Interesting day today, the Fed is backed into a corner. We will see how they attempt to get out of this self made corner. By now you should know there are some VERY serious overnight funding problems. Overnight funding has been taken for granted for years, only back in 2008-2009 did serious problems arise. Now 10 years later (while the Fed is easing) it is becoming a problem again. What started as a synthetic short of dollars has become systemically threatening. In fact, one could now call overnight funding the actual foundation to all credit markets.
Bottom line, the Fed will be forced to expand their balance sheet to fund the illiquidity. As reserve currency holding up all things financial, this situation should never have happened …but it has. Markets are now taking on the Fed and forcing them to do exactly what we said they would, namely, forcing the Fed to restart QE! They can call it whatever they want, QE, QE lite or even Spaghetti O’s, the fact is the Fed is now forced in to expanding their balance sheet. I remind you the Fed is operating on very thin equity …soon to become even thinner versus holdings.
“Don’t fight the Fed” has been the saying forever but times are changing. It seems to me markets are finally taking the Fed on. As it stands, they appear to have lost control of short term funding rates. All bets are off from here and I believe it will not be long before markets rebel even with QE, more rate cuts etc. Their greatest nightmare will be when markets panic in RESPONSE to “Fed help”. At that point, we will see true and very real fear because if “Daddy” cannot bail out the banks/financial markets, who will? Re set in 3…2…1?
I have written and spoken of the Gold to Silver ratio many times in the past. It currently stands at just under 82-1, a little more than a month ago it peaked out just over 92-1 which is close to an all time high (low price for silver vs. gold). For perspective, the natural gold to silver ratio is just under 10-1 as that is the ratio the two metals exist and are mined from the Earth’s crust.
For hundreds of years, the GSR was 16-1 and in fact this ratio was pegged by our founding fathers at just under 16-1. The discount from 10-1 to 16 came about simply due to “weight”. If one carried wealth (metal) with them, silver was more cumbersome. To compensate for the inconvenience of additional weight, silver was discounted to the 16-1 level.
Silver has always been more volatile than gold. During bull markets silver greatly outperforms to the upside, conversely during bear markets silver will drop faster than gold. We are undoubtedly in a metals bull market (fiat FOREX bear market), there are fireworks ahead for all metals, silver will lead the pack!
I write this because we have already assed the inflection point and already see silver vastly outperforming. I have for the last several years suggested metals investors to position more heavily and even entirely in silver based on this ratio. If you are overweight (more than 50%) in gold versus silver, you should consider swapping some (or even all?) of your gold (platinum/palladium) in to silver. The inflection point I speak of does not occur many times in one’s lifetime…NOW is one of those opportunities. The idea is to hold silver now and in the future begin to swap in tranches back in to gold. In this manner for example, you can acquire twice as much gold were the ratio to drop to 40-1. Were the ratio to drop to the historical 16-1 ratio, you would be able to expand your gold position better than 5 fold!
As I have suggested in the past, “junk” silver is in my opinion THE best form of silver ownership for several reasons . The train is leaving the station right now and the ratio is beginning to shrink. Jim has said many times that “silver is gold on steroids” and for very good reason, he has seen the outsized volatility through many cycles. If you do decide to position more heavily in silver, do not get married to it. Owning silver at bear market bottoms should be done with an eye to gaining gold ounces as the bull market matures.
If this is something that makes sense to you or you would like to explore, please contact your precious metals broker or contact me a bholter@hotmail.com, I will be glad to help you. Hi Ho Silver!
I am taking the day off from writing a subscription article. Instead, here is a blast from the past “The chart of the century!”. I wrote this 3 years ago and here we are on the doorstep of the QE4 printathon! If you understand what the chart means then you understand how undervalued gold truly is…
J. Johnson’s Latest – Who Blinks First, The Resolute Longs, Or The Overwhelmed Shorts? August 26, 2019
Great and Wonderful Monday Morning Folks,
Remember we spend approximately 1/7th of our lives on Monday, so smile and get used to it! Gold’s early morning trading price is now at $1,540.90, up $3.30 after reaching up to $1,565.00 and after being dumped to $1,534.80 which filled the gap created at the Sunday night open. Silver is leading at the moment with the trade at $17.745 (December) up 19.1 cents with the high at $17.90 with the low at $17.640 and with the gap left to fill. The US Dollar found some strong support after the G7 meeting with the trade now at 97.855, up 32.5 points and close to the high at 97.895 with the low down at 97.37. All of this was done while the Comex was closed, as we slept, and during London and Asia’s trading period.
Venezuela’s Bolivar now has Gold trading at 15,389.74 showing a gain of 350.56 Bolivar with Silver now priced at 177.228 Bolivar putting in another 5.443 of value to the price. Argentina’s Peso now has Gold valued at 85,019.68 Pesos, adding 1,345.78 to the price with Silver adding a whopping 22.775 A-Pesos to its value now gauged at 978.615. The Turkish Lira is now pricing Gold at 8,966.20 showing a big gain here as well as 286.93 T-Lira was added to the price with Silver now gamed at 103.261 adding 4.1228 T-Lira to its value.
