Posts Categorized: Bill Holter

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

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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

Posted by & filed under Bill Holter, USAWatchdog.com.

Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Recent Bloomberg analysis says if China backed its currency with gold, the price would need to be 50 times higher than it is today.  According to Bloomberg, that would be a gold price of around $64,000 per ounce, which is much more than gold expert Jim Sinclair predicted a few years ago.  Financial writer Bill Holter weighs in, “That was a few years ago, before some of the QE, and Jim has said that $50,000 gold may turn out to be laughably low. . . . I think it is very curious that Bloomberg would run this because Bloomberg is as mainstream Wall Street as you are going to get. . . . It would be my guess that Bloomberg has some type of information that China is going to announce their holdings.  I can show you that China has 10,000 tons of gold.  That’s pretty easy to do.  I use the figure of 10,000 tons, and oddly enough, that is the figure that Bloomberg used.”

So, what does the mean to the U.S.?  Holter says, “After they make an announcement that they have all this gold, people are going to say, wait a minute, where did they get all that gold? . . . It’s come from Western vaults, the biggest Western vault is the U.S.  So, the market place will make a judgment between the yuan and the dollar. . . . This is definitely a scheduled event in the fall, and the speculation has been that the Chinese may announce prior to that in order to give the IMF time to evaluate the data.  From my point of view, the Chinese may make that announcement to give it a push.  The dollar versus the yuan is going to depreciate greatly.  You could see a 20% to 30% move in the dollar (downward.)  The yuan is going to strengthen.”

Would the U.S. be forced to do an audit to verify its 8,000 tons of gold if China reveals theirs?  Holter says, “The market place will say do an audit or we will keep selling the dollar.  You very well could see an implosion.  I have said for many years now that there is going to be an implosion.  You are going to go to bed Friday night in a world that resembles the current reality, and you wake up Monday morning and everything has changed.  You will be locked into your position.  Markets are closed. . . .  Think about the brokers or banks that have a huge amount of derivatives. . . . The top two banks in the world alone have $150 trillion in derivatives.  The amount of collateral they need to post to keep the game going overnight could be in the hundreds of billions of dollars.  Where are they going to get that from? The Fed will not be able to put out this fire.”

More…

Posted by & filed under Bill Holter.

Dear CIGAS,

The title is of course a little misleading because China has many options, none of which except one in my opinion will actually work.  Options to what exactly you ask?  Options to a collapsing global economy and an imploding financial system which will surely affect China as much as anywhere else, but with one caveat.  I take these events as a given, others do not but betting against an outright panic and global bankruptcy is betting against pure mathematics itself.

Let’s back up a little bit and look at where China is currently.  They are the second largest economy in the world (maybe the largest, we can’t really know because the numbers here, there, and everywhere are made up).  China is by far THE largest manufacturer in the world and also an enormous exporter.  China is also in a three horse race as to who owns the most U.S. Treasuries with Japan and unbelievably the Federal Reserve itself.  They have an oversized shadow banking system which has already been shown as fraudulent in several cases regarding copper, zinc and lead as "collateral" (or not).

The Chinese also have a stock market bubble boiling that makes the tulip craze http://www.zerohedge.com/news/2015-05-22/chinas-tulipmania-full-frontal-shenzhens-parabolic-stocks-just-hit-67x-pe  look tame.  Because of sheer size of the country, they are opening something like four million brokerage accounts per month.  In recent days they have had several stocks hit new highs only to drop 50-60% or more in just one day.  In fact, they had one company stock hit a new high and then go to ZERO the following day because it was discovered their books were cooked to a crisp.

We also know China is a huge importer of gold AND the largest producer of gold in the world.  NONE of their production ever leaves their borders.  There have been estimates of gold tonnage held by many.  Alisdair Mcleod believes they may have 25,000 tons or more, I personally believe it is possible if you include legacy or "elders" gold.  Others believe the number is closer to the 5,000 ton range.  My belief is that 10,000 tons is a justifiable number and very easily proven, if this is true, much of it had come from the U.S. and other Western sources and thus depleting the reserves.  

