Bill Holter

Out Of Ammo, Velocity and Confidence Are Inverse

December 18, 2014

It is being said today's FOMC announcement is "the most important of Yellen's tenure," I could not disagree more.  In the past I have written pieces regarding the potential announcements by the FOMC and come to the conclusion "what can they possibly say?".  This is truer now, Janet Yellen et al cannot "say" anything of substance because they cannot "do" anything of substance.  The Fed backed themselves into a corner of their own making several years ago, I believe it is only a matter of time before the markets "test" them.

What options does the Fed have?  Can they raise interest rates at all?  Can they tighten credit at all?  Can they really go the other way and institute truly negative interest rates?  The answers are all NO, they are "frozen" of their own making and have only one option (really two in tandem).  The Fed can only remain in place with interest rates nonexistent and must continually create (fund) debt and grow money supply while a Treasury arm, the PPT must guide, massage and dampen volatility of markets ...ALL markets.  The only thing currently being discussed is "when" will the Fed tighten?  I would ask, when will QE 4 be instituted?  The answer of course is when the markets seriously begin to implode again which may not even be more than a calendar month or two away.

I am sure a part of their statement will include oil and energy prices.  This is a market they cannot heal with monetary policy.  The volatility has already occurred and the dead bodies already exist though we don't yet know who they are.  The dilemma the Fed has is they have no tools left other than outright support once markets begin to collapse.  Their QE policies have already been seen as ineffective at supporting the real economy other than stabilizing decline.  My question is this, when QE 4 becomes a necessity, will the markets "buy it" or will the phrase "three strikes and your out" come into play?  What once worked to turn the real economy from contraction to recovery to an actual growth phase now has no power.  The Fed only has an accelerator so to speak, the brake pedal is off limits.  I have written many times on "velocity" and why it continues to decline.  This is the sticking point, the money they create is being hoarded by the banks and not reaching Main St... 

With regards to velocity, it is worth pointing out what is happening in Russia to illustrate a fallacy of main stream thought.  As Jim Sinclair has tried to explain to anyone willing to listen, what comes our way in "dollar land" is a hyperinflation as a result of confidence breaking ... a monetary event so to speak but one which results from human emotion.  Western economists have incorrectly brainwashed the public into believing a hyperinflation can only be caused by "over printing".  This is ONLY one way, another way is when the currency itself loses confidence or credibility.  Or, in the case of the ruble, loses its perceived "funding" (via energy revenues).  Russia is in the midst of an early hyperinflation if the ruble continues to decline.  Watch as their economy "takes off" ...briefly.  The Russian people see what is happening and are now in a rush to "exchange" (spend) their devaluing currency for "stuff".  THIS is another cause of hyperinflation, a currency going up in flames because of panicky velocity.

Tying this back to the U.S. and the Fed's "FRN's," velocity is now at record lows ...as are interest rates.  Neither can turn higher or the game is over.  We live in the most leveraged financial and fiscal system in all of history.  Interest rates cannot go up as they have in Russia.  Velocity on the other hand MUST turn higher but CANNOT, let me explain.  For any hope of the real economy moving higher, velocity must bottom and turn higher.  The problem is, once velocity turns higher, it cannot (I should say "won't") stop because this will mean the mindset or thought process has changed. 

Look at it this way, the U.S. (the West) is facing the greatest potential margin call of all time.  The entire system is a margin call waiting to happen.  Less than 50% of the population supports a majority of the population.  Some ungodly number of people in the U.S. live paycheck to paycheck and have no savings whatsoever.  Real estate is completely levered, banks and brokers levered with all sorts of derivatives.  State and local government finances are in disarray while the federal government is in debt beyond 100% of GDP ...with admitted debt, 10 times over with future obligations.  The Fed, for their part has become the biggest hedge fund in the world and have quintupled their balance sheet over 5 years ...like I said, we await the biggest margin call of all time.  Never forget this, the dollar has value ONLY because the debt underlying has "value," a margin call will erase this in a panicked heartbeat!

