David Stockman, former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier is an insider's insider. Few people understand the ways in which Washington DC, The Fed, and Wall Street work and intersect better than he does.
He's extremely concerned by the "perfect storm" he sees of concurrent failures in US policy across foreign, monetary, economic, and fiscal fronts.
The S&P Case-Shiller 20-City Home Price Index, a measure of the Housing Market in key American cities, declined in May by 0.31% from April—the first monthly decline in home prices in 27 months. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 30, 2014.)
The number of homes being built in the U.S. is also falling. In June, the annual rate of new homes being built in the U.S. housing market declined 9.3% from May to the lowest level in eight months. (Source: U.S. Census Bureau, July 17, 2014.)
And pending home sales in the U.S. housing market declined in the month of June by 1.1% from the previous month. Pending home sales now sit 7.3% lower than they were in June of 2013. (Source: National Association of Realtors, July 28, 2014.) Pending home sales are considered to be a leading indicator of the housing market.
As no surprise, companies directly related to the housing market are struggling. The chart below of the U.S. Housing Index tracks the stock prices of companies involved in construction, mortgages, and home-building materials.
Dear reader, please let me set the record straight: I don’t expect to see an outright collapse in home prices like we saw in 2007. What I am pointing out to you today is that the momentum we saw in the U.S. housing market in 2012 and 2013 is dissipating.
This observation is consistent with my view that the U.S. economy is stalling here in 2014. Even the stock market, a leading indicator, by turning negative for 2014, is warning us of trouble ahead.
But many analysts remain concerned about China's growing level of credit and the risks it poses to the country's economic health.
"People have been ignoring a lot of risks out of China; look at the property market, look at how fast bad debts have been showing up in the financial system," said David Cui, head of China equities at Bank of AmericaMerrill Lynch.
"Things have got so bad – it will probably take a financial crisis to cleanse the bad stuff out of the system – for the government to write off debt, to let banks raise more equity... and also severely reduce overcapacity," he added.
Earlier this year China experienced its first corporate credit default in 17 years sparking fears the incident could prompt a domino effect.
"I think there will be an avalanche of defaults coming out of the system. This is only the beginning," said Cui.
"The key issue is excessive capacity and overleverage when you combine these two factors it makes defaults almost inevitable," he added.
China's state auditor said in late December that local governments had outstanding debts of $3 trillion as of the end of June 2013, up 67 percent from the last audit in 2011.
Meanwhile country's corporate debt hit a record $12 trillion at the end of last year, Standard & Poor's estimated, equivalent to 120 percent of GDP.
China's debt to GDP level is still lower than other major world economies, however.
The U.S. had a total debt-to-GDP ratio of about 260 per cent by the end of last year, while the U.K.'s ratio was at 277 per cent. Japan topped the world table at 415 per cent, according to Standard Chartered.
“What Janet Yellen said was that the recovery was tepid at best – if we have a recovery at all. The political narrative dictates that low interest rates are needed in order to help the economy.
“My own belief is that interest rates will remain low in the next 18 months or 2 years, but for a different set of reasons. There isn’t much private demand for loans, even at this low interest rate. But there is an implicit transfer of wealth from savers, who benefit from higher interest rates, to spenders. It’s the spenders who are more numerous, which means that the government will look out for the spenders at the expense of the savers.
“Secondly, the extraordinary levels of Federal, State, and local debts would be difficult to service at higher interest rates. As a result, I think that the Fed will continue to do whatever it can in order to keep interest rates constrained for as long as possible. As long as the demand for debt from the private sector remains low – in other words, until the economy recovers -- I believe you will see artificially low interest rates.”
The Silver Institute released a new video entitled, "Silver: The Element of Change." The video covers numerous facets of one of the most widely-used and indispensable precious metals: silver. The video explores silver's role in history and how it changed the course of countless lives in times of the Greek and Roman Empires, when it was used to prevent infection.
Focusing on its remarkable properties as an element of change, the video looks at silver's role in industry, highlighting its ability to make today's mobile interconnected life possible as well as its use in medicine and water purification, which relies primarily on its natural antibacterial qualities. The video also notes silver's importance to fashion through exquisite silver jewelry, and finally it speaks to silver's intrinsic worth as well as its role as a store of value, given its historical and modern use as a popular investment.
Over the past 6 months, there has been much talk about the strategic proximity between Russia and China, made even more proximal following the "holy grail" gas deal announced in May which would not have happened on such an accelerated time frame had it not been for US escalation in Ukraine. And yet little has been said about that other just as crucial for the "new BRIC-centric world order" relationship, that between Russia and India. That is about to change when yesterday the Russian central bank announced that having been increasingly shunned by the west, Russia discussed cooperation with Reserve Bank of India Executive Director Shrikant Padmanabhan. The punchline: India agreed to create a task group to work out a mechanism for using national currencies in settlements. And so another major bilateral arrangement is set up that completely bypasses the dollar.
