December 17, 2019
The Miles Franklin Newsletter
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From The Desk Of David Schectman
As Ted (Butler) has been pointing out for some time now, how silver and gold prices unfold from here depends on whether or not the Big 7 commercial traders on the short side are able to snooker the Managed Money traders out of their historic and unprecedented net long positions. To date, they haven't been very successful. – Ed Steer
 
As Ted has been pointing out over the last few months, the Managed Money traders still hold a huge net long position that they've held onto since the current price peak in early September -- and that's despite the fact that the current gold price is below any major moving average that matters. So unless the Big 7 commercial traders can convince these Managed Money traders to sell, they're stuck on the short side with huge unrealized losses. – Ed Steer
 
It is anyone’s guess what the end of 2019 might bring. Personally, I am far more worried about maintaining the value of my assets rather than trying to chase what appears to be a limited upside in most paper assets these days. Buyer Beware! Be Prepared! - Mike Savage

When the U.S. and global oil supply starts to decline in a big way, it will negatively impact the value of most Stocks, Bonds, and Real Estate while providing an excellent store of value for gold and silver holders. - SRSrocco

Staring at the financial abyss

When the financial history of this era is written, it is fairly likely that historians will identify the onset of the global economic crisis as 16 September, 2019. It was the first clear sign of the potential for a violent unwinding of the massive speculative financial positions created by central bank meddling.

Thus, in their efforts to “save” the world economy, central banks have created a monster: a dysfunctional, extremely-speculative and highly-leveraged financial sector. All that is needed for it to unravel are rising rates in some important, if obscure, corner of the capital markets—just like the repo-markets.

The Fed has been engaged in a desperate battle to avert this through its repo and “Not QE” -programs since September. However, even if successful, it’s very likely that these programs, not to speak of an “actual QE”, will just further aggravate the distortions in the financial markets, until they become unbearable.

Then we’ll be staring into the financial abyss. Beware! - Tuomas Malinen via GnSEconomics.com,
 
And now we have yet another powerful idea to drive the bull market in the months ahead:
Donald Trump looks like all but a shoe-in in 2020. His odds took a favorable leap following last week’s election in Great Britain. So decisively did voters rebuke Labor’s hard-left candidate, Jeremy Corbyn, that it can be safely assumed that neither of his socialist comrades-in-arms in the U.S. — Bernie Sanders and Elizabeth Warren — stands a chance of winning the presidency. And because America is not ready for a gay couple in the White House, Buttigieg, a man of the far left himself whose track record as mayor of South Bend stinks, will not win either. That leaves Biden, who, even if he gets nominated, will not be able to escape the stench of Ukraine; and Bloomberg, a white billionaire who is even less likely to get nominated by the wack-jobs who currently rule the Democratic Party. Enter Hillary, a likely hail-Mary nominee who will be no more appealing to the average voter come July than she was in 2016. – Rick Ackerman
David's Commentary (In Blue):

As the year is coming to a dramatic close – The impeachment trial in the Senate, tariff and trade war rumors, the Fed’s reckless REPO policy and the unending bullishness toward the stock market, everyone seems to have a “prediction” what lies ahead in 2020. You can find any narratives you want since there are always contrasting views on all of these topics. So, who will be correct? Who should you listen too? I say, listen to yourself. Also, I say this is a good time to be cautious instead of greedy. There is nothing wrong with leaving a little profit on the table but what you don’t want is to lose a lot. Is this a safe time to stay fully invested in stocks? If you are motivated by the “need” for more potential profits then the answer is yes. But if you are like me, and more worried about losing big, then the answer is no. It is always about risk/reward and with the Dow above 28,000 the risk of a major collapse is high and the reward is low. If the Dow does hit 30,000, that’s only a 10% gain, before taxes. The reward is minimal. A correction to 20,000 or less is also a real possibility and that will cost you more than 25%. Like I said, risk/reward. The same is true for gold and silver. They could continue to under-perform and even fall a bit more, but their upside is huge. Risk/reward. You should listen to what the other so-called “experts” have to say, but make up your own mind. 
 