When this margin call does come (and it may already be happening as judged by the oil market), "velocity" will turn violently and overnight.  The turn in velocity will be a symptom/cause of our currency devaluing.  The rush out of dollars and into "stuff" as the Russians are now experiencing will in my opinion be far greater and much more rapid.  "Confidence" and "velocity" are inverse of each other.  We are currently at the height of confidence and the depths of velocity.  Confidence is truly the only piece of chewing gum holding the game together.

In the case of Russia, they have big brother China to stand by their side.  China has set up currency hubs all over the world, we will soon see why.  They also signed two major trade deals with Russia, the capital from these deals can and will be used to steady Russia.  Who will steady the U.S.?  Our markets have turned schizophrenic, up and down huge amounts on a daily basis.  Who will step up to support the U.S.?  In fact, if you look at the "direction" of the rest of the world, they seem to be trying to distance themselves from us.  By the time this is over, the world will be operating under a New World Order, just not the one American elites have envisioned.  In fact, I can see a world where power has shifted along with trading partners and alliances with the U.S. sitting in a self-inflicted and isolated corner with a tin cup in hand ...and a dunce cap on top!

I plan to write just two more pieces for the year.  One next week and one the week of New Year's.  Both ends of my mental candle are getting very close together, I need a little down time.  Because so many have requested what I think it will look like "the day after," I plan to write a missive from a hypothetical (but probably not so "fictional") basis. 

I wish everyone a Peaceful and Happy Holiday.  Merry Christmas!  Happy Hanukkah!  Happy New Year!  

Will Tomorrow Be The "Yellen Reversal?"

December 16, 2014

As John Steinbeck famously wrote, the "best laid plans o' mice and men often go awry." Which is exactly the situation the world's most evil organization, the U.S. Federal Reserve, faces at tomorrow's FOMC meeting.

Currently chaired by a career banker puppet, the Fed has been so lulled by the "success" of six years of market manipulation, it actually believes it can "guide" the economy to prosperity if it "paints by numbers" the scheme it cooked up, most likely, at an April 11^th "closed-door" meeting between President Obama and the top "TBTF" bank CEOs. The day before that meeting - at which Goldman Sachs' CEO attended, Goldman issued a gold "short sell" recommendation. And lo and behold, on Friday, April 12^th and Monday, April 15^th, the "alternative currencies destruction" attacks commenced - at the COMEX open, of course, after the day's top tick occurred at "2:15 AM EST"; taking gold and silver down by 15% and 20%, respectively. The benchmark 10-year Treasury bond yield was trading at 1.7% at the time, bottomed two weeks later at 1.65%; and three weeks later, Ben Bernanke first used the word "taper."

Since then, a highly choreographed, historically heavy-handed scheme of money printing, market manipulation and propaganda has been utilized to "create" the perception of recovery. Essentially, TPTB have attempted to "engineer" the desired result of stronger economic activity through unrelenting support of "favored" markets like equities and real estate - whilst viciously attacking "unfavored" ones like precious metals. In doing so, they hoped to gradually wean the stock market (and their $4+ trillion balance sheet) off record low interest rates - via the eternal "hope strategy" of praying the economy "grows" into its debt.

Unfortunately, the global economy is far too complex to control; particularly when the very act of trying to do so causes horrific unintended consequences - such as, for instance, the explosive currency volatility we four months ago deemed "the single most precious metals factor imaginable." Moreover, as the global economy reached debt saturation long ago, no amount of new credit can positively impact economic activity; and worse yet, five years of massive, unfettered credit creation has created such massive economic dislocations - like shale oil, for instance - that the resultant bubbles could only be deflated via dramatic price declines.

Frankly, it didn't take long for this "scheme" to go awry; as not only has global economic activity dramatically contracted, but by the end of 2013, U.S. interest rates had already peaked - commencing a year-long plunge that has the benchmark 10-year on the verge of having a "one-handle" this morning; as indisputably, the entire world is becoming aware of the "most damning proof yet of QE failure"; i.e., plunging interest rates despite the Fed-purported, economic data-cooked assertion of "recovery." And sadly, as ugly as the U.S. economy has gotten, the "non-reserve currency" nations of the world - i.e., all others - are in far worse shape as the "flight to safety" resulting from fears of a "2008 redux" has caused the dollar to explode higher; and consequently, global economic activity to collapse. Thus, this Fall's historic oil price collapse - to $54/bbl. as I write Tuesday morning - is but a symptom of all the aforementioned issues. And thus, to believe it will resolve any time soon - that is, before an economic cataclysm equivalent to 2008's mortgage crisis - is just wishful thinking, we're afraid. And sadly, it seems, the Fed has "used up" all its wishes.

