As discussed last week, there’s been some financial jiggery-pokery this month that’s for sure. And it continues. Hidden in the slipstream of the elite-to-reality jolt of the American election results, something quite remarkable happened in one of the biggest Gold markets in the world. This month India quietly withdrew the 500 and 1,000 rupee bank notes:
“Indians struggled to pay for basics goods like food and fuel [this month] and fretted about their savings, after the government withdrew 500 and 1,000 rupee notes from circulation in a bid to flush out money hidden from the tax man.
Retailers refused to accept the bills, worth around $7.50 and $15 respectively, and people were unable to access ATM’s after banks closed them down. Deepak Urs, a staff trainer at a financial services company in India’s southern tech hub of Bengaluru, said he would need to take time off work to exchange his old notes.
“Once the ATMs start operating, there will be long queues,” he said. “Maybe tomorrow onwards, every two, three weeks, I will have to go to the ATM to get cash.
Deepak Chhatoi, a salesman at a car varnishing store in Mumbai, said he had to turn away customers wanting to pay with larger bills, and could not buy the popular potato sandwich known as the vada pav. “I couldn’t even have breakfast this morning because there seems to be a shortage of change in the market,” he said.
The extent of the impact of the measures became evident as petrol stations and hospitals also refused to accept larger denomination bank notes, even though the government had given them a waiver to continue accepting them.
Meanwhile, bank ATMs were closed and banks prepared for a flood of people seeking to exchange larger bank notes for smaller ones.” (Reuters, November 2016)
To put the speed and timing of this in perspective, the Indian Prime Minister made a television announcement on the Tuesday night (the same morning as the U.S. election). The notes were demonetized at midnight that same night. Banks in India were then closed on the Wednesday (the day the world reacted to the U.S. election results) and re-opened Thursday but via the banks only, all the ATM’s remained closed. Can we imagine the panic?
And the value figure of what was demonetized – quite literally overnight – is staggering: “The 500 rupee and 1,000 rupee currency notes formed 86.4% of the value. In one stroke, the government removed 86.4% of the currency in circulation by value.” (Market Realist, 22nd November 2016)
What struck me most when reading about this crisis situation was the idea that we often believe we’ll have more time to act. It is obvious that if this happened in any nation, people will flock to Gold and Silver. But they hardly had the time. But that last minute rush put the average member of public at a huge price disadvantage in bargaining power:
“In the hours after last Tuesday’s bombshell, customers had flocked to jewelers to spend the soon-to-be-scrapped currency before a midnight deadline, bringing “bags of money,” and paying 67 percent above the going rate for gold, said Prithviraj Kothari, the director of RiddiSiddhi Bullions Ltd.”
But then something else happened: “Then they disappeared. The jewelry stores in India’s biggest bullion market were empty Monday as the nation’s gold trade reeled from the impact of the ongoing currency crunch. Gold dealers said business, which should have been booming as the country enters its wedding season, has dropped off precipitously since the government’s surprise announcement that it was scrapping its larger currency notes and replacing them with new bills. India is the world’s second-largest consumer of gold.
“People are panicking. They don’t know what’s going to happen next,” Kothari said in his windowless office high above the jewelry souk’s noisy lanes, where the walls had photos of Kothari posing with Bollywood stars and the prime minister. Somewhere in the bowels of the place was a safe stacked with gold bars. ATMs continued to run short of cash, and it will be weeks before they are configured properly to dispense the new bills, officials said.” (Washington Post, November 2016)
So, it is always worth planning ahead. A little light hearted and joyous story to illustrate this point came to light this week: “The heir to a property in Normandy moved in only to find his forebear had hidden 100kg of gold coins, bars and ingots around the house, which he has just sold for €3.5m.” (The Telegraph, 22nd November 2016)
Someone in his family planned ahead! “The fabulous, unexpected family fortune was stuffed all over the house.”
“It was extremely well hidden – under furniture, under piles of linen, in the bathroom. Basically, it was stashed everywhere!,” said Mr Fierfort, who confessed to not seeing any of the gold when he first came to look at the house the first time to try and put a value on the estate.”
