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“Conversations with clients invariably touch on what form the resolution of the dysfunctional global financial system will take. We have written that the system is set up for chaos, so trying to predict a chaotic, random outcome is a fool’s game.
While we know that the resolution will be a bad one, perhaps it will not be as chaotic or random as logic and prior experience with markets would predict. Strategies based upon functioning markets and the rule of law can be a handicap when divining how events will unfold this time. Financial repression acknowledges belief in markets and the rule of law as tools to be used to manipulate the perception of the public and investors.
“We know about Cyprus and the suggestion of what happened there as being some sort of template for many other countries in that region. What was surprising were the announcements that both New Zealand and Canada were considering similar measures to be applied in their countries. There are other indications from around the world that leads one to consider the possibility that the “bail in” model is the grand plan and Cyprus was not just an isolated incident.
Another strange announcement came from an official of the Bank of England proclaiming that the current level of stock prices did not match economic reality. It is inconceivable that someone would make such a statement unless it was officially sanctioned.
Interest rates have been hammered down close to zero. Sovereign debt has been issued in enormous quantities to support deficits and fellow central banks. We are close to the point where the Treasury auction charade is no longer believable by anyone. Only outright, raw monetization remains.
The U.S. stock market indexes have been juiced up to record highs. The Fed has publicly stated that they were promoting the so-called “wealth effect”. We now have to consider that it was a ruse to deflect from the real objective. The goal was not to get individuals back into stocks. The real targets were the institutions and the massive amount of money they control.
If you are a large institutional manager, you really only have two asset classes from which to choose, equities and fixed income. Given that the rates on fixed income were virtually non-existent unless one sacrifices quality constraints, the only class left was equities. Institutional managers had to heavily invest once the indexes started moving up last Fall. Most managed money is overtly or covertly indexed. Therefore, when the indexes started rising, the institutions had to buy, and it worked. Now that the official line is that stocks are overvalued, the compulsion this time for institutional managers is to revert back to cash.
So let’s try tying these events together to come up with a possible scenario. The Central Banks have used every tool in their playbook. They printed money. They bought up the toxic debt. They dropped interest rates to zero. They drove up the popular stock indexes. They have vigorously repressed gold and silver prices, perhaps oil, too.
It is not working now. The economic statistics are rolling over. Employment, inflation, manufacturing activity and other indicators of the health of global economies are showing signs of instability and outright decline.
So what do you do if you are trying to control this mess? First, you put in place the ability to replicate Cyprus on a global scale. Depositor’s funds will be used to protect the favored financial institutions. Second, you promote the idea that stocks are overpriced to get positions converted back into the various forms of cash and fixed income. Third, you mercilessly smash gold and silver so that you corner the markets for physical metals. It is done with paper forms of the metal that have to be covered, and we are sure that it is being done right now. If not, guarantees have been made to cover any losses.
Once you have the wealth back at the financial institutions in the form of deposits and the supply of physical metals has been scooped up, that is the moment when the system reset could occur. The Cyprus solution becomes applied globally.
Jim Sinclair alluded to this in his KWN interview yesterday. There will come a time when the Central banks and the people involved in shorting metals with paper will switch from short to long. The institutions involved in the manipulation do not lose money. What will happen is that we will discover that they are massively long the physical metal. That is when we will have a global, coordinated devaluation of currency, the confiscation of a large portion of deposits, and an officially sanctioned reset on the price of gold to a much higher level.
The Roosevelt plan in the 30s was to tell everyone that the banks were safe and to return their gold. He then took the gold and proceeded to devalue the currency. In our era, the confiscation of the gold has been accomplished through price suppression. The suppression scared domestic investors away from metals as well as causing people to give up the one asset class that has a chance of protecting them from the coming devaluation.
Will this be the scenario that unfolds? Who knows? However, it does connect the events that we are seeing unfold. Those with financial assets that are planning to convert some or all to physical metals need to act quickly. As Jim Sinclair is saying, time is running short.”
A disturbing pattern of events is suggesting that the outcome will not be chaotic as in the past….
