Bill Holter

WHAT COULD POSSIBLE GO WRONG?

March 5, 2015

The latest news out of Greece is truly a head scratcher.  After agreeing with the Eurozone to a four month extension, the new plan to get from here to there can only be described as insane.  In order to roll over current debt, Greece plans to borrow from public pensions!

They had a T-bill auction yesterday which was supported by funds from their public retirement fund, the method employed was comical.  What Greece has decided to do is to pledge securities into the "repo" market to raise cash, this cash is then used to bid at auction ...the new funds then are used to pay down past debt.  Do you see how this works?  As a graduate of the venerable University of MCV (University of My Cousin Vinny), I will try to explain it to you on street level terms. 

While business is good, you live a little better than what your income would provide.  You do this with confidence because each year has been at least as good if not better than the year before, so living a little large and adding debt to your balance sheet is not a great concern.  Then you start living even further beyond your means.  As time passes, the leader of the local gangs asks you if your gang would like to join?  Of course you want be part of this well known and prestigious group of gangs but one of the preconditions is your business must be good.  It doesn't matter what your businesses are, what does matter is you can make money and not be a drag on the other gangs.  Knowing that you already owe some out of town loan sharks what do you do? 

First off you hire Golden Suks to help you with some creative accounting and enter into a few contracts with them so you have something to show when you open the books for your entry audit.  "Sure we owe Clive down the street but Guido owes us and will pay Clive directly if his interest rate starts to rise, so it's all good!".  This is where it gets interesting, you are accepted in as one of the gangs but business begins to slow and even your crew starts holding back on you.  Normally you get a 25% "tribute" on anything they steal or conjure up, but now, even on deals you find out about you aren't getting what you used to.  This is a problem, a BIG one! 

You see, while living above your means you had to keep borrowing more from your loan shark.  He never really pushed you and was willing to let you just pay interest because you had always paid on time.  This begins to change as business slows, now your source of cash became less willing to lend.  What do you do?  Simple, you decide to go to other loan sharks and take on more loans because as the saying goes, "you only live once and you might as well have fun doing it".  This of course is akin to normal people paying off one credit card with another but it's OK as long as you can keep borrowing more.    

Along the way another problem arose, you had to for appearance sake give a monthly stipend to the families of deceased "soldier's".  You did this out of cash flow and even gave some of them cars and houses.  You don't want to kick out the spouses and children of those who had provided for you so you go to the local pawn shop with deeds and titles.  The pawn shop gives you some cash and the families still get to use the cars and houses, problem solved!   

Then the problems really begin, the other bosses just so happened to have a meeting at a resort where three or four of your loan sharks were vacationing. Your name came up and each one found out you were in debt to ALL of them.  You tried to divert attention but it turned out this news got back to the other bosses, your whole charade then came down.  As news normally does, it spread like wildfire.  Everybody knew you were broke which lead to other consequences.  Even your own gang was rebelling and the tribute money dried up to a trickle.  It was a good run but now it's over.

Enough parody, what Greece is doing now by borrowing against unencumbered (though probably worthless) pension treasury securities is ridiculous.  If this is their plan, the people will riot further, run their banks until they all close and destroy the country.  They are pledging pension assets to raise cash ...and are using this cash to bid for their own bonds.  They must issue new bonds in order to pay for maturing old bonds!  What will happen when they need to actually make the repo payment in order to get the pension assets back?  Where will this money come from?  And when they can't come up with the money, even their retirement plan becomes unfunded.  I do want to make another obvious point, what good will Greek treasuries be to the new holders who lent money against them to begin with?  What could possibly go wrong?

As I have said many times before, "broke is broke" and cannot be solved with more liquidity which will ultimately need to be paid back.  This is the broad systemic problem, liquidity cannot (never could) fix a solvency problem.  More liquidity only creates more debt and only buys some time while making the overall problem larger and larger.  At some point in time, the money either gets paid back or "bankruptcy" is admitted. 

Before finishing I would like to make one other point.  Greece is no different than the EU itself, the U.S., the IMF, Britain or any other Western fiat Ponzi.  The only difference is that Greece got "caught" first and did not have the ability to print their own money.  While "printing" has allowed the fraud(s) to be covered up and smoothed over, sooner or later the debt must be paid back...and this is the game.  The debt cannot be paid back and never was expected to really be paid back, rolling debt over and over and over was the plan.   The funniest thing to me is all of this supposedly is "already in the market".  In other words, all of this is "priced in"!  At a time where "risk" of all sorts has never been higher, there is virtually zero premium for any risk.  In the simplest of terms, we live in a world gone mad!

