Posts Categorized: Bill Holter

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."

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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

Posted by & filed under Bill Holter.

Dear CIGAs,

You really have to wonder how it is that so much is going on all around us yet almost nothing is being reported by the mainstream press.  I know it is hard to do, but imagine yourself 20 or 30 years ago, could what is currently happening ever be “slept through” as it is today?  Could markets have just snoozed it off as if nothing bad “could” happen?

  For example, the U.S. economy is in another recession.  The 1st quarter GDP was revised to show a decline of -.7%.  Do you know why the number was not worse?  Because the BLS used as a very “special” assumption, a NEGATIVE inflation rate, if they used just a 1% inflation rate, GDP would have reported negative 2% plus!  But wait, the funny part is this, the Fed at the same time is again bringing up tightening interest rates.  Again, imagining yourself 20-30 years ago, the speculation would be “when will the Fed begin to loosen” …and here is one of your problems, the Fed CANNOT do ANYTHING to turn up the economy.  The Fed has fired all its bullets and cannot loosen further.  Yes they can start up another QE (the opposite of what they are taking about now) but I believe even they fear the reaction this time around.  What would they do if the selling pressure increased on the announcement of another QE?  Can’t happen you say?  I hope you’re right!

  The Chinese stock market took an 11% nosedive over the last two days of the past week, did you hear about this?  Is it “unimportant”?  Or how about COMEX having 26 tons of gold standing for June delivery with only 11 tons currently on hand?  You probably didn’t hear about this one because they will just cash “settle” (they have already begun as 2,800 contracts “disappeared” last night), nothing to see here, move along.  How about David Cameron promising an “in or out” referendum pertaining to the British and the EU?  Or the right wing in France demanding a similar referendum?  Probably not important enough either?

  Or how about this list; Goldman warns “too much debt” threatens the world economy… China places artillery on disputed South Sea islands… Margin debt 50% higher than last peak… Russia backs alternative to SWIFT… 5 billion euro bank run in Greece … or just plain old Greece?  Even worse than all of these pieces of “real news” that didn’t make the news, did you hear about Yemen?  Or more specifically a (or several) nukes were lit up?  Yes, nuke(s) went off in Yemen late last week and the press (yawn) decided it wasn’t “newsworthy”.

  Shifting gears just a bit, I want to bring up a topic I have not seen anyone even talk about.  Do you remember last November when Congress, the Senate in particular was “shaken up”?  “We” (the American people) threw the bums out!  I can remember it vividly, Congress would now be able to hamstring a president running roughshod over the Constitution.  I thought it might be a glimmer of hope …I thought WRONG!  Has anything been done to reverse or retard Obamacare?  The answer of course is no, nothing.  I ask you this, what exactly did we get for our votes to evict the “bums”?…  …How about Loretta Lynch!   How did she get confirmed as Attorney General?  As Ted Cruz said, “she looked Senators in the eye and told us she intends to disregard the law”http://www.breitbart.com/big-government/2015/04/24/exclusive-ted-cruz-loretta-lynch-was-confirmed-because-gop-establishment-wanted-her-to-be/  .  I ask, was there even a purpose to the last election?  Or better yet, once the financial system comes down and social unrest unleashes martial law, was that our LAST election?

  I am not kidding here folks, the rule of law is gone in the U.S., our financial system is a totally rigged sham and people believe they are “wealthy”… are they really? W e have zero press left to hold anyone’s feet to the fire or accountable for anything.  More people now “take” than “pay” and we are so broke as a nation we can’t even afford to pay attention!  What could possibly go wrong?  The worst thing of all is if you were to bring up even one of the above “cluster bombs” at a summer BBQ, it is YOU who are the nutcase!  Our Forefathers are in tears.

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

Posted by & filed under Bill Holter.

Dear CIGAs,

Rather than write about the economy, the markets or geopolitics, today let’s look at something a little different.  It’s important every once in a while to step back and take in the big picture because we are all guilty of getting too close or “finite” if you will.  We fight the daily battles while losing sight of what the war is really about.  Gold advocates otherwise known as “gold bugs” have been worn down by the daily battles, some have even forgotten what the real war is.  Gold bugs, these are the “crazies” out there who are described as nuts or “conspiracy theorists”.  We know now they were not “theorists” at all. JP Morgan’s $32 billion paid in fines along with many other fined and censured firms is proof of conspiracy FACT!

The term itself “gold bugs” is disparaging as if gold advocates are like some sort of cockroaches running around and dirtying up the place.  It is true that some “advocates” go off half-cocked and see everything as a conspiracy, I have even come across some who are so fervent they believe in gold as some sort of “religion”.  It is not.  “Gold” as JP Morgan once said “is money, nothing else”.  Gold is in fact money, it is real money that has value on its own and not “legislated” or as it is in today’s world, “mandated upon” the public.  Most Americans who are reading this may have a difficult time understanding it even though true, many foreigners are nodding their heads with a slight smile!  It should be pointed out, everything these crazy gold bugs have been saying about the world from a “fiscal” standpoint has and is in fact coming to fruition.  It has not happened “when” nor as soon as they believed it would (me included), because the current insanity of balance sheets could never have been imagined even 10 years ago …however, “timing” does not change “the ending”!

