Introduction: Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, in October 2011 and serves as Marketing Director. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies. Andy's articles can be found on the Miles Franklin Blog, at www.milesfranklin.com.
Daily Bell: Good to speak with you again, Andy. What's new with you?
Andy Hoffman: Working harder than ever to dispel the mistruths and misinformation permeating the clueless, captive MSM and historically manipulated financial markets. Thankfully, despite multi-year lows in Western Precious Metals sentiment, Miles Franklin is as strong as ever, as we complete our 25th year of operation.
Daily Bell: In a recent blog entry you referred to the "potentially cataclysmic Scottish referendum." What did you mean by that?
Andy Hoffman: Just from a pure economic standpoint, it would indeed be a lethal blow to the UK economy – which, like the U.S., is supported solely by unfettered central bank money printing, which has created nearly identical equity and high-end real estate bubbles. Scotland generates just 10% of UK GDP, but theoretically would have title to 90% of North Sea oil and gas revenues – which not only could prove devastating for England, but could yield years of bitter property disputes.
Of course, the bigger issue is the expanding secession movements we wrote about last week. Whether or not the Scotland vote turns out "yes" or "no," the inexorable movement to escape oppressive social and/or financial governance will only accelerate as the global economy collapses. The situation is particularly tenuous in Europe, with its myriad cultures and nationalist movements, where the first such "yes" vote could catalyze numerous others – starting with Spain's Catalonia region, which will hold a similar referendum in November; and afterwards, the famed Italian city of Venice. Catalonia accounts for a whopping 20% of Spanish GDP; and Venice, 10% of Italian GDP.
Daily Bell: What's happening with commodities?
Andy Hoffman: As I wrote in last week's "Commodity Crash," the weight of an imploding global economy has caused precipitous plunges in key commodities from copper – i.e., "Dr. Death" – to crude oil. Not all commodities are falling, of course, and historic Brazilian and Californian droughts, unfortunately, will likely put a floor on many key agricultural items for years to come. Given the unprecedented, and accelerating level of global money printing, what could be more ominous?
Daily Bell: And currencies?
Andy Hoffman: As I wrote in last year's "The Final Currency War," the politically motivated "race to debase" has expanded to epic proportions since the Fed, ECB, BOJ, BOE and SNB accelerated their respective printing presses in 2011-12. Consequently, currencies the world round have experienced dramatic declines – on average, more than 20% in the past three years – yielding dramatic inflation increases. Ironically, the greatest money printer of them all – and chief architect of the aforementioned worldwide currency volatility – has been "strengthened" as a result, but only in the foreign currency markets. In what really matters, however – its purchasing power against real items of value – it has declined significantly. This is why the covert suppression of gold and silver prices is so important to TPTB; without it, these traditional "barometers" of inflation would be giving dangerous, politically damaging signals.
Daily Bell: Lots of news this week. Anything significant from the FOMC meeting? Have they assured us the Great Recession (that we're not having) is over?
Andy Hoffman: The FOMC statement, as always, could not have been more dovish. The Fed simply buys time to extend its "ZIRP to Infinity" mandate, and simply adjusts its language based on where the financial markets stand at the time of publication. This particular statement said utterly NOTHING incremental; i.e., the economy is "moderately" improving, yet "significant underutilization of labor resources" remains a material fear. And thus, they'll simply "wait and see" what happens, whilst continuing to keep rates at zero. They have not a clue what the real economy is doing, and the world's worst track record of attempting to guess.
Daily Bell: What's the report card on Janet Yellen? What's she doing? Is she living up to her dovish expectations?
Andy Hoffman: Janet Yellen is so dangerous because she is a career Keynesian puppet, with not a shred of success on her resume or even the slightest inclination to try anything other than enhanced money printing. Of course, it's not her fault that she inherited Greenspan and Bernanke's Ponzi scheme mess. But then again, she participated in it all along, as a member of Clinton's inner circle and subsequently the FOMC board.
Daily Bell: Where's the taper?