No one looked to the end game because it was so much fun while playing the game.  I have no idea what the "event" will be but please remember this, huge forest fires all begin with one thing in common, a very small spark or something to ignite it.  They all start small and all grow out of control.  This, is the collective global monetary system we live with and why so many nations are preparing to exit the game.   

Regards,  Bill Holter 

PDAC, THE EPITOME OF MINING INEPTITUDE

March 5, 2015 

Let's start with the craziest coincidence of my lifetime; which say what you will, I consider a positive omen for things to come. Not for the dying global economy and monetary system, of course, but beleaguered "gold bugs" that have spent the past four years being unjustly "punished" for being correct in their prognostications, and protecting themselves accordingly. Which is, an article by Charles Hughes Smith - which frankly, has little to do with what I typically write about - titled "the three acronyms that best describe this era - TINA, TANSTAFFL, and FUGAZI. Well, I don't know much about TANTSAFFL, but I do know this much. When I met my wife-to-be back in New York in the year 2000, it was via the introduction of a mutual friend named...drum roll please...Tina Fugazzi. Yes, I know she has two z's in her name, but it's close enough. And thus, my friends, the rare article that starts positively!

Which unfortunately, is as far as my optimism goes; as at this point, it's utterly mind-boggling to watch the lives of billions destroyed by an incredibly small group of political and economic sociopaths in the world's capitals - particularly New York, Washington, London, Brussels, Berlin, Tokyo, and Beijing. It's all going to end horribly, of course; but in the meantime, we watch the "oil PPT" support paper oil prices whilst physical supply swamps demand; the "Cartel" suppress paper gold and silver prices whilst physical demand swamps supply; the "President's Working Group" and other government agencies - overt and covert - support stock prices amidst a collapsing global economy and record valuations; lunatic Central banks monetize every sovereign bond in sight, causing gross "deformations" like negative interest rates and massive equity bubbles that must inevitably burst. And last but not least, government "book cookers" - increasingly, in concert with their private counterparts - literally fabricate economic data to suit their can-kicking agenda; like, for instance, claiming "deflation" amidst rapidly escalating "need versus want" costs; and "happiness" despite unparalleled "misery." Consequently, as the "one per-centers" benefiting from such FREE MONEY are stocking up on Rolls Royce's and empty luxury apartments, "99 per-centers" are being forced deeper and deeper into serfdom and debt - particularly in the sub-prime arena, which yet again, is growing like gangbusters.

However, what's most mind-blowing of all is just how arrogant TPTB have become - in muscling markets wherever they desire amidst some of the most terrifying geopolitical, economic, and financial developments of our lifetimes; like, for instance, the rapidly escalating Ukrainian crisis; the across-the-board, global currency collapse; and the potential near-term collapse of the European Union and/or Euro currency. Seeing the NASDAQ goosed to its internet mania top amidst such violently equity-negative developments is unquestionably the peak of manipulative insanity. But hey, the historic collapse rapidly approaching could only have been possible if an historic bubble preceded it, right?

This morning alone, tensions amidst the U.S., NATO, and Russia reached a fever pitch - not to mention, the U.S., Israel, and Iran. Moreover, the dollar index achieved a new 12-year high; not just due to a plunging Euro, which sits a mere half cent above its Syriza election night lows, but literally dozens of free-falling currencies. And regarding Greece, even I am floored as to how everything isn't plunging in light of the news that a new €50 billion bailout package is being actively discussed. And if such treason against the Greek citizens isn't bad enough, it appears Alexis Tsipras is also considering "borrowing" from the Greek pension system to pay off Greece's "troika" masters. I mean, just how angry will the Greek citizens be? And how long before the Golden Dawn neo-Nazi movement rises to power? To that end, I have NEVER been so sure a catastrophic "Grexit" is in the cards in the coming months; and when it arrives, the "world as we know it" will be forever changed. And not just a "Grexit," but a "Spexit"; "Itexit"; "Irexit"; "Portugexit"; and likely, a "Frexit" as well.

Aside from across the board, "unexpected" weakness in February automobile sales - as America's newest subprime market starts to crack; and the aforementioned Greek and Ukrainian crises; no other material "news" is evident this morning. Thus, I have ample leeway to discuss the most pathetic industry conference of all time - ongoing as we speak, in cold and snowy Toronto. Which is, the annual PDAC, or Prospectors and Developers Association of Canada, mining conference. By far, it is the world's largest mining conference, dwarfing competitors in London, Cape Town, and Beijing; and by far, the most dysfunctional, counterproductive conference I have ever attended.

