Markets around the world are convulsing which is definitely different than anything we have seen in over a year. We also know that interest rates are going higher all over the world. In fact, if you look at rates going back to 1981, the downtrend line(s) has been broken and thus a very major change. Generational trades and 37 year trend lines are rare on their own, when they finally break it means something very big has changed and you must do your very best at trying to figure out “what” it is.
Let’s take a look at two charts that might help, one of interbank lending in the U.S. and also at “velocity”. These are both very important and I would suggest they are both connected by something called “trust”. First, interbank lending absolutely collapsed out of nowhere at the end of the year. If you look closely below, interbank lending has dropped back to only $13 billion or the same level it was all the back to pre 1973-74 recession levels!
You can follow along and see how lending amongst banks generally inflated all the way up until 2006-2008 until it crashed. This happened because banks did not “trust” each other. From there, the lending tapered off until the recent nearly zeroing out of interbank lending. I would suggest since 2009, the amount of lending steadily decreased and never increased as banks “knew” other banks did not have strong balance sheets (maybe because they knew the reality of their own balance sheet?). In any case, there can be only two reasons for lending to collapse like is has. Either there is no need for money (credit) OR banks do not trust each other? I would highly suggest it is the latter.
With the four page Congressional memo slated to come out today, our topic will be “confidence”. Confidence and all that goes with it stands to sustain a huge body blow! But first, we need to discuss a topic I have written about several times in the past that took a very strange turn yesterday…Harry Dent.
For years he has scared (tried) hard money advocates by forecasting a collapse in gold to $700 and possibly even $250. I have written several times breaking his “Dented logic”, most recently here. Yesterday he took a very strange turn and published a story predicting higher prices. To be fair, in this latest article he is calling for $25-$50 higher gold prices and suggests it is your opportunity to “take your ‘money’ and run”. I would ask Mr. Dent, if gold is such a risky asset as he claims, does it really make sense to try and time it for an extra 2-4%?
I believe I have written a couple of times in the past regarding Harry Dent’s “dented logic”. I did so after reading fearful e-mails from holders of gold and silver. Well, Harry Dent is at it again. He has advertisements everywhere, the latest posing as an “article” on Zerohedge where he says gold will be crushed to $700 in a market panic.
He claims a financial and market meltdown is coming to which I wholeheartedly agree because the math not only supports this, it guarantees it at some point. The problem is this, he is trying to scare anyone and everyone he can AWAY from gold by claiming gold will trade to down to $700 and maybe even $250!
First, if gold were to “trade” down to $700, it would solely be traded at that price on paper exchanges and virtually no physical gold would ever change hands at the “exchange prices”. We saw this in 2008 when gold and silver prices were crashed on the COMEX and LBMA. For example, silver was quoted at around $9 an ounce …but the problem for buyers was they could not find much of any real physical silver available for under $15! Before going further, I should mention it is a distinct possibility that paper prices do actually collapse for the simple reason they are only “contracts” and not actually metal. As Jim has long asked, “what is the value of a contract that cannot perform”? The answer of course is zero, and this is exactly where contracts that cannot deliver real metal should approach.