Posted at 8:30 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

The shot just heard ’round he world (for those with ears to listen) was a surprise 2% devaluation by the Chinese of their currency the yuan.  I have spoken to many whom I respect to hear their opinions and theories.  This is a very important move by China and one which will affect the entire financial world.  Getting this “completely right” may be quite tough, but getting it mostly right is imperative.

Let’s begin by making a comparison.  I have in the past compared today’s China and the U.S. to the last great global bubble and deflation centered around the U.S. and Great Britain.  China is today’s up and coming financial and productive economy while the U.S. has lived off the fat as the reserve currency and entered decline as Britain did 80+ years ago.  In the early 1930′s, “competitive devaluations” were used to beggar thy neighbor and steal market share of trade.  This, along with tariffs (Smoot-Hawley for example) were put into place.  International trade collapsed just as it is beginning to again today with clear evidence.  The global economy lives on trade and will also die by it (or lack of!).

So why the devaluation?  First, it needs to be said China does not think like the West does.  They are not full blown capitalists and any edict from Beijing, right, wrong or indifferent will be followed almost blindly.  To a large extent they are still a “command” economy but have moved toward allowing capital to find its highest and best use.  This also comes with the baggage of speculation which often times produces bubbles.  No doubt malinvestment has occurred in stocks, real estate, commodities, production and yes, DEBT.  The picture is not very different from that of the U.S. back in the second half of 1929 (with the exception of a few short seller “executions”).

The Chinese move certainly argues against any rate hike in the U.S..  In fact, the yuan has risen over the last 5+ years, this has been desired by the U.S..  I can only assume a devaluation is not desired.  Any further devaluations can be viewed as against U.S. desires and a direct shot back at the “IMF and friends”.  Though the devaluation is much smaller than the Swiss earlier in the year, losses into a very levered and illiquid global market will need to be absorbed.  How this is done will be interesting as China just issued margins calls on many markets.  China also has made capital flight more difficult recently, some of the world’s hot real estate markets will (already are”) feel the pinch.  Again, remember the backdrop is a very illiquid world right now! 

China has lowered rates and eased monetary policy several times recently.  They have outlawed short selling and done whatever they could to stem the meltdown in their markets to no avail.  Devaluing is the next logical choice but already we see the bandwagon of reaction where Russia, India and Thailand are all considering devaluations of their own, the currency war is going into overdrive.  This is not so much about currencies as it is about market share of trade.  The problem is this, the global “pie” of GDP and thus trade is beginning to shrink.  Liquidity (remember the IMF recently warned of this) is tightening everywhere which means cash flows are shrinking.  The ability to meet debt service requirements are becoming more difficult in a world saturated in debt. 

In essence, China’s debt bubble is popping and along with it comes deflation.  This devaluation, though small (for now) aims to “export” some of the deflation to their trading partners.  The current move should not be seen as a one off move, it will not be and further devaluations can be expected.  China is simply doing and will do what “is good for China”.

I believe China asked for inclusion in the SDR basket while believing it would not happen.  They have already set up trade banks, credit facilities, currency swaps and even clearing systems not to mention wooing new trade partners.  Their rebuke however should not be taken lightly.  Even if China did not expect to be included, their public rebuke now gives them a public reason to do what is good for China.  China can no longer be blamed for anything they do in their own self interest.  This would include moving away from trade in dollars and also changing partners.  It would also include the massive sale of U.S. Treasuries and dollars themselves.  I would not be shocked to hear of oil, China, Saudi Arabia and “renminbi settlement” all in the same sentence shortly!

If I am correct and this is not a one off devaluation, much of the world’s population will shortly sniff out some of the ramifications.  Remember, China invented paper currency and are professionals at blowing them up, their people are students of history and know this.  A full out stampede into gold (and silver) before their currency gets devalued again and again may very well start.  The Western banks are short paper gold, owing gold contractually, China knows this and knows it is THE Achilles Heel to the dollar.  If the Asian population were to go on the rampage buying physical metal and created a vacuum of availability, the West will be shown to be naked.  Could Washington accuse China of “busting” the exchanges?  Is the very stubbornly high open interest in silver of Chinese origin?  I believe we will find out that yes, it is and has been for well over a year.  (My “Kill Switch” theory now might make batter sense but a topic for another day).

Please understand this, China fully understands consumers in the West are tapped out.  They can see through the bogus numbers Washington produces and the wonks on Wall St. continually tout.  They understand the Western system is built entirely on debt as in I OWE YOU!  And they understand the system was set up originally as an “IOU nothing” system!  They understand “it’s over”.

