CONDITION RED: The Financial System Is Now Out Of Control

Dow Condition RedThe global financial system is now getting out of control.  While the clowns on the financial networks continue to regurgitate the same bullish propaganda, “that everything will be fine”, quite the opposite is the case.  The system is so broken and the leverage propping it up is so extreme, the result will be the largest financial and economic calamity the world has ever seen.

To get an idea just how broken the system has become, here is the Dow Jones chart of Monday’s trading activity from Zerohedge’s article Behold: Insanity:

Dow Jones Monday Aug 24

After the Asian markets received a financial enema Sunday night as the Hang Seng fell more than 1,200 points and the Nikkei nearly 950 points (at their lows), the Dow Jones experienced one of the strangest trading days ever.  Of course, the Dow Jones suffered large single-day losses before, but never the sort of volatility as it experienced this Monday, August 24th.

I would imagine this type of volatility can be explained by the HFT – High Frequency Traders that have now taken over the majority of trading in the markets.  This type of stock market insanity wouldn’t have taken place 10 years ago as the system still had a great deal of retail traders.  Thus, human retail trading activity would move slower and take more time in mulling over information. 

The Dow Jones moved over 4,500 points (up & down) on Monday.  This should be a warning to investors that serious dislocations in the market are coming.

Beginning Stages Of A Run On The Retail Precious Metal Market??

Ever since the middle of June when Greece threatened to leave the European Union, sales of gold and silver bullion exploded.  Investors purchased a record 176,000 oz of Gold Eagles in July.  This was the highest monthly sales figures in several years. 

Even though the rate of Gold Eagle sales declined in August compared to July, they picked up significantly over the past few days surpassing 30,000+ oz to a total of 68,500 oz for the month.

While sales of Gold Eagles have been the strongest in several years, Silver Eagle sales continue to beat all records.  Not only are sales of Silver Eagles 12% higher at 31.5 million oz (Moz) compared to 28.2 Moz during the same period last year, total sales for June, July and August are a staggering 14.5 Moz.  If the U.S. Mint continued to sell Silver Eagles at the same rate over the past three months, total sales would reach an annual 58 Moz.

Silver Eagle Sales JAN-AUG 2014 vs 2015

We also must remember, there is still another U.S. Mint update on August 31st.  Most of the time, the U.S. Mint updates its sales figures on Monday, but this week they waited until Tuesday.  If they update their sales figures on Monday, we could see total sales for August at 4.8-5 Moz. 

I contacted a few dealers to see what was going on in the retail end of the market.  Here was their reply:

Money Metals Exchange:

Demand for silver is outstripping the ability of Mints and refiners ability to supply, and unfortunately the recent sell-off in stock markets is compounding the problem. Demand spiked in late June when investors began worrying about events in Greece and the collapse in Chinese equities began. Now we’re seeing another wave of buying based on the turmoil here at home. On top of it all has been additional demand from bargain hunters taking advantage of lower spot prices.
 
The Royal Canadian Mintiscurrently furthest behind. They announced significant production issues a couple of weeks ago and we stopped taking new orders for Maple Leafs, given we won’t make delivery promises to customers we aren’t confident we can keep. Supply of silver American Eagles isn’t in much better shape. This week’s dealer allocations came in way belowwhatwas anticipated based ontheprior week so lead times for delivery moved out once again.

 
Given the higher premiums and delays on sovereign coins, pressure is ramping on private mints and refiners who produce rounds and bars. It is going to be very interesting to see how this plays out over the next few months.
 
 
its turning into a mad dash for any type of any type of physical anyone can get their hands on (wholesalers, retailers, and investors)…
 
Seen quite a jump in the past 24-48 hours on premiums on everything. Silver Eagles have jumped .60-.75/oz, and maples about the same.
 

I still think we’re looking at the potential for 2008 style premiums if we get any further price weakness below $14. There’s just no supply out there. New orders for sunshine products are now shipping end October/early November!

Indian Silver Imports in 2015 May Easily Surpass 9,000 Metric Tons

According to the data put out by Sharelynx.com, total Indian silver imports from Jan to May reached a staggering 4,146 metric tons (134 Moz):

Indian Silver Imports May 2015

According to ETF Securities May 2015 Precious Metals Monthly Report:

Demand from India continues to impress. From 2005 through 2013 India silver imports averaged just under 100 million (mn) ounces per year. In 2014, on the back of substantial restrictions put on gold use and the sharp drop in the silver price, India silver imports jumped to 230 mn ounces. With the election of Mr. Modi and some easing of the gold restrictions, silver use in India was generally expected to decline in 2015. But this has not been the case, as of the end of May. The latest data through April show India silver imports running about 30% above the 2014 record pace, on track for about 300 mn ounces of imports in 2015. India imports alone are on pace to consume about 1/3 of total global silver supply available in 2015. The rapid pace of India imports is likely to subside but indications of strong demand for silver are clear.