To be fair, all mining conferences are equally inept; partly due to capital strangulation - which limits miners' ability to acquire managerial talent and properly market themselves; but mostly, the industry's inability to address the issue that has all but destroyed it for two decades. Which, of course, is unrelenting Cartel price suppression - via fraudulent, surreptitious Central bank dishoarding; illegal naked shorting; and the spread of vicious anti-gold propaganda. To wit, the very website I wrote of in last month's "crazy" - which despite being a major bullion dealer, allows its top marketing executives to denigrate customers - has as its top "PDAC coverage" an interview with Cartel lackey Jeff Christian; who not only claims there is no evidence of gold and silver manipulation - other than "sloppy banking and regulation" - but that if you're a "long-term investor," "(normal, day to day) manipulations should be meaningless to you, (to be) safely ignored." Whatever that means.

More importantly, PDAC fails on all levels to achieve its end of promoting the industry to the world. And trust me, I know; as I attended as a private investor in 2006 and 2007; a mining investor relations officer in 2008, 2009, and 2010; and a mining investor relations consultant in 2011. To start, for some ungodly reason, this gathering of 10,000+ industry denizens is held in one of the world's coldest winter cities, in the heart of winter. This week's weather forecast, for example, is snow every day - making transportation miserable for the 10,000 people scrambling between the airport, the dungeon of a conference center; the handful of jam-packed bars and restaurants catering to attendees; and of course, the incredibly overpriced hotels. In between the mostly ineffective boondoggles, where company after company bores attendees with the particulars of their (typically risky, underfunded) projects, the conference hall is invaded by literally hundreds of blood-sucking vendors, trying to sell you everything from metallurgical processing to catering services. Moreover, since the junior mining stocks peaked in 2007, the amount of actual investors has dwindled dramatically, to the point that all that remains are a handful of parasitic Canadian investment bankers, seeking new victims to naked short so they can underwrite "keep the doors open for six months" financing with onerous, company-killing warrant issuance.

The list of keynote speakers is diverse, but for the most part dominated by mainstream views that decidedly agree more with those who would harm the industry than help it; and by the time it's over, hundreds of millions of dollarshave been wasted by companies and attendees alike, with nary a discussion of the key factors that must be addressed if the industry is to stand a ghost of a chance of survival. Just over a year and a half ago, I predicted that three-quarters of the junior mining industry - i.e., the industry's "lifeblood" would be "extinct" as a result; and in hindsight, I couldn't have been more correct. To that end, John Kaiser anticipates $3 billion of junior mining working capital will be vaporized this year alone; at which point, there literally won't be a junior mining industry left. This is why no discoveries have been made for decades, and why the "PM Armageddon" we forecast is all but set in stone. Let alone, the difficulty of actually producing a major discovery; given relentlessly increasing operational, logistical, taxation, and environmental risks.

Yesterday, PDAC kicked off in typical fashion; with a Cartel raid, despite a slew of gold bullish news - such as the rapidly spreading realization that the Fed is decidedly NOT raising rates. To boot, two HUI mining index components - Eldorado Gold and Gold Fields - plunged more than 7% to fresh multi-year lows; followed up by today's 6% plunge in Silver Wheaton, following the Cartel's maniacal defense of its latest "lines in the sand" at $1,210/oz and $16.50/oz, respectively; as SLW was so desperate to shore up its capital, it executed a well-below market equity financing.

Ignoring his ramblings about non-sequitur topics - of which there are many - CEO Geoff Burns claims Pan American's "all-in" cost of silver production is $16.50 per ounce, putting PAAS in the "lower quartile of the industry." In other words, PAAS is one of the industry's low-cost producers, but still requires $16.50/oz to achieve a profit. Which, by the way, PAAS decidedly did NOT do in 2014 (it lost $544 million), despite silver averaging more than $19/oz. The reason, you ask? None other than the massive write-downs of "reserves" and "resources" that are forever overestimated - per last week's MUST HEAR Audioblog, "what's more fraudulent, mining resources or the Greek debt deal?"

Thus, all we have written about the upcoming PM mining Armageddon has been validated; not to mention, the conclusions of October's "Miles Franklin All-Star Silver Panel Webinar." Which, by the way, will be significantly strengthened if the expanding global recession causes base metal prices to weaken further, given that roughly two-thirds of silver production is by-product of other mine types. In other words, that "other" reason to own Precious Metals - i.e, a dramatically tightening supply/demand balance - has never been more operative. And if you deem such action to be prudent, we hope you'll give Miles Franklin a call at 800-822-8080 - and give us a chance to earn your business.

PROTECT YOURSELF, and do it NOW!

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