QUESTION: Marty, Socrates has done a fantastic job on platinum. It is just so refreshing to have an analysis that is not biased and always saying buy. It looks like platinum is just a precursor to gold. There is an oversupply and with South Africa in turmoil politically on top of its currency in the EM world, would you care to comment on this market?

Thanks for this system. It really makes a difference.

JS

ANSWER: Platinum prices have really dropped hard reaching 10-year lows as the collapse of Turkey’s lira did in fact rippled through emerging market currencies which resulted in the decline of the currency of top producer South Africa. This has indeed underscored the persistent oversupply of the autocatalyst metal. Auto production has been declining for the most part since the 1990s. Moreover, the move toward electric cars in Europe has also resulted in a sharp decline in demand for platinum which has contributed to the oversupply.

Platinum has been caught in a broad sell-off that is clearly an oversupply crisis mixed with investors rushing to the safety of the dollar when there is a serious crisis brewing not just in emerging markets, but also within the EU. As I have warned, the dollar is the ONLY game in town to park BIG MONEY. Those who ran to turkey for the high yield are reaping the losses of their stupidity and greed. The political uncertainty surrounding Turkey has been pushing the dollar higher and making dollar-priced metals more expensive for buyers using other currencies. This is putting pressure to lower the price in dollars to be able to sell the metal.

Meanwhile, with the emissions-reducing catalytic converters for vehicles market is declining along with the jewelry market for platinum, which has also been declining due to deflation in Europe and a preference for gold. Despite the lower prices, global platinum jewelry demand declined 12% to 2.18 million ounces in 2017. According to GFMS industry reporting:

“According to the GFMS Platinum GroupMetals Survey 2017, platinum was the worst performing precious metal in 2016, with its price stumbling 6 percent to average $988.76, falling below $1,000 for the first time since 2005. … Despite the lower price, global platinum jewelry demand declined 12 percent to 2.18 million ounces. The fall is largely attributed to declines in demand in North America and China, which saw 10 percent and 12 percent falls, respectively. In China, platinum’s decline is believed to be the result of weaker economic conditions as well as the metal losing market share to 18k yellow gold. For North American consumers, it was a matter of jewelry price stickers not reflecting platinum’s lower cost to gold. Because platinum is a denser metal, a platinum piece can be 40 percent heavier than its gold counterpart, and thus more expensive for consumers

COMMENT: Mr. Armstrong; Your recommendation at the WEC two years ago that the south island in New Zealand would be a safe place has really led to a lot of chaos. So many billionaires have suddenly been buying up property down here it is obvious you have a lot of influence. It has even made the Guardian. Please don’t send any more people down here.

HU

REPLY: I never sent anyone directly to New Zealand. I know we are well read among the money class as they say. Everyone eventually makes their own decision. Nevertheless, your Prime Minister is out to stop foreign investors buying property down there these days.

The collapse of the Morandi Bridge in Italy has prompted a serious dispute between Brussels and Italy. Italy is taking the position that the demand of Brussels to comply with austerity denies Italy the ability to even repair its infrastructure for its own people. When it asked previously for relief to deduct the cost of all the refugees, Brussels denied that exception. My sources in Italy are hardening on their view that Italy is now an occupied country.

The Eurozone austerity policy has destroyed the European economy because they have utterly FAILED to understand what was the real cause of the German Hyperinflation. This view that any increase in the money supply is evil has subjected Europe to DEFLATION that has devasted its economy, infrastructure, and resulted in massive unemployment among the youth. The Great Depression was not reversed until they stopped Austerity which only benefits the bondholders – not the people. To sell their debt, they presume they need austerity so bondholders get back the fair value of what they lent. That has never happened anyway.

Many people worry about over-indebtedness and point to a default of borrowers. It is interesting how the view of debt is always the low-life borrower. In reality, the real stupidity rests with the lender. Many are pointing to US corporate debt and stating that it has grown to an estimated US $ 7 trillion and they paint this as high-risk bonds and corporate loans which have been issued over the past decade. Of course, there were some who were foolish to issue variable interest rate bonds. Those companies are likely to find themselves in trouble. But there are others who issued long-term fixed bonds at low rates. Our advise to corporate clients was to borrow as much as possible at fixed rates for 50 to 100 years while the fools were willing to buy. Other major corps issued 100-year bonds including Walt Disney Company (DIS) and Coca-Cola (KO). The loser will be the BUYER, not the ISSUER.  It was a fool’s market to buy such fixed rate bonds for 100 years.

When Greece got in trouble, what is the first solution economists ALWAYS recommend? A debt haircut!. , which in most cases is based on the Libor benchmark interest rate, which has increased significantly in recent months. The first thing they did was extend the Greek debt by 10 years to avoid a default and the ECB agreed that any profits made by central banks in the Eurozone on Greek bonds would be returned to Athens in two equal tranches every year, between 2018 and 2022. You always extend maturity to avoid a default and you take a haircut in the value of the bonds you bought.

We are also witnessing this at the municipal level in Germany where about 50% of municipal governments are effectively bankrupt. The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, came out and called for fundamental reforms where the holders of their debt would take a haircut. He has made it clear that a reduction in more than half of the state investments was made by the municipalities. The German grand coalition was supposed to organize a haircut to reduce the value of outstanding debt from the federal states on down to the municipalities. In reality, they are hopelessly over-indebted not unlike Illinois and California in the USA.

Even when we look at the war loans from the USA to Europe, it was not until 2015 that Britain finally repaid it war loans. There were still 38,000 holders of UK war bonds with amounts less than £100 as well. They actually cut the 5% coupon in 1932 reducing it by agreement to 3.5%. So you see, taking 100 years to repay a debt meant that the value of the pound when the money was lent was $4.86 and when it was paid off less than $2. Actually, the French never even paid interest on the $4 billion they owed the USA after World War I and the only country to pay the United States back during the 1930s was Finland.

So when we look at the indebtedness of even Emerging Markets, keep in mind that the loser will be the lender – not the borrower. It seems that no matter how many times a government defaults like Spain, seven times, the fools rush right back in and buy again. The famous bank of the Medici had a rule “to deal as little as possible with the court of the Duke of Burgundy and of other princes and lords, especially in granting credit and accommodating them with money, because it involves more risk than profit” (Raymond de Roover Professor of History at Brooklyn College: The Rise and Decline of the Medici Bank was first published in 1966. id/ p 343). The Medici failed because later generations did not follow that rule

Chancellor Angela Merkel has rejected France’s Macron’s proposal for the establishment of a euro finance minister. Merkel has also stated that she wants a planned EU budget for the Eurozone area as part of the EU budget. She does not want an independent budget for the 19 countries of the monetary union. Merkel is still adhering to her view that the quantity of money causes inflation and it has been that policy which has suppressed the European economy for the last decade. A Euro finance minister she argues would lack both a budget as well as there would be no parliamentary control.