Obviously, we’d recommend a safe for insurance purposes! And sadly, he’ll get hit with a massive inheritance bill of if the bars and coins were undeclared. So, there’s no need to wait that long to surprise your relatives. Bleyer can’t promise Inheritance Tax free giving but, if you bought a Gold Britannia, Sovereign or half Sovereign as a Christmas or Winter Wedding gift for loved ones, you would – at least – save yourself V.A.T. plus ensure your relatives gained a Capital Gains Tax gift for them at the same time. Or if your budget couldn’t stretch to Gold, Bleyer offer a selection of Low V.A.T./V.A.T. paid Silver bars and coins.
So, as today we wait for the finer points of the first new government’s Autumn Statement, it is worth considering that whatever the future holds, Gold and Silver bars and coins are clearer an historical and discrete store of wealth. The above relative bought most of the pieces back in the 70’s and 80’s and clearly managed to keep it a blessing waiting to be found.
I read a fascinating article on the real reason Trump won the U.S. election – Economics. This opinion piece by Sprott Money was backed up however by some very thought-provoking facts:
“Contrary to all the propaganda smoke being blown from the right and the left, Trump won because of economics. Going back to 1932, in any Presidential election year in which the growth in real disposable income was less than 3.1%, the incumbent party holding the White House lost the White House – in 2016 the official real disposable income growth has been 2.33%. Please re-read that fact and let it sink in.”
In other words, people vote with their wallets. The reason gold has been inexorably smashed in the paper markets – along with the Dow and S&P 500 manipulated higher – is nothing more than a form of propaganda in an attempt to make the public believe that a Trump presidency is a good thing – that Trump can save the economy from collapse. Jim Sinclair refers to this as “MOPE:” Management of Perception Economics. It’s the Central Planners’ signal that they still intend to continue stealing your wealth. They don’t care who is sitting in the Oval Office. The takedown in gold included cooperation from India’s Prime Minister – a western elitist lapdog – who “coincidentally” removed large denomination currency bills from the banking system last week in an attempt to curtail the Indian public’s current voracious appetite for physical gold. Removing this element from the global market last week enabled the Fed and bullion banks to bombard the Comex and LBMA with massive amounts of paper gold derivatives to push down the price of gold.
Of course, the shenanigans in the west have stimulated demand for gold even more in the Asian markets. Last night the market premium in Viet Nam soared to over $91. Premiums this high in Viet Nam have not been seen since at least 2011. On the Shanghai Gold Exchange the market premium soared to $12.47 above world gold – on Friday it was $8.20. It is rare when the premium gets this high on the SGE and signals very heavy demand.” If this angle interests you, Sprott Money include a 25 minute Youtube video link after the article and summarize the video thus: “In this episode of the Shadow of Truth, we put closure – at least for us – on the election and we explain why Trump has no intentions of “draining the Swamp” and why the current take-down in the price of gold and silver is setting the market up for a much bigger move higher.”
I believe the forthcoming inflationary issues will be blamed on both the Trump win and Brexit, the latter of which was discussed last week. But the continuing, daily and bizarre Kafkaesque headlines ensuring that is the only financial message I would receive if I was half-asleep, is getting a little tedious. No matter; it can be blamed on something else but either way it will still happen. Inflation will come but so will the collapse of the eurozone.
I believe that will be the far more obvious reason for financial difficulties in the E.U. and in our domestic U.K. market. But the narrative will continue that it is the fault of Brexit, regardless of the slightly inconvenient truth that the financial earthquake had its fault lines in the wrong decade.
And I’m not the only voice by a huge margin saying the same thing. At the beginning of this year I recommended to you a film called The Big Short. The synopsis is “Four denizens in the world of high-finance predict the credit and housing bubble collapse of the mid-2000s, and decide to take on the big banks for their greed and lack of foresight.” Except the story is real and based on the actual real-life predictions and the financial evasive actions of a real group of fund managers; only the names were changed in the movie, probably to protect a semblance of a quiet life for those involved. The film is based on the book by Michael Lewis, who worked with fund managers and bond traders, such as Steve Eisman (the real name to the film’s character of Mark Baum.)
