Posts Categorized: Bill Holter

Posted by & filed under Bill Holter.

Dear CIGAs,

This coming week could be very telling. China just ended a disastrous week and finished just whiskers away from entering bear market (-20%) territory  http://www.zerohedge.com/news/2015-06-27/chinas-370-billion-margin-call. Credit markets all over the world are weakening and yields are rising. Greece will not make their June 30 payment(s) and probably go through a referendum to decide whether or not to flip their creditors the bird in a meaningless vote. In fact, Greece will probably "go boom" this week. Their banks and stock markets may not open Monday morning http://www.zerohedge.com/news/2015-06-27/greek-stock-market-may-not-open-monday-greek-officials-warn. Two days later, some sort of plan will need to be concocted to classify their bankruptcy as not a "DEFAULT", otherwise a $3 trillion fuse to a $1.4 quadrillion bomb will be lit! These and more will be very important "mid-term exams", any failure will bleed over into derivatives and become "final and terminal exams" with zero chance of a passing grade!

We have all heard about the Greenspan, Bernanke and now the Yellen "put".

It has been believed (and for good reason), the Fed would step in and save the stock market should it begin to buckle. Magically, and time after time as the stock market would hit critical levels, panic buying would appear.  This has been written about many times by many authors. Would the Fed really buy stocks or even indices? I would ask, "why wouldn’t they, it is actually even legal" after the plunge protection team was created in 1988. This is not conspiracy theory, it is FACT! All one needs to do is look at the Bank of Japan, they openly buy stocks and even seem proud of it!  As for equities, please ask yourself these questions. How "sound" is a stock market that makes continual new highs on lesser and lesser volume? http://www.zerohedge.com/news/2015-06-27/bad-breadth-milestone-warning-stocks If you are a large holder, are you bigger than the available exit? What if everyone at once took Ms. Yellen up on her "put offer"?

Another area where Fed buying looks to be very important is in our credit markets. Unless they step up with some serious buying, and soon, our 10 year Treasury yield will take out 2.5% to the upside. U.S. Treasuries and their "value" are what act as collateral or foundation for everything the world "believes in". Before going further, I do want to mention another aspect of the ultra low rates we live with. When rates are 10%, a 100 basis point move is only 10%, when rates are 2%, a 100 basis move is 50%!  In other words, movements in interest rates when rates are low have a hugely magnified impact. When rates rise, collateral "shrinks" very rapidly from a low interest rate base which means margin calls are more rapid and bigger in amounts. Higher rates will make insolvencies that much more likely and will then occur "systemically".

This topic was suggested to me by Jim, as he put it, I believe this chapter will be described as "The Phantom of the Fed Put revealed." Please understand what is meant here. There is a "confidence" all over the world in not just the Fed but in ALL central banks. This is a misplaced confidence because the markets themselves are far larger than any single central bank or even ALL of them collectively. Yes, The Fed can push, pull, support and suppress …for a time. They cannot stop a broad tide from going out or prevent a tsunami from coming in over a long time frame. The current timeframe is six years, A LONG time for us Westerners, might as well be six days for those from the East. Does a Fed (central bank) put really exist? Or is it only the "belief" a put exists?

My point is this, the only thing holding markets together is confidence …and the only thing keeping confidence from being shattered is the belief central banks are and will provide a "free put" to all markets. Take the three examples I started with up top. If the Chinese market continues to implode, what will that say about the abilities of the PBOC? Or when Greece defaults and triggers others, what will that say about the ECB or IMF? Were Treasury yields to rise through 2.5% amongst the other turmoil, what will that say about the "safe haven" status of Treasuries and thus the dollar?  It will be a reflection of Fed impotence. The skeptics who say "they will do this forever" …can say what they say at their own peril!

Let me finish this with the BIG BAZOOKA. I am sure you remember Hank Paulson talking about $700 billion TARP as a bazooka? The reality is this amount will not even be a spitball this next time around. There are over $1.4 quadrillion worth of notional value derivatives outstanding. The apologists say "notional" value has no meaning, it is only the "margin" that counts. They are correct during "normal times". Normal times being defined as being "trusted enough" and being able to breathe. Seriously, if you can breathe today you can borrow money. What comes next is a change of thought and a massive phase of global distrust. When trust and confidence break, "margin call" will become a familiar term to nearly all.

This you MUST understand, when trust evaporates, credit will cease entirely. Without credit, the world will stop spinning. Everything finance and many things real will be gone. The financial house cannot stand with a worthless foundation and distribution of real products will cease as the supply chain breaks. Over $1.4 quadrillion in derivatives is a larger number than "everything is worth" …not to mention far larger than the money supplies to settle the trades or put up the margin. You see, "putting up the margin" will equate to 100% of all these contracts because in default …notional and real value are one and the same! Settlement is not an option! It is this $1.4 quadrillion margin call that hangs over the entire system each and every day. Margin calls are almost never issued into calm. They are almost always issued into panics and by definition ALWAYS at the wrong time! The only way to shed all margin is to get G.O.T.S.!

I have said all along and stand by my statement "when this thing gets lit, it will only take 48 hours to engulf everything". If this is truly the "beginning of the ending sequence", many markets will go no bid while a couple will go no offer! Meaning you will have what you and that’s all you will have… I leave you with this horrible thought for the weekend. How better might $100 be spent? A nice dinner with your spouse or on 200 lbs. of parboiled rice?

Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

"Don’t push a bad position"! This is good advice in many varied quests. It is good advice in games like chess or poker. Good advice in sports, business, politics, geopolitics and certainly in militarily ventures. Today we will look at two separate issues where "bad positions" are being pushed to the wall!

