Caption Contest 1I don’t think that the situation that we have here is sustainable. We are going to have to create a sufficient amount of money to keep the debt load afloat. We are going to have to keep interest rates low because if those basic requirements are not met – that is lots of liquidity and maintenance of low interest rates – the system is going to collapse.
I think that’s why you own gold; because the odds favor something going badly wrong – a ‘black swan’ if you like. And to continue they will have to jam liquidity, and at some point there will be a massive recognition that the money is no good and people will want out into real things.
The fiat Ponzi Scheme will continue until it doesn’t, but the minute that it stops, people will be asking themselves what they really own through their ‘paper gold’ vehicles. I think that this will have an unbelievably large impact on the price of physical gold.


 

Submitted by Henry Bonner, Sprott’s Thoughts:

John Embry said last month that the rally at the beginning of the year was encouraging, but to remember that sentiment for gold was still extremely negative. He says that the stock market’s new highs are a result of the Fed ‘jamming cash into the economy.’ With nowhere else to go, cash is creating bubbles in stocks, real-estate and bonds, he warns.

Hello John. Gold has fallen back down over the last month. Do you think optimism for a fast recovery in gold has fizzled out?

John Embry:I believe that is probably a fair assessment of what has happened since. I think that the decline in the last month has hurt confidence in the West. But I can assure you that the Eastern interests are rubbing their hands and piling into all the physical gold they can get. Once they realize that there is a limited amount remaining for them to pour their U.S. dollars into, I believe the price will move up sharply.

I think that people should be focusing more on the eventual upside — which is going to be huge–than on the short-term downside which is due to the paper markets.

What is your view of gold in the next few years? What if we continue to have low inflation, or even deflation? How will gold fare?

Well, I don’t think that the situation that we have here is sustainable. We are going to have to create a sufficient amount of money to keep the debt load afloat. We are going to have to keep interest rates low because if those basic requirements are not met – that is lots of liquidity and maintenance of low interest rates – the system is going to collapse.

I think that’s why you own gold; because the odds favor something going badly wrong – a ‘black swan’ if you like. And to continue they will have to jam liquidity, and at some point there will be a massive recognition that the money is no good and people will want out into real things. So I don’t worry about low interest rates and low inflation keeping gold low.

Low interest rates suggest that there is a low demand for capital in the economy. High amounts of cash on corporate balance sheets also indicate that companies are no longer finding profitable opportunities to deploy cash.  Do we need to see a higher demand for capital in order to see higher inflation and rising interest rates?

Well, yes, companies are finding it hard to re-deploy capital – and for good reason. There are just not enough credit-worthy borrowers or investment-worthy opportunities to exploit. This happens because the economy is so weak. I don’t believe it for a minute that the economy is as strong as people suggest. As the economy continues to weaken, inflation becomes a currency event.

It’s not inflation like in the 70s’, where a higher demand for things led to prices going up. This time, it’s the currency that is being severely debased and that is what will lead to – I believe – hyperinflation before this is over.

In a weak economy, where there is nowhere for companies or banks to deploy capital, could cash continue to accumulate in banks and corporate balance sheets, preventing this cash from causing inflation?

Well, I guess that could happen. But the question becomes: Why would you want cash, when it generates no return?

I mean, I don’t accept the fact that there is no inflation anyway. I am a big believe in John Williams’ShadowStats. I think his inflation number may be too high at 5 percent or so right now.1 But the real number is probably somewhere between that and what they report. So if you’re putting your money in bonds, particularly in the short-term ones, you’re losing purchasing power every single day that is sits there.

So we are waiting for investors to recognize this guaranteed loss in purchasing power from holding bonds?

Well quite frankly, Henry, I am amazed that people, given what is unfolding, are prepared to hold bonds. I my view, these things won’t buy a loaf of bread by the end of the experience. And yet there are trillions and trillions of these bonds in the hands of investors everywhere. Now, obviously, nobody wants to buy American bonds quite so much. That’s why the Fed has been forced to step in and buy so many of them.

I think that the next shoe to drop will be the geopolitical mess that is unfolding in the Ukraine and elsewhere. I believe there will be others: the Chinese have already stated their intention of diversifying away and pricing everything in Yuan. I think the Russians are going to head in that direction too. I believe there is going to be an overhang of U.S. dollars in the market, which is going to lead to the price of the Dollar declining. It’s not that the Dollar is particularly overvalued against Euros or any other currencies. It’s just that people are going to want to get rid of all of them, and I think the Dollar is extraordinarily vulnerable.

 

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What else is on your mind today that is important for gold and silver investors?

Well, there is something I would like to comment on. It’s this whole paper gold market. I don’t think that people fully understand what a Ponzi scheme it is. I’ve seen numbers, which could even be too conservative, stating that there are at least 100 claims on every single ounce of gold in the Western system.