I assume the number is 10,000 tons or more, this is a safe number in my mind.  I think it is also a safe bet to say the U.S. has sold a minimum of one half of "our" gold which would leave about 4,000 tons.  If this is the case, there is already a  new world order where China has as much gold as numbers 2, 3 and 4.  Looking backwards in time, after the Bretton Woods agreement, the U.S. had every incentive to keep the "price" of gold down at $35.  This is so and evidenced by the old saying "it’s as good as gold".  The saying originally came about as a description of the dollar.  As it turns out, the dollar was NOT as good as gold, in fact it was not as good as anything, even a cup of coffee.  The dollar was overprinted and abused (inflated) by politicians (the Fed) in order to hide anything and everything "bad".  This worked until we hit the wall, let’s call this wall "debt saturation".  Now, the process is reversing and will end in a massive deflation versus real money while fiat currencies follow their issuers into insolvency.

Getting back to China, whenever they do make an announcement of how much gold they have, the yuan will appreciate greatly versus all fiat currencies.  Many will pooh pooh this thought because "China will never do that, they will kill their own manufacturing base".  Let me answer this before moving forward.  The Chinese are very smart people, they can see the West is hitting the debt wall.  They also know that as the wall is hit and markets begin to implode, their "customers" are going to have an even harder time buying Chinese produced goods.  In fact, they already know this.  They already know this is happening and can see it in their trade figures …which is why they recently formed the AIIB and are working feverishly to open the "old silk road" trade route!  They are simply lining up new customers from one end of the silk road to the other!

I have hypothesized many times in the past, China has built out their infrastructure and even "ghost cities" using credit.  Once the credit markets begin to default, they will be left with "stuff", in place and will last for the next 50 to 100 years.  Roads, bridges, buildings, airports, ports, etc., you name it they have already built it.  And yes, their stock market will crash, their real estate market is already softening, in reverse and declining.  I am not saying it will be all rosy, to the contrary, there will be bankruptcies galore in China… with a caveat.  The "government" of China will go through this liquidation phase with the most gold in the world.

Moving forward, since China will be hurt badly as investments default, I believe they will re price their gold higher initially.  I believe marking their gold higher in terms of yuan will be their only option.  They will be forced to in order to "recapitalize" themselves (and their banking system) and begin to fill in the black holes created by defaulted U.S. Treasuries and other "assets" held.  You see, not only is the old saying "he who owns the gold makes the rules" true, it is also true that he who owns the gold has the ability to PRICE IT. 

This has been true for so many years as the U.S. (the West) has wanted low gold prices as a show or display that their fiat currencies were "good".  Now, as the curtain goes down on the West, China will want a very high gold price in yuan for when the curtain rises again.  A gold price maybe even higher than it should be will give the PBOC more power initially AND will allow them some room to inflate and grow.  Please notice I am only talking about China in this paragraph.  As for the dollar and other Western currencies, they will be revalued downward versus the yuan which gives gold priced in dollars a double whammy of re pricing.

Let’s tie this all together and look at the old silk road and the trade route China is focusing on.  It goes from Asia, through the Middles East and into Europe.  Could this be why various European nations are repatriating their gold?  Not only because they have lost trust in their custodian but they also know China will put an emphasis on gold holdings in the future?  What do many Asians hold as money?  Yes, Gold.  Indians?  Gold.  Arabs?  Again gold.  The point I am trying to make is the "old silk road" might as well be called the "yellow brick road" and one paved with gold from beginning to end!  It seems to me, the only ones who don’t understand this or even disagree are Westerners and in particular, Americans.  Our standard of living is about to pulled right out from under us while violently proclaiming "it can never happen".  I would say, it should have already happened but has not because we still had a few kilos left to supply the paving crew of the "Wizard of OZ paving company".

The above was finished midday on Saturday, since then two new pieces of news have come out.  First, China announced it is setting up "the world’s largest gold fund"  http://www.zerohedge.com/news/2015-05-24/china-establishes-worlds-largest-physical-gold-fund  .  They will earmark $16 billon to purchase physical gold.  If you do the math, this is around 500 tons or about 20% of global production.  By calling it "the world’s largest gold fund", maybe China is saying they do not believe "GLD" is real?  Just an observation. 