First, we have an insane situation brewing in COMEX silver. The open interest finally exceeded 200,000 contracts (1 billion ounces). I believe the only other time this much open interest existed was back in 1980 or ’81. This makes no sense whatsoever, the price is again plumbing 4 year lows yet open interest has moved to record highs? The fact open interest has expanded while price has declined is proof positive the "initiation" of this expanded open interest has been by "shorts" but absorbed by "someone" on the other side of the trade. Total global production of silver is only 800 million ounces or thereabouts so COMEX shorts have contracted to deliver 25% more silver than will even be produced globally over the next 12 months. Silver available for COMEX delivery only totals 57 million ounces so they sit on a naked short time bomb of more than 950 million ounces!

If we look at the July silver contract, there are 55,000 contracts still open with only 4 days remaining before first notice day. This is 275 million ounces still open with only 57 million ounces available to deliver. This is truly fraudulent sales of metal because the metal does not exist to deliver. Yes I know, the apologists will say "this always happens and the shorts will decline into first notice day and evaporate throughout the delivery month". I agree, this "has" always happened in the past but something is changing now. In the past, total open interest always dropped going into FND, now it is not. Not only are all July contracts closed out being rolled into September, the total is rising rather than declining sharply.

I first wrote last August about the situation where huge open interest in the September contract dwarfed the available silver for delivery. My speculation then as it is now, I believe somehow the bulk of the open interest in the nearby month is of Chinese origin. I called it a "Kill Switch" then and still believe this to be the case. The shorts have had their way with silver but I believe "pushing a bad position". They are "making" price by contractually selling silver which does not exist. This travesty was recently called out by Keith Neumeyer, CEO of First Majestic Silver corp., http://www.mineweb.com/news/silver/silver-manipulation-first-majestic-question-cftc/. Bravo! and you are exactly correct.  Then of course we must wonder of JP Morgan reportedly accumulating millions of silver ounces, what of this?

To finish this section, there is NO market anywhere on the planet where the amounts of futures dwarf the physical product so overwhelmingly than in silver. Why is silver so important? Why has it been bludgeoned so badly and even priced below the cost of production? You must understand how small the silver market is. Total global production is less than $15 billion per year …"but", silver cannot be left alone because high silver prices do not jibe with low gold prices. …And gold MUST be kept down and out of the limelight because high gold prices do not fit with low interest rates …which are an absolute must in an effort of reflation. You see, in no way can interest rates be allowed to rise with the amount of global debt outstanding. Higher interest rates will crush the debt outstanding, the silver market is at the VERY BEGINNING of the "food chain" that keeps the lid on interest rates. I believe the Chinese hold this market in their back pocket paid for with "pocket change", they will use is it at their own discretion!

Another "bad position" is the stance the U.S. is taking with Russia (and the rest of the world for that matter). We have placed economic and financial sanctions on Russia in an effort to bankrupt them. It has been speculated the Saudis opened the oil spigots to lower energy and break Russia as was done in the 1980’s. So far there has been more stress in the U.S. fracking sector than damage done to Russia. This may have originally been the case, however, Russa and Saudi Arabia just signed six separate deals just last week. A case can be made, the sanctions meant to hurt Russia have hurt the German, French and other Euro economies just as much. The IMF has said they will fund Ukraine even after a default …but not Greece, they need some of that "austerity stuff" that no one wants. Greece has turned back and forth playing nice with Russia in an on again off again type romance.

The scary part is the military buildup of U.S. hardware in Eastern Europe. Mr. Putin has a "limit" to what he will tolerate just as anyone else. The danger to the U.S. is not just World War III, it may be the lengths Mr. Putin will go to avoid a war. I have speculated Russia (Mr. Putin) will drop a "truth bomb" in order to cripple the U.S. financially by breaking confidence in any and all things American. I believe Russia (via Snowden) has enough evidence of various false flags, fraudulent deals and U.S. scam tradings to "shame" the U.S. into retreat. When I say "shame", I am talking about the dollar being undermined by a break of confidence.

We have pushed and shoved our way around for years while "losing friends and not influencing people".  In trying to isolate Russia, we have succeeded in isolating ourselves as the rest of the world prepares avoiding the dollar.  Just look around, the U.S. has steadily lost allies in meeting after meeting.  We have been in a bad position for at least 15 years, our manufacturing base is gone. Yet we have pushed our position harder and harder? You see, we have had to "push" because what was once "earned" and deserved is no longer true, we now must demand our place at the table to sit at it …and mostly unwelcome.

Let me finish with this thought, just as the high school football star is always invited to the parties, the invitations become less and less if he becomes conceited or if his skills diminish.  In this analogy, the U.S. has not only become conceited but crossed the line well into arrogance. As for "skills"? These were shipped overseas just as Ross Perot said they would. Unfortunately, the U.S. has pushed itself from a bad position into one worse than anyone could imagine 20 years ago!

Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

We have all from time to time tried to help others, friends and family, by pointing them toward reality. For our troubles and efforts we have been viewed as the "squirrely" guy/gal with a tinfoil hat who see’s everything as a conspiracy. We have lost friends and even had family cringe when holiday get togethers were planned because no one wants to be exposed to our "craziness". Worse than any disease or even leprosy, anyone spouting Austrian economics or even "common sense" (almost extinct today) has been shoved into the outcast corner by the mass delusional majority. Over the last few years, "theory after theory" has become fact after FACT after FACT! There can no longer be any question, conspiracy to delude and defraud has run rampant and is a day to day operation in the Western world.

Originally my thought was to write this piece about and around the perfect response, "but you do agree the government is bankrupt, right?". I say this because almost anyone (in the U.S.), no matter what age, sex, religion, race or financial status will generally agree with this. For those who don’t agree, it is better to leave well enough alone, this is a subset living in their own delusional world.

For those who do agree "the government is broke", they are broken down into basic subsets. There are those who "get it" fully. There are those who know the government is broke but don’t really understand what it means or the ramifications (they can’t connect the dots). Another group are those who agree and know in the back of their mind this is true …but they don’t REALLY believe it because they simply cannot …"it’s too awful to comprehend". Then, we have another group, probably the largest of all, those who agree but think it really doesn’t matter. They may also believe no financial crisis will ever occur because "the government will never let it happen". Let’s talk about this group next.