Andy Hoffman: "Tapering" is but a propaganda scheme cooked up to try and promote confidence in the Fed, and the economy at large. The problem is, that since they commenced it last spring, the economy has dramatically worsened, by every conceivable real metric. The amount of QE has never been what they said it was, as I proved in "proof of the tapering mirage" – let alone, the so-called "Belgian buyer" that mysteriously appeared when China announced it was selling Treasuries late last year. When rates fall too sharply, as they have this year, the Fed is just as apt to sell bonds as buy them – all covertly, of course. They care only of the fraudulent picture markets tell, which requires them to be "on call" for adjustment on a 24/7 basis.
Daily Bell: Has Mark Carney succeeded where Yellen hasn't? Is the British economy beginning to boom?
Andy Hoffman: LOL, "succeeded"? As noted above, London's property bubble – as in the U.S., limited principally to the high end of the market where the BOE's money printing funnels, is the only bright spot in an otherwise moribund miasma of weakness. The only reason the UK can even purport to be doing "better" than the EU – if 0.7% GDP growth is considered positive in the first place – is because unlike the ECB, the BOE has no beaurocratic constraints on its money printing. London is perhaps Europe's most expensive city, and the British populace is dealing with the same economic horrors as Americans. Not to mention, British banks are even more levered than American banks; and thus, just one crisis away from collapse. Ironically, former Goldman Sachs partner Carney just abandoned his employment rate "threshold" for raising rates for the same reason Yellen did earlier this year – because the UK economy, despite its reduced "unemployment rate," is suffering from the same, chronic "significant underutilization of labor resources" as the States.
Daily Bell: And what about Draghi – will he get his money-printing wishes or will the Germans stand in the way?
Andy Hoffman: Quite clearly, last week's ECB announcement – that a $1 trillion QE program will commence in October – gives that answer loud and clear. The way I understand it, Germany's Constitutional Court earlier this year may have disagreed with QE, but didn't outright overrule it. Germany is in an impossible situation, as the largest creditor of France – and by proxy, most of the PIIGS. They know they MUST keep printing, or else – which is why I expect the aforementioned secessionist movement to gain traction in Germany. Last weekend, the anti-Euro party made significant gains in local German elections – and you can bet that in the coming years, it will only grow stronger.
Daily Bell: We keep waiting for the euro collapse. Is it going to happen?
Andy Hoffman: It is happening as we speak, and the commencement of "QE to Infinity" this Fall will only accelerate this inevitability.
Daily Bell: Will the eurozone be divided into two? Will northern and southern Europe bifurcate?
Andy Hoffman: No one knows exactly how it will happen; but in time, it is a mathematical certainty that, either via secessions or expulsions, the Eurozone will break into two or more pieces. In my view, stronger players like Germany will inevitably be lured to the new "Eastern Axis" fronted by China and Russia while weaker players, such as the PIIGS, will plunge into the economic abyss.
Daily Bell: Are we going to end up with some sort of basket of currencies, worldwide?
Andy Hoffman: Not a chance. As fiat currency is the problem in the first place, why would a "basket" of fiat currencies be any better? Not only does such a concept – such as the fabled "SDR," or Special Drawing Right – make no economic sense, but there would be no political consensus behind it in an increasingly fragmented world. And oh yeah, the people wouldn't accept them.
Daily Bell: Remind us of your views on a gold standard.
Andy Hoffman: Ultimately, when the dust settles the only currency a hyper-inflated world will accept is one based on Precious Metals, given their time-tested, uncontested monetary properties. However, who knows when that will occur; perhaps next year, or perhaps two decades from now. In the meantime, we can't emphasize enough that we don't own PMs in anticipation of a "gold standard," but their historic tendency to protect one's net worth against fiat money printing.
Daily Bell: Should people be buying junior golds – or sticking to the physical?
Andy Hoffman: I spent nearly a decade owning mining shares, and six years working for mining companies. Three years ago, I once and for all realized the sector is doomed to destruction, by a combination of capital starvation, naked shorting and government decree. Thus, I only own physical metal, as I see no reason to speculate in risky stocks when I know my metals are essentially impervious to said issues. Now that my strategy is pure "financial defense," I have no issue in paper assets of any kind.
Daily Bell: How about ETFs?
Andy Hoffman: Even worse, particularly if you are speaking of GLD and SLV, which I believe to be two of the biggest frauds in financial history. Like other "paper PM investments," owning them does not constitute ownership of the actual metal one needs to protect themselves.
