A Turbulent Year

In the course of 2015 we have witnessed several events that had, and will have, negative repercussions on individual freedom. Orwellian totalitarianism is increasingly creeping into our everyday lives. How much more intrusive will the violations of our liberties become and for how long will the establishment get away with this? These are questions that remain unanswered.

 

YesWeScanUnited we move toward a perfectly monitored society – the US Congress has just passed the controversial CISA spying law – the worst possible version of it – by sneaking it into a budget bill. This utterly corrupt method of enacting laws that would not get passed on their own because they are such a huge affront to decency and civilization has become the norm in the “land of the free” – which ironically is “exporting democracy” by force of arms all over the world!

 

With regards to the financial system, no real solution was found to issues such as those in the euro zone. Furthermore, the financial system as a whole once again got deeper into debt. For how much longer can central banks and governments continue kicking the can down the road without any real reform? I will try to answer these questions and identify trends for 2016 by looking at six key issues that have had an impact this year.

 

  1. Geopolitical Developments

We have witnessed a number of troubling geopolitical developments during this past year. From the continuing conflict between Russia and Ukraine, territorial disputes between Japan and China, the escalating proxy war in Syria, the refugee crisis in Europe, the rise of religious tensions all over world to the rise of the Islamic State, the world has become increasingly unstable.

 

iraq-abu-bakr-al-baghdadi-watch-story-topYet another finger-wagger: Abu Bakr al-Baghdadi, the self-anointed “Caliph” of the medieval retro-state that has sprung up in Syria and Iraq.

Photo credit: Reuters

 

Going into the details of these conflicts is beyond the scope of this article, but the fact is that all of these developments harbor the potential for large-scale escalation. From the perspective of the West, the conflicts and wars of the past decades were for the most part far away. Only now do we realize that this will change as we have already begun to see in 2015. The times of conventional warfare, when two armies met on the battlefront, are over. Future conflicts and wars will be fought closer to home. We should get ready for a period of increased instability, particularly with respect to politics and security issues.

 

  1. Totalitarianism is on the Rise

The sudden rise of ISIS and its affiliates is a disturbing development that has produced a smorgasbord of feelings, ranging from fear to rage to sadness and more. Ultimately though, they all lead to the same result: States are seeking more control over their citizens by curbing individual liberties.

One example is that Western countries are limiting the use of cash, under the guise of fighting terrorism and illicit activities. JP Morgan has placed restrictions on the amount of cash one is allowed to deposit and several European countries have banned cash transactions exceeding a certain size. Looking to the future, it seems that this trend will continue to worsen and that we are headed toward an Orwellian police state in which no one is entitled to financial privacy anymore.

Another hot-button issue is gun control. Since it became known that the San Bernardino shooting and the Paris attacks were apparently carried out with legally obtained arms, there have been increased calls for massive restrictions on private gun ownership. Disarming the masses is a necessity to control them and that is exactly what our governments are gradually doing.

“The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in Government” – Thomas Jefferson.

 

FRONTEXFRONTEX operational territory; insert: Frontex uniform. This paramilitary bureaucracy is headquartered in Warsaw and threatens to override the sovereignty of EU member nations.

Image credit: arte

 

On the EU level, a disturbing development is the fact that FRONTEX (the EU agency responsible for border management) has stated that it will intervene to secure the EU’s borders should the refugee crisis get out of hand, even if the respective countries oppose its action. On a global level, the Transatlantic Trade and Investment Partnership (TTIP) says that arbitration courts will have the potential to annul national sovereignty when it comes to jurisprudence. We expect this trend toward ever greater centralization to continue.

 

  1. The “Rescue” of Greece: Coming to a Country Near You?

At the beginning of this year, the topic of a potential “Grexit” dominated news cycles over several weeks. It seemed like a realistic possibility that Greece might leave the euro zone. Instead, after yet another one billion euro bailout package, Greece was “saved” and a “Grexit” was off the table (for the time being). Once again, political idiocy prevailed over economic rationale. In the end, delaying the inevitable failure of the Greek financial system is all that was achieved.

 

pensioners-greece-banks-referendum-queues-876-136-1435751071Desperate Greek pensioners queuing at an ATM during the “bank holiday”. Many of them realized a number of facts far too late: a) that fractionally reserved banks are de facto insolvent and cannot pay the vast majority of their depositors in extremis (especially if the central bank backstop is withdrawn); b) that the European elites would expropriate them in an eye-blink for “their own good”; and c) that any vote that doesn’t conform to the wishes of the EU bureaucracy is worth precisely nothing – even in the “cradle of democracy”.

