3 Minute Gold News
A Quick Read for Busy People
A 3 minute synopsis of an interview with David Morgan, author of The Morgan Report, by Greg Hunter of USA Watchdog.
Topics:
Oil Prices
Oil Could Take Down Other Derivatives
Silver
China
Gold and Silver
Europe and the ‘Grexit’
A Real Problem
David Morgan
USA Watchdog
Greg Hunter
Interview with David Morgan
January 7, 2015
OIL PRICES
Oil is the most important commodity — without energy nothing happens.
The price of oil is crucial because it affects everything — shipping, growing food, transportation — it’s all energy based.
Is the dropping oil price the “event” that takes out the inflation/deflation question and starts a downward spiral?
Take a look at the derivatives market surrounding oil, and in particular the tail end of the curve, or the marginal producers, which are mainly oil sands and fracking.
These people as a whole are in dire straights. As Jim Rickards says, the amount of debt being carried by the fracking industry at large is about double what the sub-prime market was in the real estate fiasco of 2008.
We’re looking at an explosion potential that’s greater than the sub-prime market of 2008 because oil and energy is the most important sector out there, and the derivatives exposure is at least double what it was in 2008.
Plus, the banking sector is more fragile because instead of having several entities that could go down as “too big to fail”, the “too big to fails” have been consolidated.
So we have even less ability to weather the storm.
OIL COULD TAKE DOWN OTHER DERIVATIVES
The problem is over-leverage as a whole — derivatives are, as Warren Buffett has said, weapons of financial mass destruction.
Also, look at how they are connected. Sometimes these derivatives are tied not only to interest rates going up or down, but also to something like a spread trade.
For example: Will the euro deflate against the US dollar at such-and-such a rate versus the Treasury bill rates degradation versus the short spread on the 10-Year note.
That’s just a simple example.
A lot of them tie not only a financial instrument to a financial instrument, but also tie a financial instrument to an oil derivative. And that whole thing could be used as an A entity against the B.
That gives a flavour to how complex these mathematical equations are.
The amount of risk in a derivative or swap is ridiculous relative to what the potential repercussions are.
It’s all tied together and all the banks are interconnected.
A failure of one bank, could take down another bank that’s very solvent. At 12-noon on a given day, a bank that is solvent yet tied into another (and they don’t even realize it), could get a call that another bank is going down and they have to pony up $X billions or $.X trillions. Now that solvent bank is in trouble.
It’s all over-leveraged in the systemic failure problem.
SILVER
Contrary to the mainstream news, the common guy has pretty good common sense and has been buying a record number of US silver eagles.
They understand that silver is on sale, it’s a good long term investment, and that the best way to own it is physically.
Owning it physically means there’s no margin and it’s in your own hands.
Silver is overall one of the most sure things you can own long term:
1. It’s got a monetary aspect with an 85% correlation to gold.
2. It’s the best “technology stock” you can own.
It’s used for everything electronic — be it a touch screen or a microwave oven, iPhone, iPad — they all use silver on some small level.
In North America, 3/10th of an ounce per person is used in electronics per year.
That’s not the silver investors, that’s just the person who has a computer, or an iPhone, and has electrical power coming into their home, or a refrigerator.
CHINA
China has come up about ten-fold from a decade ago, but they’re still only about 1/10th the usage of silver of what the North Americans are.
Think of what the potential is for many people on the planet to use silver because they want to be more technologically advanced, without even being a silver investor.
GOLD AND SILVER
If there’s a high demand for fuel then you’re going to put in marginal wells — that’s what tar sands and fracking is all about.
But if there isn’t that demand, then the marginal wells will be barely making it as companies.
If the oil sector really starts to unravel then gold and silver will go up.
Worst case scenario for gold is that it maintains where it is. It could also go up rather rapidly. Silver and gold may go down temporarily, like we saw in 2008, but they’ll catch a bottom and come up — gold particularly.
Silver in a deflationary environment in the past hasn’t done that well overall.
But this time, because of its correlation to gold at 85% and because it’s used in technology that is so relevant at this time, as well as being a safe haven, people could be scrambling to obtain whatever they can.
Gold and silver are a crisis hedge when people feel that it’s a vast unknown out there, they don’t know what’s happening, and they need something they can trust.
They trust money that’s been money for 5,000 years.
Yet, what’s perceived to be the most trustworthy investment right now is the debt of the United States, which is impossible to pay off.
The truth wins out in the end and we’re getting to that point.
If the oil sector unravels then gold could go up and silver would follow, probably more rapidly. Once people caught on to the uncertainty, and the unbelievable lack of trust in the system then people will be finding a way to buy physical gold and silver.
There hasn’t been a large institutional purchase of silver for quite some time.
But, while the large institutions haven’t made a large purchase yet, even though the price is low right now, the small guy bought 44 million silver eagles last year. Don’t put everything you’ve got into the silver market. It’s way too volatile.
David believes the bottom for silver is here.
The silver producers produce silver for $22 US per ounce. How long can they keep going with the price below production?
It always unravels in a longer time frame than you might expect.
David isn’t saying that it will all unravel tomorrow. It will probably take four or five months from now.
In May or June, start to look for the repercussions of this sub $40 oil.
That’s the way markets work. Congress has already put the taxpayers on the hook for the derivatives — not the people who wrote the derivatives.
The way they try to get out of the situation will be so convoluted to the average hard working person that they won’t understand what is going on.
EUROPE AND THE ‘GREXIT’
There are so many possibilities for a black swan out there. We could see the markets close and a cap put on the gold and silver market that the CME put out last year. They’re allowed to move more than ever before, but it’s capped.
A lot can happen when you understand how precarious it is — that we’re on this upside down pyramid, on this little bitty tip — that the slightest wind would pretty much blow it over.
Some people who follow the market see it, but a lot of people are just too busy looking for a job, or working two jobs to make ends meet — but they can feel it.
They can feel something is wrong, but they don’t know what it is.
And that’s global.
Some put it down to a food shortage or water crisis or an energy problem.
But it all goes down to one problem — we’re not telling the truth. We’re not telling the people what is really going on.
The spin machine at the top is saying that things are just fine — don’t look behind the curtain.
It can’t go on.
It’s hard to pinpoint an exact date, but look at how many people are getting assistance on their food. How many people are unemployed? How many are employed at jobs that pay less than they once did?
The energy has imploded.
Some think it’s great that they can fill up their gas tank, but what it also means is that all these derivatives are underwater because of the low oil price.
A REAL PROBLEM
Once those banks that are all tied together start to fail, then there’s really no way to come back.
They’ll try to come back, but the truth will come out that we have a real problem.
People will see that the emperor has no clothes.
And what will they do?
They’ll run to gold. They’ll run to silver.
That’s what they’ll do.
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