One of our Resolute Buyers in Silver has shown up again in the delivery cycle with the Open Interest still at 1 but with a Volume of 3 up on the board so far in the early morning and with a trading range between $17.575 and $17.54 with the last price being the high so far. Those bracketed trade numbers are still being pumped out for some reason, maybe one day we’ll get the real skinny on the numbers and what they mean. I cannot believe these are spread trades that are registered without a price. If it is, it should not be allowed as the spreads are important to spreaders and the price is important to the individual trader and companies that need proper data. Do they keep these spread numbers away from all Volume and Open Interest as well?
Bill Holter’s Commentary Well done by Charles Hugh Smith.
The Benefits of a Profoundly Shattering Recession August 25, 2019 Does anyone really think The Everything Bubble can just keep inflating forever? What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can’t be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and bitterness.
A profoundly shattering recession leaves tremendous damage and pain in its wake. Millions of people who reckoned their position was secure get laid off, businesses that looked solid melt into air, large corporations flip from hiring thousands to firing thousands, and everyone on the edge of insolvency gets a hard push over the cliff. Profoundly shattering recessions feed on themselves in a self-reinforcing dynamic: the first domino could be a supply-shock, or a decline in demand due to credit exhaustion. Since businesses have cut everything to the bone in the past decade, there are no buffers left: layoffs begin immediately, and those layoffs further reduce demand as households have to tighten their belts to survive as even those who escape the first round of layoffs find bonuses and overtime have been slashed.
Normally I do not respond to attacks but this one needs addressing. Jason Burack posted a YouTube video yesterday (listen at about the 10:30 mark) where he spoke my name in the same sentence with the words “lazy and dishonest”. He “laughed” at our recent interview with Greg Hunter because of my $87,000 per ounce math on gold, but at least he admitted he did not even bother to listen to the interview (lazy?). I spelled out the very simple math; if the current US (on books debt only) debt of $22.5 trillion were to be backed by current purportedly held national gold in US vaults of 260 million ounces, the result is roughly $87,000 per ounce. I say “purportedly” because there has been no audit since the 1950’s. I believe if the gold really is there AND unencumbered, we certainly would have had many audits advertising this…but we have not…and have not for a reason!
He then goes on to say that $87,000 per ounce gold would be a very scary and dystopian world where guns, ammo, and the ability to grow your own food will be at a premium … at least he understands high(er) gold prices do not mean happy days are here again! I did not listen to his entire interview but did hear just prior to where he attacked me, he said re China and their “$50 trillion debt bubble” that even if they had $trillions in gold…it would not help. Jason is making the same mistake that others often do when in essence he is claiming there is not enough gold. There IS enough gold to back all currency and all debt on the planet if gold were priced correctly. Would $87,000 per ounce do it? No, I do not believe it would but at that number, the US (if we actually have the gold?) would be able to settle current on books debt outstanding.
As an FYI to Mr. Burack, trying to put any $ number on gold cannot be done because we do not have enough information to plug in. We have no idea how much future money supply the Fed will be forced to create in order to prevent financial implosion. We also do not have any idea how much future debt the US Treasury will be forced to borrow to keep the lights on and try to keep life “normal”. Lastly and most importantly, we have no idea how much gold the US actually has. If the Treasury has no gold at all, would that not suggest a number of “infinity” which is the mirror image of zero? Trying to forecast any true gold price level is a mugs game because of lack of information. We can however do the math on what info we do have and come up with a minimum number as money supply and debt will assuredly not shrink and more gold held than claimed is highly unlikely…THAT NUMBER IS MULTIPLES OF CURRENT PRICE!
To finish, Jason, you as many others, correctly opine the current situation of too much debt and gross derivatives have created a financial bubble which is unsustainable. The aftermath of which will be very ugly. We have both suggested two separate avenues of financial protection. You suggest crypto currency while I suggest gold and silver. You suggest something non tangible with less than a 10 year track record while I suggest something tangible and a 5,000 year track record. If (when) “we” are correct and the credit bubble bursts, no doubt there will be societal upheaval to the point Mad Max is a very real potential. In a world of total chaos I would much prefer to rely on something tried and true for millennia rather than “hope” something new under the Sun will save my family! “Hoping” Mad Max is not the coming reality (and you personally have made a case it can be the reality) is not a plan, preparing for it is…
Lastly Jason, you do truly owe me a public and personal apology. I worked as a broker for 23 years, 12 of which as a branch manager. Never in all those years or since, retiring and leaving the country in late 2006 (good timing?) was I nor ANY of my brokers ever subject to any legal claim, arbitration or settlement. In today’s world, this is nearly an impossibility. While my wife might agree with you regarding lazy, you piss me off and slander me by speaking “my name and dishonest” in the same sentence. I (all of us) was born with only one thing, my good name. I plan to meet my creator with my name in as good stead as possible. I take this more seriously than anything else in my life and why it is best we don’t meet face to face!
