2.5%, Nuff Said-Revisited

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Published : February 24th, 2017
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Category : Opinions and Analysis

In late 2013, amidst unrelenting hype of the second coming of the Fed’s balance sheet “exit strategy” – the first being in LOL, 2010; interest rates surged higher, causing the yield on the benchmark 10-year Treasury to briefly touch the key psychological level of 3.0%.  (PPT-supported) stocks, of course, surged; and equally predictably, (Cartel-suppressed) Precious Metal prices plunged.  This, despite the fact that said “exit strategy” premise was fallacious at best; and a flat out, Goebbels-esque lie at worst.  Not to mention, the fact that there’s not a shred of proof that higher rates are “bad” for gold; or LOL, “good” for stocks.

At the time, the U.S. national debt was “just” $17 trillion, and the global economy was mired in lethargy.  So much so, that Japan’s Abenomics had just commenced – in April 2013, with the expectation that it would end in, double LOL, two years.  And oh yeah, the ECB’s negative interest rate policy was about to be launched, in June 2014.

Using common sense, I concluded that the U.S. economy – let alone, the entire world, whose rates are in large part influenced by the U.S. Treasury market – could not “handle the truth” of rates even a smidgen higher.  Which is why, on January 10th, 2014, I penned “3.0%, ‘Nuff Said”’; in which, I unequivocally called the top of U.S. Treasury yields; which subsequently, plunged to 1.85% by October 2014; before hitting an all-time low of 1.35% two years later, in the aftermath of the June 2016 BrExit vote.

In fact, my premise at the time was not only that the economy couldn’t survive higher rates, but that the Fed would do “whatever it takes” to prevent it; just as the Cartel does “whatever it takes” to suppress gold and silver prices, to avoid a catastrophic loss of confidence in the Fed’s historic fiat Ponzi scheme.  Which, per the last sentence below, inevitably will, blowing it to Kingdom Come.

The Fed CANNOT allow interest rates to materially rise.  Clearly, they have set up a ‘line in the sand’ at 3.0% on the benchmark 10-year Treasury yield; and thus, will utilize all of their ‘partners in crime’ to fabricate situations enabling them to hold rates below that all-important level.   The Fed’s fiat currency Ponzi scheme is in its final phase, now that debt growth – worldwide – has turned parabolic.  And thus, its very survival depends on financing it at historically low interest rates.  Which of course, could end at any time – if global confidence losses overwhelm their manipulation efforts.”

Fast forward to today, when the global economy is dramatically weaker – to the point that dozens of currencies have plunged to all-time lows, and political revolution has become the exception rather than the rule.  Quantitatively, 2016 was the weakest year of global trade since the 2008-09 Financial Crisis; and today, the signs of recession are everywhere – from surging loan delinquencies; to record crude oil inventories; the weakest gasoline demand in 16 years; the lowest labor participation rate in four decades; the longest string of factory order, durable goods, and industrial production declines in a “non-recessionary” environment in U.S. history; and as I write, the lowest ever German 10-year Bund rate – of, I kid you not, negative 0.95%.  And oh yeah, the U.S. national debt, in just three short years, has increased by $3 trillion, whilst U.S. household debt has reached the peak levels of early 2008, just before the biggest financial collapse since the Great Depression.

Consequently, the powers that be are being overrun by the will of the people – first, in the July 2015 Greek “OXI” vote; followed by the November 2015 Catalonian secession referendum; the June 2016 BrExit; the November 2016 U.S. Presidential election; and the December 2016 Italian Constitutional Reform referendum – with the likelihood of sweeping, resounding 2017 defeats in the Netherlands, France, Italy, Germany, and Catalonia staring them right between the eyes.  Thus, their efforts to rig markets have been taken to unprecedented levels; particularly, in the BrExit’s aftermath; and still more egregiously, when Donald Trump “shockingly” defeated Hillary Clinton – in the latter case, causing record-high equity valuations; exceeding not just the 2007-08 pre-Financial Crisis top, but the top of the dotcom bubble (which in my view, was the most egregious equity bubble of all-time); whilst conversely, slamming Precious Metals down.

However, amidst this historic rigging effort, the “canary in the coal mine” of rising rates bit deeply into their plans of a “Trump-flation” themed economic renaissance – which in large part, was inadvertently damaged by the dollar’s post-election surge; which in turn, caused dozens of currencies to crash, prompting foreign Central banks to step up U.S. Treasury selling to generate the capital required to support their currencies from falling further.  Most notably, the Chinese, who started to devalue the Yuan anew, catalyzing the greatest amount of capital flight in China’s – and in turn, the capital controls that led Bitcoin to surge to an all-time high (last night); which I assure you, Precious Metals would have done as well, were they not suppressed by the soon-to-collapse Cartel.