Photo credit: Panagiotis Maidis

 

More astonishing than the fact that Greece – a country that represents less than one third of one percent of the world GDP – received another huge bailout package, was how it all played out. A bank holiday was announced, capital controls were implemented, cash withdrawals were massively restricted, the stock market closed and any assets inside the banking system (even safety deposit boxes) were no longer accessible to their owners. This is an unprecedented level of infringement on private ownership that has never been seen in a modern Western country.

 

  1. Fed Hikes Interest Rates

The Fed hikes interest rates for the first time since the financial crisis of 2008. For the past 7 years we have had an interest rate band between 0-0.25%, which is essentially “money for nothing”. With its decision, the Fed became the first large (and the leading) central bank to effectively hike interest rates.

 

1-FF rateThe effective federal funds rate (a weighted average) has jumped to the highest level since late 2008. This “high level” is still next to nothing though – click to enlarge.

 

Meanwhile, on the other side of the Atlantic, the ECB cut its deposit rate (slightly) deeper into negative territory and prolonged its QE program that is now expected to continue until March 2017. Since last summer, the media continuously speculated about a rate hike and its timing. So, will interest rates start to normalize after the long-awaited change in monetary policy? We don’t think so! We believe that the main reason the Fed decided to hike rates was to regain some of its lost credibility.

For the past seven years the monetary floodgates have been open with no clear positive effect on the real economy. A continuation of zero interest rate policy (ZIRP) would have been an admission of failure. With this slight rate hike of 25bps, the Fed is trying to show the world that its policy during the financial crisis worked.

We all know that the economy in the US is not as healthy as the Fed would like us to believe. When we throw in the potentially explosive impact the failing shale industry could have on the economy and the strength of the dollar, that is likely to increase further due to this rate hike, we doubt that this move by the Fed is the turning point and that the Fed will continue hiking rates as it has done previously in such cycles. The Fed raised interest rates because it had to, but don’t expect the monetary shenanigans to be over. There are a lot more to come!

 

  1. Defaults Surge as Global Debt Explodes

2015 has seen the greatest number of corporate defaults since the financial crisis. Many of the companies that are defaulting are from the energy and materials sector. Why? It is the logical outcome of the excessive borrowing by corporations who were misled by close-to-zero interest rates. And, of course, we must not forget the boom in the shale industry.

With a barrel of oil costing over USD100, shale oil was a very interesting investment. Now with oil hitting rock bottom, some oil producers are operating at a loss and only continue operations to be able to make their interest payments. The number of corporate bonds Standard & Poor’s rates as junk or speculative, has gone up to 50% from a previous 40%. Unfortunately, the world did not learn its lesson after the financial crisis and instead of deleveraging, it has accumulated even more debt, as the chart below illustrates. Of course it not only corporations that are responsible; governments have not learned their lesson either.

 

2-No deleveragingNo deleveraging is in sight – click to enlarge.

 

The issue of debt will continue to be with us for some time to come; the house of cards will eventually collapse, but we think that politicians and central bankers have the will to “do whatever it takes” to prolong its eventual demise. What we will likely see in 2016, however, is a massive increase in defaults. Yields on high-yield bonds are already at alarming levels.

What exactly will be responsible for the next crisis is hard to foresee. The trigger might be the possible collapse of the shale industry, or the strengthening dollar, that will make it very hard for emerging market countries to repay their debts, or a completely unexpected sector (who knew what sub-prime was back in 2006?).

 

  1. Oil Price Collapse

Crude oil prices fell to their lowest levels in nearly 11 years, as crude oil declined to nearly USD35 per barrel. The price of oil has been on a continuous downward trend and has plunged nearly 70% since the summer of 2014. From our perspective, the main factor that led to this decline is the US shale oil “revolution”.

It was truly a revolution, considering that the boom in shale oil production allowed production in the US to surpass that of Saudi Arabia, previously the world’s largest oil producer. Meanwhile, OPEC hasn’t changed its stance as it insists on maintaining its strategy to increase its market share, even if this comes at the expense of further oil price declines.

 

3-Crude-Oil-Production-in-the-US-2015-08-04US crude oil production has more than doubled from the multi-decade lows reached in 2008/9

 

I am not an expert on oil and therefore it am not going to provide predictions on where the oil price is heading next. I would rather want to discuss the impact of the oil price movement to date. First of all, a collapse of the oil price, a commodity that is widely used in industry, has historically always been a herald of recessionary tendencies. In my view, the oil price clearly signals that the economy is not as healthy as is portrayed by the mainstream media.

Secondly, the ongoing failure of companies in the shale industry has the potential to bring on a crisis that could dwarf the previous financial crisis. Last, but definitely not least, is the question of how oil exporters such as Saudi Arabia, will finance their budgets when oil revenues massively decrease and they are no longer able to buy their population’s silence with gifts.

