Monday, April 21, 2014

Gold Market Manipulation is Worse Than LIBOR

On January 17th the (German) regulator came out and said it was possible the manipulation of the gold market could be worse than LIBOR.

But what’s happened in the last couple of weeks is we’ve had some lawsuits filed, and one of the lawsuits was filed by a legal firm that I had been in touch with a couple of weeks earlier. This law firm was the co-lead law firm in the LIBOR scandal. I’m sure they will be involved in the Forex scandal as well.

They’ve hired on a group that’s done all the investigative work on the previous scandals. So this is a serious investigation in terms of generating prima facie evidence of manipulation. I don’t think this is going to go away -- it’s going to get bigger.

I phoned them (the law firm) because I wanted to get involved in a class action lawsuit. I don’t know whether I will at this point in time because I’m Canadian and the lawsuit is filed in the U.S., but I think there is lots of energy behind the claims that we all have of manipulation.

- Eric Sprott via a recent King World News interview, read more here:


Saturday, April 19, 2014

Baby Boomers Are Being Forced Out of Retirement

Baby boomers are failing to make ends meet and have to work for longer or even come out of retirement, and that the future workforce, those in their prime working years, are leaving the labour force.

Interestingly, without the “3% contribution” from the 55+ cohort, the labour force would have fallen below 60% for the first time since 1971, a period when the participation rate was starting to expand, driven mainly by women entering the workforce.

But that’s not all; many of those in their early 20s, seeing how hard it is to find a job, are staying in college for longer, amassing outrageous levels of student debt in the process. This is obviously not a sustainable solution. Delinquency rates on student loans (the bulk of them insured by the U.S. Government) are now at all-time highs (Figure 2). Most of these student loans have been securitized and sold to investors with the Government’s stamp (sound familiar?).

- Source, Eric Sprott via:


Thursday, April 17, 2014

Gold, Silver and Common Sense Investing

Supply is tight and physical demand is high for both metals. However, in this category silver really shines. Some of the greatest writers in the bullion field have already laid the foundation for understanding how much above ground silver there really is. Look no further than Ted Butler or Eric Sprott. In short it has been used and abused at very low prices for more than three decades. In the case of Butler, his arguments have been so compelling that he makes a case for there actually being less above ground silver than gold at present time.

There were billions of ounces in January of 1980 when silver reached its all-time historical high of $52 per ounce. Fast forward to 2014 and it is said that there is now less than 900 million above ground ounces available not just for the thousands of applications and critical industrial uses but for all of the world’s total demand.

At today’s price of approximately $20.00 per ounce, 900 million ounces would be valued at about $18 billion dollars. One large investor could literally turn the market on its head. (Store this little tidbit and recall it when you have already purchased bullion and you are trying to convince others to do the same.)

- Source Shanghai Metals Market:


Tuesday, April 15, 2014

Eric Sprott on Ukraine Russia War: Capital Controls, Bank Runs, Gold and Silver Forecast


Eric Sprott, CEO of Sprott Asset Management, is bullish on gold in 2014. Sprott says, "On a linear trend line, gold should be $2,100 right now . . . and if you throw on another 15%, you are looking at gold at $2,400 by the end of the year."

On the possibility of a Ukraine/Russia war, Sprott says, "There are two fears. One is war, which would be just devastating for everybody. The other fear is there could be a financial domino fall away from this. Perhaps the banks in the Ukraine, which are already facing tremendous strains because of demands on deposits, fail, and because somebody else is invested with that bank, they end up with a problem. . . . . War could certainly cause a financial domino, but we could have a domino without war. There's a huge bank run going on in Ukraine. The currency is crashing. The ruble is crashing. It is surprising how far all these currencies have gone down. We also experienced a huge decline in the value of the dollar . . . it fell half of one percent in one day."

