As you might know by now, Jim and I will be interviewing with Greg Hunter tomorrow for early Sunday release. We plan on talking about the current “technical” dollar short created by all the emerging market dollar loans currently on the books. Richards Russell first spoke of this and called it the “synthetic” dollar short. You see, when a borrower from a nation with a currency of their own, borrows dollars, the loan must be paid back in dollars. This creates artificial/short term yet very real demand for dollars when the loan is paid back.
What I want to talk about today is “MOPE”, management of perspective economics and give you a little background as to what to listen for when Jim and I talk. I’m doing this in the hope it will make listening to the interview more fruitful rather than listening to it cold.
So, Jim coined the phrase many years back to describe a situation where lying about the current fundamentals could be supported or confirmed by pricing in markets. In other words, “the economy is great, just look at the Dow Jones”! Of course, markets were taken over by machines that used the fuel provided by the central bank(s) and lowered interest rates. It became one glorious and they hoped, self sustaining circle (bubble). The thought was, if markets are up then people will feel good and then borrow and spend more. They were right, but the problem is the game has “no ending” because after markets close for the day, they must reopen again the next day. What I mean here is, no matter what levels the markets got to…there is always tomorrow to deal with.
This is Kathryn’s latest bridal portrait, her other work can be found on kathrynholter.com. It is a 24×36 pastel and took her over 6 months to complete. I am obviously biased but the detail and 3D depth on this one qualifies as a masterpiece! She would truly love to paint FLOTUS if anyone has a connection?
It is obviously time to go back to basics. I say this based on the emails we’ve received this week which ranged from tears to tirades regarding gold and silver price action. While speaking with a friend a few months back (during a period of price weakness), I said tongue in cheek that I should write an article titled “We are not your psychoanalysts”! The amount of fear was and is astonishing to me. We have tried to demonstrate with math, logic and history what the ending is. The problem for most is, even if the ending is understood they “want it and they want it now”! So, in an effort to help the panicked or despondent, let’s go back to the very basics. Below is an image of John Exter’s pyramid;
You will notice the pyramid is inverted. 100 years ago, this pyramid was inverted but obviously much smaller altogether. What has happened over the last 100+ years is that more and more “derivatives” of all sorts have been created. Also, “promises” of all sorts have been made. When I say promises, we are talking about pension plans, health aid, welfare etc. that promise current and future benefits. Basically, via the use of credit (and derivatives since the 1970’s), asset values have been continually inflated and re inflated. Without credit and without derivatives, valuations of most ALL assets would be only tiny fractions of what they are today.
Rather than write on a planned topic, I received at least 20 e-mails yesterday on the same subject so had to switch gears. The e-mails were all panicky because an analyst who works in the precious metals industry suggested that silver will not perform as gold will in the coming reset. I feel the need to address this because I believe it is faulty analysis and may have motivation behind it. I will not name the analyst but can be easily discerned.
In an interview it was said that during the Weimar experience, gold performed extremely well but silver lagged. It is for this reason they suggested not to pay attention to the current out of whack silver to gold ratio north of 80-1 and it will not narrow. This is just wrong for so many reasons. First, the ratio of silver to gold worldwide at the time was roughly 15-1. Silver was priced at $1.385 per ounce while gold was at $20.67 per ounce in dollar terms. This 15-1 ratio was much closer to the ratio of silver versus gold in the Earth’s crust and extracted via mining. Silver actually exists at a ratio of slightly less than 10-1 versus gold, this is what I call “God’s ratio”.