One of my favorite, up-and-coming writers is Michael Snyder – who last night wrote that 2014 is turning out to be “eerily similar to 2007”; which, of course, preceded the worst economic collapse of our lifetimes. Frankly, all one needs to understand the lunacy of 2007 is the following quote…
The mainstream media, our politicians and Federal Reserve Chairman Ben Bernanke promised us everything was going to be just fine and we definitely were not going to experience a recession.
–The Economic Collapse, April 23, 2014
…this gibes eerily with “Whirlybird Janet’s” speech last week, in which she repeated Bernanke’s claim in anticipating the equivalent of “full employment” and “stable inflation” by the end of 2016. Never mind that, unlike Bernanke, she expects such developments nearly three years from now or, for that matter, the so-called “unemployment rate” could theoretically fall to historic lows simply due to a continued plunge in the labor participation rate. Better yet, her claim that “stable inflation” incorporates a near doubling of the CPI!
Yes, there are plenty of relevant comparisons to 2007 – particularly relates to a housing bubble that has clearly topped and is clearly imploding. However, as you can see in the below chart of existing U.S. home sales, there is no comparison when considering the scope of the declines. That is, in the “good old days” of 2007, the generational bubble fostered by Alan Greenspan was as colossal as the equity bubble he created in 1999. This time around, the “echo-bubble” was catalyzed solely by “quantitative easing”; as the benchmark 10-year Treasury yield was pushed to an all-time low of 1.5%, compared to the 2005-07 average of 5.0%. Worst yet, only Wall Street participated in Bernanke’s folly, taking the concept of “flipping” to a new plateau of lunacy. The term “buy-to-rent” best describes such rank speculation, which simply reduced home affordability to the “average Joe,” at a time when real incomes plunged, government entitlement demand soared, and labor participation plunged. To wit, after yesterday’s “unexpected” 14% home sales plunge, the run rate has already fallen to five decade lows; and this, with interest rates just above said all-time low levels.
As we wrote in last month’s “Anatomy of a Bubble” – and yesterday’s “Bubbles and Anti-Bubbles” – the comparisons, sadly, are much more relevant to 1999. Not so much regarding public participation – as worldwide, the “consumer” is largely insolvent; but in terms of pure, unmitigated overvaluation due to the aforementioned “QEing” of rates to record lows. In fact, the moral hazard of the past five years’ “Bernanke put” has been so ubiquitous, that despite supposed “tapering” – which we proved to be a mirage – not a single mainstream economist anticipates a recession. Yes, amidst the worst economic data since the 2008-09 bottoms – encompassing labor participation, retail sales, corporate, municipal, and sovereign debt, capital expenditures, and durable goods orders – all 67 economists in a recent survey anticipate an improving economy. And better yet, all 67 anticipate higher interest rates, despite the aforementioned data regarding an ongoing housing crash!
In fact, the data has been so bad – notwithstanding the odd “diffusion index” or “seasonally adjusted” weekly jobless claim report – it’s hard to believe anyone actually believes the “recovery” hype anymore. To wit, for the past three months, the “evil troika” of Washington, Wall Street, and the MSM have harped on “the weather” as the catch-all for anything and everything negative but, in fact, the weather had nothing to do with it. Yesterday’s housing data proves it, as did the Miles Franklin Blog in its recent piece, “Mother Nature has had enough.” Actually, per below, “weekly jobless claims” have gone the “way of the dodo” when it comes to correlation with labor market strength; but hey, why listen to facts, when propaganda is so much more attractive?
Alas, the “good old days” of 2007, when “the 99%” actually experienced a false, but real “wealth effect”; and more importantly, the cost of living was lower, and the job market vastly stronger. Heck, even the Fed admits the cost of living has risen by 16% since – per the below “Chained Consumer Price Index.” However, as we all know too well, such data is so comically understated, only a government apologist of the highest order could take it seriously. John Williams of Shadowstats estimates a cost of living increase closer to 65% and based on my experience, 65% sounds a lot more realistic.
Speaking of the “good old days,” how about the mining industry? True, gold and silver prices averaged just $700/oz. and $13.50/oz. in 2007. However, due to a similar explosion in the “mining cost of living,” miners were dramatically more profitable then. In 2013 alone, the PM mining industry reported losses of roughly $35 billion, prompting 2014 capital expenditure cuts of roughly 50%, signfiicant mine shutdowns and frankly, the potential for a near-permanent, historical production collapse. And this, with gold and silver prices averaging $1,410/oz. and $23.80/oz., respectively – i.e., double the 2007 prices! Yes, the Cartel has so viciously attacked gold and silver with naked shorting since 2008’s Global Meltdown I, it is questionable if the industry will even survive, let alone recover. To wit, the HUI index of large cap miners is 50% below its 2007 average, and 65% below its 2011 high. Meanwhile, the TSX-Venture index – in which the majority of “juniors” lie – peaked in April 2007 and today, is 70% lower. However, considering that roughly half of all juniors have since gone bankrupt – with the large majority on the verge today – the true “apples-to-apples” comparison is more like a 90% decline.
Historically, nearly all major gold and silver discoveries emanate from junior miners – who subsequently, sell them to “majors” for development. However, due to the end of the industry’s “low hanging fruit” in the 1990s, and the aforementioned capital crushing and cost explosions since there have been essentially no major discoveries in 15 years. And of those that do occur, most never see the light of day, due to a combination of environmental, taxation, title, and cost issues. In fact, the majors alone are on the verge of financial death; which is why just yesterday, the world’s largest two gold miners – Barrick and Newmont – again restarted merger talks, in an attempt to cut as much as $1 billion of costs in an industry operating well below the cost of production.
With every ounce of my being, I believe the gold and silver mining business will NEVER recover; as even when prices inevitably break their Cartel shackles, you can bet your life it will be amidst an environment of “fiat currency fear”; in which, governments will inevitably confiscate and/or windfall profit tax anything related to gold or silver mining. So yes, the “good old days” of PM mining are long in the past and if they ever return, the business environment will be dramatically more risky.
As for said “crushing,” what more can be said than the fact that yesterday – the day before today’s COMEX options expiration – when home sales “unexpectedly” plunged 14%; the Cartel used blatant DLITG, or “Don’t Let it Turn Green” algorithms to prevent gold and silver from rising (comically, capping the day’s gains simultaneous with the 10:00 AM EST data release – which just happens to coincide with the close of global physical trading)…
…and today, with utterly nothing going on in other markets – and the only “news” being a breakout of bloody violence in the Ukraine – we first were treated to this instantaneous plunge just after 6:00 AM EST (following, of course, the 209th “2:15 AM” raid in the past 236 trading days)…
…and this one, less than an hour later again, with no other market budging…
Remember, for the past year and a half, PAPER silver has had a 2%+ decline on more than half of all trading days which, “of course,” is due to falling PHYSICAL demand. Right?
Alright, that’s enough stark reality for one morning. Hopefully, the point gets across – loud and clear – that when it comes to the real economic experience of the average “99%-er,” it borders black humor in comparing today’s fabricated world of 24/7 money printing, market manipulation, and propaganda with the “good old days” of 2007; let alone, the peak of the global economy seven years earlier. And as for the mining industry, it’s hard to even remember “good old days” as the industry’s production outlook has never been bleaker. To wit, we maintain our view that production will literally implode in the coming years, just as the “perfect storm” of surging demand hits the production decline like a runaway train. Do your own due diligence and when you do, we guess you’ll come to the same conclusion!