While many were amused by this photo of Putin and Merkel during the world cup final showing Europe's two most important leaders siding side by side, some were more curious by just what the two were scheming: Thanks to the Independent, we may know the answer, and it is a doozy, because according to some it is nothing shy of a sequel to the Molotov-Ribbentrop pact: allegedly Germany and Russia have been working on a secret plan to broker a peaceful solution to end international tensions over the Ukraine, one which would negotiate to trade Crimea's sovereignty for guarantees on energy security and trade. The Independent reveals that the peace plan, being worked on by both Angela Merkel and Vladimir Putin, "hinges on two main ambitions: stabilising the borders of Ukraine and providing the financially troubled country with a strong economic boost, particularly a new energy agreement ensuring security of gas supplies."
This could very likely induce a shortage, which would temporarily stoke a new monetary enthusiasm for the buy side.
There would be some selling, but we remember that a large amount personally held scrap was purged years ago in its last run toward what would be at least $150 in today’s inflated dollars.
Of course, that was followed by a massive and complete drawdown in world government stockpiles.
From a commodity standpoint, mining has suffered miserably. Any hope that new supply could be brought on quickly are pipe dreams.
If and when prices return to reality, production would severely lag.
First of all, there are very few primary silver mines left.
Secondly, by-product mining of silver is still the norm. This will not change overnight.
If commodity analysts were unable to see the value with prices being depressed for as long as they have, they certainly will not be inclined to chase another “bubble”.
Of course, these same analysts are completely deaf and dumb to the monetary side to silver – or gold for that matter.
If the move back toward natural price equilibrium comes with a financial crisis, it will be even more difficult to resurrect a sector that has been crushed by artificially managed prices held at or below production on and off for decades.
Sadly, once the masses figure it out, it’ll be too late.
Caught in the Romance of Zero-Sum Trading
People seem only capable of measuring value and understanding by watching price performance. A price that is essentially an anchorless derivative, where those same units are forced legal tender and created with the press of a button.
The key to value investing is the reverse.
Understand whatever it is you can about it, and then check the price.
From there it is a matter of rechecking your assumptions
Sadly, it takes performance to garner attention. The attention tends to justify the array of macro-economic-financial-political reasons to be exposed to physical metal…for nothing else as an emergency hedge.
What happens in the aftermath?
Investors who feel that zero interest rate policy offers them no choice but to hold stocks are likely choosing to experience negative returns instead of zero.
Millions of investors appear to have the same expectation that they will be able to sell before everyone else, the question becomes…
Sell to whom?
When the opportunity comes to sell, it will be when conditions meet the following criteria:
The price represents fair or above value – in relation to the fundamentals.
Monetary asset has store of value – indirect to currency – or what passes for money currently. This comes with an entirely different behavior profile.
No one alive today can reference what that unwind would look like in a modern sense.
It’s like the financial system is the paper to the economy the same way paper metal (re-hypothecated) is to the visible physical market.
In the meantime, a few new investors awaken to the window of opportunity each day.
For all the rest, it will be a spectacular show in which they cannot participate.
All the while, the world around us bubbles up with its immoral paper campaign shenanigans as if the imbalance can go on forever. The paper hecklers mistakenly assume that they will be able to sell in advance of the coming storm.
Those who have been riding the great precious metals wall of worry for some time know that we are worlds away from fair price. Volatility and price manipulation have been brutal. The mantra “ounces matter more” requires constant practice. The faster new investors arriving on the scene can embrace this phenomenon, the more prepared they will be for the turnaround.
In this interview with Alasdair Macleod we discuss Friday's news that the CME and Thomson Reuters have been chosen to run the replacement for the 117-year old London Silver Fix. But the new boss is the same as the old boss, because it looks like the new system is little more than an ELECTRONIC FIX - so there will be NO free market mechanism allowed to set the REAL daily price for silver. We also discuss the startling fact that according to Jeff Christian's CPM Group, $5 TRILLION of silver circulated globally last year -- that equates to $5,000 per ounce silver if all that paper had to be backed by PHYSICAL.
Right now, there is a severe shortage brewing in the silver markets giving investors huge upside potential if position correctly. This investment has the potential to double and even triple your money within the next few years. The facts presented in this mini-documentary, are sure to blow you away.
Russia continues to aggressively accumulate gold reserves. Its gold holdings increased again in June as the crisis in the Ukraine and relations with the West deteriorated.
The Russian central bank officially increased its gold holdings by 16.8 tonnes to 1,094.8 tonnes in June, the IMF’s International Financial Statistics report showed. In ounce terms, Russia increased its gold holdings by some 500,000 ounces, to 35.197 million ounces in June from 34.656 million ounces in May.
So far in 2014, Russia has now bought substantially more than their entire annual gold production of nearly 1,500,000 ounces.
Russia was not the only central bank to diversify foreign exchange reserves, primarily held in dollars, into gold. Allies of Russia also bought gold in June. The central banks of Kazakhstan, Kyrgyzstan and Tajikistan, all Russian economic and military allies all accumulated gold in June.
Currency wars are set to intensify and the buying by the former Soviet states is another manifestation of this.