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I Don't Get It

From Bill Holder at the Miles/Franklin Blog

A couple of years back I wrote a piece similar to what I'm thinking right now.  I couldn't understand "how people couldn't see what was happening".  Now, it is so obvious where we are headed yet it seems that the "disconnect" between those who can "see" and those who can't (or refuse to) has grown.  On the one hand you have the people who warned back in 2006-08 of the housing bubble, debt and banking meltdowns and financial trainwreck.  On the other hand you have the "blue skies" crowd.  Now, just like the back then...someone is going to be wrong, VERY wrong.

  Just over the last week, the BIS has issued 3 separate statements of warning.  (They were in hindsight the only "official" agency to warn ahead of time back in 2007 of the coming crisis).  They recently made a call for cracking down on the collateral chain in the shadow banking system and then over the weekend they said that "stimulus must stop" because it is not and has not worked.  Imagine that?  The central bank of central banks has said that the "savior" for all, ..."QE", printing, monetizing or whatever else you'd like to call it...doesn't work.  They even went so far as to say that "if a medicine doesn't work it doesn't necessarily mean that the dose wasn't strong enough".  Maybe the wrong medicine?

  But wait, it gets even better.  The BIS came out with one more statement over the weekend http://www.reuters.com/article/2013/06/02/us-banks-recapitalisation-bis-idUSBRE9510CO20130602 .  They say that they have a "simple" plan to "recapitalize" banks that fail.  Not just "any" banks mind you, no, they are talking about U.S. Banks!  This simple plan is really "simple"...no more bailouts, no more taxpayer monies (maybe because it's not doable and the Treasury has already broken itself over the last 5 years?).  This simple plan proposes to wipeout shareholders, preferred shareholders, bond holders and other creditors...AND depositors.  Yes, the same as Europe is working on and of course the same as the poor old Cypriots have already experienced.

  So the BIS has now within 1 week's time warned about the daisy chain called "collateral, warned that QE (monetizing debt) doesn't work and should be halted, and have now laid out a plan to "fix" insolvent U.S. banks.  Like I asked last week..."Why now?".  Of course, while this has been happening we have seen the parade of jokers on CNBC spouting bullish garbage with Cramer in the background screaming BUY BUY BUY!   As I said above, someone is going to wrong, seriously wrong.  There is one side saying that we have blue skies 'til the year 2525 and the other side saying it's over and the entire system is going to collapse.  So which is it?

  Well, these 2 sides are basically the same people and institutions that chose sides back in 2007.  The "Blue Skyers" back then are the same group (Keynesians and Monetarists) that are pointing to the stock market (and current correction in Gold) and saying "look, all is well".  The Austrians on the other hand are saying that it is game over and we don't (won't) get another chance like back in 2008-09 to try to reflate because Treasury balance sheets have already been wasted.

  As for me?  I just don't get it.  I don't see how anyone can even glance (unless it's only at incorrect headlines) at the current situation and not see what is coming.  I have received e-mails about how Gold is a "risky asset" (it is not, it is simply money at it most basic, raw and core form) and owning it is for barbarians.  I have received e-mails telling me what and idiot alarmist I am because I believe the LBMA and COMEX will default on their Gold and Silver contracts.  "This" can never happen they say (at least in our lifetimes).  "This" I personally say HAS to happen because there are 100 ounces "sold" for every 1 real ounce in existence.  AND the last "correction" has served to at least double global demand which will only bring the final day of reckoning closer on the calendar.

  I don't get a lot of things, how was the price of lumber crashing if real estate is so "hot"?  How are the banks absolutely loaded with foreclosed RE and yet reporting higher earnings due to "lower" loan loss provisions.  How is unemployment reported under 8% if it is over 17% as measured in the old days?  How is inflation reported under 2% when everything you look at is at higher by 10% over the last year?  How can interest rates be where they are if inflation is already far higher, are people actually locking in guaranteed losses?  And what about the various short term rates that are actually negative where investors PAY the borrower to "safeguard" their monies?  What's up with this?  Of course, I wouldn't be a true "lunatic" if I didn't ask the question, how is it that all of the "selling" in huge and panic fashion in Gold and Silver has caused shortages?  Where did all of this "sold" metal go to?  Like I said, I don't get it.

  I do understand one thing for sure.  We are coming to an absolutely EPIC and HISTORIC crossroads in the global financial and economic highway.  The choices made and "sides" taken now will affect the rest of your lives no matter what age you are now.  Your actions now will probably affect not only the next generation but also the one following.  "Someone" is going to be wrong and will be wiped out financially.  Myself?  I am going with the ones who have been right in the past for the right reasons.  Call me an idiot.  Call me stupid.  Heck, call me barbaric!  I vote for common sense!  Regards,  Bill H.