Wow! What a way to start the year. Decidedly, “peace, love,
and harmony” are not what 2016 is destined to bring – if this weekend’s
widespread, terrifying events are an omen of what’s to come. I mean, in
just the past three days, Saudi Arabia not only severed diplomatic ties with
Iran (after its Iranian embassy was burned by angry Tehranian militants), but
claimed it could not care less if the White House was offended by the mass
beheadings that set off the incident. To that end, if that didn’t
offend the White House, perhaps Vladimir Putin officially labeling NATO – and
specifically, the U.S. – a “national security threat” – likely did. Let
alone, the shivers that ran down the spine of all U.S. politicians, when
Donald Trump promised – hopefully, no pun intended – to “cut off ISIS’ head,
and take its oil.”
Meanwhile, a the seventh largest Portuguese bank, which recently “passed”
the ECB’s “stress test”, was “bailed in” – costing depositors €2.2 billion, one
day after Europe’s new bail-in laws went into effect. And speaking
of draconian laws going into effect January 1st, California’s
largest public utility, Pacific Gas and Electric, welcomed 2016 with a 7%
electricity price increase, despite the “deflation” of crashing energy
prices. To that end, I’m sure I don’t need to remind business owners
that January 1st also brings us scores of government-mandated,
economy-killing minimum wage hikes. And oh yeah, Obamacare’s employer
insurance mandate – which is probably why, last month, I deemed Obamacare the
“bullet hole to the head of the 2016 economy.”
In the Far East, South Korea announced that exports plunged an incredible
14% in December, confirming the global economy has indeed ground to a halt; whilst
Macau gaming revenues were found to have collapsed 34% in 2015 – confirming
the global consumer is “tapped out.” Which, by the way, is
exactly what my wife found out at Nordstrom’s Rack this weekend, when “post
New Year’s Day sales” were so drastic, even she was in awe of the 80%
discounts; as the U.S. retail industry, “racked” with its highest-ever
inventories; plunging sales; and too many employees, is about to report that
indeed, this year’s holiday season was as bad as 2008.
Here in the United States of Economic Decimation, we not only are
contending with collapsing retail sales, as the “consumption” that accounts
for 70% of GDP implodes; but a devastating Mississippi River flood.
Heck, not only did “head TBTF” bank Bank of America espouse its view that
corporate earnings are on the verge of a bigger drop than 2008, but actually admitted
financial markets are manipulated by the Fed! And this, whilst
fellow Federal Reserve “partner” JP Morgan opened the year by telling clients
“equities are unlikely to perform well over a 12-24 month horizon” and
“the regime of buying the dips might be over, to be replaced by selling
any rallies.” And geez, top MSM cheerleader Yahoo! Finance’s “top story”
all weekend focused on how the Fed’s supposed “rate hike” has not actually
occurred, whilst collateral rates have surged due to fears of expanding debt
defaults.
However, all that was nothing compared to what happened in China
last night. When, following an utterly massive, “unexpected” collapse
in its nationwide PMI report – and yet another multi-year low in the rapidly
devaluing Yuan – the (already badly weakening) Shanghai stock market was halted
two hours before day’s end, after having collapsed a whopping 7%.
In the aftermath, European stocks are down 3%-4%; commodities and Treasury
yields are crashing; Dow futures are down by the PPT’s “ultimate limit down”
level of 2%; and what do you know, gold and silver are surging – on “heavy
volume!”
As I write, it’s nearly 8:30 AM EST, so let’s just leave it at that, and
see what “happens” in this, the opening trading day of what I last night told
my wife would be an “inflection year in global history.” On that note,
let’s move on to today’s very important topic, of a potential strategy to
prepare for what’s coming. Which is, a discussion of the “forgotten
Precious Metal,” platinum, which in the past, I have rarely spoken of.
To that end, recall that platinum, palladium, and rhodium are, like gold
and silver, members of the “precious metals” group. Rhodium is so rare,
it’s essentially “un-investable”; and in my view, palladium is, for all
intents and purposes, an industrial metal. However, platinum is far
closer to gold and silver in its perception, given how rare it is, and sought
after due to its durability and beauty. Thus, whilst there is no
history of platinum serving as a “monetary metal,” its price action has
largely mirrored that of gold and silver, directionally speaking.
To that end, the chart below depicts the correlations between gold,
silver, and platinum over the past four decades – specifically, since the
Precious Metal bull market commenced at the turn of the century. As you
can see, the three metals have moved largely in tandem, particularly when one
excludes platinum’s anomalous price spike, amidst a massive South African
electricity shortage, in late 2007 and early 2008.
During 2015, platinum prices fell more sharply than gold and silver,
despite collapsing platinum production; a dramatic scarcity of retail bullion
product; and the platinum industry’s increasingly dire production
outlook. To wit, industry-wide production, of which a whopping 70%
emanates from the imploding economic wasteland of South Africa, peaked in
2006 at a measly seven million ounces – or barely 5% of global gold industry
output – and fell to less than six million ounces in 2015. Given that
industry-wide capital expenditures have plunged by nearly 70% over the past
decade, it’s unlikely production will rise anytime soon – particularly as, at
$875/oz, platinum’s price is at least 50% below its marginal production cost,
of roughly$1,200-$1,400/oz.
Meanwhile, bullion supply has been so scarce, the U.S. Mint stopped
selling Platinum Eagles from 2009 to 2013. After which, it briefly
re-started sales in 2014, for a mere 10 months; as after selling just 16,900
additional ounces, it ran out of supply in October 2014, and hasn’t sold
another ounce since. Similar shortages have been experienced with
Canadian Platinum Maple Leafs and Australian Platinum Platypuses.
However, if one is opportunistic, they can still – for now – secure material
amounts, particularly in the non-government-issued platinum bar market.
The catalyst for this article – aside from a plea to Precious Metal owners
to consider the optimizationof
their portfolios, given the opportunity afforded by last year’s extreme
market movements, is that the gold/platinum ratio, amidst the most bullish
Precious Metal – and platinum – fundamentals in generations, has risen to the
high end of its historical range, with gold currently selling at a 22% premium
to platinum, versus its 40-year average of a 17% discount. To
that end, I am not saying the gold/platinum ratio must, or will, revert to,
or below, its historic average. However, in light of the aforementioned
factors, it does seem likely that this ratio will come down; just as, I might
add, the gold/silver ratio should.
Now that 2016 has arrived – and with it, the possibility of the most
violent political, economic, social, and financial conditions of our
lifetimes, we cannot emphasize enough the necessity of protecting yourself
from what’s coming. Now, more than ever, is the time to look at your
financial assets, consider if you are rightly “positioned,” and act accordingly.
Here at Miles Franklin, we are commencing our 27th year in
business, with as much expertise – and trust – as you’ll find in the
bullion industry. To that end, not only can we help you to buy, sell,
and store Precious Metals, but optimizePrecious
Metal portfolios that could be modified and/or “upgraded” at a bare minimum
of cost.
If you have any question, please call us at 800-822-8080, or email me
personally at ahoffman@milesfranklin.com.
Thanks, and “May the Force be with you.”
