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Fed Chairman Deceives; Precious Metals Mine Supply Threatened
Chris Martenson: Extraordinary Changes Coming as Delusion about Conventional Markets Ends
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up Chris Martenson of PeakProsperity.com and famous author of The Crash Crouse and his latest book Prosper! joins me to dissect what’s behind the Yellow Vest movement in France and why the mainstream media and those in power simply don’t want you to know what’s really going on there. Chris also tells us which precious metal he most favors right now. Don’t miss another wonderful interview with the great Chris Martenson, coming up after this week’s market update.
In a recent speech, Federal Reserve chairman Jerome Powell told some real whoppers. We’ll address his misrepresentations head on, in just a bit.
But first, let’s review this week’s market action. Despite drama in Washington over averting a government shutdown and prompting President Donald Trump to declare a national emergency on the border, nothing too dramatic is happening in the gold market.
Prices are trading in a tight range, coming in essentially unchanged from last Friday’s close. Gold currently trades at $1,316 per ounce.
Turning to the white metals, silver is posting a 1.3% decline on the week to trade at $15.66 an ounce. Platinum is off 1.0% to check in at $797. And finally, palladium pushed up to a new record high close on Thursday and is continuing higher this morning… posting a weekly gain so far of 1.8% to trade at $1,436 per ounce as of this Friday morning recording.
Mining industry analysts know that palladium is in a chronic supply deficit that could last for years. The world’s biggest supplier of palladium is South Africa. That country is also a major producer of platinum and gold.
The South African mining industry has suffered a dramatic contraction over the past year. Statistics South Africa reported on Thursday that gold produced by South African mines has declined for 15 straight months. In December, gold output plummeted a whopping 31% from 2017.
But mining companies aren’t investing in new projects in South Africa in part due to increasing hostility from the government. The ruling African National Congress has vowed to expropriate white-owned farms without compensation, a move that puts all property rights there in potential jeopardy. Militant Marxist insurgents are vowing to seize businesses and vacation homes.
Deteriorating infrastructure, rolling power blackouts, and labor disputes are also contributing to the shuttering of mines.
Unless the South African government changes course from its socialist path and restores investor confidence, the mining industry there will likely continue its decline.
Elsewhere in the world, the mining industry is struggling to find and develop economical new reserves. Global gold production could actually go into decline on a worldwide basis this year.
In other words, we may have seen peak gold – a peak in the total number of ounces pulled out of the ground by miners over the course of a year. At least for the foreseeable future, it appears the mining industry lacks the capacity to ramp up production in order to meet rising global demand.
One of the leading proponents of the peak gold thesis is Ian Telfer, chairman of Goldcorp – now part of Newmont Mining. Telfer called for peak gold in 2018 and expects global gold output to go down from here. If he’s right, it will be hugely bullish development for prices.
Well now, as promised, we’re going to expose some of the lies and deceptions of Jerome Powell. Here is the Fed chairman in his own words, speaking last week in front of a group of educators.
Jerome Powell: If I could say one overarching thing that is really my job, and all of our jobs here, it is to try to earn and deserve the trust of the American people for our institution, that we're here working on their behalf in a non-political way to support the economy and use our tools to achieve maximum employment and stable prices. That's really the essence of this job and that involves transparency, it involves doing our job as best we can, explaining ourselves clearly. It's a world where surveys show that all over the world, people are losing faith in large institutions, so we're paddling against the current in trying to sustain public faith in the Fed.
No doubt, Powell is genuinely concerned about maintaining “public faith in the Fed.” But he doesn’t want the public to know the truth about the Fed.
First of all, the Fed doesn’t work on behalf of the public per se. It works for the member banks that formally own it and that depend directly on it.
Next, contrary to Powell’s claims, the Fed is quite political. It derives its legitimacy from an original act of Congress. Federal Reserve Board policymakers are appointed through a political process, then subjected to political pressure over their interest rate decisions. Powell can claim he isn’t influenced by political pressure, but he certainly aims to exert the Fed’s influence in our political system.
