The Ultimate “Trapped Rats”

April 1, 2015

It wasn’t until the late 1990s when I first had enough money – or better put, currency – to purchase anything other than life’s necessities. Consequently, my first investments were tech stocks during the internet mania, despite not having the slightest understanding of their fundamentals. Oh, I picked the brains of the young, up-and-coming telecom analyst at Southcoast Capital in New Orleans – where was an oilfield service equity analyst from 1998-99. However, no matter how hard I tried, there was no way I’d ever grasp the technology, valuations, or long-term outlooks of the fly by night, Wall Street-juiced companies of the largest financial bubble the world had ever seen. Fortunately, I was conservative enough to pull out at the first sign of trouble, in April 2000; and believe it or not, aside from Precious Metal miners – which I ran kicking and screaming from four years ago – I have not owned a stock since.

On that day in April 2000, my bubble-calling “career” began. In the big picture, my calls have been as right as rain; but intermittently, have earned me derision and loathing, as the loan Cassandra in a world of Pollyanna’s. The same occurred in 2005-07 when, despite my wife (an attorney at the time) and I having built up a nice nest egg, I would not yield to friends and relatives’ relentless nagging to buy a house. I could not have been more vocal that housing was a massive bubble ready to burst; and when I finally ceded to my wife’s desire to own a home in May 2007, I did so under the condition that it was not in the high cost, high property tax state of New York, but out in Colorado; where not only were the cost of real estate and living in general dramatically lower, but where I could see myself for decades to come.

A year later the bubble burst, although the subsequent anger, frustration, and fear of said friends and relatives didn’t even earn me a brief “leave of absence” from Cassandraville. Heck, even when “dollar-priced gold” and silver reached their interim, Cartel-created peaks in 2011, I barely received a nod of recognition, as the vast majority of people had neither funds to invest, nor the slightest understanding or interest in real money. And undoubtedly, when the “big one” eventually washes over American shores – perhaps, as soon as this year – I fully expect to be equally stigmatized; which is why I long ago stopped speaking of such matters to those close to me, and why I’ll quietly stand in the background – aside from this blog, of course – amidst financial carnage that will undoubtedly put 2000 and 2008 to shame.

In 2000, the global economy peaked, having been artificially inflated by three decades of unfettered money printing; as the “credit card” of history’s largest fiat Ponzi scheme was fully charged up global governments, municipalities, and individuals alike. In 2008, Central banks were forced to step in and charge up their own “credit cards”; and care of record low interest rates and the emergence of maniacal, stock-supporting “PPT” initiatives, corporations, too, charged up their “credit cards” with a variety of counter-productive schemes like management-enriching buyback programs; leaving us where we are today – with the global economy at its indisputably low point of our lifetimes; industrial overcapacity so deeply ingrained, it could take decades to unwind; and the majority of governments, municipalities, institutions, corporations, and individuals up to their eyeballs in debts that are mathematically impossible to repay.

Consequently, Central banks have engaged in ZIRP, NIRP, and QE “to Infinity” schemes to prevent this debt from becoming not just unpayable, but unserviceable as well. Which in turn, has launched the politically-driven, economically suicidal “final currency war” into its nuclear stage – fueling violent waves of inflation, deflation, social unrest, and geopolitical instability. It’s only a matter before the hyperinflationary match finds its fuse; and whether that fuse is oil, Greece, the Fed, or otherwise, we assure you it’s coming.

Below are perhaps the only charts one needs to see to understand just how dire the situation has become – depicting how the Fed’s maniacal financial repression has accomplished nothing but “kicking the can” a decade or so, whilst fostering the aforementioned currency wars; unprecedented wealth inequality; and a mountain of debt that will inevitably, spectacularly crash. But scariest of all, is the simple observation that in both 2000 and 2008, the Fed had the ammunition to “fight” the market declines – and subsequent recessions – with rate cuts and QE; whilst today, rates are at ZERO, and the Fed’s balance sheet has ballooned to $4.5 trillion, leaving it with no ammunition to fight far more dangerous recessionary forces, and far higher debt loads. In other words, it is completely and utterly impotent, which is why it now relies principally on increasingly transparent jawboning, market manipulation, and propaganda schemes. Even former Fed governor Kevin Warsh admitted yesterday that “the markets think they have Yellen’s number; that she will never allow markets to go down. They think the good times can last forever, and that is a very dangerous development; particularly as we tried negative real rates in the mid-70s and early 2000s, and both times it ended badly.”