The "can’t happen here" crowd only need the dots connected for them. I believe it is best to ask them questions in an effort to lead them to their own answer and understanding. This is much better than lecturing or "telling" them because they will actually have to think to answer your questions. Questions such as:

1.  if the government is broke, how will they make good on their obligations such as payrolls, Social Security, food stamps, paying the military and most importantly paying on their debt?  Forget the first four, "do you realize Treasury securities are what funds Social Security, your pension, the bank’s balance sheet which holds your money …AND what underlies the dollar itself?"! 

2.  If the above doesn’t work, you might ask if the economy currently "feels good"?  Then ask, do you realize the federal government spends almost 20% of GDP (and their spending is "counted" as part of GDP).  If they are broke and have to drastically cut back on spending, will the economy not shrink by the amount the government can no longer spend?  Do you see without government spending, under any definition we would be in a depression greater than the 1930’s?

I don’t want to go through the entire exercise but please understand, "guiding" someone to their own conclusion which happens to be correct is best done with questions, MANY OF THEM.  If you can, take two, three or even more philosophical roads to help them reach the same conclusion each time …the understanding will be that much more cemented in their mind when they finally do(hopefully) arrive!

Switching gears just a bit, we have seen the "mentality" change somewhat over the last year or so.  Even the mainstream is showing some signs of a shift.  This "shift" has even become evident amongst and within the "old boys club".  For example, who would have imagined Germany, Netherlands, Belgium and Austria would ever ask for their gold back?  Or Texas building its own depository and using the words "not" and "confiscate" in the legislation for proposed repatriation? 

Several very well known and at one time mainstream money managers have publicly told of the dangerous situation.  The latest is a bond manager who has gone entirely to cash, how’s this for putting a crash helmet on?

http://www.bloomberg.com/news/articles/2015-06-22/tcw-braces-for-bond-market-collapse-by-piling-the-cash-up-high Just a few weeks ago, Bloomberg put out an article asking if China could gold back the yuan.  This was significant because no news source (other than maybe Kitco) has been as bearish and slandering regarding gold than Bloomberg.  http://www.bloomberg.com/news/articles/2015-05-20/chinese-gold-standard-would-need-a-rate-50-times-bullion-s-price

Going to the beginning and back to the top, who exactly was correct in 1999-2000? Who was correct from 2005-2008 about an impending crisis? The answer of course is the very same people screaming bloody murder today "the financial system will come apart from the seams". Are those who were correct before, now "crying wolf"? Or are they saying the same things for the same reason and forecasting the same results as before? "They" (we) were not crazy then and are not crazy now. In fact, it is even much easier to see now than previous. As a side note if you recall, we heard in late 2008 and 2009, "who could have seen it coming"? Or, "no one could have seen it coming". This is dead wrong! In fact, even within the mainstream press there was a concerted effort to silence the truth. For example, Greg Hunter while at CNN tried to warn of the banking collapse. He was told "don’t go there" and was rewarded by having his contract not renewed!

"Some" saw the dotcom bubble coming, more saw and warned of the 2008 crisis coming …and even more see this one coming. Not only are there more and louder voices today, the numbers are growing slowly but surely and even engulfing some mainstreamers who used to laugh at "us tinfoilers"!

I know how difficult it is and has been. The financial landscape is perverted beyond recognition and any time you open your mouth, you are proven wrong. Gold goes down the following day along with a new high in stocks so you look "stupid". You are not. "We" cannot make price, we can only tell the truth as we see it and suggest via common sense and logic the need to prepare for the worst. As I see it, the outcome is not in any doubt and becomes clearer each day. My fear is we are not in 2008 anymore, the coming collapse will change the world order to one unrecognizable to today. The U.S. is in fact "broke" as we spoke of at the beginning. The "realization" of this not only can happen but WILL happen. Sadly, because of how badly the U.S. has treated the world over these last years, we will be given no mercy when negotiating our bankruptcy. It will be a real live wolf at our door!

Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

You have heard the phrase many times "it’s already in the market", meaning if "something" or some sort of event happens it is already factored in to prices.  I was overseas last week, travelled much of the week and stayed in a hotel that had only two English speaking channels …one of which was CNBC.  I cannot tell you how many talking heads were paraded forth whom all parroted the same pabulum, "a Greek default is already factored in the market".  Really?  REALLY? 

For CNBC or any media outlet to downplay a Greek default is plain evil deceit at its core.  We have looked at this many times and from many angles, Greece owes close to 350 billion euros and when the amount of written derivatives are included we are probably talking well over 3 trillion euros!  Yes, the talking heads keep saying "much of the Greek debt is now off of the banks balance sheets and is now owned by the ECB itself".  Does this make it any better?  Or could it make the situation even worse because now a central bank has its balance sheet in peril and exposed?

The other side of the coin is the derivatives situation.  Please remember when a "default" occurs, the "notional value" becomes the true at risk amount.  This was the problem caused by Lehman Brothers in 2008, derivatives which had been supported by margin alone (and very thin at that) saw margin calls explode and the demands of 100% notional payments began.  This is why no one, ever, can be allowed to fail.  Because then the triggers are pulled and notional settlements begin …with a minor problem.  Derivatives simply cannot perform because they total more than the value of everything else added together on the planet.  The "money" simply does not exist for everyone to be paid.

The purpose for writing this piece is not to discuss Greece, whether they pull an "Iceland" and leave the central banks holding the bag …or talk about the odds of their banks opening Monday morning …or to speculate as to "when" they default ("if" is already in the rearview window).  A Greek exit from the Eurozone or a change in allegiance from NATO to Russia are both very real possibilities …but NONE OF THIS is "in the market".  Greece is but one of an absolute litany of potential events being ignored!

