Ainslie Bullion - Daily news, Weekly Radio and Discussions

Final death throes?
On the eve of the highly anticipated ECB meeting tonight news broke last night from a close ECB source that they will surprise to the upside by announcing a EUR50b per month Quantitative Easing program printing EUR600b over the year. This is desperate stuff, the last ditch attempt to revive the Eurozone with a 'shock and awe' approach rather than something more moderate. The implications are very well laid out in this must read article we posted today - https://www.ainsliebullion.com.au/g...em-out-of-control/tabid/88/a/830/default.aspx

The upshot? This highly credentialed BIS and OECD expert, who accurately predicted the GFC, says it is too late, won't work for Euro, and will end badly. Combined with Canada surprisingly cutting its interest rate to just 0.75% overnight saw some shock go through markets, driving gold up further before the usual opportunistic short sellers came in. The Canadian move, on the back of falling oil, gives the RBA the perfect excuse, on the back of falling ore, coal and gas, to do the same in Australia. That will drive down the Aussie further (as the markets pre-empted last night) which will raise AUD gold and silver prices (explained here). The price actions of gold and silver this year are very clear signs that more and more sophisticated money knows we are drawing close to a big correction or crash. The Swiss National Bank shock last week (a central bank defensive move against the inevitable collapse of the Euro) demonstrated how market shaking events can come without warning, and that was just one little country. That the Euro and Canada are adding to the desperate stimulus and the spiralling global currency wars (forcing down your dollar by printing money and ZIRP to make you more competitive while everyone else is doing the same) is feeling very much like the final death throes of this unprecedented global economic experiment. Gold and silver are rising as people flock to the oldest safe haven which, unlike bonds, has no counterparty risk.
 
For all those stackers in Euroland holding big stacks of PMs

[youtube]http://www.youtube.com/watch?v=Euci0_BBmNE[/youtube]
 
Natural gold market prevails
Gold and silver are now up 10.1% and 17.2% in USD spot terms and an even better 12.3% and 19.6% in Aussie dollars for the year. From a technical perspective they are both in 'overbought' territory. They are also flagrantly defying the loose inverse correlation with the USD which hit 94.5 last night. The last Commitment of Traders report from COMEX showed the big banks had large short positions on both metals (bets on a price decline). These guys normally have the ability to spook a market down and get out of their shorts for a profit or in such a rising market, limit their losses. Last night was the perfect opportunity to do so. The old "buy the rumour, sell the fact" investment adage with respect to the ECB announcement last night, combined with the surging USD put it on a platter for them. But it didn't happen. Gold and silver both rose around another 1% last night. This has the feeling very much like the natural market has taken control. There are a growing number of sophisticated investors who are putting some serious money into the safe haven of precious metals. To add to the situation, at a time when silver is making substantial price gains, there has been almost 1000 tonne of real metal removed from the ETF (exchange traded fund) SLV since December. So a fund that supposedly holds metal in accordance with price is seeing their inventory reduce on a rising market!? ETF's are a paper promise. Nothing beats real physical bullion. It has been a big week and if you don't normally listen to our weekly wrap radio, this is the week to start.
 
AinslieBullion said:
Natural gold market prevails
Gold and silver are now up 10.1% and 17.2% in USD spot terms and an even better 12.3% and 19.6% in Aussie dollars for the year. From a technical perspective they are both in 'overbought' territory. They are also flagrantly defying the loose inverse correlation with the USD which hit 94.5 last night. The last Commitment of Traders report from COMEX showed the big banks had large short positions on both metals (bets on a price decline). These guys normally have the ability to spook a market down and get out of their shorts for a profit or in such a rising market, limit their losses. Last night was the perfect opportunity to do so. The old "buy the rumour, sell the fact" investment adage with respect to the ECB announcement last night, combined with the surging USD put it on a platter for them. But it didn't happen. Gold and silver both rose around another 1% last night. This has the feeling very much like the natural market has taken control. There are a growing number of sophisticated investors who are putting some serious money into the safe haven of precious metals. To add to the situation, at a time when silver is making substantial price gains, there has been almost 1000 tonne of real metal removed from the ETF (exchange traded fund) SLV since December. So a fund that supposedly holds metal in accordance with price is seeing their inventory reduce on a rising market!? ETF's are a paper promise. Nothing beats real physical bullion. It has been a big week and if you don't normally listen to our weekly wrap radio, this is the week to start.
Click to expand...

That's interesting news on the SLV inventories. Pirocco was pretty sure that all that inventory would push prices down when people took profits but the fact that 32.1Moz can be moved out without a negative price move is good news and that much less that can be sold down the road.