The Fed actively lobbies Congress to protect its special privileges and thwart legislation it opposes such as the Federal Reserve Transparency Act. It’s quite something to listen to Powell claim the Fed practices “transparency” when in reality it seeks to safeguard its secrecy.
Powell talked about using his “tools to achieve maximum employment and stable prices” – as if American workers have the Fed’s magic powers to thank for their jobs rather than job creators.
Regarding “stable prices,” Powell has a strange definition of “stable.” The U.S. dollar has lost close to 98% of its purchasing power since the Federal Reserve was established in 1913. Moreover, it is official Fed policy to promote annual currency depreciation and prevent the dollar from maintaining a constant, stable value.
Finally, when Powell said part of the Fed’s job was “explaining ourselves clearly” – well, that was clearly untrue. Former Fed chairman Alan Greenspan has admitted that “Fedspeak” entails deliberate obfuscation.
“Fedspeak” is meant to give the public the impression that Fed officials have special knowledge and wisdom. In reality, they are just following the same economic indicators as everyone else and don’t even have the ability to anticipate major turns in the economy.
Chairman Powell doesn’t want you to know that.
Well now, without further delay, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome in Dr. Chris Martenson of PeakProsperity.com, and author of the book Prosper! How to Prepare for the Future and Create a World Worth Inheriting. Chris is a commentator and a range of important topics such as global economics, financial markets, governmental policies, precious metals, and the importance of preparedness, among other things, and it's always great to have him on with us.
Chris, welcome back, and thanks for joining us again.
Chris Martenson: Thank you. It's a real pleasure to be back with you and all your listeners.
Mike Gleason: Well, Chris, when we spoke last in early November, we talked about the Fed printing money and expanding credit to prevent markets from correcting. The central planners there are always ready to intervene. At the time, equity markets were correcting and stock prices fell through the end of December. Officials must have then decided that enough was enough with all the selling because the Fed has very publicly signaled a change in course and instead of more rate hikes and more selling from the hordes of bonds accumulated during QE, the Fed is putting the brakes on tightening and looking to return to stimulus. Now the equity markets are off to their best start in something like 30 years. What do you make of the most recent intervention? Are they likely to get away with yet another round of bubble blowing here, Chris?
Chris Martenson: Well, that's the hope, and all the machines out there doing this front-running and buying of equities. It's not just the Fed, though. We really have to look at the global situation. So, what was supposed to happen? Here we are, we're February, we're closing and March is now in view. The European Central Bank was supposed to have begun unwinding its balance sheet at the beginning of 2019. Oh, quelle surprise, it's actually at the highest level that it's ever been, which it hit just yesterday.
China freaked out. Threw a trillion yuan, a few hundred billion into the market very, very suddenly. When you add it all up the so-called Financial Conditions Index is as loose as it's ever been on a global front, and that of course drives all of these asset prices, which of course is what the Fed was targeting. And I know you noticed, but I didn't hear it or maybe I missed hearing you say it, but the most important thing the Fed said was not that they were going to pause on these actually immaterial interest rate hikes ... which are not actually hikes because they don't actually withdraw money from the market to accomplish them ... but they also said that they stand ready to stop their unwinding of the balance sheet. They've telegraphed that far and wide and, more importantly, they said, "If necessary, we'll do more expansion of the balance sheet. We'll use that as a tool."
They wrap it up in gobbledygook but here's what they said, "Gosh, a little bit of weakness in stocks scared us a little bit, so we'll do whatever you need, Wall Street, to make sure that stocks only go up." And that of course is a perversion of all things freedom, all things financial and economic that we've spent many, many centuries learning about. We now live in the era of centrally planned markets and, luckily for you and me, the central banks are staffed with a very few people who happen to know the correct prices for all assets at all times (he says with his tongue in cheek).
So, they're on that mission. They think they've got it under control. They pulled that rabbit out of the hat in 2016. Can they do it again here in 2019? Well, if they do, I think they'll win the battle, lose the war. And what I mean is the further they drive this, the more ridiculous the imbalances get, the more you see things like the yellow vests beginning to pop up. It's just the level of gross injustice that's sort of implied and delivered to us via these central bank actions are second to none in history.