I do believe China wants to assume “a” if not THE reserve currency status in the future.  They know they possess more gold than the U.S..  Would it not make sense to devalue your currency and even make it undervalued for the start of a new system for competitive reasons?  Yes I know, they do not have enough gold to back the yuan currently …at current price.  Will they pull a page out of FDR’s playbook and revalue gold higher since they are the largest hoarder in the world?  Could they confiscate from their loyal citizens to leapfrog their holdings even further?  Remember, the tried and true way(s) out of deflation are to print, devalue (versus neighbors AND gold) and of course go to war.  Whether you want to believe it or not, we are now at war both financially and technologically.  Unfortunately, financial and trade wars often times turn into hot wars.   China just fired a shot heard ’round the world for those listening and it was not a celebratory shot by any means!

To finish, could it be China knows this will end in a complete collapse of the financial markets AND real economies of the world, in particular of the West?  They already have the largest productive capacity in the world.  Are they going to devalue their currency so it is “competitive” when the reset occurs?  Have they stripped the West of their gold reserves leaving China with the greatest “monetary” hoard on the planet?  Could there be a better position to be in than having the most “money” and greatest productive capacity …with a middle/lower class of your society numbering in the hundreds of millions needing “stuff” to truly enter the 21st century? 

I will leave you with this graphic from Visual Capitalist: 

clip_image001

In a world levered to the gills and no ability to grow out from under, which is better to have?  Assets or liabilities?   Lots of questions with answers soon to be revealed I believe!

Standing watch,

Bill Holter
Holter-Sinclair collaboration

Posted at 7:01 AM (CST) by & filed under Bill Holter.

Dear CIGAS,

Last year at this time, I wrote and asked readers who owned shares in gold and silver producers to send their companies a letter. I ask that you do this once again.  Please don’t believe I am under any delusions whatsoever because herding cats is a near impossibility. Almost no one dislikes gold and misunderstands their own product more than the current management in the mining industry.  However, doing nothing will certainly accomplish nothing, doing something at least has a “chance” albeit slim.  Below is a letter I plan to send to each producing mining company and precious metals mutual fund that I own personally. Gold and silver prices have been diluted by paper contracts to the point where no money can be made producing gold, and an industry wide loss producing silver.  Years ago, Rob McEwen of Goldcorp decided to withhold the sale of gold production to be held in their treasury until prices were higher.  THIS is exactly what needs to be done now as a counterbalance to the unbacked paper contracts being sold to dilute and depress prices. The COMEX and naked shorts need to be starved for metal, the strong physical demand is doing this slowly while the mining industry could do this very quickly.

Please, copy and paste the below and sign with your name to any producing mining companies you have investments in. Also, do the same for any gold mutual funds you may own and ask the money manager to contact their holdings with this same letter. Government has an incentive to keep metals prices down and the lapdog regulators are allowing it to happen.  Price manipulation is illegal, if the authorities will not fix it, hopefully the industry itself has sense enough to finally do something!  I’m not holding my breath on this one.

Standing watch,

Bill Holter
Holter-Sinclair collaboration

———————————————————

Suggested letter to your gold producing company, by Bill Holter.

Dear Sirs,

I am a believer in hard money and as such am an investor in mining shares, your company being one of them. As you well know, hard times have hit the producers of both gold and silver. Gold and silver prices have been forced down, capital, either debt or equity is very scarce for our industry and share prices are back to the levels they traded at when gold was under $400 more than 10 years ago.

Much evidence has been uncovered by GATA (Gold Anti Trust Action committee) over the last 15 years showing how gold and silver prices have been suppressed and continually manipulated yet we’ve heard not a sound from the industry itself. Many mining concerns pay dues each year to the World Gold Council which at the very best seems to be an antagonist to gold and silver, at worst a Trojan horse. I know of no other industry which does not promote their own product nor protect it from outside malicious pricing practices. This needs to change and the most logical catalyst is from within the mining industry itself.

It makes no sense at all to expend labor and capital to lose money, especially when your product is a finite resource and will not ever replenish. If working harder and digging more ore was an answer then I would be cheerleading the machines. The fact is, the more that gets dug up in the current environment the more money is lost and precious ore forever wasted. As a shareholder I ask that any product over and above expenses be withheld from sale until free and fair prices are present.

