Something changed, maybe the G-20 will tell us?…”Put simply the central banks are losing control… of what had previously been under COMPLETE control!”

Monday, February 22, 2016
By Paul Martin

Bill Holter
GoldSeek.com
Monday, 22 February 2016

No doubt “something” changed starting the second half of last year. In fact, in looking at many markets we saw change and reversals. The process took quite some time but global equity markets topped and many are now quickly into bear market (down 20% or more) territory. This is also the case in many credit markets if we exclude most sovereigns.

Cross currency markets have also been in disarray, the most important and telling is the yen/dollar cross closing the week with a 112 handle. Please understand the danger of this, a good portion of the global carry trade is financed by borrowing yen, yen are becoming more expensive and thus harder to pay back. The “harder” part is putting severe strains on the derivatives markets. In many carry trades, the “squeeze” from the “carried” side (the carried asset) is forcing the closure of the currency side, this is creating a negative feedback loop. What was originally borrowed (yen) now must be bought be paid back to the lender.

We have seen this rapid strengthening in the yen AFTER a Fed tightening and AFTER Japan announcing policy of negative interest rates. This was NOT supposed to happen but happen it has! This is a sign of markets overrunning the central banks as the carry trade is beginning to unwind and creating demand for yen. Put simply the central banks are losing control… of what had previously been under COMPLETE control!

We also saw gold move into severe backwardation not only in London but also on the COMEX. This is truly amazing as COMEX is a paper exchange yet their brute force of dilution is not strong enough to keep gold and silver out of backwardation. The next week or two will be very telling as the COT numbers are showing the commercials very short again as they have sold into the recent rallies. The open interest has risen dramatically in both gold and silver as they moved off of 3rd quarter bottoms, can the paper dilution contain them? Will it be business as usual and the metals routed again or has something truly changed?

Another $50 in gold and a mere $1 in silver will take them into official bull markets. In my opinion, we will look back in time to see the last 4 years as corrections in bull markets that started in 2001. With or without a true rule of law we will find out the normal “corrections” were expanded and extended in time via dilution. This dilution will not be discovered in the courts or by the hapless CFTC, it will be obvious when the runs begin and 99 of 100 “owners” find out their metal is not and never was “there”. I do want to say this, we should begin to see the silver/gold ratio begin to drop as it is completely skewed at 80-1 while the mining ratio is under 10-1. Outperformance by silver will be another sign that control is being lost.

The second half of last year also saw a downshift in trade, GDP and velocity/volume. Again, a slap in the face to central banks because their untold $ trillions have been overrun by a deflating credit system (of their own making). It is this “change” that has spurred the recent talk of reversing course on rates and pushing them negative in the U.S.. Talk of “NIRP” was immediately followed by Europe and the U.S. (via Larry Summers) floating trial balloons for doing away with cash.

From a geopolitical standpoint, the East versus West situation also began to speed up the second half of last year. China was admitted into the IMF basket. The U.S. signed the ridiculous Iran and TPP treaties, Russia stepped into the Middle East physically for the first time and now actual shelling of Syria from Turkey has begun. Turkey’s actions are confusing as we have seen both “stand down” orders from the U.S. and they are “NATO allies” at the same time. What will Erdogan do and who is he taking orders from?

The Rest…HERE

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