Daily Bell: There's an upcoming Swiss vote on gold. Will Switzerland end up back on a gold standard?
Andy Hoffman: That's a good question, and my close friend in the Swiss financial community is unsure himself. No one understands the benefits of hard money more than the Swiss, which until the turn of the century had the last remaining gold-backed currency. Since then, the Swiss National Bank sold the nation's soul by selling most of its gold at the market bottom, and devaluing the Franc by pegging it to the dying, soon-to-be "QE'd to Infinity" Euro. We can only hope the people make the wise choice – which, frankly, will be far easier for the rich Swiss than other nations, such as the PIIGS, which don't have the money to buy gold even if they wanted to. If they do vote "yes" on November 30th, it will be a global game changer for decades to come.
Daily Bell: Should other countries do the same?
Andy Hoffman: All countries "should," but most won't. Switzerland is in a unique position to actually save itself – assuming the gold their people desire is actually available to be bought; but for the rest, I'd put much of the world in the same box as America's hopeless "99%."
Daily Bell: And yet they don't. They move in the wrong direction. Report card on Abenomics? Japan just keeps foundering, doesn't it?
Andy Hoffman: The "Land of the Setting Sun" is so important to observe because it's "Demographic Hell" – i.e, having a population a decade older than the global average – caused their prototypical fiat currency bubble/bust a decade earlier than the rest. Having started their money printing orgy in the early 1990s – versus the early 2000s for the U.S., for example – they have QE'd themselves to 250% debt/GDP, the world's highest cost of living and an unmitigated economic collapse. I strongly believe Japan will be the first "first world" nation to experience hyperinflation; and worse yet, the rest of the West will join them far more quickly than most can imagine. Japan was fortunate enough to print its way to oblivion when the world still had a "charge card" to run up. However, the rest of the world doesn't have that benefit, as it's already passed peak debt. And by the way, both the U.S. and Europe are entering that same demographic hell as we speak, as their populations rapidly age.
Daily Bell: How about Asia generally?
Andy Hoffman: "Asia" is a very generic term, with widely varying economic and social issues. Clearly, China and Russia will lead the emerging "Eastern Economic Axis" in the coming years. However, before that occurs, the global monetary system must necessarily collapse, yielding the reneging on – via default or inflation – trillions of debts. Thus, nothing is "safe" until this happens, not by a longshot.
Daily Bell: What's your take on developing and frontier markets?
Andy Hoffman: This, too, is an ambiguous term, as so many nations on many continents can be given this classification. In a nutshell, the more "developing" or "frontier" a nation is, the more likely it will experience extreme economic and social dislocation when the "big one" hits global markets.
Daily Bell: How about China? Can they keep printing or will the economy finally collapse? We've been waiting for China for a while.
Andy Hoffman: China is collapsing as we speak – not in terms of its long-term viability, but history's largest credit/real estate/construction bubble. Its insane central bankers fostered a $20+ trillion credit explosion in the past five years; and today, even rigged Chinese economic data can't mask the fact that the nation is mired in massive debt, overcapacity, and – oh, yeah – money printing, as it continues to peg the Yuan to the dollar. In time, China will be the undisputed global economic power, if it isn't already; but in the meantime, I expect economic contraction and money printing – such as this week's "surprise" $80 billion QE announcement – to be the rule rather than the exception.
Daily Bell: Where is the Russian economy headed and why?
Andy Hoffman: This is a good question, as they are heavily resource-oriented in an environment of crashing commodity prices. If oil weakens further – and the "West vs. Russia" wars heat up (both economically and potentially, militarily), it's hard to see the world's most communist economy doing anything but collapsing. However, ultimately it holds cards the West doesn't – such as the aforementioned resources.
Daily Bell: Is the Ukraine war over or is it just heating up?
Andy Hoffman: Who knows what the truth is anymore? MH-17? Fraudulent "convoy attacks" and "peace treaties"? Historically suicidal sanctions against Russia, whilst the West proclaims "de-escalation"? Let's just say that after the Middle East, the Crimean peninsula ranks as one of history's most volatile geopolitical hotspots. And now that the West clearly aims to provoke Putin to the point of war, I'll simply say it ranks near the top of my very long list of potential "black swans."