One of the pundits that I follow, and have for the last 30+ years is Doug Casey. He’s not perfect, but he does have a very good track record. Here is what he has to say about 2020.
Every major political and economic forecast Doug Casey made over the last three decades came true...
From the dot-com bust... to the credit and housing bubble in October of 2006... to the 2008 meltdown.
Doug Casey even predicted the fall of the Soviet Union and correctly forecasted Brexit before it came to a vote.
But nothing comes close to Doug's new forecast for 2019-2020.
As Doug puts it, a major political coup is unfolding on American soil... that will topple Donald Trump's presidency...
And give rise to a new socialist state.
The stock market as we know it could lose nearly 40% of its value and a major recession could wipe out the wealth of hard-working Americans.
Just like Venezuela...
The general cost of living — including medication — will be out of reach for boomers, retirees, and even seniors...
Medicare and Social Security payouts will be cut in half to fund new welfare programs.
Food prices will shoot sky high. In fact, major brands like Kellogg's have warned prices will increase by 12%.
It's my sincere hope you and your family survive what's coming.
Jim Rickards disagrees. You can read the article, inked below.
This is what I am talking about. Highly regarded pundits with totally opposite views on the 2020 election and the stock market. If Casey is correct and the stock market tumbles, you will not want to be in stocks and precious metals will be off to the races.
 
And then there is a growing belief that with the landslide election of Boris Johnson in England, that American Democrats have no chance to win the election with the growing populist revolution that is taking place in the west. Which viewpoint is correct? One or the other. This is why I say you must think for yourself and make up your own mind.  It’s a flip of the coin and when my odds are 50-50 I tend to lean toward a conservative choice. 
 
I could have written this myself, but Ed Steer beat me to the punch. He says,

But make no mistake about it, the precious metals will be the last men standing when this 'Everything Bubble' made of paper melts away to nothing. The quiet accumulation of physical metal over the last number of years, along with the now more than visible accumulation of precious metal shares...particularly the silver equities...is a sure indication that the smart deep-pocket money is in mass accumulation mode.”
 
Effective April, 2019, The Bank of International Settlements (BIS) - AKA the bank for all central banks, reclassified Gold from a Tier III asset (50% value on their books) to a Tier I asset (100% value on their books). Central banks around the globe are accumulating gold (and selling dollars). That should set off alarm bells. And then there’s JPMorgan, you know the bank who always wins on their bets and they have 25 million troy ounces of gold, plus at minimum, 900 million troy ounces of silver. These people are not fools. They set the policies. And what are they doing? They are franticly printing money to keep the stock market, which is the economy, afloat; they are unloading dollars and accumulating huge amounts of gold and silver. Does that sound like the big money, the people in the know think that 2020 will be a great year for stocks and a bad year for the metals? Doesn’t look that way to me. But what do I know?
Ed Steer

Well, dear reader, I'm not going to say anything in today's closing comments that I haven't been saying for the last month or so. But with each passing week it's become more and more obvious to all, that unless the central banks of the world are prepared to buy up all their own [and other central banks] Treasury debt until our sun goes supernova...the world's current economic, financial and monetary system is doomed.
 
Of course it will never get to that state, because at some point in the not-too-distant-future, some black swan event...either by design or circumstance, or both...will be floated out to end it all.
 
Jay Powell et al. are certainly aware of that fact -- and his deer-in-the headlights look at the presser after the last FOMC meeting told me all that I needed to see. Parts of his commentary sounded like the 19th century equivalent of selling snake oil out of the back of a covered wagon...something that was pointed out in rather pithy fashion in this Zero Hedge article in the Critical Reads section further up.
 
But make no mistake about it, the precious metals will be the last men standing when this 'Everything Bubble' made of paper melts away to nothing. The quiet accumulation of physical metal over the last number of years, along with the now more than visible accumulation of precious metal shares...particularly the silver equities...is a sure indication that the smart deep-pocket money is in mass accumulation mode.
 
At the very top of that food chain of accumulation stands JPMorgan...with their 25 million troy ounces of gold, plus 900 million troy ounces of silver...if not more.

And when the 'day' arrives, we'll ride their coattails in what will certainly turn out to be the rally of this or any other century, as it's a certainty that gold will be at the center of whatever new currency comes our way via the IMF. And as goes gold, so will silver, but fantastically higher compared to their current relative prices. Their respective equities will follow -- and future generations of financial 'experts' will be writing about it in financial history books for centuries.
 