Mike Gleason: Internationally, we have a very interesting situation playing out right now in Venezuela. The U.S. and others are attempting a power play and keeping Nicolas Maduro from getting his gold out of London. First off, why would any country in their right mind, Chris, have another nation store their gold for them and relinquish control of it? That is truly baffling to me. I mean, I understand the desire to have it in a place where there's more liquidity, I get that. But it just seems like such a big issue when it comes to national security. Comment on that specifically if you would, and then also what do you make of the events there?
Chris Martenson: Well, to start with the gold storage issue. If you're a foreign country, and you're keeping it with London or the U.S., good luck. That's a really stupid thing to do. The idea is that the central bank has access to more liquidity, meaning that they can easily push it through either the London or the New York markets into a lease arrangement and put it out on the forward gold swap market. Now, that gives you a little, tiny, extra bit of liquidity. The reason I say it's dumb is that we already saw that London, which is really a proxy for the U.S., has decided not to ship gold back to a variety of countries when they wanted it. And it belongs to them, it belongs to their central banks, all of that.
So, you're dumb to do that, if you're a country, because typically gold isn't that much of a percentage of the overall reserve asset ratio. So, if gold is supposed to be this hedge that gives you this stability, especially during turbulent times, why you would want to trade that value for a little bit of extra liquidity ... and I'm talking like tiny amounts, like quarter percent per year. It's like ridiculously low amounts. Plus, coupled with the fact that London and the U.S. might just decide at some point, "You know what? Nah. We're not going to ship it back," right? Germany discovered that when the U.S. Federal Reserve out of New York said, "Oh, we can only get you like five tons a year of your 300 tons that you want back," which is a fraction of what they are actually holding here in the U.S. for Germany, allegedly.
I think it's just ridiculous. I think that the failure of the Bank of England to return Venezuela's gold when requested is a warning shot that should go across the bow of every central bank. And, by the way, they're all participating in this. If you look at the amount of gold that any European nation thinks they have, a lot of that is encumbered ... and I'm using that word carefully ... by the fact it's being held in London. Meanwhile, the United States thinks it's going to do another regime change. It's promising us this time it's going to be fast and easy and the people are going to love it.
If you look at the situation in Venezuela on the ground, it's very split. There's a lot of people who are sick to death of Maduro's leadership. I understand that. There's an even larger number of people, according to polls I've seen, who don't want any U.S., or other outside, meddling in their country. Which is wise. Because if you look at the regime change that the United States has pulled off, the United States is very clearly interested in the regime change itself, but no interest in the rebuilding afterwards. Libya: a complete mess after we took another arguable bad guy out, Gaddafi. In Syria, we're attempting stuff there. It's a mess. Iraq, still a mess.
So all the places the United States has sort of come in with its blunder and might, it makes things worse, not better. So, I think it's wise for people to say, "Listen, this is our issue. If we're going to get rid of this guy or any leadership at all, that's up to us. Please stay out," I respect that. Meanwhile, I do know people who are from Venezuela. It's really awful down there. And it's important to understand that that's at least in part, they are tumbling down the stairs, but at least one of the feet that was on the small of their back giving them a nudge, was the U.S. with some pretty punishing financial and import sanctions that have been helping, which adds to the misery down there. So I look at all of that, I've got to be honest with you, I'm sick to death of the United States playing regime change agent across the world. I think it doesn't win us any friends. I don't think it's resulted in any measurably better outcomes. In some cases I think it's cost us a lot of moral authority.
Mike Gleason: Yeah, well said. I completely agree. It is somewhat encouraging that precious metals prices are holding up as well as they are. The U.S. dollar has had quite a rally over the past two weeks and equity markets are on a tear. We'd have thought that that would be a lethal combination for gold and silver prices but so far at least the metals have held on to most of their recent gains. Now, in our view, precious metals futures markets and any price action there has to be treated with plenty of skepticism. There aren't many markets which reflect reality and fundamentals. COMEX gold and silver certainly don't fit that description. But we would have expected the bullion banks to cash in on the short position they've been building over the past few months. Any thoughts as to why that hasn't happened yet?
