Monday, 15 May 2017

Silver Demand Shows A Consumer In Trouble

Global demand for silver declined from 2015 to 2016 by 123 million ozs per numbers from the Silver Institute presented in an article on The Daily Coin yesterday. In fact, for the demand categories primarily driven by the consumer, demand plummeted 125 million ozs, or 15.3%. Industrial demand for silver increased slightly but this was because of the global expansion in the solar panel industry, primarily in India and China.

The consumer portion of global silver demand is derived from jewelry, coins and bars (investment), silverware and electronics. The 15.3% plunge in demand reflects the fact that consumer disposable income is drying up. After making required monthly expenditures – food, mortgage/rent, debt service, healthcare – consumers, especially in the United States, are out of money.

Disappearing disposable income explains only part of the equation. The illusion of economic improvement in the U.S. was created by debt issuance. Between Q3 2012 and now, total household debt expanded by $1.38 trillion dollars. In fact, total household debt is now at an all-time high, driven by auto, student, credit card and personal loans. The truth is that “discretionary” consumption was fueled by the Fed enabling the average U.S. household to accumulate a record level of debt.

The economy likely hit a wall in late 2016 and is now contracting. Today’s retail sales report – to the extent that the numbers have any credibility – showed a .4% gain in retail sales for April vs. March. But these are nominal numbers. On an inflation-adjusted basis, retail sales declined.

While demand for silver products reflects the fact that the average consumer is out of money, restaurant sales confirm this. April restaurant sales declined 1% in April and foot traffic into restaurants dropped 3.3%. This was the 12th month out of the last 13 that restaurant sales fell. Restaurant sales have dropped five quarters in a row. The last time a streak like this occurred was 2009-2010. Sound familiar?

Regardless of what the Fed says in public, the U.S. economy is in trouble. The illusion of economic growth post-2009 was a product of debt issuance. Now the consumer – 70% of the economy – has hit a wall with regard to its ability to take on more debt – look out below. In today’s episode of the Shadow of Truth, we review the silver demand numbers and discuss the implications for U.S. and global economy.

- Source, Sprott Money

Friday, 12 May 2017

Ron Paul - More Spending as Expected

Join Ron Paul and Daniel McAdams as they discuss a 'Bipartisan' Budget. Congress has reached agreement on a stop-gap spending bill through September. Why did they all agree? There is lots of money for everyone! What's in the bill? Let's see...

Monday, 8 May 2017

Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows

Future global economic growth is in serious trouble as oil discoveries fell to historic lows last year. The International Energy Agency (IEA) reported that the sharp downturn in capital spending by the conventional oil sector was due to extremely low oil prices.

As the oil price fell to $30 in 2016, oil companies cut their exploration and capital expenditures by 25-40%. For example, ExxonMobil, the largest oil company in the United States, cut their capital expenditures by 26% in 2016, from $26 billion in 2015 to $16 billion last year. This had a profound impact on new oil discoveries.

According to the IEA report:

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.

By taking the IEA’s oil discovery data and comparing it to the total amount of conventional oil consumed by the world in 2016, here is the following chart:

The world consumed 69 million barrels per day of conventional oil last year, which equaled a total of 25 billion barrels (source: IEA report above). Which means, conventional global oil discoveries of 2.4 billion barrels were less than 10% of total world conventional oil consumption. This is extremely bad news.

To understand the breakdown in the different oil types, the IEA provided the following data:

Conventional oil production of 69 mb/d represents by far the largest share of global oil output of 85 mb/d. In addition, 6.5 mb/d come from liquids production from the US shale plays, and the rest is made up of other natural gas liquids and unconventional oil sources such as oil sands and heavy oil.

Global Conventional oil production was 69 million barrels per day (mbd) of the total 85 mbd, which included natural gas plant liquids and other unconventional sources such as shale oil (U.S.), heavy oil and tar sands. Typically, conventional oil is the higher quality, cheaper to produce oil.

Now, what is even more alarming, is that global oil discoveries have been much lower than production for quite some time. The IEA also stated that the amount of world conventional oil discoveries averaged about 9 billion barrels for the past 15 years. If we assume that the world was producing 65 mbd of “conventional oil” for the past 15 years (it was likely higher), the world was only replacing about 38% of its annual oil consumption.

Here are the oil figures:

65 mbd X 365 = 24 billion barrels

9 billion average annual barrels oil discovery / 24 billion barrels consumed = 38%

So, not only did the world only discover 10% of the conventional oil it consumed last year, it has only been replacing a little more than a third of what it has been consuming for in the past 15 years. This is extremely bad news and it is starting to catch up to us.

I will be writing more energy articles showing how the situation is becoming more dire for the U.S. and global oil industries. I am waiting for the top U.S. oil companies to release their detailed SEC quarterly results in a week to provide more information, but they have already released some results.

For example, ExxonMobil cut its capital expenditures another 19% during Q1 2017 versus the same period last year. Falling exploration and capital expenditures will grind to a halt future oil discoveries. Investors need to understand that this will impact global economic growth quite negatively in the future.