Two important points from the ETF Securities analysis on Indian silver demand:

1) Annual silver imports averaged less than 100 Moz from 2005-2013.  This increased significantly in 2014 (230 Moz) and 2015 (300-320 Moz).  Basically, Indian silver imports in 2015 are on track to be three times their 2005-2013 rate.

2) Most analysts forecasted a decline of Indian silver use due to new election of Mr. Modi and his easing of gold restrictions in 2015.  However, the opposite is the case and Indian silver imports Jan-May are 62% higher than the same period last year.

Investors need to realize this huge increase of Indian silver imports is just another sign that ALL IS NOT WELL in the system.  If things get out of control with the broader stock markets in September-October, Indian silver demand could actually push their total imports to 10,000 metric tons (320 Moz). 

Don’t Be Fooled By The Dow Jones Dead Cat Bounce

Today the Dow Jones closed up 619 points.  I would imagine the nitwits on CNBC are smacking each other on the back stating, “A Victory is Near.”  How can the Dow Jones be up 619 points, while oil is down in the $38 range and most commodities are in the red??  Shouldn’t stocks be indicative of the health of the overall economy?  LOL… not anymore.

This is nothing more than the typical Dead Cat Bounce.  Why?  Markets never go down in a straight line and I imagine the Dow Jones needed to take a breather after suffering a total 1,842 point loss since the declines started last Wednesday.  If there are any folks out there who are still playing a game of “CHICKEN” by trying to time the markets, you may be in for a rude awakening. 

The Degree Of Stupidity In The Financial Media Is Off The Charts

Recently, John Mauldin (a regular guest on King World News) put out one of the most ludicrous articles on energy that I have seen in quite some time.  Now, of course I’ve read some lousy ones by the MSM, but Mauldin is an analyst with a foot in the alternative media camp… which makes it even worse.

His article, Riding The Energy Wave To The Future was so awful, it invoked a reply from energy perma-bear James Howard Kunstler: As Fracking Implodes, The Clowns Deny Reality.  Even though I enjoyed Kunstler’s reply by posting it on my site, I wanted to include a rebuttal from one of the best energy analysts that I follow.

I sent Mauldin’s article to Art Berman who has his own energy blog called ArtBerman.com.  I suggest those interesting in knowing what’s really going on in the energy industry, to check out his blog.  Art replied to Mauldin’s nonsense with the following:

John Mauldin Defends Faith, Fails Economics 101

Mauldin says he is an economist and yet there is no economic data in his monologue. It is fascinating that production efficiency has become the new justification for the continued inefficient use of energy. For him, growing production volume equals commercial success.

He worships at the alter of technology but fails to grasp its cost and its limits. He blindly accepts the self-promoting proclamations of oil company executives without testing whether their claims are supported by economic facts.

For example, he cites EOG’s claim that they are more profitable at low oil prices than they were a few years ago at high oil prices. All that is necessary is to compare EOG’s cash flow now vs. a year ago to see that is a false statement.

Art Berman 1

Source: Company 10-Qs and Google Finance.

Although EOG is one of the best of a bad lot when it comes to tight oil producers (and I own EOG stock), they were cash-flow neutral in 1H 2014 when oil prices averaged $101/barrel and they were cash-flow negative in 1H 2015 when oil prices averaged $53/barrel, spending $1.50 for every $1 they earn from operations.

EOG’s statement that he takes as true is easy to test and it proves to be false. But he is too much of a true believer or too lazy to run the simple test using Google Finance and taking less than 5 minutes.

Most of the claims of continued profits at lower oil prices are based on incorrect reserve assumption and the exclusion of significant costs of doing business like G&A and interest expense.

I recently completed an evaluation of key company average well reserves in the Bone Spring play in the Permian basin. My reserve estimates based on solid history matches suggest an average well EUR of 205 kboe using the top 6 operators in the play. Simmons & Company International published a report on break-even prices last week that uses 676 kboe per well. A more than 3-fold exaggeration in reserves will get you more favorable economics every day of the week, and they acknowledge no G&A, interest expense, geologic and geophysical costs, etc.