 

How can we Position Ourselves in such an Environment?

The outlook for the future looks bleak: continuously growing debt, looming defaults on a major scale and geopolitical tensions. So how can we best position ourselves?

In times like these, when it seems impossible to predict even the near future, we seek security. Precious metals like gold and silver represent wealth and value. They give their owners a degree of independence and protection from the whims of governments. In light of recent events in Greece, it turns out that gold and silver are only a safe investment as long as one has full control over it and can access it at any time. Holding gold outside of the banking system is therefore essential in my view.

Those who know me know that I am Swiss and rather biased towards my home country. To me, Switzerland strikes the perfect balance between international neutrality with a history of a safe and stable political landscape, and an environment that encourages investment and guarantees private ownership rights.

 

Subscribe for future updates at www.globalgold.ch

 

About the author: Claudio Grass is a passionate advocate of free-market thinking and libertarian philosophy. Following the teachings of the Austrian School of Economics he is convinced that sound money and human freedom are inextricably linked to each other.

 

Charts by: St. Louis Federal Reserve Research, BofA / Merrill Lynch, Market Realist / EIA

 

Image captions by PT

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Debate – Where Do Things Stand in the Gold Market?
      A Recurring Pattern When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating - prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent...
  • Monetary U-Turn: When Will the Fed Start Easing Again? Incrementum Advisory Board Meeting Q1 2019
      Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below].   Trey Reik of Sprott USA.   Also at the meeting, Jim Rickards, who is inter...
  • Acting Man Returns - A Brief Housekeeping Note
      Pater Temporarily Keels Over Regular readers have no doubt noticed that the blog has fallen silent for around three weeks and may be wondering what has happened. In a nutshell, we were hospitalized. After a lengthy time period during which our health gradually but steadily deteriorated (we have complained about this previously), we finally keeled over. Thereupon we were forced to entrust the ruin that houses our mind to an experienced team of doctors (depicted below).   A...
  • Watch Europe - Free Pass for the Elliott Wave European Financial Forecast
      Europe at an Important Juncture European economic fundamentals have deteriorated rather noticeably over the past year - essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below:   The Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks...
  • Why Warren Buffett Should Buy Gold
      Riding the Tailwinds of Fiat Money Inflation to Fame and Fortune Warren Buffett bought his first shares of stock when he was 11 years old.  He saved up $114.75 and “went all in,” purchasing three shares of Cities Service preferred stock.  The day was March 11, 1942 – nearly 77 years ago.  Buffett recently reminisced about this purchase in his annual letter to shareholders:   “I had become a capitalist, and it felt good.”   The Oracle of Omaha – he was...
  • Fake Money’s Face Value Deceit
      Not the Brightest Tool in the Shed Shane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff. These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.   Over-educated he ain't: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in...
  • Rise of the Zombies - Precious Metals Supply and Demand
      Rise of the Zombies - Precious Metals Supply and Demand Last week, the prices of gold and silver fell $35 and ¢70, respectively. But what does that mean (other than woe unto anyone who owned silver futures with leverage)? The S&P 500 index and the euro was up a bit, though the yuan was flat and copper was down. Most notably, the spread between Treasury and junk yields fell. If the central banks can lower the risk of default premium, they can make everything unicorns and...
  • Bitcoin Bottom Building
      Defending 3,800 and a Swing Trade Play For one week, bulls have been defending the 3,800 USD value area with success. But on March 4th they had to give way to the constant pressure. Prices fell quickly to the 3,700 USD level. These extended times of range bound trading are typical for Bitcoin Bottom Building in sideways ranges. This 60 minute chart of Bitcoin shows (represented by the yellow candlestick wicks) how the bulls defended 3,800 USD :   BTCUSDT 60 minute chart...
  • The Magic Doesn't Always Work - Precious Metals Supply and Demand
      The Week Ends with a Surprise The weekly closing prices of the precious metals were up +$5 and +¢11. But this does not tell the full story of the trading action. Prices were dropping until Friday. More precisely, Friday 8am in New York, or 1pm in London.   Gold and silver - back in demand on Friday... [PT]   At that moment, a light cabal conspiring to jack the price struck traders began buying. The end result was the prices, especially of silver, rose on the day...
  • Intraweek Profit Opportunities
      In 6 of 10 Countries a Single Day Outperforms the Entire Week! In the Seasonal Insights issue of 13 February 2019 I presented a study illustrating the power of intraweek effects. The article was entitled “S&P 500 Index: A Single Day Beats the Entire Week!” The result of the study: if one had been invested exclusively during a single day of the week since 2000  – namely on Tuesday – one would have outperformed a buy and hold strategy, beating the broad market. Moreover,...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!