to its oil.

Coincidence?

A week later, I wrote the piece, "Is Japan Secretly Working with the United States?"

Is it a coincidence, or an agreement between two nations, that a day after the end of US' QE program, Japan announces yet another "surprise" increase in added stimulus, sending both U.S and Japanese stocks higher?

Is it a coincidence that the US has accused other countries, such as China, with currency manipulation, but has never accused Japan who has unleashed more QE per GDP than any other developed country in the world?

Remember, the US is Japan's ultimate nuclear protector and Japan is the world's third largest holder of US debt (third only to China and the Fed).

Could the US and Japan be working together in this round of currency wars?"

So what does Japan have to do with Saudi Arabia?

Why am I revisiting a past letter on Saudi Arabia's oil, then immediately revisiting Japan's QE?

Let's look at the timely "coincidences" of Japan's QE and Saudi Arabia's price cut.

The Covert Connection Between Japan and Saudi Arabia

Japan is a nation that has faced the threat of deflation every year, for over 20 years.

Its central bank, the Bank of Japan (BOJ) has once again decided to go all-in by recently announcing yet another massive QE that may see it buy every new bond the government issues. It's already the largest single holder of Japan's bonds.

Despite the BOJ's efforts, the outlook for the Japanese economy is getting worse - especially since Japan has been hammered by higher energy prices following the Fukishima incident.

Via the EIA:

"Nuclear generation in Japan represented about 26% of the power generation prior to the 2011 earthquake and was one of the country's least expensive forms of power supply.

Japan replaced the significant loss of nuclear power with generation from imported natural gas, low-sulfur crude oil, fuel oil, and coal that caused a higher price of electricity for its government, utilities, and consumers.

Fuel import cost increases have resulted in Japan's top 10 utilities losing over $30 billion in the past two years.

Japan spent $250 billion on total fuel imports in 2012, a third of the country's total import charge.

Despite strength in export markets, the yen's depreciation and soaring natural gas and oil import costs from a greater reliance on fossil fuels continued to deepen Japan's recent trade deficit throughout 2013."

Japan is the third largest oil consumer and importer in the world behind the United States and China. It is also the world's largest importer of liquefied natural gas (LNG) and second largest importer of coal behind China.

It's no wonder that higher energy costs in Japan have reached a critical point. The burden of a depreciating yen, deflationary concerns, aging population, and increased energy imports are destroying any chance of growth that Japan's stimulus was expected to provide.

At this pace, Japan will collapse.

Last Resort

Since almost all options have been exploited (i.e. QE, open market stock purchases, yen devaluation), the only logical solution Japan has left when poop hits the fan is to - like Argentina and Ukraine - sell its foreign reserves.

Foreign reserves, which is dominated by US Treasury Securities, or simply, U.S. debt.

Japan has racked up over $1.2 trillion of foreign reserves as a result of years of buying dollars and selling yen to limit the strength of its currency.

More than 95% of Japan's official reserve assets are in foreign reserves as of October 2014.

While Japan doesn't disclose the breakdown of its reserves, it's not hard to find out how much U.S. securities Japan actually has.

According to the US Treasury, Japan owns $1.22 trillion worth of U.S. Treasurys, as of September 2014.

Equedia.com

In October, the IMF estimated Japan foreign reserves to be $1.204 trillion.

Equedia.com

In other words, unless Japan sold a large amount of its U.S. debt in the past two months, it's safe to say that practically all of Japan's foreign reserve holdings are in U.S. debt.

While the Japanese government wants to further devalue the yen, it also knows that the internal consequence of its sinking yen and high energy prices is corporate bankruptcies.

Via Japan Times:

"Corporate bankruptcies linked to the yen's slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy.

Forty-two of the companies that failed in November cited the weakened currency as a contributing cause, bringing total bankruptcies associated with the yen so far this year to 301, almost triple that of the same period in 2013, according to a survey by Teikoku Databank Ltd."

In order to prevent a mass dumping of U.S. Treasurys, the U.S. can't allow Japan to fail - not yet.

So how can the U.S. help?

Two Birds, One Stone

There are temporary solutions that could slow Japan's bleeding.

The most obvious is to find lower energy prices.

Is it a coincidence that Japan announced its biggest round of QE, which propped up U.S. stocks, shortly after Saudi Arabia dropped its oil price?

Is it a coincidence that Japan and its pension plan - the largest on the planet - announced they were going to buy an additional $50 billion worth of US stocks, shortly after Saudi Arabia dropped its oil price?

