Posted at 12:54 PM (CST) by & filed under Bill Holter.

The 2008 Great Financial Crisis came about because we began to hit “debt saturation” levels. The crisis was one of solvency but was attended to with added liquidity. Sovereign treasuries still had the ability to add debt to their balance sheets which was done in unprecedented amounts. Now, we are again bumping up against debt saturation levels as sovereign treasuries by and large have little room left to add more debt in efforts to reflate. The root problem of solvency was never addresses, only postponed to another day. That “day” seems to be in sight.

The Fed recently did a study concluding that a $4 trillion increase in their balance sheet should be enough to reverse a future recession. I would ask several questions: first, 2008 began as a downturn in real estate in the U.S. and quickly spread to financial asset prices and thus institutional balance sheets … In no way did it begin as “normal” recessions in the past have. It was not about inventory/sales until well into it. Why has the Fed come out with this study now? And why use average recessions as the potential boogeyman rather than the 2008 episode? I would equate their study to relating the response and protocol to treating a head cold and sore throat versus when the patient is prone to stroke and heart attack.

I have thought for quite some time, a good analogy for 2008 and the aftermath was like one giant “refinancing”. Think of it as a “cash out” on a home mortgage where money is taken out against equity yet the monthly payment didn’t go up because your interest rate went down. After closing, you feel pretty good because your payment did not go up and you have cash in hand to help you continue making payments. This is exactly what happened but we are again at a point where the monthly payments are starting to “bite” again. In technical terms, liquidity is again becoming very tight on a systemic basis.

So here we are again, in the same situation we had in 2007-2008. Too much debt with stretched valuation levels in equities and real estate …and stupid levels in the credit/bond markets as evidenced by “negative rates”. Central banks are again being forced to look at expanded QE while fiscal stimulus is again being eyed with one caveat …the Fed wants you to believe they are going to raise rates!

I ask you this, in a world where economic activity is clearly decelerating …and has more debt to GDP/equity than ever before, how can the Fed raise rates? In the short term, raising rates would strengthen the dollar versus other fiat currencies (and tighten dollar liquidity). Is this what the U.S./world needs? And how exactly will the existing leverage affect the underlying asset pricings? Will this be good for stocks or real estate not to mention the mathematics affecting bonds? The big one (and an entire writing for another day) is the derivatives market. How will these fare? I cannot imagine having a put on a carry trade using dollars, higher rates and a higher dollar is a disaster waiting to happen.

In my opinion, we are again at a point in time where “liquidity” is more important than anything else. Whether for an individual, corporation, or state, “liquidity” will soon be ALL IMPORTANT! Just as in 2008-2009, “counterparty risk” will take center stage and any hint of the lack of liquidity will attract sharks.

What exactly is “liquidity” and why is it important. Briefly, liquidity is the immediate availability of capital to run your business and pay current expenses and interest. I am going to add a twist here because what some to believe to be liquid …may not be at the point in time it is most needed. You see, what if you had a large cash/credit balance with a bank or institution that is forced to close either temporarily or permanently? “Liquid” means it is available to you NO MATTER WHAT happens. Or what if you had some sort of unencumbered bill/note/bond and the credit standing of the issuer came into question? Would this be liquid?

If you are bearish on where the world is financially, the above questions should have already entered your mind topped off with the question of “who” is your counterparty? I would suggest the goal right now should be twofold, return OF capital and the ability to “use” it whenever you need to. In other words, “pure liquidity”.

If for any reason whatsoever your capital may not be available to you, you do not have “pure liquidity”.

Pointing out the obvious, the only “asset” on the planet that is pure liquidity is gold (and silver to a lesser extent). You don’t believe me or want to argue with this? First and most obviously, gold (silver) are no one else’s liability and thus cannot go “bankrupt”. Yes they can and do fluctuate in value versus fiat currencies but in a world where solvency and liquidity has become primary concerns, do you believe gold will become less desirable versus the liabilities of nations? If you still don’t believe me, Alan Greenspan explained the virtues of gold back in 1966. He went several steps further than liquidity and discussed gold as a medium of exchange, gold as money and a return to the gold standard.

Never mind the supply and demand imbalances or the fact that gold is counterfeited on a daily basis where the supply gets diluted many times over, gold can ALWAYS be used to settle a transaction. The key word here is “always”. I say this because 24/7, 365 days per year, gold is liquid and thus available to settle any trade …if you are fortunate enough to own it in physical and unencumbered form. Please note the bolded words, as long as you own real gold with no one or entity between you and your gold …you have pure liquidity rivalled by nothing man made. Pure wealth to be sure but more importantly in a world where massive additions of liquidity have not been enough and showing signs of drying up …pure liquidity!

Standing watch,

Bill Holter

Holter-Sinclair collaboration

Comments welcome, bholter@hotmail.com

Posted at 1:32 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

The latest from John Williams’ www.shadowstats.com

- Gross Domestic Product (GDP) Second-Quarter Growth Revised to 1.1% (Previously 1.2%) versus 0.8% in First Quarter
- Gross Domestic Income (Theoretical GDP Equivalent) Growth Plunged to 0.2% in Second Quarter from 0.8% in First Quarter
- Gross National Product (Broadest Measure) Growth Jumped to 1.6% in Second Quarter from 0.0% in First Quarter
- Irrespective of Headline Reporting Instabilities for GDI, GNP and GDP Annual Growth Rates Are Slowing in a New-Recession Pattern

“No. 828: First Revision to Second-Quarter 2016 GDP”
http://www.shadowstats.com

Posted at 1:23 PM (CST) by & filed under Jim's Mailbox.