The facts are well documented, global demand is and has outstripped supply of gold and silver for many years …yet the prices are dropping. Your “product” is being diluted by paper sales of “representative metal” while the board of directors do nothing at all. Actually, the mining industry itself is aiding the suppression scheme by delivering metal. This can only start one company at a time, why not our company? Why do we deplete our ore reserves and not receive fair value for our capital and labor?

Whether this proposed action is taken or not remains to be seen. Shortages of metal will occur sooner or later as physical demand and backwardation will eventually take the metals higher in price by multiples. Hopefully our company still has reserves left to be sold at fair profit margins. Many companies will not be in existence within a couple of years unless those with the fiduciary responsibility to protect our companies and shareholders …also protect our product from fraudulent dilution.

Best regards, _________.

Posted at 6:28 PM (CST) by & filed under Bill Holter, General Editorial.

My Dear Extended Family,

After today’s news on Greece getting financial aid, the imminent demise of the Euro in terms of market expectations is behind us. That being true, the dollar rally is now challenged. With the dollar rally challenged the general commodity market decline should decelerate and end.

As a result of all the above, the downside in the price of gold is very modest here while the upside of the first rally back into the bull market takes gold above $2000. Timing from here may be quite compressed.

Standing watch,
Holter-Sinclair collaboration

Posted at 6:23 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Mr. Williams shares the following with us.

-Heavy Flight from U.S. Dollar Remains Likely in Year Ahead; Underlying Perceptions and Fundamentals Already Are Shifting
- Economic Reality Has Begun to Overtake Illusion; No Economic Recovery Is Likely This Decade
- Global Financial, Economic and Political Instabilities Are Pushed to Limits
- Long-Range U.S. Sovereign-Solvency Issues Remain Unresolved
- Gold and Silver Prices Will Explode in Flight from Dollar; Oil Prices Will Spike
- Soaring U.S. Inflation Should Accompany Dollar Demise, Precursor to Domestic Hyperinflation
- Physical Precious Metals Remain Best Inflation Hedge and Store of Wealth, Irrespective of Central Bank Gold-Price Manipulations

“No. 742: SPECIAL COMMENTARY – A WORLD INCREASINGLY OUT OF BALANCE”
Web-page: http://www.shadowstats.com

 

Gold & Silver Are Surging On Heavy Volume
Tyler Durden on 08/10/2015 11:28 -0400

Hedgies are the most short ever… and Commercials are the least hedged in 14 years… and it appears rumors of PBOC buying along with dismal data from around the world has sparked a renewed awareness of another looming QE sending gold well north of $1100 and silver back above $15.

hedge funds aggregate net position has been short for the first time in history.

clip_image001

Commercial Hedgers are holding the lowest net short position in gold futures since the launch of the gold bull market in 2001.

clip_image002

And this happened… Silver looking for $15.44 (50DMA) as next test

clip_image003

As Bonner & Partners recently noted, the next silver bull market may have already started…

Silver is down 7.1% this year.

Will this weakness persist? To find out, let’s look at the key factors in the silver market this year.

Like gold, silver fell as the U.S. dollar rose on the back of expectations that the Fed will hike rates.

World demand for physical silver fell 4% in 2014, largely due to a record 19.5% drop in investment demand.

Silver exchange-traded funds (ETFs) did not see big liquidations in 2014. ETF holdings grew by 1.4 million ounces and recorded their highest year-end level at 636 million ounces.

The first two factors helped push silver 19.9% lower last year. That’s more than gold or any other precious metal fell. Despite this, silver production rose 5% in 2014. That added to the pressure on prices.

More…

 

Jim Sinclair’s Commentary

No kidding. Try and buy any good amount of gold & silver coins, and hold your breath when you hear the delivery delay.

There’s a Supply Problem in the Silver Market
August 10, 2015

We’re seeing more buying interest than at any time since the 2008 financial crisis. If we see a further spike in demand, the whole supply chain could be cleaned out. – Money Metals Exchange

I spent a lot of time discussing the Provident Metals situation with my friend on whom Provident defaulted on delivery of the 10 oz RCM bars.  It’s not Provident’s fault per se, other than the fact that they took his money for a bar that they represented as being in stock.  Instead, Provident was waiting for the delivery of the bar from the Royal Canadian Mint.

In the past after 2008, pre-selling silver that was presented as “in stock” but was on order from the U.S. or Canadian mint was not a problem.  Supply of silver blanks was adequate.  It’s not a problem til it’s a problem.  And now it appears to be a problem.