I don't know how long the big guys will hold their new short positions if the market keeps jumping every time it sees it's own shadow and running for PM. They could double down and increase short positions but it will only take over of them blinking and covering the short to neutralize the effect of another doubling down. Plus they will have to take profit sooner or later. Could be very exciting to see another event pushing sliver higher and causing most of them capitulate at once. Silver up 10% in a day? That's when you start seeing your neighbors at the LCS for the first time.
 
The inflation game & gold
We speak often of the all time record levels of debt in the system today, far greater than even before the debt triggered GFC. So how do governments get rid of the debt? There are essentially 3 options 1. Pay it off through higher taxes and less spending; 2. Default on it (as Greece is now looking to do but with obvious global consequences if one of the 'big boys' do); or the central bank's favourite inflate it away. The theory is higher inflation while the nominal value of debt is unchanged, means the real value of the debt falls, making it easier to pay back over time. The counter argument is that when forced on the broader public, the rich benefit from rising equities markets etc but the poor end up having to borrow more to survive, ironically increasing debt. Inflation targeting is why they keep printing money and holding interest rates near (or below) zero to try and stimulate inflation. As we reported Friday, the Eurozone has now entered the quantitative easing game to the tune of around EUR1 trillion (and decreased their rates to just 0.05%) in an effort to stave off deflation and the Eurozone entering a triple dip recession. Apart from the debt issue, deflation is feared as it is a spiralling trap of less spending, meaning less growth, meaning less jobs, meaning less spending and so on. Banking giant Societe Generale have come out saying to start such a program 6 years after the GFC will simply not work. To have the desired effect (2% inflation) they would need to print EUR2-3trillion not a "mere EUR1 trillion" (honestly, that is a quote.). This would mean they would need to buy shares as well as there aren't enough bonds. Sound familiar? Yep, just like the failed Japanese program. The sad fact is this all just increases the debt burden, enriches the 1%, and ultimately doesn't work. Last week Oxfam released a study that showed post this unprecedented global stimulus program, by next year the richest 1% will own more than the remaining 99%. That is simply not sustainable. Gold benefits 3 ways. 1. Demand rises as a safe haven from this scheme collapsing, 2. QE drives down currencies against the USD and hence increases gold price, and 3. The lack of yield becomes irrelevant as the real interest rate is at or below zero anyway.
 
Black Swans take golden flight
A Black Swan is the common term for an 'unforseen' event that has a large impact on financial markets. The Swiss National Bank move earlier this month was a classic, albeit milder, example. It came without any warning and sent shockwaves through markets around the world. Gold and silver are the best performing assets so far this year, and for many it is because of the increasing threat of future Black Swans. Right now we have unknown consequences of a possible Grexit (leading to Italy, Spain etc?) and default on Greek debt (EUR360b) by the new ruling Syriza party, Chinese growth slowing (they just gave up on a 'target' for 2015), escalating tensions in Ukraine again (and critically now around the land bridge region to Crimea), possible tightening of policy by the US Fed (all eyes on FOMC minutes tonight), the threat of a strengthening USD on emerging markets, and unintended consequences of the ECB's huge quantitative easing program just to name a few 'known unknowns' without even touching of the Rumsfeld 'unknown unknowns'.
In our shop here, where the local rubber hits the road, we are seeing more large sophisticated money purchases confirming the global trend. By definition a Black Swan gives no warning. Something snaps. In a world, strung out, interlinked and 'derivativised' like never before that snap could be severe. The old gold buyer's adage "better a year to early than a day too late" may never be more true when it happens.
 
Quote of the Week Central Banks
Topically after, surprise surprise, the US Fed minutes early this morning reiterated their "patience" message re raising their interest rates, this quote from credit bubble specialist Doug Noland puts in nicely into context:
"For almost six years now, I have argued that the key issue is policy-induced market distortions and attendant financial Bubbles (as opposed to consumer price inflation). The history of monetary inflations is that once commenced they become almost impossible to end. This era's policy experiment with manipulating securities market inflation makes certain that policy exits will be even more unbearable. Most regrettably, it's reached a point where a global securities bear market will have devastating consequences on markets, on economies and geopolitics. So central banks keep pumping and distorting markets and market operators continue playing the game.
I believe we've now reached a precarious phase of instability where confidence in this global monetary experiment is waning. After all, there are years of experience to examine, along with rather conspicuous global financial and economic fragilities. Few have faith that "money" printing will rectify Europe's - or the world's - deep structural maladjustments. At the same time, there remains overwhelming confidence that acute fragilities ensure desperate policymakers continue to backstop the markets with liquidity abundance. Things do get crazy at the end of cycles with lots of "money" slushing around to entice a wildly speculative marketplace. Increasingly, however, it is apparent that central banks have lost control of the massive pool of global speculative finance that they spawned and nurtured.
I believe history will look back to last October's global, multi-asset class "flash crash" as a warning gone unheeded. Similarly, last week's shock by the Swiss National Bank's (SNB) to break the franc's peg to the euro will also be seen as a harbinger of global market turmoil."
 