It quickly turned into one of the most enjoyable films of recent years, precisely because it explores the courage, focus and genius it takes to see through the system and think the unthinkable. It’s also presented in a simply clever manner, with the characters occasionally talking straight to camera to often hilarious affect and equally witty cameo’s of outside famous faces, putting financial jargon into every day terms. It is primarily a film about people thinking for themselves and then acting on their findings. It sounds simple now but, without the ease of Hollywood retrospect, we all know it is in actuality one of life’s greatest challenges, to follow our convictions against the crowd.
Well, Steve Eisman spoke out again this week. He isn’t in the habit of doing so. On Saturday it was reported in The Business Insider, among a few other periodicals including Britain’s The Guardian that: “Steve Eisman, an investor who made a fortune by successfully predicting the 2007-2008 financial crash, is back with a worrying new target: European banks. “Europe is screwed. You guys are still screwed.”
“His concern is that European banks – particularly Italy’s – hold bad “non-performing loans” that are improperly valued, posing a very serious risk to the banks’ solvency.”
We’re currently having our attention diverted the other way. But, I’ve been writing for some months, in contradiction to almost every daily news outlet’s view that Brexit is a financial nightmare, that the real financial nightmare is staying tethered to the Eurozone. I have repeated the line that “Europe is a sinking ship. We need to collectively row as fast as we can away from the downwards drag as rapidly as we can” so many times in the last year’s blogs I’m sure many of our regular reader’s recognise the phrase.
So, I was not surprised by what the Eisman article said next: “If you’re British, you’re in luck when it comes to Eisman’s new predictions. ” “I’m not really worried about England’s banks … They are in better shape than most in Europe,” he said. What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks.”
Whereas other financial experts believe “Reversing the profitability of European banks is not a lost cause but it will certainly be a lot of hard work” (KPMG partner Marcus Evans), Eisman’s assessment is blunter: “Europe is screwed.” (The Business Insider, 19th November 2016)
I’ve just realised it was a whole five months ago today that we voted to get out of the E.U. I appreciate tender and exceptional work goes on behind the scenes but I would really like the end date to my democratic instructions to be made known. I also believe the longer this process is held back the more damage will be done to our own economy. Why? It’s really simple. We need to be free as soon as possible to make trade deals with countries other than the Eurozone. And fast. Because two questions were asked as far back as 2011 by a piece in The Telegraph…2011!
“What happens if the eurozone breaks up? It would make the collapse of Lehman Brothers look like a mere rehearsal. The risk is that if a eurozone government – say Greece or Italy – defaults on its debts, it will send such a shock through the European banking system that there would be a cascade of bank failures and the seizing-up of basic transactions.
What would be the impact on the British economy? Britain wisely stayed out of the euro, despite the best efforts of Tony Blair, Lord Mandelson, Ken Clarke and Nick Clegg. But almost half of our trade is with Europe, so a deep recession on the Continent would hit order books of British businesses hard. Estimates of the resulting downturn vary, with studies suggesting a fall in UK GDP of somewhere between 2 and 4 per cent.” (The Telegraph, 2011)
The figure of “half our trade” being with Europe is a controversial one. As I wrote last week, we live in a kind of virtual reality, where everyday people are washed with “figures” by a few others trying to manipulate how we might react, how asleep we will fall or the conclusions we might draw.
“Proponents of staying in [the E.U.] just have one set of scares to push, related to trade. They begin by telling us more than half our trade is with the rest of the EU. This is not so. They commit two statistical errors in saying this that are reasonably well known. The first is they are only talking about trade in goods, not trade in services as well where the EU share is lower. Second, they do not adjust the EU figures for the Rotterdam and Amsterdam effects, where we export goods there which are shipped on to export markets outside the EU.” Imagine if we all knew that last fact? We would laugh a lot more at the “headlines.” (John Redwood, The Daily Reckoning UK, November 2015)
Even back last year the real figures of our dependence on E.U. trade were falling: 45% in 2015 down from 52% in 2014. (The Telegraph, June 2015) Now it’s considered nearer 40%. However, if I knew a boat would sink I wouldn’t put 40% of my weight on it, I wouldn’t put 40% of my belongings in it. And I certainly wouldn’t put 40% of my future wealth planning into it. I would however hope my government got on with putting their economy in healthier partnerships, and I would recommend researching the benefits of holding private Gold and Silver bars and coins. I would learn from sudden situations in other nations, such as India, and simply prepare ahead of time.