Daily Bell: Will the fighting put even more pressure on the EU economy?
Andy Hoffman: Unquestionably. In the last few months alone, Germany has had an historic collapse in its ZEW business sentiment index; and this, following a European implosion so severe, the ECB has been forced to initiate NIRP and QE schemes. As noted above, I believe the European economy and union will collapse under its own weight irrespective. However, if the Ukrainian crisis erupts into full-blown war, I shudder to think of the horrific economic impact on Europe.
Daily Bell: What about ISIS – are the Middle East and African wars going to continue?
Andy Hoffman: Equally unquestionably. No matter what your view as to the "how" and "why" ISIS has suddenly surfaced as the "new al Qaeda," the U.S. – and others – have already made open-ended commitments to destroy them; in Joe Biden's ominous words, the U.S. will "chase them to the gates of hell."
Daily Bell: What's the outlook for gold relative to the military action now taking place?
Andy Hoffman: The same as if there was no military action at all – never more bullish. If TPTB want to escalate military confrontations as well – or, if they simply break out spontaneously – it will only accelerate the inevitable fleeing from paper investments into real money.
Daily Bell: Gold seems on a steady downward trend, though. Why is that?
Andy Hoffman: 100% manipulation, and nothing else. Last year, the world experienced record physical gold and silver demand, yet paper prices were attacked with a viciousness even I haven't seen in nearly 13 years of holding and observing precious metals. The suppression scheme that started at the turn of the century accelerated when gold hit its all-time high in September 2011 – per what I wrote in "the point of no return" – and went into its top gear in April 2013, when precious metals were attacked the day after a "closed door meeting" between Obama and the top "TBTF" bank CEOs. The closer we get to the inevitable end game of currency collapse, the mover blatant such manipulations – of all financial markets – have become.
Daily Bell: When is the breakout going to come? Is it going to come?
Andy Hoffman: It most certainly will, as sure as day follows night, and bust follows boom. The "when" is the hardest thing to forecast, given the aforementioned interventions to prevent it. However, given the quite obvious dwindling of global metal inventories – particularly in silver – and parabolic growth in debt, money printing and social unrest, it's hard to believe said "breakout" will not be sooner rather than later.
Daily Bell: There seems to be so much demand for gold and yet it has little effect on the price.
Andy Hoffman: Per above, there's a huge and widening gap between physical demand and the paper price it connotes. The further the metals are pushed down – in today's case, they are already well below their respective costs of production – the more quickly physical supplies will be depleted (think 2008, when the entire world ran out of silver) and production halted.
Daily Bell: What's going on in India? They seem to be making it impossible to buy gold.
Andy Hoffman: Not impossible at all, just with higher tariffs. Consequently, a massive black market has developed, making it difficult to measure actual demand. That said, silver saw record Indian demand in 2013 – despite the tariffs – which I believe has continued into 2014. And oh yeah, physical gold premiums – over paper prices – have never been higher.
Daily Bell: Stock markets keep making higher highs. How long is that going to last?
Andy Hoffman: "Stock markets" no longer exist, but are simply manipulated higher by the Fed and PPT on a daily basis – per the exact same algorithms utilized to suppress gold and silver. In the end game, stocks will either hyper-inflate (a la Zimbabwe or Venezuela) or crash. Take your pick which, but ultimately history's largest equity bubble – bigger even than 2000 – will end in massive real losses.
Daily Bell: Maybe people should put money in stocks and then invest the profits in gold and silver?
Andy Hoffman: People can do whatever they want. But as for me, I'll continue to play 100% "financial defense" – and thus, eschew speculation entirely in lieu of the safety of physical gold and silver savings.
Daily Bell: Long term, maybe gold does seem a buy, even if it is heading down for the moment. Where's it going to end up in 2014 – over US$1,300? Under US$1,000?
Andy Hoffman: I have no idea. Jim Sinclair says $2,000+ and Larry Edelson says $700, and I could not care less. There are much bigger forces at play here, and in 100% rigged markets, who can guess what will be three months from now? Not to mention, what's so important about December 31st? All I know is the bullish forces have never been more powerful – and at $1,235/oz, gold is dramatically below its cost of production.