  In the latest piece of news, http://rt.com/business/261289-brics-new-development-bank/ RT ran an editorial piece pointing out that China already lends more to Africa and Latin America than the World Bank and IMF combined.  Is this posturing "for" the Chinese before the IMF readjusts the SDR?  Seemingly disconnected pieces to the puzzle, don’t bet on it!

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

Posted by & filed under Bill Holter.

Dear CIGAs,

Very soon we will be entering the month of June. Normally June is the time of year in the northern hemisphere when people think of picnics, parks, water sports and the outdoors. It is a time where plans are made for vacation, rest and relaxation. This year may be a little bit different. I say "different" because there is a plethora of converging events, any single one of them with the ability to take the financial markets down to their knees!

Let’s first list the events (which may not even be all inclusive because I either forgot something or am unaware of). What I see converging in June is as follows; the Austrian mortgage banks and banking sector, Greece, Ukraine, India, Russian sanctions, a Russian/Chinese announcement, the "very secret" TPP, and let’s not forget the second largest gold expiration on COMEX.

Since we know so little about the TPP (Trans Pacific Partnership), let’s start with this one. We know so little about it because it is being negotiated in secrecy. So "secret" in fact, anyone who gets to see what is written so far is threatened with jail time if they divulge anything about it http://www.zerohedge.com/news/2015-05-19/someone-finally-read-obamas-secret-trade-deal-and-admits-tpp-will-damage-nation . This harks back to Obamacare when Nancy Pelosi once giggled like a little school girl and said "we have to pass it to see what’s in it!". Fast forward and yes, we now know what was in it, a healthcare industry in turmoil, higher premiums and a "tax" if you don’t participate… Going all the way back to NAFTA, none of these deals has been "good" for the American worker, one can only imagine how deafening that "giant sucking sound" will be that Ross Perot first heard in 1991? Not even sure how this is possible, our legislative process has been kidnapped with no ransom even requested. If this masterpiece gets unveiled in June, a wonder as to market reaction?

Next there is the Austrian mortgage bank Hypo Alpe Adria, will they make their smallish payment of 500 million euros or will they start a chain reaction? If you recall, this pinch came about when the Swiss de pegged the franc and revalued some 20-30% higher within 10 minutes, in many cases it made the loans in Swiss francs worth more than the underlying properties themselves. The southern province of Carinthia has already backed away from pledges previously made by simply saying "we can’t pay". An important understanding is how all of these banks …own each others debt. In other words, the "cross ownership" of debt means that when one goes down it will act as a hit to many of the other’s portfolios. While this is not a huge trigger, all of Eastern Europe can and will be affected by what originated from the Swiss de pegging the franc from the Euro. With the system as illiquid as it is, there is no telling how far this one could reverberate?

On to Greece, they have already raided pension funds and sequestered local monies, June 5th is the deadline according to their finance minister. They owe 320 billion euros, they do not have the money to pay nor do they have a printing press to create it. The only way out is to borrow more …or default and fall into the open arms of Russia and China. The latter seems most likely to me. Greece is a natural trading partner with Russia and does sit along the "old silk road", moving away from the U.S. and even the Eurozone seems a natural. Please remember the big "nut" here is not the 320 billion euros, it is the CDS written in multiples on their debt AND the interest rate swaps in existence, these are in the TRILLIONS, not chickenfeed in an already illiquid world!

Logically, the next one to segue into is Russia and the NATO sanctions due to expire …in June. If a vote were to be taken today, would the sanctions be re imposed? Would Germany vote for them? Will Greece vote for them if they are still a member of NATO by June? Please understand the relationship between Mrs. Merkel and Mr. Putin, they "used to" talk on the phone daily …until the NSA spying revelations of last year. Will Mrs. Merkel go for more sanctions? What will she do about further aid to Greece. Greece has the ability to ignite many things, financially and politically all bad for the West.