- Source, USA Watchdog:


Sunday, April 13, 2014

ETF's Have Been Pillaged to Supply Central Bank Shortfall

By Greg Hunter, USAWatchdog.com

$8 billion fund manager Eric Sprott says there is a big opportunity surfacing in precious metals. Sprott contends, “I’ve always believed there is more demand than supply for the last 14 years. I’ve documented it. I am suggesting the western central banks have very little gold left. I think the whole decline in the gold price is the liquidation in the ETFs to supply some of that shortfall. I think manipulation and relief from the manipulation and the ongoing demand, well in excess of supply, is going to power gold higher.”

On precious metal price manipulation, Sprott charges, “We seem to get more and more evidence of it all the time. The German equivalent to the SEC saying the possible manipulation to gold would be worse than LIBOR, and I think worse is a very important word here because there can’t be more money involved because LIBOR is way bigger than gold, but worse means the egregiousness of the price decline. Furthermore, we had another group come out and say the LBMA fixed the price . . . the price was manipulated 50% of the time.”

On the question of western central banks running out of gold, Sprott says, “We might already be there when you think back to the German situation where they got all of 5 tons last year. Isn’t that a de facto ‘we’re not delivering the gold?’ I think that is such tokenism to the extreme. I have always thought there would be tightness. Whether it shows up in the COMEX one day or the fact that premiums blow out in China because they can’t get delivery, we are going to see that. . . .The supply demand numbers get better every day.”

What is Sprott’s forecast for silver? He says, “I think it’s safe to say every time gold has gone up, silver has gone up some multiple of that, and I wouldn’t expect any difference going forward here. What is Sprott’s price forecast for the yellow and white metals? Sprott predicts, “I have said many times that gold will exceed $2,000 an ounce this year, and silver will exceed its previous high of $50 this year. . . . On a linear trend line, gold should be $2,100 right now . . . and if you throw on another 15%, you are looking at gold at $2,400 by the end of the year.”

On China’s possible financial collapse, Sprott worries, “Anytime you have a financial collapse, the last place you want your money is in a levered bank and/or a government bond, and for that matter, most stocks. So, what’s left when you exclude those categories? Gold is the place you turn.” Sprott goes on to say, “On a corporate debt basis, China has one the most egregious leverage ratios out there. You could get this domino type of effect. Anytime there is financial uncertainty, that is what gold thrives on.”

On the possibility of a Ukraine/Russia war, Sprott says, “There are two fears. One is war, which would be just devastating for everybody. The other fear is there could be a financial domino fall away from this. Perhaps the banks in the Ukraine, which are already facing tremendous strains because of demands on deposits, fail, and because somebody else is invested with that bank, they end up with a problem. . . . . War could certainly cause a financial domino, but we could have a domino without war. There’s a huge bank run going on in Ukraine. The currency is crashing. The ruble is crashing. It is surprising how far all these currencies have gone down. We also experienced a huge decline in the value of the dollar . . . it fell half of one percent in one day.”

Friday, April 11, 2014

Deconstructing the U.S. Economy: The Non-Recovery

By: Eric Sprott

We are now in the 5th year since the “official” end of the Great Recession (the National Bureau of Economic Research (NBER), which officially dates U.S. recessions, said the recession ended in the second quarter of 2009), but it hardly feels like a recovery. Nonetheless, the media, sell-side economists, central bankers, the IMF, etc. all claim that the U.S. economy is now firmly out of the woods.

President Barack Obama said in his State of the Union speech that he believes 2014 “can be a breakthrough year” for the U.S. economy and the IMF, which raised its forecast for U.S. GDP growth in a report titled “Is the Tide Rising?”, now predicts growth of 2.8% in 2014.1

However, a closer look at the data suggests that things are not improving and that the U.S. economy remains frail. Many point to the unemployment rate as a sign that things are getting better. Indeed, it has been declining steadily for many years and now stands at 6.7%. However, what many seem to forget is that the unemployment rate is declining for the wrong reasons.