This continues until it doesn’t, but the minute that it stops, people will be asking themselves what they really own through their ‘paper gold’ vehicles. I think that this will have an unbelievably large impact on the price of physical gold. I believe that to own gold, you should only buy either physical gold or a vehicle that is backed by the metal such as the Sprott Physical Gold Trust, where there is an audit showing that all of the physical gold is there. That is not the case of 90 percent of the ‘paper gold’ products out there.

I think that could be a real catalyst for dramatically higher gold prices soon.

Do you see a chance of a weakening of demand from India or China?

Oh, not at all. I think that the Chinese have changed the whole ball game. You could measure how much gold was being imported into China through Hong Kong and they were importing staggering quantities. They were essentially buying up the equivalent of the world’s entire annual mine production outside of China. Now, they are going to start taking gold in more clandestinely through Beijing and we won’t know how much they are buying, but I think they will buy as much as they can get their hands on.

James Turk had an insightful comment about the gold market; he said that a lot of the physical gold getting into the market were old, 1960s’-style bars. That suggests that we are running out of gold in the Western world.

Why have we experienced new all-time highs in the stock market and record profits from big corporations when the economy is so fragile?

Well, I think it’s very simple. You alluded to it when you said that people don’t know what to do with their money. As more money is jammed into the system by the Fed, the money has to go somewhere. What’s happening is that it’s creating bubbles in lots of things – stocks, bonds, or urban real-estate. Sure, profits look good, but there is a lot of phantom accounting that can make profits look a lot better than they are.

I tend to look at the top line, which is not nearly as good in most instances as the bottom line, which you can tamper with through accounting tricks.

So, I think we’re doing what we did at the end of the 90s’ with the tech bubble. I think we are just having a more widespread bubble in stocks.

What do you make of the Fed tapering, which has taken QEdown to 45 billion dollars2from 85 billion dollars per month?

Well, quite frankly, I don’t believe a word from these people. Why was Belgium the biggest buyer of Treasuries in the most recent period? Belgium — they’re bankrupt too! So, I would not be surprised if the Fed is operating in some back-door way. If the Fed tapers, somebody still has to buy these bonds.

You see, the U.S. is faced with two challenges, which are mutually exclusive. On the one hand, they are trying to protect their currency, and on the other trying to protect their economy. And I think that one of these will surely fail. And I suspect that the easiest route will be to let the Dollar go eventually than to let the whole economy go. If they continue to tighten up and taper, I think the economy will buckle, and I think that’s the last thing they want.

‘Tapering’ will continue until the pain becomes too strong, at which point it will be violently reversed.

Will the Feds have the capacity to ramp QE back up in order to save the bond market?

Well, I think they will have to at some point because it’s becoming abundantly clear that the previous large buyers, for various reasons, are not buyers anymore – the Chinese and the Japanese for instance.

The Japanese have their own problems to worry about. The fact that Belgium shows up all of a sudden as a large buyer tells you that there is something very wrong in this market.

http://www.shadowstats.com/alternate_data/inflation-charts

http://www.foxbusiness.com/economy-policy/2014/04/30/fed-continues-taper-holds-rates-steady/

 

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  1. Rom 3:10  as it is written, There is none righteous, no, not one;
    Rom 3:11  There is none that understandeth, There is none that seeketh after God;
    Rom 3:12  They have all turned aside, they are together become unprofitable; There is none that doeth good, no, not, so much as one:
    Rom 3:13  Their throat is an open sepulchre; With their tongues they have used deceit: The poison of asps is under their lips:
    Rom 3:14  Whose mouth is full of cursing and bitterness:
    Rom 3:15  Their feet are swift to shed blood;
    Rom 3:16  Destruction and misery are in their ways;
    Rom 3:17  And the way of peace have they not known:
    Rom 3:18  There is no fear of God before their eyes.
     
    But you can understand the bible.  You can understand the righteousness of God.  the bible is really very simple to understand.  Revelation Chapter Four… right here… https://www.youtube.com/my_videos_annotate?v=C5O02KD2V9c

  2. Excerpt: “We are going to have to create a sufficient amount of money to keep the debt load afloat.”

    Now that Mr. Embrey has stated it, is it more credible than all the times I’ve been hammering away at it? Do words of experts trump pure logic from a regular fellow?

    Still, I have to say from his further comments that he’s only in the Rubicon’s midstream. Good nonetheless, that he’s fording the stream.

    • Pat
       
       I`ve read all your posts. Mr. Embry`s words do not trump yours. The increadible weight burden Social Security is about to experience will require a massive influx of liquidity. I`ve said Medicare will be repealed, as it costs more than Social Security. Yet the tax`s collected off the working people are but a fraction of the tax`s collected for Social Security. I believe Obama care is the replacement of Medicare.