Debt to GDP around the world
The table below should strike fear into anyone with a basic mathematical ability and school level finance. It is a table illustrating the percentage of debt, both Government and Private, against GDP (income). Since we left the gold standard in 1971 there has been no restraint on the accumulation of debt. Governments have run continual deficits and businesses and individuals have bolstered the party through debt fuelled consumerism and the belief we will always have growth and inflation. As things slow like we are seeing now around the world, such debt is becoming of greater and greater concern. All the money printing in the world may not be able to 'fix' it, and indeed will make it worse. Whilst opposition to the Australian government trying to rein this in is based on our Government ratio being "only" 29%, you will note our total is bang on the developed world average a pretty nasty 212%. The new global interconnectedness makes the likes of Japan and Hungary (whose large external debt has a big chunk in, now newly revalued, Swiss francs) everyone's problem anyway

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Source:

Also, it's Friday!
Here's a link to Ainslie Radio.

https://www.ainsliebullion.com.au/g...ary-ainslie-radio/tabid/88/a/837/default.aspx
 
The Central Bank Bubble
We want to introduce the credentials of this quote before you read it. Dr Hussman holds a Ph.D. in economics from Stanford University. Prior to managing the Hussman Funds, Dr. Hussman was a professor of economics and international finance at the University of Michigan. We speak often about how the current economic experiment, borne of desperate protracted central banks stimulus, is unprecedented and mathematically impossible to sustain. Here's what Dr Hussman had to say just last week:
"It's not entirely clear what will happen in the near term, but the financial markets are already pushed to extremes by central-bank induced speculation. With speculators massively short the now-steeply-depressed euro and yen, with equity margin debt still near record levels in a market valued at more thandoubleits pre-bubble norms on historicallyreliablemeasures, and with several major European banks running at gross leverage ratios comparable to those of Bear Stearns and Lehman before the 2008 crisis, we're seeing an abundance of what we call "leveraged mismatches" - a preponderance of one-way bets, using borrowed money, that permeates the entire financial system. With market internals and credit spreads behaving badly, while Treasury yields, oil and industrial commodity prices slide in a manner consistent with abrupt weakening in global economic activity, we can hardly bear to watch."
The rise in gold and silver and plummeting bond yields this year appears fuelled by more people coming to the same conclusion. The Swiss National Bank de-pegging the Franc was just the first scare, over the weekend Belgium lowered their rates for the 3rd time in a week to MINUS 0.5% in a desperate attempt to avoid having to do the same thing with their currency. It appears only a matter of time before the next shock to the system and one can only wonder which will be the final.
 
USD, Gold, and the charts
We've discussed a few times gold's current defiance of the 'normal' inverse relationship with the US Dollar. The USD has just set a new record. It has just had the longest monthly streak of increases since it left the gold standard in 1971. That would, and let's face it has until this year, been bearish for gold prices. Gold this year has been the best performing investment asset on the market. So where are we right now? Firstly, if we look (below) at the USD against various moving averages (10, 40 and 80 week MA's) it is at its 3rd most overbought level after 1985 and the GFC. Secondly, and what we like to call the "Sheeple Index", bullish public sentiment on the USD has hit extreme levels with a 15 year high 91%. Invariably extreme optimism precedes a drop in the USD. Meaning? If the USD comes off, like the charts suggest it is about to do, and gold is performing like this despite a strong USD. Just how far can it rally when the USD weakens!

