As Central Banks continue to buy equities and prop up the market, the hole they are digging continues to deepen. This is a strong indication of desperation among the money printers of the world. They are buying stocks with money they printed out of thin air. This will only temporarily inflate the various stock exchanges and it will end badly. What this tells us is that the Dow Jones Industrial Average does not reflect true demand for stocks and misleads the average investor on the health of the market. The investor responds by putting hard earned money in a market that could collapse at any time and cause his life savings to evaporate.
The Cyprus Solution has now been implemented, and they have been hosed. “The Bank of Cyprus, the island’s largest bank said it has converted 37.5% of deposits exceeding 100,000 Euros into a Class A share, with an additional 22.5% held as a buffer for possible conversion in the future. The flushing of Cyprus was done to steal massive funds from depositors. The major percentage of their funds taken were replaced by worthless stock in a bankrupt bank. Another 30% will be temporarily frozen and held as a deposit. So the amount of money that has been taken from the Cyprus depositors is in all practicality almost their entire accounts. Major depositors funds have now been taken in grand style. ”
What does this mean to you and me? Depositors have been converted to unsecured “lenders” to the bank. You may say “I don’t have $100K in a bank.” If you are part of a pension plan, IRA, or 401K with a broker, you may be at risk. Why? They make keep large deposits with a major bank at risk. The system is so interconnected now that you have no idea of the impact of a “bail-in” to your retirement account. This exposure is also true for major public corporations’ operating cash whose stock is traded on the NYSE. The systemic risk is substantial.
Elsewhere in central bank intervention, the paper volumes in the gold paper market do not reflect what is happening in the physical market. Demand for physical is probably 60% greater than supply. The offset is an increase in premium over spot price.
What does this suggest? $3,000 gold and $100 silver is now within view. As we buy our few ounces each month, we should understand thousands and thousands of others across the globe are doing the same thing. This will help keep the price firm and support a move upward. China and Russia continue to be buyers and we may find that April will be an extremely active month for those Sovereigns.
I believe that the central planners are losing the war even though they seem to be winning some of the battles. Gold & silver stocks have a very favorable leverage position as the price of the underlying metal improves.
The silver market is extremely tight. The $7 premium when silver is $23 makes up for the paper market. That would indicate the physical market is moving away from the paper market pricing. As that continues, the paper market is at risk of being nonfunctional.
People from Cyprus, Iceland, Argentina, and Japan would have had much safer portfolios if they had adequate exposure to the precious metals. The risk to us all is this: one extreme is hyperinflation, the other extreme is financial collapse. Keeping the economy away from those extremes is getting increasingly difficult for the central banks’ manipulative efforts.
Think about it.