The list of potential events being ignored by the markets is very long.  They include the geopolitics of Ukraine, Syria, Iraq, Yemen, the South Sea islands Iran, and we might as well throw Israel into this mix.  Russia and China just announced trade to be done exclusively in yuan and rubles, is this factored in to the valuation of the dollar?  The U.S. has moved missiles into Poland and elsewhere to ring fence Russia, Russia has responded by repositioning "EMP" weaponry.  China’s economy is slowing while their margin debt and speculation in stock markets are at an all time high after doubling in value over 6 months.  As for the U.S., bogus number after bogus number is being reported while the economy declines in recession…and the world moves further and further from the dollar.  It’s all "business as usual" as long as markets can be controlled…

The biggest "factor" being ignored is the fact credit markets around the world have already seriously cracked.  Interest rates are rising and bond prices falling.  Please, never forget this, "credit" is THE FOUNDATON to the "value" of everything we know and believe to have value.  "Credit" (debt) is THE foundation to every current currency on the planet.  If the underlying debt is beginning to lose value, what will this mean for currencies?  What will it mean for the "discount process" to be used to value stocks?  Or real estate?  Not to mention the fact current cash flows will have the capacity to carry LESS debt …which has been used to hold up current values?  To finish this thought process out, the big picture is quite simple.  Debt has continually expanded faster and faster than the underlying global GDP.  Current GDP is simply not sufficient in size any longer to carry the global debt burden…

I am going to tell you, NOTHING "bad" is factored into today’s markets… even slightly.  All markets, all assets, everything has been "priced to perfection", FORCEFULLY "PRICED".  Do you understand what I am saying here?  "Prices", all prices are being "made".  They are being made to paint a picture of a perfect world.  This picture is a must to portray "all is well and no worries".  Almost none of the potentials I wrote of above (and there are many more) have even seen the light of day in the Western mainstream press …because if they did then they might affect values and partly be "priced in".

Let me finish by talking about "black swans".  A black swan by definition is a surprise event taking participants unaware.  How can anything we already know about …and is supposedly priced in to the market be a black swan?  Maybe because so few believe a systemic failure can happen?  Maybe we should categorize the entire financial system or even our way of life as a "black swan" because almost no one believes "it" (the ride) can ever end?  Americans in general know something is wrong but they just can’t put their finger on it.  A recent poll taken by Gallup shows confidence in almost everything has dropped

http://www.usnews.com/news/blogs/ken-walshs-washington/2015/06/17/americans-have-lost-confidence-in-everything to previously unseen lows. 

As I have mentioned many times before, the last piece of glue holding the system together is confidence.  The confidence of a central bank in another central bank, the confidence of institutions in other institutions and of course the confidence of the general public.  While on this topic of confidence, why do you believe four European central banks have requested their gold back?  Or closer to home, why does Texas want to retrieve their gold from Yankee bankers?  Confidence is a peculiar thing, it takes a long time to build and may be retained by "reputation" for quite some time …but when it breaks it goes away like lightning!

None of the potential black swans have seemed to even move the dial because the puppeteers have used derivatives to collar, support and suppress various prices and thus "hide" any bad reaction.  I have to believe the ultimate black swan is exactly this, the loss of control of everything including perception.  After all, the most ingrained of thoughts are these; the government can never go broke, the government will never allow it or let it happen.  Maybe THE black swan is the most obvious of all, the government is in fact broke and Mother Nature does still exist.  We have gone so far down the rabbit hole where absolutely nothing is actually "in the market", I believe the biggest shock of all will be what the world looks like the day markets try to reopen?  

Regards,  Bill Holter
Holter-Sinclair Collaboration
Comments welcome!  bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

My last piece was quite long and involved, some liked it and "got it", others not so much. The breaking of confidence was the point I was trying to get to. I intend to try again with this writing but from a different viewpoint. Today, rather than continuing to hammer away at the fraud, collusion, and upside down logic of global politics, economics and finance, let’s look at a real world case. I received a rather long note from a reader earlier this week who was visiting of all places …Zimbabwe! I did not ask "why" he was visiting and can only imagine, but in light of where "we are going" it is fortuitous for us to have a pair of boots on the ground! The following is "the heart" of what he wrote. Please read this twice so it really sets in, I will comment afterward and hopefully this exercise will "make you think".

—————————–

…First Hand from Zimbabwe;

"Yes, they try to sell you their funny colored money with lots of zeros on it ROFL. They seem offended when you decline their offers. I told the guy I bought some off of ebay, and got the "deer in headlights" look back. I just moved on.

Anyway, met a guy who was friendly so started chatting.

This is first hand from someone who grew up here, born here, lived through the hyperinflation, had a real job, parents, house, savings, etc. I just asked him things point blank: what happened and what did you do during that period just to see what reality was.

His parents were pretty well off, brits of course, retired (or very close) for a normal Zimbabwean. Considerable savings. Not a mil USD (equivalent) but up there ($250K-$500K’ish I think in hard savings).

He said: "They went from set for life here in Zim to not being able to afford a loaf of bread in 2 days." (these were his exact words, not mine, not a paraphrase, the exact statement, I remember it clear as day, and this was only 2 hrs ago).

The first question of course I followed with was: Um, why they didn’t buy gold? And here you have the story:

He said his parents were very conservative and placed complete trust in the system and the gov. It would never even occur to them to do something like that, and he said they said it would be way way too risky to do something like that (not because it was illegal or anything, but because gold was viewed as risky, asset wise!).

He said he might (!!) do gold next time. His first response was he’ll buy a few barrels of oil and keep them in his back yard to sell/barter LOL. Seriously. But he said, yeah, gold would be worth doing next time. I honestly don’t think that this option had occurred to him yet even to this very day, until I asked him this question. That’s just the feeling I got, as he had to pause like he was thinking about do the head nod (thinking, thinking….) what I just said before he answered.