Of course we have to arrive at that denouement first -- and how long the central banks of the world can keep this con game going is anyone's guess...but it ain't forever. The sure sign that the end was approaching at Warp speed occurred on September 17 when the new repo thingy was floated out by the Fed. However, the real beginning of the end [as we know] happened on August 15, 1971 on a Sunday evening when Nixon went on TV and said the following..."I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability -- and in the best interests of the United States."
 
That "temporarily" thingy is now 48+ years old -- and long past its "best before use" date...a fact that I and others have pointed out from time to time...but with increasing frequency lately.

When we end up back on a gold standard of some sort, it certainly won't be "in the best interests of the United States" as Nixon stated back then...but in the best interests of the world's central banks, led by the IMF. And it's almost superfluous to point out that the latter is composed entirely of the former. The needs of any particular nation state will not be considered.
 
As Jim Rickards has pointed out on numerous occasions, the U.S. dollar will become a regional currency like the Mexican peso, the Indian rupee, or in extremis...the Zimbabwe dollar -- and, hopefully, American Hegemony will die with it.
 
And to steal a line from King Théoden as he was getting armoured up for the Battle of the Hornburg at Helm's Deep..."How did it come to this?"
I know that many of you are confused about the REPO market. In a nutshell here is what you should know… The Fed is very worried, as they should be. All is not as rosy as many in the media suggest.
The only way the market could finance all that Treasury issuance was through repo borrowing.
 
That, folks, is margin debt plain and simple. The dealers and the banks were buying up Treasury issuance on 90% margin. In September, they said, No mas! They'd had enough.
 
The fact is that the over-leveraged dealers with their bloated inventories know that any down-tick in bond prices will destroy them and destroy the system. And the Fed knows it equally well. Because, as Powell noted, they talk to each other all day, every day in the context of their debt market rigging operations.
 
The Fed is pumping $145 billion per month into the system. That's more than under QE One. Powell has said that it's Not QE, and now says that it won't have macroeconomic effects. Oh please. Humor me.
 
Powell: We've decided back in January to remain in an ample reserves regime...
 
The obvious question here is, "Why?" And the answer is that if they hadn't reversed course from shrinking their balance sheet, the stock and bond markets would have crashed, and short-term rates would have soared.
 
And something very bad would have happened to the U.S. economy. In other words, there would have been macroeconomic second order effects. True, the first order effects would have been in the money markets and the asset markets. But to say that the policy change has no macroeconomic effects is hogwash.
 
In fact, the money market freeze-up happened first, and the Fed started "Not QE" in September in instant response.
 
Powell : We're committed to robustly implementing that framework as you can see by our actions.
 
I'll say. $435 billion in Not QE so far, since September 17.
 
Powell : And the purpose of all this, let's remember, is to assure that our monetary policy decisions will be transmitted to the federal funds rate, which in turn affects other short-term rates. We have the tools to accomplish that and we will use them.
 
The purpose of all of this is not to eliminate all volatility particularly in the repo market.
 
No, the purpose is to absorb enough of U.S. government debt issuance to keep rates down. As of right now, so far that has meant 90% of all new issuance.  The Fed is effectively monetizing the U.S. government debt!
 
Prior to the Trump Regime and Congress lifting the debt ceiling, there was no pressure on the money markets because debt issuance was reduced while the debt ceiling was in place.
 
But the Fed saw the devil's budget deal coming and knew that the Treasury would soon be crushing the market with new debt that the market would not be able to absorb. The Fed knew at that point that it would no longer be able to continue removing reserves from the system under its balance sheet bloodletting program, so it stopped.
 
The only way the market could finance all that Treasury issuance was through repo borrowing.
 
 That, folks, is margin debt plain and simple. The dealers and the banks were buying up Treasury issuance on 90% margin. In September, they said, No mas! They'd had enough.
 
The fact is that the over-leveraged dealers with their bloated inventories know that any down-tick in bond prices will destroy them and destroy the system. And the Fed knows it equally well. Because, as Powell noted, they talk to each other all day, every day in the context of their debt market rigging operations.
 