    • Silver Dollar … “The increadible weight burden Social Security is about to experience will require a massive influx of liquidity.”
       
      My working presumption for many years has been that Social(ist) Security and Medicare will both fail in the face of the demographics now unfolding. I believe I was about 49 or 50 when I wrote SSA to irrevocably rescind my signature of application and all claim thereto. With me, it’s Liberty or Death … no BS.

    • FURTHERMORE, Mr. Embry’s comment is stuck in the Paper Paradigm:
      “We are going to have to create a sufficient amount of money to keep the debt load afloat.”
      “Implying” that it is possible to do such a thing. Which is, at this point, and impossibility. 
      Like applying a band-aid to CANCER. I’m sure the context does not support this, however. 

      PS: Yes, I took that sentence out of context :D
      We are all on the same page w/Embry.

    • AGXIIK … “I think that in reality, cash is creating bubbles in cash.”
       
      As I understand things … it’s interest service funding they’re conjuring to forestall the onset of cascading debt defaults around the world. ALL the ‘major countries’ are printing banknotes like crazy because no one worthy wants to borrow. Yes, the inflation is being ‘bottled up’ in equities, bonds and derivatives, but as PE ratios soar into the stratosphere triggering nose-bleeds flowing and yields turn so infinitesimally teeny they’re the brunt of wide-spread jokes … that too will crumble.

  3. I will keep silver, no gold. Silver will be everyday money, gold for very large purchases only.
     
    Sheeple think nothing wrong when more money is created from thin air to pay the debt interest. They can’t understand that the inflation at the grocery store is due to all the excess money printing. I got into a discussion with a third generation welfare family member over this. His philosophy is government can just create more and more money to keep paying his welfare so he can sit on his ass and do nothing. Total disconnect because in the next sentence he was bitching about the rise in prices(running close to 15% now here) at the grocery store. I explained it to him and he flat out told me “It doesn’t work that way” I shook my head and walked off. That family is also persona non gratis if SHTF they will be escorted to the edge of town and told good luck get lost we are not supporting you. History of theft from them, especially copper and aluminum and we will not tolerate it if we go into lifeboat mode.

    • …Or you could just wait until they come around “raiding”, and let Mr. Kalashnikov tell them ;)
      I’d give that one week, or less. I bet they are totally UN-prepped to the max. 

    • @MaryB
       
      That fellow should be listed in the dictionary next to the term “normalcy bias”.  Fact is, Mary, in his experience, the truth that you told him does not exist.  It has been completely subverted by those seeking to buy his votes.  Why he is allowed to vote escapes me.  He has been trained to sit on his arse, hold out his hand, and it WILL be filled.  That someone else has to sweat to provide whatever is given to him concerns him not in the least.  It should.  It would concern any real man or woman.  But it does not concern the members of the mooch class.  Like other forms of parasitic life, they only know feeding and not feeding.  They have never been told, “Those who do not work, do not eat”, and they are LONG overdue to hear it.  We all have heard the elite term “useless eaters”.  It does not apply to anyone who pays their way through life, even at the most minimal level, but it fits this fellow to a “T”.
       
      As to their thieving proclivities, if they try that after the SHTF, they will be leaving the scene with some stolen lead for their efforts… IF they leave the scene at all, of course.
       
      Back in the old days, they would hang any horse thieves they caught.  The reason for this was that a person could die if abandoned in the wilds with no transportation.  That’s what made it such a serious crime and not the in-town dollar value of a horse.  After the SHTF, it is likely that ANY preps stolen from a person could doom the whole family of those whose preps are stolen.  We might very well see the return of the “get a rope, boys” form of justice.  Those who plan to simply take what they need from others should give this strong possibility all due consideration.  Like welfare bums, thieves will have no place in a society that is fighting to survive.  Justice will become harsh and immediate… which is just what it should be for those with no moral compass.
       

    • Town discussed that at the last meeting. Pretty much as you said, swift and final punishment if it endangers anyone in any way. No second chances, no promises not to do it again. Shot on sight for looting, same/next day trial for theft then a noose. Other crimes dealt with as needed but no jail or prison.

    • Now that is a community that has its act together, IMO.  Hopefully, there are many such towns spread far and wide across the US.  My town is a small city and too large for my taste.  I would MUCH rather live in a town of maybe 2,000 or so honest and hard-working folks… especially if, in Obama’s words, they cling to their guns and religion.   That would be large enough to provide the basic services without becoming attractive to a significant mooch class population.  That would fit nicely into the “small enough to know you, large enough to help you” category.  :-)
       

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