Moving along, let’s look at Ukraine. The IMF is seeking a restructuring (read haircut) on $10 billion worth of Ukrainian debt with private holders. This the IMF says is necessary before another aid package of $40 billion is approved http://www.reuters.com/article/2015/04/14/us-ukraine-crisis-imf-idUSKBN0N50MV20150414 . The "haircuts" requested are in the neighborhood of 40-50%, will this one fly? Let’s not forget, Russia lent $3 billion to Ukraine in late 2013, I wouldn’t bet they will be accepting haircuts any time soon. In fact, wouldn’t it behoove Russia to watch Ukraine default …and further pressure the financial system of the West? Interestingly, John Kerry just met over the weekend with Russian minister Lavrov, what exactly did they talk about? If I had to speculate, my guess would be the U.S. has just walked away from this pink elephant. But why? Why would the U.S. walk away now?

Again, further speculation but it seems to me quite odd that Russia would announce "Chinese gold holdings" of 30,000 tons via Pravda. To rehash this, would Pravda have released this article without Moscow’s permission? Would Moscow have given permission without the approval from Beijing? Was Mr. Kerry/Obama informed that China will announce this 30,000 ton hoard of gold shortly? Is it a true story or not? As I wrote a few days ago, "gold" is a financial thermonuclear weapon, able to destroy the fiat of the West. It would not surprise me in the least if Washington was given the "courtesy" of a heads up to some sort of coming announcement even if a smaller sum than 30,000 tons. The point here is this, any announcement by China raises the question of Western holdings which of course brings Western currencies into question. It will be very interesting to see how forceful the U.S. is regarding Ukraine, this gold issue may just be the "softener"? I believe we will see very soon whether or not the U.S. changes tack regarding Ukraine (amongst others) as I suspect the Pravda announcement was no error at all.

Another June deadline is India trying to remonetize gold

http://www.thehindu.com/business/all-you-need-to-know-about-gold-monetisation-scheme/article7224428.ece#. They propose to allow the deposit of gold on account and interest paid on it. This would immediately boost the economy with a shot of adrenaline as collateral would be massively boosted and lending could blossom. The only problem is that this is about the 5th or 6th time such a plan has been trial ballooned and even if passed, the citizens of India will probably not go for it en masse anyway. They have a long history of holding their gold in hand with no counterparty risk between them and their gold. It might work to some extent but the number of 25,000 tons being deposited is a pipe dream. It should be said however, when China does finally announce their holdings and increase their ability to "price" global assets, the Indians will sit at the table as there is no doubt they hold massive quantities in total!

Lastly but not least important is the June gold expiration on the planet’s favorite gold "pricing" mechanism, COMEX. As of today, there are 187,500 contracts open for June, this represents 18.75 million ounces of gold or 581 tons. The "registered" for delivery category has been bled down to about 11 tons or about 378,000 ounces of gold. The first notice day is June 1st, only seven trading days away. Does anyone see a potential problem here? A "problem" as in there are 50 ounces of gold contracted for every one ounce COMEX claims to have?

Yes, yes, I know I have gone through this exercise before and each time the open interest just dried up and blew away. In fact, many expiration months have seen accounts FULLY FUNDED with cash to purchase the gold on first notice day, only to "go away" later in the month. This makes no sense whatsoever. Why would anyone fund their account fully in order to pay for purchase and then just walk away? On the other side, why would any short not deliver on the 1st or 2nd day of the month as they must pay storage costs for each day they don’t deliver? The answer of course is very simple, the gold does not exist to make delivery and the shorts do not want to let go of what very little they have …and instead cash settle with a little cherry on top? Before finishing this section, it should be pointed out that the ETF GLD has bled 17 tons over the last few weeks where gold rose $50. How does this make any sense at all? It only makes sense to me if someone needed the metal to deliver elsewhere and immediately. A strange occurrence but a topic for another day.

So there you have it, June could be quite the month as many events all converge over the 30 day timeframe, and none of them good! I have warned and warned, you must have exactly the positions you want should the markets close and not offer you the chance to alter. Please, imagine a world where things actually make sense and logic counts for something when it comes to valuing assets. Let’s call it "Mother Nature world" where values make some sense and are actually related to each other and to reality. How would your portfolio or financial position look like if we woke up one fine Monday morning in June to a brand new world?

Regards, Bill Holter
Holter/Sinclair collaboration bholter@hotmail.com