Coming in from The Cold…and Getting Ready for Gold!

On March 4th, 2016, when the employment reports come out expect huge price swings. This might be the most important employment report of the year in terms of stocks and commodity market trends.

I cannot underestimate the importance of this Friday’s, February 4th, 2016, U.S. Labor Department report being released.  At the time of the report’s release, the number of new jobs may fall a little short of estimates again, or if they meet them, investors might focus on the FED staying the course to raise its short-term rates in mid-March 2016. These consequences could last well into the end of the month of March 2016.

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Falling oil prices, careening equity markets, and the economic contractions in China continue to spook investors in recent weeks, leading to fears that the global economy is only steps away from a 2008-style “systemic crisis”. This is a perfect storm for investors to jump into safe havens including U.S.Treasuries, gold, silver and crude oil and to make extremely handsome profits over the next 1 to 3 years.

I still believe that there is virtually no chance the FED will raise interest rates going into March 2016.  I even doubt that the central bank will do so by year end of 2016.

Today’s bottom line is that the FDIC has stated in black and white that they are not equipped to deal with another banking crisis. This is where the U.S. Government should be stepping in, with an explicit guarantee to bail out the banks.  The real irony, of course, is that the government does not have any of its own money.  They only have your money.  Taxpayer money.  So, in essence, the government is guaranteeing your bank deposit with your own money.  It’s mind boggling.

The larger problem is that the government has not done a good job hanging on to any of your money. The Treasury Department’s financial statements are showing the U.S.  Government’s net worth at negative $60 trillion.  Uncle Sam is in no position to bail anyone out including themselves.

ZIRP, making the stock market a casino to borrow low on margin and speculate high on “risk”, or, in the case of corporations to issue tons of new debt and buy back their own stock. Now to NIRP, negative interest rate policy so that all companies would be enticed to borrow “cheap” money to hire workers and grow their businesses with QE, the central bank creating new money for use in an economy.

Only a central bank can do this because its money is accepted as payment by everybody.  Sometimes dubbed incorrectly “printing money” a central bank simply creates new money at the stroke of a computer key, in effect increasing the credit in its own bank account. This has destroyed honest price discovery and the key ingredients of financial market self-discipline and stability. They have created financial bubbles, which sooner or later must deflate leading to a huge collapse.  They have not helped “Main Street” in any way shape or form.  The FED Chairwoman. Janet Yellen, spends her time studying her on “data dependent” charts as if they are really related to FED policy. They are irrelevant!  ZIRP and QE just distorts and degrades” free financial markets”.  The FED has now turned them into casinos of crony capitalist corruption.

The latest crime of negative interest rates (NIRP) exist in the Eurozone, Switzerland, Sweden and Japan.  These central banks are imposing negative rates on the excess cash reserves of commercial banks. This maneuver is only squeezing bank’s interest margins and causing a run on banking sector stocks.

This dangerous experiment is doing nothing for the real economies of a world staggering under huge amount of unplayable and massive excesses of debt. It is just feeding the mother of all asset bubbles.

Ultimately, the FED will go for the next thing with NIRP. For real people, who are trying to save a nest egg, NIRP, will be the “flashing neon light” announcing that the government is confiscating the people’s savings and wealth. When the FED actually tries to impose NIRP on their own people and not just the commercial banks, the central banks will be signing their political death warrants.  That day is coming soon.

Gold is holding near the February 2016 highs, while gold shares continue to rise further.  HUI closed at a nine-month high. The world economy crises is still underway, but it seems to be on borrowed time. A huge decline in global equities is upcoming and it will be important to see how low it goes. Crude Oil is bottoming and looks poised for a rebound.  It’s boosting the stock market for right now. 

For today, keep your cash in U.S. Dollars, but we are moving very soon to take advantage of new investment opportunities.

Until 1933, people carried gold coins in their pockets, and paper bills were exchangeable for gold and silver coins at any bank. Prices were remarkably stable and had been for a hundred years or more. In 1933, US citizen’s gold was confiscated by the government, the dollar was devalued by 41%, and we entered a period in which the treasury attempted to hold the value of the dollar at 1/35 of an ounce of gold.

The Economist” stated that gold has gotten off to its best start to a year in 35 years.  The safety play is up 16% in the year to date as of Friday February 26th, 2016, which are drivers as stocks, crude oil and other assets have been under extreme pressure.

chart 1

Chart 2

Precious metal funds have seen their biggest three-week inflow of investor money since June 2009.

The inflows have coincided with the FED ‘talking down’ the U.S. Dollar and with rising fears that a recession is near and quantitative easing is failing.  A strong dollar often acts as a drag on dollar-denominated commodities by making them more expensive for holders of other currencies.

These actions are signaling signs to me suggesting to stockpiling gold, silver and cash.  The size and scope of the political, economic and financial problems that now challenge the relative stability and tranquility of developed societies are unprecedented.

If the war on cash should prove unsuccessful in its early stages, banks could be closed for long periods.  Investors should be aware of such possibilities and hold on to cash and precious metals prudently outside the banking system.

Chart 3

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So far in 2016, the gold has rallied some 16%, making it one of the year’s best-performing assets. In the late 1960s, when so much gold was required to buy up all the dollar’s, foreign countries were saying that the US government simply gave up, and “closed the gold window” in 1971. The value of the dollar collapsed over the next 10 years, hitting bottom in 1980. By paying of interest and reducing taxes, the dollar slowly recovered some of its value over the next 20 years, but expansive money policy in the 1990s eventually caught up with the dollar in 1999.

Since 1999, the dollar has experienced a drop of more than 80%. Penny candy now costs 50 cents. The “Five and Dime” is now the Dollar Store.

The future for you is very bright as we are awaiting a strong retracement in gold to enter a solid long term entry location. And if you are a long term investor looking for financial stability through precious metals, then you should be accumulating physical metals now for the long run. Figure out how much money you want to convert to gold, silver and other metals then divided that by say 5 and ever couple weeks buy that portion of metals until you have your financial hedge on corruption/financial crash.

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Chris Vermeulen

[Image Courtesy of Flickr]

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