murphy metal monday

Black Swan (def): An unpredictable or unforeseen event, typically one with extreme consequences.

For some time now, thanks to the work of London economist Alasdair Macleod, we know the banking system worldwide is in trouble, especially in Europe. The banks are in trouble because high interest rates and the strong dollar are wreaking havoc on their balance sheets.


Because the banks are highly leveraged with derivatives and the higher interest rates (lower bond prices) are causing a dramatic rise in margin calls and potential liquidation. As Macleod mentioned several weeks ago,

“Banks are withdrawing credit. They know economic conditions are deteriorating and understand business as a whole is not good. Early signs of a global liquidity crisis are all there.”

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Mike Savage of Raymond James, offers confirmation of this deteriorating picture with the following:

“The European Central Bank, Bank of Japan and Bank of England are all using extraordinary measures and buying “whatever it takes” to keep yields on government bonds under control. Despite these efforts, we are still seeing bond yields flailing all over the place and trading more like stocks than the usually boring bonds. This indicates that there is something underneath the surface (lack of liquidity and willing buyers is most likely) that is causing all of this turmoil.”

In conclusion, Savage says, “I believe that NOW is the time to get whatever it is you need because it appears that those ‘in charge’ need a crisis to cover their tracks as the global economy and indeed the entire debt-based system appears ready to implode. It doesn’t seem it would take too much for a Black Swan event to appear.”

In a recent interview with King World News[1], Michael Oliver, founder at MSA Research, had even more to offer on this subject:

“In 2008-2009 we had the black swan of mortgage-backed securities where the Fed came in and supported that market by acquiring the securities and artificially pricing them which caused great illiquidity in that market.”

Ultimately the stock market reacted with a 50% drop, but Oliver says this around there is much more at stake:

“This time around is totally different because the bubble is much bigger. A crisis is now unfolding in the bond markets and it’s the biggest crisis we’ve ever had in any market arena. We have an illiquidity crisis and it’s a black swan of the largest magnitude.”

Oliver emphasizes that, “You can’t have a crisis in Japan, UK, Switzerland and Europe overall without the US being directly affected. It’s no wonder Janet Yellen of the Treasury Department expressed concern about illiquidity several days ago and actually went to the largest banks asking if they needed help supporting their bonds. In other words, there is an emergency here.”

By targeting low interest rates and printing money from thin air, the Federal Reserve created massive bubbles in the financial markets. Then, in trying to stem inflation, the Fed essentially has pricked the bubbles, including the US bond market, the biggest asset class in the world. Of course, the Fed will soon try to stem the crisis, but as Oliver states,

“Once you create an implosion in a blow off market, it is impossible to stop it.”

Like the bond market, gold prices have also fallen due to higher interest rates and a strong dollar. But Oliver believes, “The liquidity crisis is actually very positive for gold and contends that as the crisis worsens and the dollar remains strong, investors will revert to gold because history shows in a crisis of this nature, gold is the one asset class that will maintain its value. As the crisis worsens, confidence in the underlying government debt will go out the window, as will confidence in the Fed. Illiquidity means implosion, a point we could be reaching very quickly. The practical and psychological need to own physical gold (and silver) will never be greater.”

Public interest in the paper prices of gold and silver continues to wane. The Open Interest numbers reported by COMEX continue to indicate that the level of buying interest in gold and silver is dramatically low and you must know that is a reliable sign the metals are forming a bottom. Also, it’s critical to understand that as per Alasdair Macleod,

“Available physical gold and silver are disappearing on this price takedown. Central banks, old money, and wealthy private individuals are taking the opportunity to accumulate physical gold and silver, aware that currencies and financial systems face increasing systemic risks.”

It’s no wonder the prices and premiums of certain gold and silver coins are rising (while the paper prices fall). As reported in the recent past, the available supply of physical gold and silver is low at every level. The fundamentals are very bullish and as physical demand finally overwhelms the paper supply, prices will soar. Considering the depth of our problems and the very real possibility of a Black Swan event right around the corner, never has there been a better time to get into wealth preservation mode.