So even now, if it happened AGAIN, the people would not necessarily turn to gold (wow, wow, and wow!). They would all instead INSTANTLY convert everything (it seemed he was indicating) into dollars to be safe! (another wow, wow, and wow)!

I told him the USD was likely on it’s way towards hyper’ing also. He seemed quite (totally) surprised. He said, he thought the EUR was headed that way, but not the USD. It seems that Zimbabwe feels the dollar is now, and always, solid as a rock."

—————————–

First, please remember this was a conversation with just one person so it is by no means even a "sampling". It was however a conversation with someone "who had something …and lost it all". The story is important in my opinion for several reasons I will touch on.

"Mathematically", the U.S. dollar is headed for the inferno of hyperinflation. There is no argument on this point from anyone with intelligence. Even Harry Dent and Martin Armstrong the most staunch "deflationists" around admit the final chapter is that of wildly high gold prices (which means a breakdown of confidence in the dollar). The difference between "them and us" is "how" we get there? I believe we have already been witnessing the "squeeze" and run into the dollar as a "safe haven", they see it as a continuing and future event.

The absolute most important thing to take from our reader’s comments is this line He said: "They went from set for life here in Zim to not being able to afford a loaf of bread in 2 days." Yes I know, something in your gut is telling you "but we aren’t Zimbabwe", the U.S. is far more sophisticated, has the greatest military in the world and of course the "it can never happen here" syndrome is chirping in the back of your mind. Let me say this, "NO, we are not Zimbabwe, what a shame!". I might have lost or confused you here and I’ll get to this in a moment.

"Banana Republicland" (debt to GDP ratios of 100% or more) is now occupied by a large percentage of the world’s sovereign nations. The U.S. has more than a 100% debt to GDP ratio just using "funded" or on books debt. The ratio goes ballistic and out of control when you add in "guarantees and future obligations". After researching the Zimbabwe situation, their debt to GDP number was not greater than Japan’s currently and approximately (180%) equal to that of Greece …with Italy slightly behind. My point is this, the debt to GDP ratio in the U.S. when everything is included is some God awful number, maybe 500% or even multiples more! I have news for you, we are already Zimbabwe on STEROIDS! Before commenting further, I will refute the obvious, "but the U.S. has the strongest military in the world …probably yes, but we are stretched out with many various "scopes" targeted at us. The days of "forcing" the dollar on the rest of the world are waning very quickly! World War 3 will be our main concern should the U.S. try to "force" dollar dominance. All you need to do is look around, the ROW is and has been angered by our "forcing" the use of dollars. They have been reacting by doing trade to the EXCLUSION of the dollar. The days where our military could foist the dollar on the world are over!

I mentioned above, "it is a shame we are NOT Zimbabwe", can you guess why? Because the U.S. still "has" (or believes it does) mass wealth. Yes we have really split into the have’s and have not’s as the middle class has been attacked and fallen into the have not category but …our living standard is far advanced from Zimbabwe’s in general. We have more to lose. In other words, "it is better to have never had than to fall from grace". Zimbabweans lost their savings, on average their "fall" in living standards is miniscule to an event like that happening in the U.S.. Not to mention the unrest and riots we will see when people who were previously "entitled" …wake up to nothing! As an analogy, their fall was off the bottom rung, ours from a skyscraper! A very timely side note, while writing this article, the Zimbabwe dollar will officially "go away" http://www.zerohedge.com/news/2015-06-11/zimbabwe-demonetizes-offers-us5-175-quadrillion-zim-dollarshttp://www.zerohedge.com/news/2015-06-11/zimbabwe-demonetizes-offers-us5-175-quadrillion-zim-dollars

I also found it curious that this person had not "figured out" gold and to this day still has a feeling of "risk" when it comes to the metal. Stepping back for a moment, why do you suppose invading forces ALWAYS steal their captor’s gold rather than the currency and the plates to make the currency? Please don’t tell me I am living in Roman times, or the Middle Ages, or Napoleonic times. I am not even living in WW I or II times, as recently as the last several years, Iraqi, Ukrainian, Greek and Libyan gold has ALL been pilfered! Ask yourself this question, if the U.S. was invaded, would our conquerors steal our dollars or break into our vaults in search of gold (maybe to a very bad and empty surprise?)?

Please think this through for yourself, can we in the U.S. and the West in general wake up to closed markets and panic conditions? Do you really believe paper currency will become more valuable (for more than a week or two) if the debt markets and derivatives are closed with no bids? Do you really believe gold and silver will be "offered" in any fashion except maybe for something you have as barter? I still cannot get over the deflationists argument the dollar will strengthen in this scenario. The killer question of course is this, where exactly should (can) we store all of these valuable notes and digits "safely"? I suspect there will be a run on wheel barrows and those old "Radio Flyer" wagons will actually again have a function beyond their antique value!

Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome! bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

It is obvious to anyone with eyes to see, "power" is shifting from West to East.  China is the leader, the epicenter of the East and of course they are the ones "hoovering" up the lion’s share (along with India)of global gold production.  The following map was sent to me by a friend,

clip_image001

I guess I already knew this but what a stark shock to actually see it!

More than 50% of the world’s population living in a land mass of 15% or less of the total.  What exactly does this mean other than having good odds of being able to spit on your neighbor’s house?  I believe it means much more today than it did years ago, let me explain.  Years ago, before we lived in an instant information age and before China/Asia had built up the world’s largest manufacturing capacity, "it meant less".  I say this because our world today is so interdependent in every way.  Trade and commerce rules the day, and financially everyone is "in bed with everyone else".  This is a recent development over the last 20 years or so prior, this was not the case.  I am not trying to say trade and finance were not international in the past, they were, what I am saying is instant information now makes "knowledge" (information) more available.  The "information" available has taken Asia from the backwoods and "brought them to the table" so to speak.