The 1H 2015 tight oil debt-to-cash from operations ratio is chilling.

Art Berman 2

Source: Company 10-Qs and Google Finance.

If the companies are truly making a profit at low oil prices why are they all above any reasonable debt covenant threshold (the 20-year E&P average is 1.53).

Art Berman 3

Source: Bank of Finland Research Discussion Papers 11-2014.

Please see the second half of my blog from Wednesday on 1H financial results: http://www.artberman.com/world-oil-supply-decreased-demand-increased-in-july-eia/

These are a few of my thoughts and observations about Mauldin’s piece.

Art does a great job cutting through all the BS, by stating some simple facts.  I am surprised that Mauldin believes the garbage he wrote in that article.   This is an ongoing phenomenon in the financial media.  

This U.S. Shale Oil Industry is in serious trouble.  Watch for serious declines in U.S. oil production over the next 6-12 months.  As I stated several times, I believe U.S. oil production will fall 33% by 2020 and 60-70% by 2025.  The KING DOLLAR gets its strength from controlling global energy markets.  When U.S. oil production declines to less than 5 million barrels a day, and oil exporters will no longer take worthless Dollars for oil…. Americans will be in a world of hurt.

This is precisely the reason to own physical gold and silver.  The U.S. and Global Markets are now entering CONDITION RED.  Best to have your precious metal insurance while you can still get them.

If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet.  There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.  

SIlver Chart Cover Graphic 3D shadowMost analysts focus on a certain area or sector of the silver market. However, the information in this report illuminates a holistic view of many sectors of the silver industry, capturing the relationships that connect many parts of the market.

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I use this bird’s-eye approach when I create my easy to understand charts.  The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.

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24 Comments on "CONDITION RED: The Financial System Is Now Out Of Control"

  1. Steve, I think you got confused with Sean’s video, it was recorded in 2011 and uploaded on Uploaded on Mar 6, 2011 so you should probably remove “What motivated people to take out large sums of money on Thursday and Friday. Could it have been the nearly 900 point drop in the Dow Jones over those two days??”

  2. “We also must remember, there is still another U.S. Mint update on August 31st.”

    I look forward to this with interest. Naysayers [or paid trolls] say ” I went to this retail site and that, and they have plenty of silver. There’s no shortages”.

    There are some websites that aren’t honest enough to state “out of stock” or stock delayed”. Two very large online sellers I just checked are “stock delayed” or “out of stock” on several items. I suspect ASE’s will be there soon.

  3. http://www.gainesvillecoins.com/search?&s=100oz+silver+bars – look at their 100oz silver bar inventory – most are out of stock and they only have 3 Johnson Matthey left!

  4. Kitco is out of monster boxes due to high demand

  5. I went to my local PM dealer today to buy some silver. He was “out” but had some coming tomorrow. He said “I can only get 5 and 10 oz. bars at wholesale for $18.25/oz. and would sell them for $18.75/oz.” I said “Thanks, maybe I will see you tomorrow”. When I got home, I started searching the net and found 5 oz. bars for $77.67 with free delivery. There are a lot of pirates out there. this is not the end – yet. Beware and DON”T deal with the pirates. I have done business with this place for 40+ years (2 owners) so I am extremely disappointed. Buy your stash for cash (if you can) and keep stacking. We may not have much time left.

    Thanks Steve for your reportage. An Honest voice is hard to find.

    SteveW

    • I heard about one person who ordered around the 2008 shortage from a well-known web site and waited 7 months for delivery. Beware dealers who order product only after they receive your money and there are already other claims on what you ordered. We may not be far away from some not getting their orders in any timely fashion. Some online dealers have already gone out of business without delivering products customers paid for.

  6. I bought a hundred silver eagles today at apmex and got confirmation from UPS that they had picked up the package already.

    • APMEX I believe is the country’s largest online retailer. They may have stock longer than others. I did check and their premiums are way up.

  7. Steve,

    I just called a dealer today and they stated Sunshine rounds will be delayed until December and Eagles or Maple Leafs are 4 weeks out. Only Philharmonics are 2-3 weeks delayed and have the lowest premiums for coins @ $2.45/oz.