- Source, SRSRocco

Friday, 5 May 2017

Economic Demise Breeds Public Unrest

The Government reported its “advance” estimate of first quarter 2017 GDP today. The data-monkeys at the Bureau of Economic Analysis (BEA) reported that the economy grew at just 0.7% annualized in Q1. This is down from the alleged 2.1% annualized growth rate in the fourth quarter of 2016. It was also 36% below the 1.1% forecast of the average Wall Street monkey economist.

Next to the monthly employment report, the GDP report is subjected to the highest degree of statistical manipulation in order to make the reported reality look better than reality itself. If the Government was willing to release a report showing a 67% decline in economic growth from Q4 2016 to Q1 2017, imagine how bad the real numbers would show the economy to be.

The report itself, like the employment report, serves no purpose other than as tool for political goal-seeking and propaganda. The consumer spending component of the report fell to a .23% annualized growth rate. It was the worst level of consumer spending since 2009. If the Government were to apply a realistic GDP deflator (price change index) to its numbers, rather than the 2% used to calculate the final number, consumer spending would have been negative.

Worse, the various Government agencies are reporting inconsistent numbers. The Census Bureau’s monthly retail sales report showed a .4% gain in retail sales for January followed by .3% and .2% declines in February and March, respectively. To be sure, retail sales do not encompass the entirety of the “consumer spending” category. But, with average real disposable income declining, it’s difficult to believe that consumers were spending money on anything other than necessities in Q1.

The problem with the phony economic reports is that eventually the public begins to see and feel the truth. Fake economic news does not create real economic activity or real jobs. The economic separation between the “haves” and “have nots” has never been wider, both in the size of each cohort and the degree of separation.

When someone who is working two menial part-time jobs to make ends meet and reads that 200k jobs were allegedly created in a given month, that person knows and feels the truth. That person also begins to get angry. In fact, the general level of anger across the U.S. population is rising at an alarming rate. When 2x part-time jobber is driving in a high-mileage vehicle in need of repairs next to a brand new Ferrari with “FLIPPER” on the license plate, it foments anger. When this occurs daily across the country, it foments civil unrest.

If the economy were producing real growth in employment and wealth, as purported by the Government, not many people would care which person or political party occupies the White House. In fact, the party in power would get credit. But the growing political discord among the population is a reflection of a middle and lower class that is rapidly transitioning to lower and poverty class – and they are getting pissed. The stock market bubble, which is another form of propaganda, is only serving to intensify the anger.

- Source, SD Bullion

Monday, 1 May 2017

Silver Takes the Elevator Down

Last week, we talked about the effect of the French election on the gold and silver markets, and noted:

Of course, traders want to know how this will affect gold and silver. As we write this, we see that silver went down 30 cents before rallying back up to where it closed on Friday. Gold went downabout $20, and then half way back up.

At this point, we are not sure if the metals are supposed to go up because more printing. Or go downbecause the euro constrains France from printing. Or silver at least should go up because the economy is going to be better with France remaining in the Eurozone. Or go down because the ongoing malaise will only progress as it has been. Or some other logic… and the price gyrations this evening show that traders don’t agree either.

It didn’t take too long. Here is what happened to silver this week. The graph below shows the price of silver in real money (i.e. gold).

The Price of Silver in Real Money

Silver has been falling for going on one year, but clearly since March 1. After one last hurrah at the end of March, it has been taking the elevator down. And by its fundamentals it should be quite a bit lower—0.0125.

In any case, we are interested in watching what the fundamentals of the metals are doing. We will take a look at the graphs below, but first, the price and ratio charts.

The Prices of Gold and Silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It had another major move up this week, after a major move up last week.

Last week, we said:

If prior peaks are an indication, there may be a spot of resistance at 72.5 (+0.8 above Friday’s close) and another at 73.25. If the ratio should go over these levels, then it may go all the way to its fundamental level (discussed below).

Well, it broke those levels and ended the week just under 74.

The Ratio of the Gold Price to the Silver Price

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

The Gold Basis and Cobasis and the Dollar Price

The scarcity (i.e. the cobasis, the red line) was on the rise this week. It makes sense, that as the price of gold drops (which is the mirror of what this graph shows, the price of the dollar in gold milligrams) the metal becomes scarcer. This means speculators are selling their paper. If owners of metal were selling, then the metal would not become scarcer and might even become more abundant.

However, it only became a little scarcer while the price dropped almost twenty bucks. So our calculated fundamental price fell $15 to $1,274, a few bucks above the market price.

Now let’s look at silver.

The Silver Basis and Cobasis and the Dollar Price

In silver, the price fell a lot. 72 cents. The cobasis rose (i.e. abundance dropped and scarcity increased).

Last week, we asked:

Some speculators definitely got flushed. However, the question is how many and how much?

Clearly it happened to more of them this week. And, unless the fundamentals get stronger, it is likely to flush even more leveraged futures positions. Our calculated fundamental price fell three cents this week, now a buck thirty under the market.

- Source, Keith Weiner via The Sprott Money Blog

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