The simple truth is we are now facing a "new world order", not quite the NWO the neocons had envisioned at the turn of the century (or maybe this WAS the plan?)!  The seats at the table are about to change, the "head" of all tables since WWII has been occupied by the U.S..  This will certainly change.  The list of preparations by China to assume their new role is quite long and even the details now seem to be about ironed out.  For example, how do you explain this http://oilprice.com/Energy/Energy-General/China-Hopes-To-Setup-New-Oil-Futures-Contract-By-End-Of-Year.html ?  China plans to "trade" oil in yuan.  They are already conducting ALL energy commerce with Russia to the EXCLUSION of dollars!

Please understand this, with these contracts, they are not going to just "pay" for oil in yuan, they will buy it, trade it, hedge it and speculate on it …in YUAN!  Does anything about this jump out at you?  It should.  Mohamar Qaddafi and Saddam Hussein lost their lives just "talking" about accepting something other than dollars for their oil.  Now, the Chinese are openly and publicly planning to take the world OFF of the petrodollar standard!

Let’s take a quick peak at two recent pieces of Western news.  First, the EU has told 11 nations they must write into law "bail in" rules or face penalties.  Do you understand this?  The EU is demanding the savior of banks be at the expense of the people!  They are also trying to get this done quickly …can you guess why?  Another bit of news was the IMF urging the Federal Reserve NOT to tighten until next year.  Again, can you guess why?  Unsustainable debt …and interest rates of ANY consequence are not compatible.  The West is on its heels on almost every front and backing up while China/Asia prepares…

  To wrap this up and the reason for penning this piece, "he who has the gold makes the rules" will soon again be seen as the reality.  The U.S. had an intact industrial base and the largest hoard of gold in the world after WWII, we "made the rules".  Now, China has built the world’s largest industrial base AND hold the largest hoard of gold in the world …they will soon be making the rules.  This will be felt in many many areas, the most acute I believe will be in the gold and silver markets themselves!  If you cannot see their price suppression or cannot bring yourself to admit it, what comes by way of China will either shock you wake you up.

London and New York where paper contracts regularly substitute for the real thing will be relegated as jokes.  Watching the COT reports or the London "fix" will be useless (it already is).  Once China begins to price oil and gold in yuan, it will be more important to watch the cross currency rates of the yuan versus other currencies as asset prices may "re-set" and then trade in relatively stable "yuan ranges" …it will be foreign currency movements against the yuan which will cause the bulk of asset price swings in "local currencies".  If China does in fact decide to back the yuan with gold at a new and greatly marked up price, it will then be a great asset to be able to read Chinese.  I say this because it will be their "COT reports" that matter!

Please don’t get me wrong, China may very well start off on the right foot, however, it will only be a matter of time before human nature and greed take over.  Should China and the yuan ascend to a major or even THE reserve currency, I have no doubt whatsoever they will eventually abuse the privilege just as the U.S. has.  The one thing I believe most important is whatever level of gold holdings they "claim" will be far less than what they actually have.  This, the reverse of the "claims" by the West! 

Regards,  Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

Global markets are changing drastically and showing volatilities like we saw back in late 2008.  I am not talking about stock markets, it is the debt and currency markets that are schizophrenic.  Oddly, even after all of the various Western "QE’s", liquidity suddenly looks like it is drying up.  A great article as to why even the depth in the U.S. Treasury market has disappeared can be read here http://www.zerohedge.com/news/2015-06-04/here-reason-there-no-bond-market-liquidity .  Various credit markets (important one’s!) have cracked over the last month and the myth of "zero percent interest" rates is in the process of being shattered.  I want to visit several topics in this piece, each one with the ability to break the derivatives chain which is exactly what we are headed for!

First and foremost, I believe we are about to find out central banks are not the omnipotent powers we’ve been led to believe.  You might as well say central banks have been perceived as all powerful, all knowing and the savior of any and all things "bad".  The confidence in central bank’s abilities to fix anything and everything has grown to epic proportions and is now ingrained everywhere.  This thought process is so prevalent, we might as well say it is "imprinted" in the mass psyche from birth!

What we are seeing now are credit markets revolting against the risk of over levered sovereign treasuries and the fact of receiving zero compensation for the outsized risk.  Investors were led and cajoled by central banks into this corner of uncompensated risk.  It was easy.  Central banks led by the Fed only needed to announce their "plans" and investors stormed the credit markets in front running fashion. 

A natural problem or two is arising.  Interest rates have been zeroed out for too long.  As the three Fed stooges finally admitted last week, zero interest rates are only justified by crisis.  Continued zero interest can mean only one of two things, we are still in a crisis behind the scenes or rising interest rates cannot be tolerated by markets with no margin left.  Both of these are the reality!  Before going any further, one thing needs to be made clear.  Central banks do not, better said CANNOT set interest rates.  Yes, they can push, pull, "suggest" and even buy sectors of the credit market to affect interest rates…

…BUT ONLY in the short run.  My point is this, "the short run" is ending!  The central banks are running up against the "confidence clock" if you will.  The economic and financial lies told are now being revealed for what they are, WHOPPERS!  Think about it, do any numbers make sense?  Inflation?  GDP?  Employment?  Spending?  Housing?  Nothing reported now makes any sense at all and the lies have by necessity gotten so big, even little children know them not to be true. 

The truly HUGE problems lay in the derivatives markets.  These are multiples of all markets …with very thin margins allowed for losses.  The volatility seen in currencies and debt over the last month have surely bankrupted many.  You see, it was the use of derivatives markets in the first place to "engineer" the bubbles …which are now bursting!  It is quite simple, the leverage afforded by derivatives, funded by credit and freely printed currency blew the bubbles to begin with.  Margin calls and forced closure of many of these derivatives will be the driving force of the coming collapse.  A broken derivatives chain will break everything beneath them including the currencies themselves.

The following is how Jim Sinclair has described derivatives:

"There is no such thing as a derivative that does not have an implied or defined interest rate characteristics. This is the chain that connects them all.