That was fast.

Yesterday I told you how a consortium of 15 Japanese banks had just signed up to implement new financial technology to clear and settle international financial transactions.

This is a huge step.

Right now, most international financial transactions must pass through the US banking system’s network of correspondent accounts.

This gives the US government an incredible amount of power… power they haven’t been shy about using over the last several years.

2014 was one of the first major watershed moments when the Obama administration fined French bank BNP Paribas $9 billion for doing business with countries that the US doesn’t like– namely Cuba and Iran.

It didn’t matter that this French bank wasn’t violating any French laws.

Nor did it matter that only months later the President of the United States inked a sweetheart nuclear deal with Iran and flew down to Cuba to attend a baseball game with his new BFFs.

BNP had to pay up. A French bank paid $9 billion because they violated US law.

And if they didn’t pay, the US government threatened to kick them out of the US banking system.

$9 billion hurt. But being kicked out of the US banking system would have been totally crippling.

Big international banks in particular cannot function if they don’t have access to the US banking system.

More…

Courtesy of CIGA EB

Posted at 11:37 AM (CST) by & filed under In The News.

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Jim Sinclair’s Commentary

The latest from John Williams’ www.shadowstats.com

- Federal Reserve Spokespeople Renew Their Rate-Hike Hype, Yet Economic Activity Remains far from Recovery
- Durable Goods Orders Turned Negative Year-to-Year, Both Before and After Adjustment for Inflation and Commercial Aircraft
- Mixed Signals from Headline Home-Sales Activity, with Existing-Homes in Faltering Monthly and Annual Contractions and Unstable New-Homes Gaining Beyond Credibility
- However Measured, Both New- and Existing-Home Sales Activity Remained in Broad, Non-Recovering Stagnation

“No. 827: July New Orders for Durable Goods, New- and Existing-Home Sales, FOMC”
http://www.shadowstats.com

Posted at 11:31 AM (CST) by & filed under Jim's Mailbox.

Jim/Bill,

In days like today, where gold is trashed on the paper Comex, I keep my wits about me by always relying on my definition of gold:

It functions as a mirror for 2 things-

-a gauge of fear in the marketplace.

-a measure of confidence in all things finance, including but not limited to currency, markets, and economic activity (hence the Fed reluctance to let it speak).

This allows me to understand and accept the powerful forces (both good and evil) behind its price.

As long as I look around me and witness:

the economic health our country is in,

the crumbling infrastructure,

the massive joblessness,

the fiscal irresponsibility on behalf of Central Banks and governments,

the dwindling earnings and financial health of US Corporations,

the increasing derivative jungle that has become an unmanageable behemoth,

and the race by all countries to gain an economic upper hand thru debauchery of their currencies,

then my convictions are strong that gold will eventually prevail in its function as a revelation of truth.

It’s no different than opening the window to see what the weather is and will be like.

CIGA Wolfgang Rech

Jim/Bill,

Debt markets are at all time highs (5,000 year highs) and Equity markets at all time highs (despite declining earnings and over indebtedness) and Cash is becoming a privilege you have to pay a price for.

When the trigger causes a mass exodus to safety, when “price discovery” has found its level of resistance, where do you think the money will go? Where will you feel safe harboring your lifetime savings? The question becomes…..”Do I feel lucky? Well do you, punk?”

Never rely on lady luck. Rely on common sense.

Proven safe havens, such as gold and silver bullion, gold and silver miners, and true hard assets without liabilities attached, are the answer.

CIGA Wolfgang Rech

The Market’s Breaking Point
August 23, 2016

You may not realize it, but the gold bullion you own, as well as your stocks and mutual funds (presuming you have any), is being used, without your knowledge, in a grand voyage.

A voyage of price discovery.

Never heard the term?

Remember it, because price discovery is a great description for market movements that defy easy identification — like the one we’re going through right now.

I remember the first time I heard the term. It was in my reporting days; I was at a conference of traders, and a senior-trader-type (they’re the ones who wear ties instead of Hawaiian shirts at events like these) said something about “price discovery” in the midst of a panel discussion about soybeans.

More…

Posted at 12:29 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

So much for great housing figures.

U.S. Existing Home Sales Fall for First Time Since February WSJ.
August 24, 2016

July decline in National Association of Realtors numbers point to smaller inventory pressing prices higher

More…

Posted at 5:11 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Their game of Chicken goes on, as such war between major nations is inevitable (even if fighting by proxy) before 2017 is out.

Iran vessels make ‘high speed intercept’ of U.S. ship: U.S. official
August 24, 2016

Four of Iran’s Islamic Revolutionary Guard Corps (IRGC) vessels “harassed” a U.S. warship on Tuesday near the Strait of Hormuz, a U.S. defense official said, amid Washington’s concerns about Iran’s posture in the Gulf and in the Syrian civil war.

The official, speaking on the condition of anonymity, said on Wednesday that two of the Iranian vessels came within 300 yards of the USS Nitze in an incident that was “unsafe and unprofessional.”

The vessels harassed the destroyer by “conducting a high speed intercept and closing within a short distance of Nitze, despite repeated warnings,” the official said.

More…