Chris Martenson: Well, I think they've been adding to it, not cashing it in. Let's just look at silver. In the week before silver breached it's 200-day moving average, normally a pretty big event. Normally an opportunity to do some short covering if you're on the wrong side of that breach. And so what we saw was open interest go from a 178,000 contracts to just most recently, last number I saw 215,000 contracts. So the open paper silver interest rose by 20% the minute silver breached its 200-day. It's been fairly successfully capped at or below that level ever since. So somebody thought it was worth their while to go ahead and throw an extra 20% of total outstanding volume into that.
I mean, can you imagine like a major corporation doing a big turnaround. Suddenly they're really on the up and up, and somebody who could, out of just thin air, produce 20% more shares of that company and just introduced them into the market, and say, "Nah, we're good. We'll take this." And of course that works because those large bullion banks are on the other side of that trade. They don't lose money doing it. They're very successful. They are the market. They own it. I'm not sure why anybody looks at those markets and says those represent the actual value or price of those things, because the price is wholly manipulated. But, got to be honest, we have a lot of manipulated markets now. So, it's really hard to know what's up, what's down.
That's one of the greatest sins of the central banks was destroying price discovery and then of course the failure of the regulators, in the CFTC, in the SEC, to police effectively any of these markets, to have these price manipulating moments happen so much now that everybody just expects them, and they become almost self-fulfilling because of that. And, by the way, price manipulation, to me, goes both ways. Sometimes we see people manipulate the price up really suddenly, down really suddenly. Clearly trades are being conducted in thin market hours in swamping amounts. They are not about discovering the correct price. They're about moving the price. That's price manipulation. In the United States the regulators could not possibly be less interested in that story. And I don't buy the angle that they're just outgunned and maybe they lack the talent. I think they're fundamentally uninterested in that. But of course who didn't know the fix was in when Ben Bernanke, Chairman of the Federal Reserve, went and joined Citadel, one of the largest companies involved in these shenanigans.
Mike Gleason: Switching gears here a little bit. We've talked about complacency that people have in these markets and I wanted to revisit that topic with you again. Over the past few years, things have seemingly been very strong economically and most Americans apparently feel good about the state of things and aren't too interested in planning for the next collapse, which we would both agree is not a matter of if but when. The lack of concern that folks have for what might be coming, may be the single greatest asset that these central planners have in keeping the wheels on. Talk about the dangers of apathy, Chris, because people really ought to be taking the time to prepare themselves, whether it's financially, personally, what have you. I've heard you talk about this before, but share with us your thoughts on this if you would, because I just feel like this is so, so important.
Chris Martenson: Well, absolutely. I'd love to because it is important. And part of the issue that's going on right now is that the way you might get your information that it's time to not be apathetic, that it's time to maybe think about things differently or to have concerns about things, is through the news, is through the information flow that you might get. And "news," by the way, put air quotes around that, that might be something that gets re posted to your timeline by friends. It might be something that you're seeing on a larger scrolling Twitter feed that you have. It might be what comes across either the airwaves or the newspapers, traditional sources like that. Well, what we're seeing are just absolutely fantastic sins of omission and commission by all of these social media giants and their associated corporate news masters.
So, for instance ... quick example ... each Saturday there are these Yellow Vest protests in France, which are not about climate change or diesel taxes ... that may have been the last straw ... but honestly, there was this huge bonfire, tinder pile that was built, looking for a spark. And in that it was just the grotesquely unfair treatment that the people of France have been suffering under with the amount of taxation they've been getting, the fact that they're squeezing pensioners while giving enormous tax breaks to corporate owners. The rich are getting richer. And they just basically, same as in the United States, same as in lots of Europe, you find that the wealthy have coopted the system for their own benefit. Not a surprising story. Happens all the time. But when the people start protesting that, it's been fascinating to watch the response of that same corporate media structure.