Provident made the situation worse for itself by using the old “the dog ate my homework” excuse when it stated that it had an internal inventory problem.  That excuse is an insult to the precious metals audience. This segment of the market is not the CNBC audience.

An now we have unintended consequences of the U.S. Governments effort to drive physical gold and silver out of the system:

Public demand for gold and silver coins, rounds, and bars suddenly skyrocketed since mid-June – particularly among first-time customers – to multiples of earlier demand levels, according to Money Metals Exchange, a national precious metals dealer in the U.S.

More…

Posted at 5:23 PM (CST) by & filed under Jim's Mailbox.

Jim,

When was the last time the government ever told the truth? Telling us its safe tells me it’s not safe

CIGA JB Slear

Millions of gallons of waste turn Colorado river yellow

The EPA has said that the risk to wildlife is not significant

A toxic leak of wastewater that has turned a Colorado river mustard yellow is three times larger than US officials had originally estimated.

The Environmental Protection Agency (EPA) now says that three million gallons of wastewater spilled from an abandoned mine last week.

The EPA does not believe wildlife is in significant danger because the sludge moved so quickly downstream.

Local authorities took steps to protect drinking water supplies and farms.

The spill began on 5 August when EPA workers, who were cleaning up the closed Gold King Mine, accidentally sent the toxic water flowing into a tributary of the Animas River.

The Animas River has been closed and local officials have advised people to stay out of the water.

Authorities are still investigating the health effects of the spill The EPA originally thought only one million gallons of waste spilled Lead and arsenic have been found in the toxic sludge

The EPA is meeting with Colorado residents this week and testing local wells for contamination. More than 1,000 wells may have been contaminated.

“We’re going to continue to work until this is cleaned up and hold ourselves to the same standards that we would anyone that would have created this situation.” Shaun McGrath, an EPA official, told residents at one of the community meetings, according the New York Times.

More…

Posted at 12:11 PM (CST) by & filed under In The News.

The Ability to Prevent a Crash No Longer Exists -Bill Holter
By Greg Hunter’s USAWatchdog.com

Financial writer and gold expert Bill Holter says the powers know that it physically can’t put off a financial crash much longer. Holter contends, “The system has gotten too big. The system has gotten bigger than the creators of the system, if you will. It is bigger than the sovereign governments collectively. It’s bigger than the central banks collectively. There’s too much debt. Too many sovereign governments have bumped up against debt saturation. In the U.S., we are over 100% debt to GDP. We are way over 100% debt to GDP if you include all debt. If you include all the off-book guarantees, Social Security, Medicare, Medicaid and all the other promises, we have blown up as far as debt to GDP ratios. So, the ability to prevent a crash no longer exists.”

More…

 

Jim Sinclair’s Commentary

Is this the first time in history that the market will accommodate the majority as it has?

All in: Investors’ cash levels hit record low
John Melloy | @johnmelloy
Tuesday, 4 Aug 2015 | 6:00 AM ET CNBC.com

It’s hard to poke holes in this bull market.

The usual bear arguments trotted out—a Fed rate increase, slowing China economic growth, an increasing dollar—just don’t seem to stick as the bull market continues marching higher.

However, one worrying contrarian statistic highlighted by Sentimentrader.com is making the rounds on trading floors and seems like a legitimate concern given its historical track record.

More…

Posted at 12:59 PM (CST) by & filed under Jim's Mailbox.

Jim,

This is what the CIGAs need to know about Silver. David Morgan has written a book, “Silver Manifesto.” I just started reading it and it’s quite good. Mike Maloney discusses it on YouTube: http://www.youtube.com/watch?v=kA88MK_NUdY

We don’t do a whole lot on silver even though I do believe it will be gold on steroids. Our readers can benefit from this book in my opinion.

Best, Bill Holter

Posted at 12:13 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Mr. Williams shares the following with us.

- July Employment Detail Showed a Sub-Par Jobs Gain, with the Internal BLS Payroll-Growth Trend Falling below 200,000 for August
- Suggestions of a Pending Downside Payroll-Benchmark Revision
- Still No Full Recovery for Full-Time Employment
- Flat Construction Employment Did Not Confirm the Reported Construction-Spending Boom
- July 2015 Unemployment: 5.3% (U.3), 10.4% (U.6), 23.0% (ShadowStats)
- M3 Money Supply Resurgent, July Annual Growth Jumped to 5.6% from 5.2% in June

” No. 741: July Employment and Unemployment, Money Supply M3″
Web-page: http://www.shadowstats.com