Yes, the U.S. has been adding new jobs, but a large share of the decline in the unemployment rate can be explained by discouraged workers leaving the labour force.2 This effect can be seen in the falling participation rate. Many argue that this decline in the participation rate is structural and is caused by population aging. This explanation is superficial and misleading.

Figure 1, shows the contribution to the total participation rate for various age groups. As shown in Figure 1, since January 2005, the participation rate has fallen by 2.9% (from 65.8% to 62.9%). Of this decrease, 1.3% and 4.7% were driven by the 16-24 and 25-54 age groups, respectively. The rest was offset by a 3.1% increase in participation by the 55+ cohort.

FIGURE 1: CONTRIBUTION TO U.S. PARTICIPATION RATE (%)



Note: Sum of individual components adds up to total participation rate. 
Source: Bloomberg, Sprott Calculations

This is reflective of a deep problem, as it suggests that baby boomers are failing to make ends meet and have to work for longer or even come out of retirement, and that the future workforce, those in their prime working years, are leaving the labour force.

Interestingly, without the “3% contribution” from the 55+ cohort, the labour force would have fallen below 60% for the first time since 1971, a period when the participation rate was starting to expand, driven mainly by women entering the workforce.

But that’s not all; many of those in their early 20s, seeing how hard it is to find a job, are staying in college for longer, amassing outrageous levels of student debt in the process. This is obviously not a sustainable solution. Delinquency rates on student loans (the bulk of them insured by the U.S. Government) are now at all-time highs (Figure 2). Most of these student loans have been securitized and sold to investors with the Government’s stamp (sound familiar?).

FIGURE 2: STUDENT LOANS % 90+ DAYS DELINQUENT


Source: Bloomberg, Sprott Calculations

For all the rest (ages 25-54), the participation in the labour force has also been declining, although at a slightly slower pace. Nevertheless, the average U.S. consumer is still worse off than it was before the Great Recession. Real disposable income per capita (Figure 3) is lower than it was at the end of 2005 while, over the same period, health care costs have increased from 10.0% to 11.5% of GDP (Figure 4), thereby reducing funds available for discretionary spending.

FIGURE 3: REAL DISPOSABLE INCOME PER CAPITA
INDEX 2005 Q4 = 100


Source: Bloomberg, Sprott Calculations

FIGURE 4: HEALTH CARE SPENDING AS A % OF GDP


Source: Bloomberg, Sprott Calculations


Not surprisingly, lower disposable income and discretionary spending levels for the average American are reflected in declining retail sales growth (Figure 5 shows the year-over-year growth rate in retail and food services sales).

FIGURE 5: RETAIL AND FOOD SERVICES SALES
YEAR-OVER-YEAR GROWTH 


Source: Bloomberg, Sprott Calculations

Moreover, since the summer of 2013, when the Federal Reserve lost control of the bond market (see our article “Have we lost control yet?”, June 2013)3, we have seen a clear deterioration in demand for credit dependent purchases. Since these purchases are mostly made on credit (mortgages, car loans), increases in interest rates have made them unaffordable to many customers. Thus, because of the large and sudden increase in interest rates, housing sales have slowed significantly, as can be seen in Figure 6. Similarly, car sales growth has been on a declining trend since it peaked in mid-2012 (Figure 7).

FIGURE 6: U.S. HOME SALES
YEAR-OVER-YEAR GROWTH 


Source: Bloomberg, Sprott Calculations

FIGURE 7: US AUTO SALES
YEAR-OVER-YEAR GROWTH 


Source: Bloomberg, Sprott Calculations

On the supply side, things do not look rosy either. The U.S. composite PMI has been more or less flat for the past 3 years (Figure 8) and has suffered a sharp decline since its August 2013 “peak”. Other indicators, such as the durable goods new orders have been growing at a declining pace (Figure 9).