Think about how screwed the system must be, and would be, if the Fed were not monetizing the debt at this point.
 
Such is the Fed's confidence game. It has no choice but to play it. The system is in just that bad a place.
 
God forbid any seriously big investors start to figure it out and decide to take their marbles out of the game and go home.
 
This  long and somewhat profanity-laced  commentary appeared on the  Zero Hedge  website at 6:47 a.m. on Friday morning EST -- and it comes to us courtesy of Brad Robertson as well. It's  certainly worth your while  -- and another link to it is  here  .
Our federal government continues to command the debt bullet train, expanding borrowings at a 10.4% pace during the quarter (strongest since Q1 '18). Treasury Securities surged a notable $757 billion during the quarter to a record $18.572 TN. Treasury Securities jumped $1.154 TN over the past year and $2.341 TN over two years. Treasury Securities-to-GDP increased to 86%, up from Q4 07's 41%. A broader measure of Treasury Liabilities ended Q3 at $21.048 TN, or 98% of GDP.
 
M2 "money" supply surged $1.044 TN over the past year, or 7.3%. Institutional Money Fund Assets (not included in M2) jumped another $390 billion, or 20.8%. Year-to-date, the S&P500 has returned 28.9%. The NASDAQ Composite is up 31.6%. The Semiconductors (SOX) have surged 55.5%, with the NASDAQ Computer Index up 45.8%. The Banks (BKX) have gained 31.3%. Treasury bonds (TLT) have returned 16.9%. Investment-grade corporates (LQD) enjoy a 2019 return of 17.5%, with junk bonds (HYG) returning 13.3%. Gold has gained 15% so far this year, with Silver up almost 10%. Real estate prices have continued to inflate, along with private businesses, art, professional sports franchises, collectible, etc. It has indeed been the spectacular "everything rally."
 
Such extraordinary asset inflation is possible only with some underlying Monetary Disorder. I have argued that international securities finance is at the epicenter of historic Global Monetary Disorder and resulting runaway asset inflation and Bubbles.
 
Total "repo" ("Federal Funds and Security Repurchase Agreements") Liabilities jumped another $222 billion during the quarter to $4.502 TN, the high going back to Q3 2008. Over the past year, "repo" surged a record $932 billion, or 26.1%. For perspective, "repo" Liabilities rose on average $51.9 billion annually over the past five years. And the $932 billion gain during the past four quarters is more than double the biggest annual rise over the past decade (2010's $422bn gain that followed the $1.672 TN two-year crisis-period contraction). Ominously, the past year's gain also surpasses the previous record four-quarter gain ($824bn) for the period ended in June 2007. "Repo" Assets (as opposed to Liabilities) surged $1.087 TN over the past four quarters to a record $4.813 TN.
 
U.S. securities/"repo" finance is clearly a major source of liquidity for the markets as well as the real economy. Yet this Bubble Dynamic is undoubtedly global, with international securities finance instrumental to inflating securities and asset markets around the world. A Bloomberg article this week referenced a $9.0 TN European "repo" market. There is also a large repo market in Japan, as well as throughout Asia. How much finance to leverage global securities is originating out of the likes of Hong Kong, Singapore and Shanghai? How much global "repo" finance has been flowing into U.S. debt markets?
 
Markets now relish "clarity." A "phase 1" U.S./China trade deal has, at long last, been inked. The Tories big election win ensures a decisive Brexit. Meanwhile, the (King of Asymmetric) Fed has essentially signaled no rate hikes until after next year's election (more likely the 2021 inauguration). Any inkling of instability would certainly elicit additional monetary stimulus.
Perhaps bond markets are beginning to have an issue with all this. Is the Fed really going to expand its balance sheet $500 billion to quell any potential year-end "repo" market pressure? Today's backdrop becomes even more reminiscent of fateful 1999 (and Y2K).
 
Doug's weekly commentary was posted on his website in the wee hours of Saturday morning -- and  it's worth reading . Another link to it is  here .
JAPANIFICATION, DEFLATION AND BACKWARDATION IN GOLD & SILVER AND BASE METALS
Darryl Robert Schoon

Japan is the canary in the bankers’ coal mine

“Japanification” describes a severe and prolonged deflationary state in which demand drops, prices and wages fall, and economic activity remains moribund for decades. Japan has been trapped in a deflationary state since the collapse of the Nikkei stock market bubble in 1990.