Daily Bell: Which do you prefer these days – the white metal or the yellow? Or both?
Andy Hoffman: It's all a matter of personal preference. Silver is by far more undervalued, by many multiples. However, I prefer to maintain a 50/50 weighting, simply because it makes me most comfortable. That said, I believe the gold/silver ratio, currently at 66:1, will ultimately trade at or below its historic average of 15:1.
Daily Bell: We think this Wall Street Party may last another year or two – with some corrections (maybe major). What do you think?
Andy Hoffman: Tell me how long TPTB can prevent reality from blowing out, and I'll tell you how the "Wall Street Party" will last. Perhaps a "black swan" will usher reality in; or perhaps, the weight of history's largest Ponzi scheme – the current, global fiat currency regime – itself.
Daily Bell: Bonds are heating up, especially corporate bonds. Does the bond market look promising to you?
Andy Hoffman: Bonds are more overvalued than stocks, and particularly corporate bonds. We are talking about record, parabolically growing debt as far as the eye can see, the highest-ever global cost of living, a collapsing worldwide economy and generational geopolitical risks. And yet, care of worldwide QE – and those front running it, rates have been pushed to multi-century lows.
Daily Bell: Of course, the US bond market is dependent on the dollar. How's the dollar doing these days?
Andy Hoffman: No, the U.S. bond market is dependent on the ability of the Fed – both overtly and covertly – to consume all unwanted assets. There are very few actual market participants left – following the 2000-02 and 2008-09 debacles; and those that remain are simply front running the inevitable, global "QE to Infinity" – as I wrote this Spring, in "the most damning proof yet of QE failure."
Daily Bell: Any collapse in the cards? Any time soon?
Andy Hoffman: With 100% certainty, said Ponzi scheme will spectacularly collapse. However, I have no idea "when," other than to say all signs point to it occurring far sooner than most can imagine.
Daily Bell: We haven't heard about the IMF recently. Are they up to anything? What about the BIS?
Andy Hoffman: Both organizations act in the shadows, in their own ways collaborating with Western bankers to "kick the can" as far as possible. As far as I'm concerned, they are simply extensions of the evil "New York-London Axis" that has destroyed the global economy.
Daily Bell: Any other points you want to make or references you want to mention?
Andy Hoffman: Just that Miles Franklin is proud to be completing its 25th year of operations this year. We can be reached at 800-822-8080, and I can be personally reached at firstname.lastname@example.org. Thanks!
Daily Bell: Thanks, Andy.
Andy Hoffman is focused on purchasing physical gold and silver and since he works at Miles Franklin, that's understandable. But in pointing out that Andy works for a gold dealer, we want to make it clear that Andy, who has an impressive background, could probably work at a lot of places. He obviously CHOSE to work at Miles Franklin and what he explains about the larger economy makes sense to us as well – which is why we often invite him back.
There's really not much we can disagree with when it comes to Andy's perspective. In this interview, he mentions that junior miners are not going to climb much higher, as they did during the previous 1970s golden bull, and this comment set us thinking about whether they would or would not.
Certainly, there are bull and bear cycles in the securities markets and these are confusing because of central bank asset inflation that can disguise a bear market. In fact, we are in a "bear" securities market and have been since 2001. That was when the dollar started to move down hard against gold, eventually yielding a price of nearly US$2000 for an ounce of gold.
At that point, the cycle was unfolding logically and probably junior miners would eventually have started to move up, as they did in the 1970s. But instead, massive central bank interference plus a significant effort to damp the price of gold interfered with the normal business cycle.
As a result, from our standpoint, we've seen an incredible elongation of this latest golden bull. And that is the question that remains on the table today: Will the golden bull cycle eventually reach closure or is the current determined asset inflation going to end in some kind of new and more global trading epoch?
Eventually, one way or another this cycle has got to close, in our view. But it's certainly taking a long time. Central banks are doing everything from printing in concert to directly interfering in the market. And up and up the market goes … It could keep going for a while longer, too, and when it does collapse, perhaps all that will be left to hold is gold and silver.
We may disagree with Andy about junior mines, but we certainly don't about holding physical gold and silver. It's a timely message and one we hope will reach more people.