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AUD, currency wars, & "that" US rate hike
Yesterday Australia's central bank (RBA) lowered the interest rate for the first time since August 2013 to a new record low of 2.25%. We are rejoining the global currency war trying to deflate our dollar to compete globally with all the non USD currencies doing the same. And boy did it work with the AUD plummetting vertically by over 1.7% to just 76.26c, its lowest since July 2009. But last night we saw that completely reversed and it's back to 77.8c as this is penned. The fact remains that in a deflationary world racing to zero we still look attractive. The graph below tells the sad story of the global economy as bond yields around the world continue to fall as investors look for 'safe havens' ahead of concerns of economic turmoil (Euro, Grexit, Ukraine/Russa, China growth, Japan spiral, commodity plunge and in the US the VIX volatility index breaching the 22 resistance line 4 times since QE3 ended last year alone, etc etc ). Aussie 10 year government bonds are now 2.37%, US 10 year Treasuries hit a 2 year low of just 1.64% this week while German and Japanese bonds are yielding below 0.5%, and as we know gold and silver have been some of the best performers across all asset classes this year. With deflationary pressures everywhere it seems laughable that expectations remain of a US rate hike soon, despite the Fed's "patience" mantra. The second graph below shows the inflation rate trend in the US, clearly well below their 2% target. Its hard to imagine in this environment that the next print will be any stronger, yields higher, and the time for raising rates nigh. This also of course means the lack of yield from precious metals is almost meaningless in a world where after tax bond or savings yields are almost zero without the capital gain opportunity gold and silver now present.

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The $100t bond bubble v gold
Yesterday we briefly touched on our doubt the US can raise interest rates any time soon or at least by any material, non market appeasing token amount. The graph below, from the White House itself, shows the cost of servicing their over $18t (and growing) debt into the future. This gives just a small insight into why they can't afford (literally) an interest rate rise. Every 1% increase in rates means around $170b in interest payments per year so the graph below clearly doesn't factor much in, moreso just growing debt. Indeed you will recall from this earlier article that in just the last 2 months of 2014 the US issued over $1 trillion in new debt (US Treasury bonds) printing money to pay for the previously issued debt (US Treasury bonds) that was maturing. This ponzi scheme bubble is not contained to the US. The world's nations have issued over $100 trillion in debt, the highest ever and now growing by trillions every few months again because governments continue to spend more than they receive and need to service the already issued debt. Should any of these nations lose control of interest rates the whole bond bubble pops and unlike the sharemarket or property market bubbles popping, it wont be investors going broke, it would be whole nations. The other safe haven to these bonds is gold and silver. They have not gone bust in thousands of years

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GFMS have released their annual review of gold mine supply and consistent with what we've previously reported there was a slight increase in 2014 but they are seeing this as probably the peak, with declines from hereon in. The tables below are largely self explanatory but there are some interesting moves to discuss. Firstly China has consolidated its position as distant number one and remember not an ounce of that leaves their borders. Russia has overtaken Australia for the number 2 position and they keep most of what they mine. Arguably both of those countries have increased production despite lower prices because they aren't doing so commercially, rather conveniently building their sovereign reserves, whilst most other countries dropped. The sad story of former #1 South Africa continues as it slips to 6th and only just above the fastest growing producer, Canada.

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Unbaking the GFC cake
McKinsey Global Institute have released a 136 page extensively researched report entitled"Debt and (Not Much) Deleveraging". The following excerpt gives a short snapshot of another, deeper, debt induced crisis in the making."What Happened to Deleveraging? The global financial crisis of 200708 was sparked by the accumulation of excessive debt and leverage in many advanced economies, particularly in the household and financial sectors. After the September 2008 collapse of Lehman Brothers, governments took unprecedented actions to preserve the financial system. One reasonable expectation in the years following the crisis and the ensuing global recession was that actors across the economy would reduce their debts and deleverage. However, rather than declining, global debt has continued to increase. Total global debt rose by $57 trillion from the end of 2007 to the second quarter of 2014, reaching $199 trillion, or 286% of global GDP. Rising government debt in advanced economies explains one-third of the overall growth, as falling tax revenue and the costs of financial sector bailouts raised public sector borrowing. Growing debt of developing economies accounts for half of the growth. China's total debt has quadrupled since 2007, reaching $28 trillion, accounting for 37% of growth in global debt.""Government debt has grown by $25 trillion since 2007, and will continue to rise in many countries, given current economic fundamentals Government debt in advanced economies increased by $19 trillion between 2007 and the second quarter of 2014 and by $6 trillion in developing countries.""The value of corporate bonds outstanding globally has grown by $4.3 trillion since 2007, compared with $1.2 trillion from 2000 to 2007.""There are few indicators that the current trajectory of rising leverage will change, especially in light of diminishing expectations for economic growth. This calls into question basic assumptions about debt and deleveraging and the adequacy of the tools available to manage debt and avoid future crises.""It is clear that deleveraging is rare and that solutions are in short supply.""A large body of academic research shows that high debt is associated with slower GDP growth and higher risk of financial crises. Given the magnitude of the 2008 financial crisis, it is a surprise, then, that no major economies and only five developing economies have reduced the ratio of debt to GDP in the 'real economy' (households, nonfinancial corporations, and governments, and excluding financial-sector debt). In contrast, 14 countries have increased their total debt-to-GDP ratios by more than 50 percentage points.""Developing economies have accounted for 47% of all the growth in global debt since 2007and three quarters of new debt in the household and corporate sectors."
And on China specifically
"Until recently, China's unprecedented economic rise was not accompanied by a significant expansion in leverage. From 2000 to 2007, total debt grew only slightly faster than GDP, reaching 158% of GDP, a level in line with that of other developing economies. Since then, debt has risen rapidly. By the middle of 2014, China's total debt had reached 282% of GDP, far exceeding the developing economy average and higher than some advanced economies, including Australia, the United States, Germany, and Canada. The Chinese economy has added $20.8 trillion of new debt since 2007, which represents more than one-third of global growth in debt. The largest driver of this growth has been borrowing by nonfinancial corporations, including property developers. At 125% of GDP, China now has one of the highest levels of corporate debt in the world. Throughout history and across countries, rapid growth in debt has often been followed by financial crises. The question today is whether China will avoid this path and reduce credit growth in time, without unduly harming economic growth."
There are lots of 'trillions' above. Here's a reminder of what one is. 1 million seconds is 12 days. 1 trillion seconds is 31,700 years, or pictorially