That makes this problems larger than one quadrillion dollars, the true level of the notional value derivatives outstanding before the BIS got into Whoopers, changed the computer program for measurement and reduced outstanding notional value of derivative outstanding to just $700 trillion in 2007. Here is the concept you must understand. Notional value of a derivative becomes real value of the derivative in the event of derivative bankruptcy. Derivative bankruptcy is defined as the breaking of the interlocking chain, interest rates. Now, you the reader, have a feel for how big this problem is. This unwelcome change in the interest rates market, the bond market, is truly the god of Death for the world’s financial system. When the smoke clears, gold will be the only true measure of value (a definition of money) with gold’s only mechanism for price discovery being the now growing and transparent physical market, the paper market will be in tatters as will be the paper exchanges and paper public companies that own these exchanges."

In a nutshell, derivatives NEVER DIE, THEY ONLY GROW LARGER!

Before moving on, HUGE NEWS has broken today, the two CEO’s of Deutsche-Bank have stepped down!  http://www.usatoday.com/story/money/2015/06/07/deutsche-bank-ceos-step-down/28641471/ Deutsche-Bank is the largest holder of derivatives in the world, equaled ONLY by JP Morgan holding a "cool" $75 TRILLION!!!  Please view the following chart of the 10yr Bund, rates have exploded higher in a very short time span.   Huge losses have been incurred as ALL derivatives have interest rates assumptions within, no doubt your reason for the sudden resignations!

clip_image001

Courtesy, thekeystonespeculator

Something has clearly BROKEN!

The next false belief is about debt itself. I had the privilege the other day to personally listen to Greg Hunter go on a tirade about this. He said "the biggest lie in the world is that debt is an asset and debt is money". He went on to say "NO IT’S NOT! Debt is ALWAYS A LIABILITY!" This is absolutely true, simple to understand, and 180 degrees counter to what the world believes …for now. Let me explain this a little because it is "core to everything" (pun intended as you will see).

Debt is the foundation to everything. "Currency" itself is created ONLY by the creation of debt. Better said, currency is created by the increase in the amount of debt outstanding. Debt stands as the foundation to all bank portfolios, all pension plans, the "value" of and "liquidity" of all real estate and equity markets. "Debt" is THE foundation to what 99% of the world calls their "net worth".

Before tying this part up for you, one other item needs mentioning. This past week, Christine Lagarde of the IMF was out publicly "stating" (could be called demanding, asking or even PLEADING) the Fed should not raise interest rates until sometime next year. (As a side note, can you remember when "raising rates" was first mentioned? 2010! It has always been "next year" since then!). The interesting thing is Janet Yellen was talking about raising rates at the same time Ms. Lagarde was speaking.

"Houston, we have a problem"! Do you see the problem? Switzerland broke the peg with the euro back in January …and forgot to give the IMF a heads up ahead of time! This affected MANY banks including central banks themselves. Did they give a heads up to the BIS? Probably. If so, was this the first sign of the "Western" IMF being isolated and in the dark? I believe it was and I also believe Ms. Lagarde is terrified the Fed may actually try to raise rates one token time for whatever reason, to save face, for legacy or whatever. (I am on the record many times before, I do not believe the markets will even function within 48 hours of an actual Fed rate hike). One other question, can the Fed or other central banks really sit idly by as market rates run interest rates away from them to the upside? A true dilemma!!!

Do you now see where I am going with this? Market rates are now clearly going higher whether central banks like it or not …with or without them! This part is important because it speaks to "confidence" or the lack of, it is however not the MOST important. What is most important of all is this, EVERYTHING financial in the world is "discounted" against current, prevailing and EXPECTED interest rates. The higher the rate and the higher the expectation of rates …the lower someone is willing to pay for a current asset! Can you say "everyone out of the water"!

There is also another aspect. Since "debt" underlies everything, as interest rates do rise, bond "prices" (values) drop. What do you think lower debt values will do to bank portfolios, pension plans, insurance programs etc.? You got it! More and more "assets" become "unfunded"! Obviously, starkly higher interest rates in a very short time also blow up ALL derivative’s interest rate assumptions. We are talking about TRILLION’s being turned on their head!

To wrap this up, the world CANNOT in any way have higher interest rates but this is exactly what is happening. Interest rates were forced to zero because that was the only rate where debt services could be made and asset prices "supported". Rates are reversing, many debts will not be paid nor able to be rolled over (at higher rather than lower rates), asset values of all sorts will plummet, financial structures and promises will be hollowed out …and even the currencies themselves will be questioned.

Once the belief that "debt is an asset …or even money" is broken, just as a spooked herd of cattle runs wild, so will investors. They will seek the safety of "no one’s liability" because no one will be trusted. This includes the central banks and sovereign treasuries themselves. Gold, (no one’s liability) will not pay you interest and will not make promises that cannot be kept, it will simply "remain". Gold will remain as the world’s purest asset and purest money. In a world where most all "assets" are finally understood to really be someone else’s liability, there is no telling what value might be placed on the purest form of asset/money? Gold will be seen as the "anti liability of last resort". I guess better said, gold is the ultimate central bank for the asset side of the balance sheet!

Regards, Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

Posted by & filed under Bill Holter.

Dear CIGAs,

Jim suggested a big picture topic to write about, each step forward by the Chinese to make a foothold for the yuan is one step backwards for the hold the dollar has over the globe.  This topic has several nuances to it, let’s take a look from several vantage points.  As a spoiler, any "steps back" in today’s fiat currency world are steps toward a break in confidence.  Call it deflation or hyperinflation, a break in the confidence of fiat currency will end with many currencies being replaced, this is a major part of your coming "re-set".