Knowing that, could it have been possible that the U.S. also struck a deal to lower oil prices for Japan's sake, in order to protect its own Treasury market?

Are you starting to see the coincidental timing of these geopolitical events?

Perhaps it's Apophenia.

Perhaps I am connecting dots for a picture that doesn't exist.

However, if these dots connect, then I expect the following to happen.

The price of oil will begin to rise in 2015 because the U..S will have seen the immediate benefits of lower oil prices through consumer spending over the holidays - which in turn will boost the stock market even higher for the time being.

Some of Japan's nuclear reactors are also expected to come back online in 2015, which means the country will use less oil and gas. While this would lower the demand for oil, it also means - based on the above coincidences - that the U.S. can allow prices to rise, as it would not harm Japan as much as it has in the past years.

Once the US has achieved its temporary goal of increased consumer spending and higher retail stock prices, and Japan no longer needs as much oil, then Saudi Arabia may have lived up to its secret agreement with the U.S.

Since every oil producer wants to sell oil at higher prices, then perhaps Saudi Arabia will once again increase prices once it has fulfilled its secret agreement with the U.S.

Oil companies without debt are already set for a massive wave of acquisitions. Just ask the oil guys who are already looking for bargain assets to snatch up.

Oil stocks may not have bottomed, but its time to start looking.

To read the full article, please subscribe to Le Metropole Cafe.com.

 ______________________________

Richard Russell On God, Gold & Historic Trading In Markets - www.kingworldnews.com

December 9, 2014

It's late 1957. The bull market had started up in June 1949. Suddenly a recession starts in late 1957. Sentiment among the crowd turns black bearish. The market sinks into a severe correction. I don't believe that the bull market is over. People call me an idiot, but I am convinced that the bull market has a lot further to run. The reason is that the bull market never produced a third speculative phase. I write an article published in Barron's to the effect that I expect a third highly speculative phase to appear ahead. People remain stubbornly bearish. They tell me I'm out of my mind. But I know that the market normally has a severe correction following the second phase of a bull market and just preceding the third speculative and final phase.

The Dow sinks to 419 in October and then turns up in the face of the severe recession. Investors are actually angry. How can the stock market be rising when there is a recession in progress? The stock market pushes relentlessly higher. My bullish Barron's article causes a sensation. A little ad that I place in Barron's brings in 300 subscriptions. Overnight I start up Dow Theory Letters. Within a week I am in business!

Now let's return to the present. I believe a great speculative third phase lies ahead for this bull market. The coming third phase will see the stock market climb far higher than even the bulls think possible.

The question is: is it too late to enter the stock market? In the third phase of a bull market, usually more money is made than in the first two phases combined. Thus, I foresee the possibility of large gains if a third and final speculative phase is ahead. My advice is that you assume an initial position in DIA or SPY on any weakness.

What will be the leverage that will drive up the stock market in the coming third speculative third phase? The answer is human hysteria and greed. And never before seen, sky-high price-to-earnings ratios.

This piece may sound like a reversal of thinking on my part. But it is based on a weekend of deep thinking and memories of 1957. As for timing, I believe the coming third phase could last until 2016. It will have the effect of placing the United States as the continuing world leader. During the coming third phase, I expect new discoveries and inventions to excite mankind. Two stocks that I own in anticipation of the coming wildly speculative third phase are WR Berkley and Berkshire Hathaway. I continue to like physical gold and silver.

Continue reading on King World News.com.

______________________________    

Angry Eurodollar Traders Have Had Enough: "This Is The Year The Fed Is Going To Lose Credibility" - www.zerohedge.com

Submitted by Tyler Durden on 12/08/2014 15:03 -0500

  

"Fed talk is losing its luster. Data is irrelevant unless it's extremely weak or extremely strong," says Todd Colvin, senior vice president at Ambrosino Brothers, a futures and options execution firm.

 

"This is the year the Fed is going to lose credibility when it gets to March or June and they announce why they're not moving."

 

Continue reading on Zero Hedge.com.

 

***

 

Gold Surges To October Highs, Snaps Japanese Linkages - www.zerohedge.com

Submitted by Tyler Durden on 12/09/2014 08:49 -0500

 

Gold prices have surged this morning to their highest since October (over $1221) as leveraged hot money greatly rotates its repo-driven way out of risk assets and into Greenspan's alternative currency. However, there is a bigger problem for the biggest pairs trade that no one is discussing - apart from us - the decoupling of the long Nikkei, short gold trade as the repo market folds in on itself from the suck out of $80 billion in collateral by China...

 

Gold back at its highest since October...

 

Zero Hedge

 and the Gold/Nikkei trade is coming undone very quickly...