And so it happens every Saturday. There's on the twelfth now. And so Sunday morning I troll all around. I look at all the online news sources, so Le Monde in France, I'm looking at the BBC, Wall Street Journal, New York Times. I'm checking everywhere, looking at my Twitter feeds. I've got to tell you, you can't find stories about the Yellow Vest protests the next day in the mainstream media except when they really downplay it. So for this last one they said, "Oh, there was a few thousand." I was personally looking at live streams shot by people there, where I was easily seeing 10s, 20s, 50 thousand in a single pop. There's lots of violence being committed by the police where they are specifically aiming at the heads of people with these so-called rubber bullets, looking for head shots, and having great success, doing lots of damage to people. Thousands of injuries, thousands of arrests. And zero stories anywhere.
But in the UK this would be instructive. I've heard that they have a D-Notice placed on their media. And a D-Notice comes out of security firms and it's a governmental regulation that passes through that says, "This is important to the State that this news be suppressed in some way." And so, they've got a D-Notice on the Yellow Vests. You can't find any Yellow Vest protest stories at all in the BBC press or in the UK press, except when they talk about how... this is great… Daily Mail last Sunday came out with a story that said, "Six out of eight Yellow Vest protestors believe that Princess Diana was murdered." So they're calling them conspiracy theorists. Nice touch there.
Today there was a nice op piece in a French outlet that said that the Yellow Vests are tightly aligned with a rise in anti-Semitism in France. So great, now they've tied them to the anti-Semitism. And we're waiting for them to tie them to puppy beating and tearing the wings off of live insects, you know? It's hysterical how much the corporate media hates the idea of people rising up and saying, "Hey, this all feels a little unfair. We would like to have a seat at the table. We don't have any avenues left to us besides getting out in the street and disrupting things."
So that's starting to rise up and we're seeing that in Italy, where Italy has clearly come forward with some very populous leaders who are really sticking a sharp stick in the eye of the ECB. Very interesting news coming out about how that movement over there wants control again of the gold of the nation for the people. Fascinating story there. So this trend, though, of seeing that people are actually not apathetic but when they aren't apathetic and they turn out in the tens, if not hundreds, of thousands to protest, the media won't tell you about it. And when they do tell you about it they paint it in very dark light. "It's a conspiracy, it's anti-Semitism." It's whatever they need to do to sort of put a lid on that.
And it's pretty clear what the UK is afraid of. They're afraid of that movement spreading. Why would it spread to the UK? Because they have a deeply unfair system over there that's been looting the population and giving it to a few kleptocrats and that creates a lot of fuel on those bonfires. So they don't want it to be reported on. So this idea of apathy is really important. I would advise people listening to this to understand that if you are just getting your news, or primarily getting your news, off of what you see and hear that's about what's presented to you, it's flawed. Deeply, deeply flawed.
On a secondary front, I would say that people need to be aware that these changes that I've been talking about for a long time are really bearing down on us very, very rapidly at this point in time. There's going to be some extraordinary changes coming and when all of this self-delusion breaks, when the money printing doesn't work, when simply making stocks go up and telling everybody everything's awesome when they aren't. When those stores shred, they tend to break very rapidly. They tend to break a little bit like the Yellow Vest. That's why I bring that movement up, because it came out of nowhere. But really, it didn't.
It's like the Soviet Union didn't just sort of crumble out of nowhere. Like, these things build up and if you know what to look for, you can say, "Yeah, that’s coming, we know it's coming. We know there's a recession coming. We know that this credit bubble is going to burst. We know it's going to be painful. We know that all the insects disappearing is a very bad sign." There's all these signs coming forward and my most recent piece I wrote I asked the question directly, "How many signs do you need for you to say, 'Oh, my gosh, I've got to get off my butt and start taking care of things for myself because nobody else is going to do it.'" And by the time it's reported on, it's kind of too late, you know, to really do much about it at that point. So think for yourself. Gather your own news. Don't even trust me or anybody else. Think for yourself. Really burrow in but don't wait for it to be presented to you. It's too late then. You've got to go find it. You've got to go look for it and make up your own mind.