Seventeen years after the collapse of the Nikkei, in  Time of the Vulture / How to Survive the Crisis and Prosper in the Process  (2007), I wrote:

When the Japanese bubble collapsed in 1990, the Nikkei lost 80 % of its value and drove down the prices of residential and commercial property in the process. This collapse of equity and housing prices subsequently unleashed deflationary forces in Japan still in effect today.

Like a stubborn and malignant cancer, deflation has been eating away at the Japanese economy ever since its appearance in 1990. In spite of 0 % interest rates from 1999 to mid-2006, statistics compiled by The Economist Magazine show what deflation is still doing in Japan.

Politics are not a big deal to me. Certainly I don’t get upset or emotional over the issues that seem to disturb Liberals and Conservatives. I am closer to a Libertarian than a Democrat or Republican and I enjoy Ron Paul’s comments. If you are open minded, what he has to say here is hard to disagree with. 
Ron Paul: Congress Is Trump’s Deep State Co-Conspirator Against Liberty
 
Posted by  Money and Markets Staff  | Dec 9, 2019 |
 
Imagine that President Trump spent his phone call with the Ukrainian president threatening to withhold military aid unless the Ukrainian government agreed to use the money to purchase weapons from a U.S. manufacturer. Does anyone seriously think that Foreign Service professionals and deep state operatives would be so shocked and offended by Trump’s request that they would launch efforts to impeach him? Would Congress view this as “high crimes and misdemeanors” or applaud Trump for carrying out one of modern presidents’ supposedly most important jobs — acting as salesmen for the American military-industrial complex?

This hypothetical shows that impeachment is not about President Trump’s abuse of power.
Instead, it is an attempt to make sure President Trump, and all future presidents, confine their abuses of power to items that advance the agenda of the political establishment.

President Trump’s most consequential abuses of power have been met with the full approval of the majority in Congress, the mainstream media and the deep state. For example, when President Trump launched military action in Syria without obtaining a congressional declaration of war there were no calls for his impeachment. Instead, most members of Congress were perfectly happy to let stand unchallenged President Trump’s claim that the 2001 authorization for use of military force — a limited grant of authority to act against those responsible for the September 11, 2001 attacks — gave him the authority to launch military action against a government that had nothing to do with the September 11 attacks. The only times Congress rebukes President Trump’s foreign policy is when he speaks favorably about pursuing peaceful relations with Russia or ending U.S. involvement in no-win military conflicts.

This hypocrisy extends beyond foreign policy. Many Democrats who claim that President Trump is both a fascist and mentally unhinged are eager to ensure President Trump can continue to conduct warrantless surveillance on every American by reauthorizing Section 215 of the PATRIOT Act.
 
Trump-opposing progressives in Congress are also eager to give President Trump new authority to violate the Second Amendment. Even those progressives who say they believe Trump is a deranged fascist did not object when he endorsed “red flag” laws that give the government power to, as President Trump put it, “take the guns first, go through due process second.”
 
Perhaps the most sickening example of Trump’s congressional opponents’ hypocrisy is how many of those fretting about the safety of the Ukraine-gate “whistleblower” are silent about, or supportive of, the Trump administration’s complicity in the inhumane  treatment of Wikileaks founder Julian Assange . They are also silent about the U.S. government throwing Chelsea Manning back into jail because she refuses to help the U.S. prosecution of Mr. Assange.
 
All modern presidents have exceeded constitutional limitations on their power and thus could have, and maybe should have, been impeached. The reason they were not impeached is that a majority of Congress members support allowing presidents to wage war abroad and destroy liberty at home without being “hamstrung” by Congress. The only real dispute among the political class is which party should wield the levers of power.
 
Restoring constitutional limits on government power and thus protecting liberty depend on spreading ideas and building a movement. Our lost freedom will only be restored when presidents and members of Congress fear being “impeached” at the ballot box for committing high crimes and misdemeanors against peace, prosperity and liberty.
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About Miles Franklin

Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.

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