    The scenario on Monday was hilarious to watch! What was even better to see was all the Keynesian slaves whining on CNBC. I saw a great interview today with Jim Sinclair. It was a sobering discussion and encourage all to watch if they need any incentive to finally make the call and get some metal. He felt by next month the collapse will truly be underway and continue until it’s fated conclusion….

    http://usawatchdog.com/plunge-protection-team-losing-control-of-markets-jim-sinclair/

    • Mark,

      I just spoke with Mike Gleason at Money Metals Exchange. That interview should air on Saturday. They are experiencing the same shortages. I believe if we do see a continued unraveling of the broader stock markets in Sept-Oct, physical silver demand may turn into a global wholesale shortage.

      steve

      • Since we haven’t experienced a global wholesale shortage [which would be with a retail shortage], it would be interesting to see what happened next. Due to desperation I can’t see the COMEX set spot price being allowed to rise significantly. But I don’t see how they can continue to “set the prices” with a wholesale shortage and physical prices separating more and more from physical. I know if the highly published spot price goes up steadily investors not knowledgeable about the difference between spot and real physical price will pour in. I know if the manipulation suddenly stopped [like a COMEX shutdown] prices of PM’s would enter price discovery and go way higher priced in fiat currencies. I don’t know how the fiat currencies could survive a massively higher valuation of G & S.

  8. Steve,

    ‘I believe U.S. oil production will fall by 33% by 2020 and 60-70% by 2025’

    Wow! are’nt you being wildly over optimistic? I can’t see the fracking industry lasting another 6 months.
    Simply, due to the lack of capital investment, once the financial system implodes.

    Regards,

    Craig.

    • You have a point. How long it goes on may depend on liquidity and credit, which is drying up. Junk bonds can be sold for speculative junk. but at some point one can’t sell junk bods for PROVEN junk.

    • Craig Moodie,

      Those estimates are conservative. Already U.S. oil production is down from a high of 9.6 million barrels per day (mbd) to 9.3 mbd currently. This will increase significantly in the next 6-12 months. If U.S. oil production falls faster than my estimates of 33% by 2020 and 60-70% by 2025, we are in a world of hurt.

      steve

  9. > Beginning Stages Of A Run On The Retail Precious Metal Market??

    Exactly. Several examples from the local dealer that there were available and now gone:
    1. 100g Perth Mint gold bar — on pre-order now for early September delivery (yeah, right);
    2. Monster box of Perth Mint silver coins (eagle monster boxes are available);
    3. 1oz Perth Mint gold coin — was freely available, now limited stock.

    But the key word is ‘early’ — though unusual, these are only inconveniences now, not real limitations.

  10. Everybody do the rain dance for India. It’s make it or break it time for their crops right now.

  11. Analysts disagree over the future of the dolar, commodties and PMs. Some of tchem claim that the demise of the dolar is approaching. The dolar index can even reach 106, but later it will fall by 30 percent. In this case the prices of crude oil and PMs will rebound. The reversal is to take place within 2-3 months.
    Others maintain thet the dolar will start a secular bull trend and commodities will be depressed for a very long time.

  12. In general we are in a wordlwide recession mode.
    The US-Commody is weak.
    Germany’s Export is good but the rest of the euro zone is weak.
    China is very weak.
    The “Schwellenländer”, i don’t know the english word like brazil are weak because the live from oil and other commodties.Same to russian.

    At the end a low interst rate is bad for the real economy.This is the general problem.The financial world had now about 100 times more volume than the real economy.Everyone ones to make money with financial products.This started in USA and Great Britain.They startet with this evil financial system.At the end the greenback has one advantage.He is spreated over the whole world and in all balance sheets.
    If the USA is broken, the rest of the world is too.I predict the Politician who are clever startet now with a haircut.Assets and debts are two sides of the coin.The first country who is intelligent enough to melt down this gigantic amount of debts and asssets will be the winner.Everything else will lead the real economy into the death.
    The USA like every country in the western world had a very bad distribution of the wealth.
    I’am not a socialist.But when the cake isn’t growing anymore you must change the pieces and look that the great mass have more.Because this people spend the money and did not hoard it.

  13. El Nino could cause problems for South American silver production later this year. I’m thinking roads to the mines being washed out and damage to exporting facilities.

  14. “This is an ongoing phenomenon in the financial media”

    Only for those who came over from the MSM to the Alternative Media (Internet) as GateKeepers.

  15. More interesting is the Hang Seng data from last night (US time):

    Open 21,758.62
    Close 21,838.54

    Reported delta: +758.15 (3.60%)

    If you have a calculator handy, you can see that it’s actually +79.92
    Shanghai was similar, but with a smaller “error.”

    Fiat trading data?

  16. I would like to buy silver but unsure of which company to use. Could someone advise?

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