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US "growth engine" v reality
The US economic recovery is saving the world. That is what the main stream press is touting. US Treasury Secretary Jack Lew yesterday warned the US could not be "the sole engine of growth" as a follow up meeting from the G20 see's countries around the world looking to spur on growth in a moribund global economy. So let's look a little closer at this growth "engine", the US
Markets rejoiced and gold got smashed Friday night because of the higher than expected jobs number at 257,000 for January. But the graph below strips this back to a percentage against civilian population and real earnings too. Reason for celebration?
(courtesy of ZeroHedge)

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Since the US Fed started tapering artificially fuelling this engine with QE3 (printed money) how's she been running?

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And since they stopped QE3 altogether what has happened with the economy?

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As we reported on Friday in the Weekly Wrap radio, 87% of US companies have revised down earnings for 2015 and if you remove Apple's earnings the remainder achieved a net ZERO for the last quarter. How does this look against price on the S&P500?

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So clearly the growth engine is just awesome, there's nothing to worry about, and ultra low bond yields and gold and silver rising is coincidental.
 
Money printing gone mad

Yesterday we discussed a few graphs that question the so called global growth engine of the US. Today we provide 2 graphs that give further insight into what's going on globally. Firstly, for the first time in history the 4 largest western economies are monetising (printing money to purchase their own debt) more than they are issuing sovereign debt. So strung out is this stimulus that we now have $3.6t or 16% of the total government bonds issued yielding negative returns. And you wonder why shares are at highs in a sick global economy? Money literally has nowhere else to go in a search for yield. Have a look at what has just driven the Aussie stockmarket to a 6 year high there is now a preoccupation with yield over company fundamentals.

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The Greek Tragedy
Early reports from last night's highly anticipated Eurogroup meeting on the Greek debt situation indicate no agreement was reached (after an earlier report to the contrary saw stocks and the EUR jump). With Friday's 10 day ultimatum to Greece by the Eurogroup, they now have 5 days left to sort this out and avoid forcing the hand of the threat to kick them out of the EU. We wrote a little while back about this exact situation being one of the main "black swans" that could trigger a big flight to gold (interestingly we also mentioned Ukraine escalations and yesterday saw the US government approve a $1b defence spend on exactly that). The Greek situation is both fascinating and tragic. Greece is very quickly and literally running out of money to function. They are openly stating they don't want to exit the Euro but they cannot survive under the conditions of the original bailout package (austerity measures which God forbid require running a surplus not continual deficits). The EU knows that Greece has no chance whatsoever of paying back its EUR360 of debt, and certainly not the EUR240 due at the end of Feb but now brought forward to Monday. The EU also knows that if they let Greece either default or leave the EU there will very soon be a line up of the likes of Spain, Portugal and Italy for the same treatment and untold, potentially severe consequences on not just the direct creditors but given the modern interlinked and 'derivative-ised' financial system, far more reaching than them. Markets will continue their nervous shuffle until Monday but waiting until afterwards may be too late to protect your wealth from the consequences.
As a side note, if you missed the last Q&A program on the ABC, it provided great local insight into how badly Australia too needs to address its own debt problem. Like or loath Alan Jones, he was bang on and Heather Ridout illustrated what our political system lacks through contrast. We need to start now to avoid becoming another Greece but it takes a strong leader to take us on that journey. Easily found on ABC's Iview.
 
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