Today Michael Pento told King World News we are now just weeks away from a European ‘bombshell.’ Pento predicted, “In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM. This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”
Pento also warned, “I am telling my clients, I am gearing them towards the inevitable inflation,” because “you will see the most salient moves in precious metals, base metals, energy and agricultural stocks and commodities.”
Pento also discussed what will happen in other key markets, but first, here is what Pento had to say about the Fed and ECB decisions: “My first impression was that the reports we had from the Wall Street Journal that the Fed was imminently going to interfere with the markets (with more QE), once again proved to be untrue. Bernanke is waiting for Jackson Hole. He’ll make some kind of announcement, like he did back in 2010, and then he will start to put his plan to destroy the currency in effect, probably in September.”
“Mario Draghi doesn’t understand the commitment he has pledged to undertake. If he is actually going to purport to the market that he will control the interest rates of the seventeen countries within the euro, my question for him would be, how long will you monetize European debt?
How much euro dilution will occur? The ECB will become the entire market for European debt….
“Speculating on Greece defaulting is a certain way of losing out. Such a speculation would be a sure-fire way of losing money given the decisions taken last Thursday“
And what happened next to Greek bond yields (and inversely, Greek bond prices):
Anyone hoping that the bitter animosity between Mario Draghi and Germany will be any less hostile this morning, following last week’s guarantee by Draghi that all shall be well and the ECB will do “anything” to preserve the EUR, only to be followed by Germany’s Schauble essentially saying this is certainly not the case, today we get a clarificationary follow up by Joerg-Uwe Hahn, a member of Merkel’s junior coalition partner, FDP, who said that the German government should consider the “unusual step” of taking legal action against the European Central Bank over bond purchases. While Hahn’s comments are for now seen fringe, the fact that Die Welt has openly broached the topic to an increasingly angrier population (and Spain’s remarks that Germany itself has to be grateful for being bailed out after WWII will not help) will likely only strengthen the resolve of Germany to not relent to provocations by either Monti, as of the June 29 summit, but to demands from both Draghi and Juncker to accept that the ECB’s printing utopia is in fact reality.
With Valencia bust, Spanish bonds at all-time record spreads to bunds, and yields at euro-era record highs, Spain’s access to public markets for more debt is as good as closed. What is most concerning however, as FAZ reports, is that “the money will last [only] until September”, and “Spain has no ‘Plan B”. Yesterday’s market meltdown – especially at the front-end of the Spanish curve – is now being dubbed ‘Black Friday’ and the desperation is clear among the Spanish elite. Jose Manuel Garcia-Margallo (JMGM) attacked the ECB for their inaction in the SMP (bond-buying program) as they do “nothing to stop the fire of the [Spanish] government debt” and when asked how he saw the future of the European Union, he replied that it could “not go on much longer.” The riots protest rallies continue to gather pace as Black Friday saw the gravely concerned union-leaders (facing worrying austerity) calling for a second general strike (yeah – that will help) as they warn of a ‘hot autumn’. It appears Spain has skipped ‘worse’ and gone from bad to worst as they work “to ensure that financial liabilities do not poison the national debt” – a little late we hesitate to point out.
Two years ago, in January 2010, Zero Hedge wrote “This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied” which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility,instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to “suspend redemptions to allow for the orderly liquidation of fund assets.” In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don’t believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing “The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds“. Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners – who never can accurately predict a rational response – is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?
Despite the easing of collateral standards, ECB Margin Calls surged last week by their most in over 9 months (ex-Greece). As yields rose (and prices fell) pre-summit, so the collateral that European banks have lodged with the ECB fell in value and thus, the banks had to find cash to cover those margin calls. The rally from Friday may have eased that strain a little but today’s give-back of all those gains (and in fact to a worse level) suggests that these margin calls will continue to rise and put further liquidity stress on cash-strapped European banks. Most critically, the ECB (while extending some of its collateral) reduced banks’ ability to self-reference and post ponzi-bonds as collateral (i.e. a Spanish bank cannot get a government guaranteed issue off and then turn round and pledge it with the ECB). Between negative Swiss interest rates (and Denmark), stressed basis-swaps, and now rising ECB margin calls, things are going from bad to worse behind the scenes in Europe – no matter what reflexive perspective an equity market rally is telling you.
Negative interest rates continue to penalise pensioners and savers in European countries and this will lead to further diversification into gold. Financial markets are already starting to wonder about the solidity of last week’s summit measures to tackle the euro zone crisis and soon they may question whether even looser monetary policies will help prevent recessions and sovereign defaults. With Independence Day today (Happy July 4th to all our American followers, clients and friends), the ECB decision tomorrow and NFP on Friday, trading should be quite today but as we know illiquid markets can lead to outsized market moves. We tend to try and avoid predictions in GoldCore as the future is largely unknowable and there are so many variables that drive market action that it is nigh impossible to predict the future price of any asset class. However, our opinion has long been that over the long term all fiat currencies will depreciate and devalue against the finite currency that is gold. For this reason we have long held that gold would reach its inflation adjusted high of $2,400/oz and silver its inflation adjusted high at $140/oz and the equivalent in euros, pounds and other fiat currencies. Gold at just over $1,600/oz today remains 33% below its record nominal high in 1980. Silver at just over $28/oz today remains 80% below its record nominal high in 1980. However, we have tended to focus on the important diversification, store of value and safe haven benefits of owning physical gold (and silver) bullion.
Today Michael Pento told King World News we are now just weeks away from a European ‘bombshell.’ Pento predicted, “In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM. This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”