Stepping back and looking at the forest rather than the trees, collectively a very large part of the world is in a state of bankruptcy even though not declared, recognized or admitted.  No matter how you look at it or on what level (state, corporate or individual), the standard of living is broadly in decline globally.  (Yes I know, that top 1% or even .1% is living well and improving with each drop of sucked blood they receive from the system.)  While choosing this topic to write about, I had no idea how fortuitous the timing was.  Within 15 minutes of beginning this piece, a link https://www.youtube.com/watch?v=pfpEHwARhvc to an interview of none other than Alan Greenspan, Richard Fisher, and Lawrence Lindsey hit my inbox! 

I could only chuckle after watching the interview because my entire writing can now consist of “yeah, what they said!”.  Rather than write an entire article on this, I believe it might be better to let you watch what I was going to write, and we can move on to the “motives” of these three telling “mostly” the truth.  If you watch this interview, please keep in mind this one question “…and the alternative is”?

Why exactly would these former Federal Reservists hint that, mathematically, logically, intuitively and in real life, IT’S OVER!  They did back pedal a little bit as the interview went on but “why” or better yet why now?  I believe they know what the crazy gold bugs have been saying all along is true and the day of reckoning is very close at hand.  They must be trying to get “out in front” of what is coming so they’re on the record for historical and “legacy” purposes.  Nothing else makes any sense.  Are they “trying” to torpedo the system or to break confidence?  I highly doubt it but after watching the interview, would any kid with a paper route invest their money into the current system?  Are they trying to bad mouth the Fed now they are no longer employed there?  No, in fact, they each one pointed the blame at Congress.  It’s Congress’ fault we are in this mess!  “They” (Congress) spent the money and made the promises which cannot be honored and will ultimately be broken.

There is a punch line of course, one these three men don’t want you to hear!  Actually, the joke AND the punch line are both one in the same, “the money itself is bad and is the core to ALL economic and financial problems!”.  You see, Congress could never had authorized all of the spending if the Treasury did not have the “money” in its coffers.  Yes Treasury could have borrowed money but would have been restrained if “money” was gold or something “real”.  The only way that Congress has been able to get away with bankrupting the country was with the aid of … yes, the FEDERAL RESERVE these guys used to work for!  The Fed has in fact underwritten the scheme, if there was no Fed …the leverage could never have been built into the system.  Greenspan, Fisher and Lindsey of course know this but they can never admit it.  Were they to admit it, it would be an admission that they knew all along they were driving the bus over a cliff …with a roadmap wide open!

All three spoke about the current state of interest rates and the unsustainability of the situation.  They ask “why”, for what good reason are interest rates at levels only justified by a crisis?  The answer of course is; we are still in a crisis, we never exited and if rates HAD been increased …their greatest fears would have already been realized!  Mathematically, rates cannot go higher because of the inability to service interest payments (not to mention blowing up the leveraged interest rate derivatives) would come front and center.  They are trying to say the inability to pay is guaranteed to come …but is a future event.  If rates were to rise now, it becomes a current event.  It’s really this simple!

Lawrence Lindsey even said at the 45 minute mark, “this is how they all end …including Zimbabwe”!  All “what” Larry?  Fiat currencies?  Or central banks who issue them?  This brings me to another article which has come out and ties in perfectly.  Actually, it ties in so well we can bring this entire article full circle and back to one of the gold bugs most central theses.  Zerohedge posted an article regarding http://www.zerohedge.com/news/2015-05-27/billionaire-hedge-fund-manager-paul-singer-reveals-bigger-short a systemic bet being made by billionaire hedge fund manager Paul Singer.  Mr. Singer’s strategy is simple, he calls it the “bigger short”.  He believes interest rates have only one way to go, up.  He also believes we will see far more staggering defaults than we did in 2008-09.  He believes shorting the debt of the world is a no brainer trade and one where you can win ALL the marbles.

Zerohedge of course picked up on the “minor flaw” in this strategy.  The very same flaw I might add that Harry Dent, Martin Armstrong and others are missing.  You see, when you “win”, you must be “paid”, but paid in “what” is the question.  Assuming Mr. Singer is correct and the system does collapse on itself and he “wins”.  His win of course will be HUGE …but, he will be paid in dollars or euros or whatever fiat currency his trade is done in.  What will his winnings be worth if the currency itself is worth nothing?  It reminds me of Mikhail Barishnikoff in the movie “White Nights”, he had a stack full of worthless rubles and threw them handful after handful up in the air while saying “rubles, rubles, lots and lots of rubles”.  He had money …but it wasn’t worth anything.

You see, the currencies themselves are supported by the very debt Mr. Singer is selling short and expects to collapse!  Which now brings us back full circle to the crazy gold bugs.  This is exactly what they have been saying all along, a debt default will also mean a collapse in confidence of the currencies themselves and direct “fear capital” back into real money.  This will create huge demand, force supply into hiding and additionally revalue gold higher because the currencies themselves are losing value and confidence.  Gold bugs are not so different from those who see the dangers in the system from overheated markets and overleveraged debtors.  The only difference is that these nut jobs want what hasn’t been for nearly 50 years, they want TRUE and REAL “SETTLEMENT”!  They actually want to get paid in something real!  How crazy is that?

