Central Banks Are Printing to Avert a Global Meltdown – as Gold Miners Start to ‘Melt Up’

Central Banks Are Printing to Avert a Global Meltdown – as Gold Miners Start to ‘Melt Up’

Posted on April 14, 2016 by Jeff Berwick — No Comments ↓

Central Banks Are Printing to Avert a Global Meltdown – as Gold Miners Start to ‘Melt Up’

Yesterday we went over the state of the world and if you read the article you’ll find it’s not good. In fact, it’s downright disastrous. There are defaults and impending collapses all over the place, from China to Europe to South America and beyond.

What did the stock market do the very next morning? It went up 160 points for some reason.

So let me try again to expose the reality of what’s happening. And then I’ll try to provide some actions you can take from an investment and savings standpoint. Hey, no matter how bad it is, someone is always making a profit somewhere. It might as well be us. In fact it will be us. The market is turning fast now, and we’re turning with it.

News first. While the market was climbing some 160 points, the Atlanta Fed continued to downgrade the US economy. Since beginning the year with an announcement that GDP growth for the first quarter of 2016 would be above 1%, and calling for growth as high as 2.6% as recently as February, the Atlanta Fed has changed course immensely since March 15 and has called for growth estimates of .7%, .4%, and now .1% respectively since that date.

That’s just shy of a recession and I don’t believe the number anyway. Call the US’s economic condition whatever you want. I call it a depression, one that’s been taking place since at least 2008 and papered over with 8 years of 0% interest rates and waves of money printing that they are almost becoming like the Rocky movies. QE1… QE2… QE3. And QE4 is coming, but likely not until a few thousand points get shaved off the Dow in quick fashion… and even then the market will continue to drop as more people begin to realize what’s going on and begin to scramble out of stocks that are valued based upon a good economy.

Then there’s the IMF. The IMF came out once again and admitted it had been too optimistic. In its just released quarterly World Economic Outlook report, the agency chopped its growth forecast by another 0.2% for 2016, down to 3.2%. At one point, the IMF was forecasting 4.0% GDP growth in 2016. It doesn’t matter though, GDP numbers have no bearing on the growth of an economy despite what everyone tells you. And those numbers are SO FAR out of whack with the reality on the ground in almost every country in the world it is laughable.

And yesterday, while the US market was climbing, Italian banks went limit down. They’re broke and so is the government. Over the past 12 months, the Italian market is down by 1/3 and the banks are doing so badly that they can’t raise more equity – not in Italy, not anywhere. The government has had to engineer a series of bailouts.

And what was the final bailout? It was for a grand total of euro 5 billion – a ridiculous amount given that bad bank loans total something like euro 360 billion — and one bank alone has something like euro 80 billion in non-performing loans.

Italy can’t print. Only the European Central Bank can print – and it won’t print nearly enough to debase the Italian currency to a point where those loans are manageable… at least not in time to salvage the banks.

And Italy’s problem is Greece’s problem, is Ireland’s problem – and who knows how many other countries as well. Remember, not long ago we quoted top Bank for International Settlement’s executive William White who made headlines in Davos with his blunt assessment of the world’s financial condition?

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up … Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too … Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said. “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians”

White knows what’s going on. Bank debt is a worldwide problem. Actually it’s a catastrophe waiting to happen… planned to happen… or even worse, a catastrophe that IS happening

There’s plenty of speculation that the recent hush-hush meeting between Obama, Yellen and smilin’ Joe Biden was all about bank debt as well, specifically German bank debt.

The idea is that Wall Street has already been propping up Deutsche Bank, which despite its size and reputation must now be known mostly for its recklessness. With interests in every corner of the globe, Deutsche Bank has been melting down regularly. It’s got plenty of unsecured loans to companies like Volkswagen, for instance and its stock price is a significant underperformer for the sector.

Now it’s already been reported that Deutsche Bank was negotiating with Goldman and JP Morgan on selling $1.1 billion gross “notional” distressed credit default swaps (LINK). And the speculation is that part of the high-level White House conversation concerned a further bailout of Deutsche Bank, perhaps via Goldman and Morgan, with the Fed securing the purchases in some way. If this sounds a lot like the plot for The Big Short, it’s because it is.

But, the idea here is that the West’s financial system is so fragile at this point that any single blow could prove devastating and that the Fed, among other prominent central banks, stands ready to provide the necessary liquidity. This liquidity of course will extend far beyond Deutsche Bank. As we’ve speculated before, various forms of quantitative easing are with us to stay, at least for as long as the powers-that-be want to prop up this collapsing system.

How long that might be for is difficult to say. Remember the goal is ultimately to collapse what remains of economic health worldwide. The idea is to usher in another system, a global one, and this system has to break down irretrievably first.

It may well be done via debasement rather than catastrophic market breaks, though we’ll surely have our fill of those. But ultimately, debasement can lead to the same place – a system that cannot be salvaged.

But debasement has one silver lining, pun intended, for those of us who are watching the current carnage aghast. And that has to do with the escalating price of gold relative to the dollar and the advance, as well, of mining stocks.

Here at TDV, we’ve already experienced the first flush of the advance of mining stocks after over a decade of under-performance. Gold is up recently by some 30 percent and it is very possible that a good deal of this rise has to do with the perception that central banks are going to have to debase like crazy to support what’s left of the system’s solvency. Our own gold portfolio, managed by our resident genius Ed Bugos, is up over 50 percent in the past months. And some of Ed’s individual mining picks are up by nearly 200 percent in little more than a month.

Just look at this chart of the major gold miners.

image: https://www.dollarvigilante.com/wp-content/uploads/2016/04/Central-Banks-Are-Printing-to-Avert-a-Global-Meltdown-as-Gold-Miners-Start-to-Melt-Up-HUI-The-Dollar-Vigilante.jpg

Central Banks Are Printing to Avert a Global Meltdown – as Gold Miners Start to Melt Up – HUI – The Dollar Vigilante

They are up 100% in the last three months. Imagine if the tech sector, as measured by the Nasdaq was up 100% in the last 3 months. Or if the Dow rose 17,000 points since the start of the year. The headlines would be blasting so loud you wouldn’t be able to hear yourself think.

But, gold stocks rose 100% in the last three months? Crickets. That’s because they don’t want people to know. They might start asking silly questions like, “Why are gold stocks rising so much, so quickly?” The answer to that gets very uncomfortable for Janet Yellen.

As for the metals themselves, gold jumped 16.4% in the first three months of 2016, its strongest quarterly showing since the third quarter of 1986.

It’s perfectly possible that central bank money printing can continue at least in the short term to salvage banks and lift markets (although I highly doubt it and I’ll be explaining to subscribers this week why). But, if the markets rise due to more money printing, this time metals and mining stocks may come along for the ride.

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