Katchum Comments on Gold, Silver & Recession

There are literally thousands of economic blogs out there and most don’t have much to offer. One exception is a blog by “Katchum” that is dedicated to monitoring breaking global economic news on a day to day basis and, as such, provides unique insights into, and analysis of, various aspects of the financial markets, commodities and the economies of the world. Words: 642; Charts: 6

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Contents:

1. J.P. Morgan Converts Almost Half of Eligible Gold to Registered Gold
2. Public Sector Credit Expansion Vs. Private Sector Credit Contraction
3. Chinese Silver Imports
4. Savings Rate Points to a Deja Vu Recession

1. J.P. Morgan Converts Almost Half of Eligible Gold to Registered GoldI couldn’t believe my eyes when I saw this. Suddenly we saw the J.P. Morgan vault get almost half of the eligible gold converted into registered gold….We saw J.P. Morgan do the same with silver in November 2011 (right before a huge rise in silver price). The consensus is that they are preparing for a large delivery to someone. They increased registered stock to prevent a COMEX default. This is also a sign of loss of confidence in paper gold and silver. Let’s see what happens next – probably a decline in total stock. Chart 1: Gold Stock COMEX

2. Public Sector Credit Expansion Vs. Private Sector Credit ContractionIn 2009, Marc Faber said these words at one of his famous seminars: “For the fiscal stimulus to even have a small chance of succeeding at reviving economic activity it has to be larger than the private sector credit contraction.” In today’s world we have 2 opposing forces, one is Ben Bernanke’s public sector credit expansion (Chart 1) and the other is private sector credit contraction (Chart 2). If credit grows, all is well, but when they cancel each other out and credit contracts, a recession will start. To make it easy I took the credit growth chart for the money creation of banks (Chart 1). For the private sector I took the household debt chart (Chart 2). Bank credit is going up due to money printing: Chart 1: Bank Credit Private sector debt is declining due to repayment of debt. I indicated that the savings rate has gone up to 6% now, so I expect more repayments in the future. Chart 2: Private Sector Credit If we then add these two charts together we get Chart 3 and the picture isn’t pretty. The percentage change in credit has gone negative and is at a historic low. As you can see, each recession (grey bar) is accompanied by a dropping credit and 2008 is by far the worst one. If we don’t see a rising trend here, you can expect ugly times ahead. Chart 3: Credit Expansion/Contraction

3. Chinese Silver ImportsApparently the Chinese have been net buyers of silver, just as they have been becoming net buyers of gold (Chart 1). Chart 1: Chinese Silver Imports through Hong Kong

4. Savings Rate Points to a Deja Vu RecessionRemember where I said this: “Unlike in 2008, the savings rate isn’t going up though (Chart 5). If this trend actually reverses upwards, the real collapse will start because when people save money, debt will be paid off and the currency supply will drop.” It has finally happened, the savings rate is going up to 6% (Chart 1). Credit is being repaid, the currency supply is going to shrink and the economy is on the verge of collapse, again. The GDP has gone negative, if we get another negative growth in GDP, then we have a recession. Chart 1: Personal Savings Rate Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.