Mike Gleason: Yeah, very well stated. Got to take advantage of the opportunity that we have right now to get prepared for what may happen. A lot of things are sort of simmering beneath the surface, especially here in the States.
Well, getting back to metals, and as we kind of begin to wrap up here, we've certainly seen palladium perform as a total outlier and it keeps going up and up and it's reached $1,400 an ounce this week. Now eventually you would have to think the rally is going to come to an end. Meanwhile, its sister metal, platinum, can't seem to get much going to the upside and continues to struggle around the $800 mark and then gold and silver continue to be stuck in range trades for the most part. So where do you see the best value in the precious metals space here, Chris? Talk about that as we begin to wrap up.
Chris Martenson: Well, still, I love silver a lot. For a pure play silver, mine it's at or below the all-in cost production for most producers right now. As a supplementary metal that comes out of the ground as part of the base-metal mining, that's most of its volume in terms of brand-new mine production. There I'm expecting to see some drop-offs as we go forward in overall output. Meanwhile its price is just ridiculously cheap compared to its overall value. So, it's a commodity that I really like. Silver's my play of course in my belief that there will be an industrial future and things will carry on after a big hiccup.
Gold is something that everybody has to have just because everything we've been talking about in terms of where the economy's going, money printing, yada, yada, that's talking about monetary mayhem that may be coming forward. Gold is still the only monetary asset I know about that can play in the overall global sphere that's not simultaneously somebody else's liability. Asterisk on that, meaning "as long as you didn't store it at the Bank of England exchanges," right? Because there, it is somebody else's liability.
So if you have gold in your hot little hands, it's a monetary asset. It's exactly the thing you want when ... not if, but when ... this next financial/monetary accident really begins to get rolling again. So, I really like the precious metals here but I'm a big fan of all kinds of things that are real, tangible assets. That includes at this point land real estate, other things like that, simply because if you don't hold real assets when the wealth transfer comes, you'll be holding a bunch of paper claims. There'll be some chuckling from Wall Street. They'll say, "Sorry for your losses. Would you care to play again?" And it'll just be a wash, rinse, repeat sort of a thing. Bubbles burst. People get hurt. Except those who are not participating in a bubble when it finally lets go.
Mike Gleason: Well, we'll leave it there for now. Thanks very much for your time and your insights, Chris. Keep up the good work there and thanks for coming back on with us. And finally, before we sign off here, please tell our listeners about the Peak Prosperity site, what it is that they'll find there, and anything else that they ought to know about you, your books, or your site.
Chris Martenson: Absolutely. PeakProsperity.com, that's the main website. We have a subscription newsletter for people who like to go a little bit deeper. And we hold events several times a year. Adam and I are both going to be with the Real Estate Radio Guys on their Summit at Sea. That's a great thing to look that up as well. We only have a couple of spots left. Almost sold out entirely for our yearly seminar that's happening in Sebastopol, (CA), April 26, 27, 28. That's Friday, Saturday, Sunday. I think we have like three spots left in that. So that's going really well. So, if anybody's interested in that, come by PeakProsperity.com, see if you can grab one of those last few slots.
Mike Gleason: Well, excellent. Great stuff as always. Enjoy your weekend, Chris, and I'm sure we'll be catching up with you again before long. Take care.
Chris Martenson: Excellent. Enjoy your weekend, too.
Mike Gleason: Well, that will do it for this week. Thanks again to Dr. Chris Martenson of Peak Prosperity and author of the book Prosper! How to Prepare for the Future and Create a World Worth Inheriting. For more information just go to PeakProsperity.com. Check out the extensive site there and the great online community or get a copy of the book which is available there on the Peak Prosperity site and also at Amazon. You will not be disappointed.
And don't forget to check back here next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great Presidents Day weekend, everybody.