  The first and most obvious is we live in a world with an economic and financial pie of a given size at any point in time.  Each deal, each transaction and each "platform" that is done or created by the Chinese for using yuan instead of dollars means the size of the of the pie "slices" change.  Any increase in the usage of yuan means a smaller slice for the use of dollars.  Yes, theoretically the pie gets larger over time and we’ll get to this shortly, I am simply saying here that in a static system, more yuan usage means less dollar usage.

  The next logical step is to equate the usage of a country’s currency with "power".  As any currency becomes more popular for usage, the confidence in that country also increases and vice versa.  In today’s world (but not for long?), fiat currencies with no backing are free to create.  In the case of the dollar since 1971, more usage (via petro-dollar reinvestment) allowed for more "creation" of dollars and thus the power generated from the "privilege" to print.  This so far is simple logic and merely a description of how our monetary world works.

  China has done many things over the last several years with an eye to moving their currency, the yuan forward.  They have purchased massive amounts of gold to be held as reserves, we will very soon find out how much they have accumulated as they announce for their entrance into the SDR.  China has also set up two dozen "currency hubs" all over the world in major cities.  They have done this to aid in the conversion of local currencies into and out of yuan.  Clearly this move will aid and grease the gears for trade done with China.  It will also aid in currency movements looking to "buy" yuan if deals are contracted to settle in yuan.  In essence, China is simply "making it easy" to purchase and use their currency.  They have also set up credit facilities such as the AIIB and new exchanges for gold, the SGEI.  China is actively seeking "new customers" and trade partners along the "Old Silk Road" as they can see the writing on the wall …as well they should since they are the ones doing the writing!

  If you look at nearly everything China has done in recent years from a financial and economic standpoint, it can be seen they are preparing the yuan to become a "major" and international currency.  They have requested the yuan to become part of the IMF’s SDR which gives us an approximate time guideline.   Whatever percentage the yuan gains of the SDR pie will come at the expense of the dollar’s piece.  The flip side of the coin is the U.S., what exactly has the U.S. done in recent years to "promote" or make it easier to use dollars?  This is a simple case of losing market share!

  Now, let’s look from a different angle.  Any economic (financial) system is either increasing in size or decreasing.  It may be increasing at an increasing rate or the rate is slowing.  The system may also be decreasing at an increasing rate, or the contraction is slowing.  In a fiat system where debt is the underlying asset holding up values and ultimately the currency itself, debt outstanding (growth) by definition MUST increase in the long run and it must grow at an increasing rate.  This is an "absolute" because there does not exist the "dollars" today to pay future interest, they simply do not exist …"yet".  The only way they will ever come into creation is by creating more debt or using the electronic printing press.  In the words of Richard Russell, "it is either inflate or die!". 

  Let us now look at the "die" part.  If (when) China makes the yuan convertible and international, this will immediately take "market share" away from the dollar.  This is where it gets interesting because there is a major fork in the road, it is called the debate between the "inflationists and the deflationists".  One theory is that any decrease in dollars outstanding (and being used) will cause existing debt to default and create an unending cycle of default.  This the deflationists say will actually make "dollars" worth more.  The inflationists say this can never happen because the Fed will simply "print" more dollars and thus ruin the value of existing dollars via common hyperinflation.

  Let me say this, I disagree with both arguments!  First, as for the deflationists, let’s assume (and I do) we have hundreds of trillions in defaults.  What, if anything will be left standing of the financial markets?  With the derivatives outstanding, which banks exactly will still have their doors open for you to retrieve your now "more valuable dollars"?  Will ANY financial institution still be solvent?  And going one step further, when this collapse comes, won’t the business climate turn highly negative …which will slow tax receipts to a trickle …and make it impossible for the Treasury and other agencies to make good on their debts and other promises (unless they just conjure up more out of thin air)?  Finally, aren’t "dollars" ultimately backed by the "full faith and credit" of the United States"?  Aren’t dollars now "used" based on the "confidence" in the U.S. Treasury since they are not convertible into anything else?  Flipping to the inflationist side, they say the Fed will simply print more and create hyperinflation.  I say they have ALREADY hyperinflated the currency by allowing the system to reach, and pass the "debt saturation" level.  They have already put the seeds into the system!  

  What I believe we will see is what we have always seen as a final result of fiat currencies, a collapse of confidence.  Call it what you want, call it a deflationary collapse or call it hyperinflation, the end result will be "confidence" in the U.S. dollar will collapse.  It will be shunned in international trade and will take MANY more dollars (if at all) to conduct transactions.  What is coming is a "monetary event" triggered by a very human emotion, "fear".  Fear that the dollars you hold will not be accepted when you go to spend them!

  To finish, let’s add gold into the equation.  We have only seen true "deflation" once in the last 100 years in the U.S..  We entered deflation in the 1930’s and if you listen to Harry Dent, owning dollars was the number one place to have money.  This is simply NOT SO.  Yes, having dollars was "good", having dollars in a bank was "not so good" because many banks simply closed their doors and the dollars were lost … the insolvencies occurred BECAUSE of the deflation.  Going one step further, FDR devalued the dollar versus gold from $20.67 to $35 per ounce.  Please remember, back then dollars did not have value because they "were dollars", they had value because they were RECEIPTS FOR GOLD.  Gold was the asset, gold was "the money", dollars were the derivative of gold!

  As it was in the 1930’s, ever before and ever since, gold is money.  Any future "deflation" that occurs will be "against" or IN terms of gold!  Ask yourself this, in a financial collapse, "what will be safe"?  Will your bank, broker or insurance company be safe, or even still solvent?  Will our over indebted government be safe?  Will the pieces of paper or digital credits issued by this "safe" government and held by your "safe" institution …really be safe?  Or, will gold, which is readily accepted and even HOARDED by the rest of the world be accepted, sought after and thus both liquid AND safe?  This is THE most important question and one that will affect the rest of your entire financial life!  It’s not that hard of a question, only a little common sense and a small dose of logic will get you there!

Regards,  Bill Holter
Holter-Sinclair collaboration.
Comments welcome bholter@hotmail.com