This past week has been perhaps my busiest since joining Miles Franklin in October 2011. Demand for podcasts is growing exponentially - I'm taping six this week alone - and just trying to keep up with the unrelenting explosion of global "horrible headlines" has been a 24/7 job. Plus, even I have never seen such relentless, merciless Cartel, PPT, Fed and ESF market manipulations; as clearly, TPTB are well aware their aforementioned "scheme" is collapsing. Tomorrow alone, they must "counter" the potentially scheme-destroying impact of the FOMC meeting and Greek snap elections; let alone, a host of other "black swan" candidates - from the inexorable oil price plunge; to the collapse of the Russian Ruble; to the aforementioned historic currency volatility that is destroying lives at a rate not seen since World War II.

As for PMs themselves, I thought I had "seen it all" when witnessing the epic paper raids heading into last month's Swiss referendum; which not only caused historic physical uptake, but turned both gold and silver forward rates "upside down." The "pinnacle" of such raids took place in the ultra-thinly traded half-day following Thanksgiving - gee, what a "coincidence" that the referendum was scheduled that weekend - when gold, silver and mining shares were mercilessly "bombed into the stone age." However, when I saw yesterday afternoon's "repeat performance," it couldn't be clearer how desperate the Fed was to prevent the "Yellen Reversal" we predicted three months ago from being necessary at Wednesday's FOMC meeting.

In fact, per last week's "desperation tutorial" and "supplemental Cartel manipulation proof" articles, the past four days' attempts to prevent PMs from re-asserting their historic "safe-haven" status have been as "2008-like" as we can recall. However, yesterday's farce literally "took the cake" - as the morning's strong PM out performance suddenly became a PM bloodbath at EXACTLY the 12:00 PM EST "cap of last resort time"; despite, as was the case Wednesday, Thursday and Friday, oil and equities closing at the days' lows. And speaking of "unintended consequences," to watch mining stocks collapse like Fannie Mae, Lehman Brothers and AIG is truly breathtaking. This is why I started screaming to avoid them like the plague nearly four years ago, and why the PM production collapse we have long forecast is as "set in stone" as "QE to Infinity." And talk about a "perfect storm" hitting the Federal Reserve like a ton of bricks - of record physical demand, and collapsing supply!

And by the way, not only are currencies the world round crashing - particularly the Russian Ruble and other "commodity currencies," in epic fashion - but so are industrial commodities, from crude oil to iron ore to base metals. As you can see below, the CRB commodity index is down an astounding 25% this Fall alone, within "earshot" of the 2008 lows that nearly destroyed the entire world. And we assure you, outside of hyper-inflation, there's not a thing Central banks will be able to do this time around. Fortunately, gold and silver are decidedly not "commodities"; and thus, when the "New York Gold Pool" is inevitably destroyed, the entire world will understand what we wrote of in yesterday's "re-emergence of real money."  

As Zero Hedge noted yesterday, "you can only fool reality for so long." And now that the historic manipulation scheme cooked up by TPTB in April 2013 is imploding, it's just a matter of time before the aforementioned "Yellen Reversal" not only ushers in universal realization of global Federal Reserve led "QE to Infinity," but permanently ends the Cartel orchestrated, maddening three-year precious metals "bear market."

And thus, we ask, how can anyone not consider protecting their financial assets with physical precious metals - given an historic supply/demand imbalance on the verge of going nuclear? In our view, once "gold fever" takes hold - as undoubtedly, is occurring in Russia, Japan and other hyper-inflating nations as we speak - Miles Franklin will no longer be able to supply any metal to hopeful buyers.

Andy Hoffman on TruNews - December 17, 2014

December 18, 2014

Andy Hoffman joins Rick Wiles of TruNews (21:50) to discuss Black Friday retail sales, plunging oil prices, unemployment, the stock market, gold and silver.  To listen to the interview, please click on link below.

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