Regards,
Bill Holter for Holter-Sinclair collaboration

Posted by & filed under Bill Holter.

Dear CIGAs,

Jim has asked me to review “G.O.T.S.” (Get Out of The System) with you and comment on it. From a timing standpoint, I can tell you he is as adamant as I’ve ever seen, now, RIGHT NOW you must exit the system! You will not be afforded the opportunity if you are even one second too late!

For your convenience, here is the GOTS check list:

1. Your equities are held in certificate form or direct registration
2. You have no Federal sponsored retirement funds such as 401K etc. 
3. You have no CDs and investments in bonds. 
4. You have modest money deposited among selected BRICs countries or BRIC protectorates like Singapore 
5. You store your own precious metals. 
6. You have no mortgage obligations. 
7. You keep cash on hand for 6 months expenses. That is cash, not plastic with credit open
8. You have no consumer debt at all. Pay it down or off.

9. You have a small hobby farm for protein and veggies outside of where you are living with no mortgage debt, set up green. 
10. You have a gas, diesel or electric car with high fuel mileage for the farm. 
11. You have a generator with large fuel capacity for the farm.

12. 33 1/3% of your liquid net worth is in gold and silver or according to your preference.

The above is by no means a complete checklist. Please keep in mind, not everyone even has the ability to attain the position of this checklist because they simply cannot afford to.  In a perfect world, the above checklist would be a “start” only and situated on a private island, preferably with other likeminded people.

Let’s break this list down into groups.  Numbers 1-4 pertain to your “paper assets”.  When the system comes down and is reset, do not count or rely on your paper wealth as an “asset”.  There are two problems, first whether your institution will even survive and then of course whether the paper itself retains value.  The basic premise is to rely as little as possible on paper and the institutions holding that paper. #4 is notable because having some capital outside of the West and within the BRICS ahead of time will leapfrog any capital controls put in place.

#5 is very important because of the counter party risk issue.  Is it really and truly gold and silver that you own? Or is it a piece of paper or a receipt “promising” you gold or silver?  Promises are made to broken …and “promises” are the only thing holding the financial system up from total collapse.  Better said, it is the “belief” in these promises preventing an outright collapse.  I have maintained all along, all that has been done has been to hide the relationship of values between paper currency and gold.  Quite simply, more paper exists than is believed and less gold is held than claimed.  We will find out the true relationship as the promises are broken!

  Numbers 6-8 are all about debt, have as little as possible!  For some, this is impossible.  Some believe gold will explode in current dollar terms (it will) and their debt will be washed away via inflation (it will not).  Jim wrote to me:

“Anyone who knows the real history of Weimar collapse know that the banks were not hurt as mortgages & debts owed were readjusted to value to gold before the collapse to the value of gold after the collapse so you owed the bank the exactly the buying power in terms of the Rentenmark (new currency) after the currency collapsed. Those that owned gold, closed debt obligation ahead of time and GOTS to the greatest degree they could were the winners to the degree they GOTS. They and the banks were the only winners.”  I agree with this, there will be no “debt jubilee”.  I would also add this, with gold (and especially silver) priced as they are right now, selling metal to pay down debt is not smart because the relationship is skewed.  I believe you will have a better gold/dollar relationship at a later date and prior to the issue of a new currency.  That said, having zero debt means zero chance of becoming a slave.

Numbers 9-11 are the hardest of all because they require a lot of capital.  Being totally self sufficient may only be a dream to you, ignoring this and living in a city will be a nightmare!  If the best you can do is to live 30 miles away from a city and in a rural setting, this certainly will be a better choice than living in a metropolis.  Remember, food stocks will run out within 3 days and even if you have paper dollar bills, they cannot spend on what does not exist.

A few months back I penned a fictional article referring to how it might begin to go down and can be found here: http://blog.milesfranklin.com/fact-or-fiction

By no means was this all inclusive, the exercise was undertaken to make people think.  It was meant only as a start for some or a reminder for others of what you may have forgotten. When Jim requested a review, he finished with the following “GOTS = Get out of the system. It is as or more important than owning gold and being in the system.” Please understand what he is saying, “gold will help but it is not a magic bullet.” Gold is meant to get your wealth “from here to there.” In other words, gold will transport wealth from today into tomorrow. It is up to you to live long enough to get there. Sufficient quantities of water, rice, beans and lead will be more helpful than gold or silver in this department!  Do the best you can with what you have, do not beat yourself up because you forgot something …you will.  Plan with like-minded people or neighbors and don’t mistake what is most important, your family and your spirituality.  Do what you can even while being laughed at by your friends and family, in the end, they will “get why you GOTS”!  And no matter what your faith or who your God is, make your relationship right because when push comes to shove, there are no atheists in a foxhole!  For those who have a belief, this is the Absolute GOTS of them all!

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