And yet, amidst the cacophony of fallacious “Trump-flation” propaganda – which from day one, I espoused my intense skepticism of – the 10-year Treasury yield peaked at 2.6% in mid-December.  Which, I might add, just happened to be the second top I called back in 2014, in May 2014’s follow-up article, “2.6%, ‘Nuff Said.”

Which just happened to coincide with the mid-December bottom in gold I also called, nearly to the day.  And since then, it’s been all uphill, despite the most egregious day-to-day, minute-to-minute suppression I have witnessed in my 15 years in the sector; with the “nail” being driven in by Donald Trump himself – when, on January 16th, he once and for all ended the two-decade fallacy of the U.S. “strong dollar policy,” by deeming it “too strong.”  Thus, delivering a thermonuclear salvo in the “final currency war,” and inadvertently putting the Cartel “on notice” that their days of masking the terminal rot of the global monetary system are numbered.  Which the Fed drove home further on Wednesday, when the “minutes” of their February 1st meeting were (quite obviously doctored, possibly to appease Trump’s trade war aspirations), in adding the phrase that has caused the dollar to come under pressure anew, and propel Precious Metals, as I write early Friday morning, to within percentage points of not only their pre-election levels, but their all-important 200 MONTH moving averages of $1,266/oz, and $18.59/oz, respectively. I.e., “Fed officials saw downside from further dollar strength.”

It couldn’t be clearer that the “walls are closing in” on the historic “Trump-flation” scam; as with each passing day, it’s becoming more obvious that it can’t, and won’t, happen – particularly as the debt ceiling “suspension” put in place in November 2015 ends on March 15th, setting up a debt ceiling debacle that will likely put the summer 2011 episode to shame.  You know, the one that caused the U.S. government to be stripped of its LOL, triple-A credit rating, and dollar-priced gold and silver to surge to all-time highs.

Just yesterday Steve Mnuchin made it crystal clear that tax reform was not possible for at least another year; whilst infrastructure stocks, and “Dr. Copper” tumbled, on news that Trump’s much ballyhooed fiscal stimulus program could be delayed for at least as long.  This, as retailers plunged, when Trump reiterated his desire to enact a comprehensive “border adjustment tax” on foreign imports; whilst everyone from John Boehner to Goldman Sachs suggested an Obamacare “repeal and replace” is looking more and more like a pipe dream; which in turn, caused LOL, “March rate hike odds” to plunge.  Thus, with the U.S. 10-year Treasury yield back down to 2.34% as I write – just above the post-election support level of roughly 2.30% that must inevitably “give,” as said “walls” continue to close in further – I’m feeling pretty good about the conclusion of my January 11th article, “2.5%, ‘Nuff Said.”  I.e., that in just three short years, the maximum interest rate the economy can “handle” has plunged by 50 basis points.

Putting said “powers that be’s’” Hobson’s Choice predicament into perspective, Bill Bonner wrote yesterday of the “Great Extinction” event that must inevitably arrive, no matter how much money printing, market manipulation, and propaganda is utilized to delay it.  I.e…

This is a world whose major institutions – banks, pension funds, governments, large corporations; i.e., the major players in the Deep State system – have flourished on extremely low interest rates.  Now, like dinosaurs that have adapted to the tropics, they’ll shiver, die, and go extinct when the chilly winds blow.  And they could blow hard. Even an increase of just 1% in the cost of servicing debt – if applied to the world’s debt load – would cost more than $2 trillion a year in interest.  Consequently, everyone who had to borrow – i.e., those aforementioned major players – would suddenly find themselves unable to continue living in the style in which they’d become accustomed.”

In other words, the 46-year reign of global monetary terror is nearing its catastrophic, ignominious end.  Until then, every effort will be made to hold rates as low as possible – thus, putting the gold Cartel at its highest-ever risk of the spectacular, historic collapse they must inevitably endure.  And when rates do inevitably rise – when the long-dormant “bond vigilantes” finally awaken; starting with the aforementioned 2.5% “economic line in the sand”; it will officially be GAME OVER for history’s largest, most destructive fiat Ponzi scheme.  To which, I can only ask, are you financially prepared for what’s coming?

And WOW, WOW, WOW!  As I was about to hit “send,” the following quote from a Donald Trump interview yesterday was published – which I assure you, will take said “final currency war” a giant leap forward toward “DEFCOM 1” status. I.e…

“(China) are the grand champions at manipulation of currency.  So I haven’t held back.  We’ll see what happens.”

To which, I can only respond with, “got Gold?”

Data and Statistics for these countries : China | France | Georgia | Germany | Italy | Japan | Netherlands | All
Gold and Silver Prices for these countries : China | France | Georgia | Germany | Italy | Japan | Netherlands | All
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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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