FIGURE 8: ECONOMY WEIGHTED MANUFACTURING & NON-MANUFACTURING COMPOSITE PMI


Source: Bloomberg, Sprott Calculations

FIGURE 9: US DURABLE GOODS NEW ORDERS
YEAR-OVER-YEAR GROWTH 


Source: Bloomberg, Sprott Calculations

To conclude, numerous indicators of the state of the U.S. economy point to a non-recovery:

The participation rate is low and supported by baby boomers working more or coming out of retirement.

Students (the future labour force) are defaulting on their loans in record amounts. 

Disposable income is still below its pre-recession level.

An ever increasing share of disposable income is being spent on health care, crippling discretionary spending.
Higher interest rates are further depressing discretionary spending (home and auto sales).
All of which is resulting in anemic business and economic activity.

Claims that the U.S. economy is suddenly rebounding have been made before. They are misleading at best and fallacious at worst. It would not be surprising to see further deterioration, which would force central planners to initiate additional unconventional intervention (i.e. Quantitative Easing).

- Source, Sprott Asset Management:


Wednesday, April 9, 2014

Coming Natural Resource Market Will Elate or Terrify You


Rick Rule of Sprott's Asset Management discusses the coming natural resource boom. He believes it will be incredibly volatile. He see's the bottom being in, this is part two of a two part interview.

- Source, Sprott Asset Management:


Monday, April 7, 2014

Three Reasons Why Precious Metals Have Bottomed


Rick Rule of Eric Sprotts Asset Management is interviewed and talks about why he believes the precious metals market has bottomed. He gives three reasons for this.

Saturday, March 29, 2014

The Big Time Bomb is Derivatives and Leverage in the Banking System

"They don’t want any bank to start the liquidation process because that’s when we find out what things are really worth, and they are not going to be worth anything compared to what the banks have on the books.

So the big time bomb is derivatives and leverage in the banking system. We keep getting these comments out of Europe that some country has got to raise $25 billion to boost the capital of the banks. This is in an environment where the paper assets have been allowed to appreciate. Imagine a situation where they start depreciating.

The leverage is just way too high and to me that’s always been the lingering huge fear. We could throw in wars, continuing economic decline, which I think we are having, but a bank collapse would be by far the biggest item in terms of how it would affect the financial markets, and in particular in how it would just blow interest into the precious metals area."

- Eric Sprott via King World News:


Thursday, March 27, 2014

The Single Greatest Danger Facing The World Today

"The biggest danger is that the financial system is over-levered. And perhaps at this point I might even mention one of the most ludicrous things I’ve ever seen....

It was suggested by the Bank of England that should an important bank not be able to meet its derivative demands because it has a losing position, that claims on that bank be suspended -- that entities wouldn’t be allowed to make a claim on those derivative losses.

It’s like being in a fantasy land. You lose money, but you are not allowed to claim from the guy because he could go down. Of course I know the reason they don’t want anybody to go down: Ever since Lehman Brothers they’ve abandoned the word ‘liquidation’ because they saw what a liquidation could do."

- Source, Eric Sprott via King World News, read more here:


Tuesday, March 25, 2014

Physical Demand for Gold and Silver is Draining Supplies


Eric Sprott joins Greg Hunter of USA Watchdog where Eric discusses the huge physical demand that the market is experiencing. He see's both gold and silver hitting new highs.

Sunday, March 23, 2014

The Gold Bull Market is Back

“We are going to get the 50-day (moving average) going through the 200-day (moving average) soon. I bet it’s within 5 days that it will go through just based on the trend it’s on. It has to go through because the trend is up in the 50-day, and on the 200-day it’s just kind of flattening out here.

So we are going to have the ‘Golden Cross’ probably sometime next week, which I think will bring lots of guys in from the sidelines who realize that a new bull market has started because there is no better sign than the Golden Cross. I think the lack of manipulation going forward is (also) going to be a very important item for people to think about in terms of where gold should go throughout this year.”

- Eric Sprott via King World News:


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