Zero Hedge

See here for details on the Gold/Nikkei trade and its implications...

Charts: Bloomberg

______________________________  

7 Questions Gold Bears Must Answer - www.caseyresearch.com

December 9, 2014

Jeff Clark, Senior Precious Metals Analyst

A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years.

More alarming, even for die-hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak U.S. dollar, have reversed.

Throw in a correction-defying Wall Street stock market and the never-ending rain of disdain for gold from the mainstream, and it may seem that there's no reason to buy gold; the bear is here to stay.

If so, then I have a question. Actually, a whole bunch of questions.

Continue reading on Casey Research.com.

______________________________   

Jim Rickards: Central Bank Gold Buying Shows Readiness for 'Demise of the Dollar' - www.caseyresearch.com

By Ed Steer

December 9, 2014

Critical Reads

Koos Jansen calculates year-to-date Chinese gold demand at 1,212 tonnes4

Bullion Star market analyst and GATA consultant Koos Jansen calculates net Chinese wholesale gold demand for the first 11 months of the year at 1,212 tonnes, with demand remaining strong. Jansen also disputes recent gold demand data reported by Bloomberg.

Koos's commentary appeared on the Singapore Internet site bullionstar.com on Monday local time---and I found it in a GATA release.  It's on the longish side, so topping up your coffee first might be an idea.

Read more...

Justin Raimondo: Pearl Harbor and the Engineers of War -- How FDR lied us into WW2

What gets me are the lies. Iraq's "weapons of mass destruction" - Iran's (nonexistent) nuclear weapons program - the Vietnamese "attack" in the Gulf of Tonkin - Germans bayoneting Belgium babies - the sinking of the USS Maine: over the long and bloody history of US imperialism, these are just a few of the fabrications US policymakers have seized on to justify Washington's aggression. It's quite a record, isn't it? Not only that, but there's been little if any acknowledgment by the American political elites that they've ever lied about anything: it's all been thrown down the Memory Hole, along with whatever sense of shame these people ever had.

Indeed, if there is an award for sheer shamelessness then surely it must go to the court historians who preserve the myth of Pearl Harbor, insisting that the Japanese launched a "sneak attack" on the US fleet. The official version of the narrative is that the Americans, dewy-eyed innocents all, were simply minding their own business, not bothering anybody and certainly not aggressing against the predatory Japanese, who were fighting harmless "agrarian reformers" led by Mao Tse-Tung in China. Suddenly, totally without provocation, and out of the clear blue the Japs - to use the term routinely employed by the Roosevelt administration and its media minions at the time - crossed thousands of miles of Pacific Ocean to commit murder and mayhem for no good reason other than their own inherent evil.

What's amazing is that even though this nonsense has been thoroughly and repeatedly debunked over the years by historians concerned with discovering the truth - as opposed to getting tenure at some Ivy League university - the Big Lie is still not only believed by the hoi polloi but also stubbornly upheld by the "intellectuals." As to whether they actually believe it or not, that's largely irrelevant as far as they're concerned. As Arthur Schlesinger, Jr., the archetypal pointy-headed liberal intellectual - and idolator of FDR - put it: "If he [the President] was going to induce the people to move at all, he had no choice but to trick them."

This rather short essay by Justin, which is your absolute must read commentary of the day, appeared on the antiwar.com Internet site yesterday---and I thank Dan Lazicki for sending it our way.  It dovetails perfectly with the James Perloff piece in my Saturday column headlined "Pearl Harbor: Roosevelt's 9/11".

Read more...

McDonalds Implodes, Reports Worst U.S. Sales in Over a Decade

If one ignores all traditional, staple indicators of a growing economy, such as stable (not plummeting) crude demand, stable (not plummeting) holiday spending and stable (not plummeting) McDonalds comp store sales, then indeed the US economy has "decoupled" from the rest of the world, and those who wish to demonstrate the same intellectual capacity as Tim Geithner, will welcome you to the (latest non-)recovery.

And yet for those, who are leery of seasonally-adjusted government data (showing soaring low-wage jobs offset by crashing employment in the energy sector and M&A synergies which mysteriously are never captured), or sentiment surveys and confidence polls (of Wall Street executives and government workers), here is the latest data from McDonalds. Showing the worst US comp store sales in nearly 12 years at -4.6%, one does wonder if following America's inability to even pay for sub-$1 meals, mass starvation will follow?

This short Zero Hedge story from yesterday has two charts embedded---and it's worth your while.  I thank reader Brad Robertson for sharing it with us.

Read more...

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