And that isn’t just the case in the States, but the entire Western world, where rates are being “ZIRPed” to Infinity; and in much of Europe, “NIRPed” -as incredibly, more than €2.2 trillion of European sovereign bonds are now trading at negative yields, suicidally tempting fate by assuming Draghi’s insane, open-ended QE program will bail them out before hyper-inflation inevitably comes to town. And this morning’s European “deflationary” reading (of -0.1%) notwithstanding, hyperinflation will certainly arrive; as it already hasin countless second and third world nations, and shortly will in “first world” nations like Greece; and inevitably the “naked emperors” themselves – in Japan, the UK, continental Europe and the “reserve currency” wielding United States.

This time around, I have consciously avoided the word “bubble” like the plague; as despite equity, fixed income, and other “favored” assets trading at historically high valuations – amidst the worst economic fundamentals of our lifetimes – what is occurring today is, in many ways, the polar opposite of 2000 and 2008. Back then, public participation in the equity and real estate bubbles was extremely high. However, today’s “99%” are vastly poorer due to those crashes – with significantly weaker “confidence” due to inexorably plunging real income; dramatically higher debt loads; and a calcified mistrust of Washington and Wall Street, who they increasingly blame for their misfortunes. No, today’s “bubble” has been created entirely by TPTB, for TPTB, at the expense of all others. And whilst its inevitable implosion will be spectacular and far-reaching, the direct impact will be felt disproportionately by the “1%” that benefitted from it. As for the rest of us, we will be treated to an exponential acceleration of the unstoppable, downward, global economic spiral; as well as increasingly inflationary monetary policies that wipe out whatever remains of our net worth’s; aside, of course, from those wise enough to escaped to the timeless purchasing power salvation of real money.

What will be the catalyst that permanently destroys the “doomsday machine” – as David Stockman puts it – that are the bubble-fostering, economically deforming monetization and market manipulation practices of the world’s leading Central banks? Who knows, but the list of potential catalysts is as broad as it is deep. James Turk believes Greece will blow up in the next two weeks, given the sheer weight of its unfunded debt obligations and a rapidly growing loss of hope in its ability to negotiate with a “jack high” hand. Let alone, as its citizens grow angrier, and more revolutionary, with each passing day. Will it be the plunging oil price, given how much economic activity, social stability, and debt repayment depends on high prices? Or perhaps a geopolitical event – “black swan” or otherwise – in the Ukraine, Yemen, or Syria? Or simply an explosion of currency war activity, as the inexorably rising dollar – not due to U.S. economic strength (see today’s horrific Chicago PMI print of 46.5), but a global flight to liquidity – causes massive inflationary tsunamis in some parts of the world, and deflationary one in others?

My crystal ball is as good as yours. However, one thing I am sure of, is that via hyperinflation or crash, the real losses in financial assets will be historic. And conversely, the real gains in Precious Metals unprecedented. And rest assured, the “ultimate trapped rats” that the world’s “leading” Central banks have become will be destroyed, like hundreds before them; but not until they have monetized everything not nailed down with freshly printed, hyper-inflating currency. Which is why, with Precious Metal prices having been driven below their cost of production, and sentiment to its lowest level in two decades, by a maniacal Cartel desperate to kick the monetary can as far as possible, the reasons to own physical gold and silver have never been greater.


Courtesy of Courtesy of

Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.

Most silver is produced as a byproduct of copper, gold, lead and zinc refining.