As goes January 2015, so goes 2015?

Dear PGM Capital Blog readers,
In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of January 26 and the month of January 2015.

And we will try to find an answer to the question if the important quote on Wall Street “As goes January, so goes the year 2015” which has been right in 62 of the last 86 years, or 72 percent of the time, might be applicable this year.

Highlights of January 2015:

  • Currency wars in full escalation.
  • DOW-JONES Industrial down 3.69 percent in January 2015.
  • USA Q4-2014 GDP figures disappointed .
  • Gold and Silver prices soaring in January 2015.

The worldwide currency debasement war has now entered a new and more deadly phase. Central banks have escalated the combat plan to bring about the world’s weakest currency for their individual countries.

This January, Ireland, Italy and Portugal all have public debts to GDP ratios in excess of 125 percent.

The slump in oil prices and easing of German inflation has prompted the European Central Bank to conjure new euros to buy bonds with newly minted money despite the lowest returns ever. The successive rounds of money creation are to be shoveled into the system.

An event that shocked the financial world in January, was the removal of the cap on the Euro by the Swiss National Bank. As a consequence of this, the CHF appreciated against all major currencies. Below chart shows the appreciation of the CHF against the USD in January, after the decision of the SNB, of January 15, 2015.

Negative interest rates exist in Switzerland, Germany and Japan reminiscent of the Great Depression. Money is not money any more. Sub-zero interest rates are the norm.

In the USA, the yield of the 10-year-note dropped in the month of January to an all-time low of 1.68 percent, its lowest level ever, as can be seen from below chart.

As can be seen from below chart, the USD-Index rose with 4 procent in January to its highest level in 11 years.

As can be seen from below chart, the USA DOW-JONES INDUSTRIAL shed 658.12 points or 3.69 percent to close the month of January at 17,164.95 points.

On Friday, January 30th, the USA department of statistics, reported that the country’s GDP grew with only 2.6% in the final three months of the year, much lower than the estimate of 3.3%.

The GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in non-residential fixed investment and in exports that were partly offset by an upturn in private inventory investment and an acceleration in Personal Consumption Expenditures Price Index (PCE).

As can be seen from below chart, Gold futures surged to close the month of January at US$ 1,282.58 an increase for the month with US$ 98.68 an ounce, or 8.34%.

Silver did it even better, its price rose in January with US$ 1.66 an ounce or 10.67%, to close the month at US$ 17.22 per troy ounce as can be seen from below chart.

The successive rounds of money creation are to be shoveled into the system. Negative interest rates exist in Switzerland, Germany and Japan reminiscent of the Great Depression.

Money is not money any more. Sub-zero interest rates are the norm. We believe that sooner or later, there will be a need for money and rather than a mass produced fiat currency, capital will flow to that store of value that can be created without a push of the button.

That all this will end in blood and a lot of tears is clear to anyone but the most tenured economists.

However, in the meantime we can’t wait to take advantage of the numerous opportunities that Europe (and soon Japan and the US) will provide in the coming months, as spending profligacy will be directly subsidised and funded by the insolvent monetary system.

Secondly, near zero to negative interest rate will be a ticking time bomb for pension funds, which are traditional buyers of government bonds. In accordance with actuarial calculation, pension funds, in order for them to be able to comply with their pension obligations, must realise a real return on their investment of 4 percent.

Thirdly, the near zero to negative interest rate is a consequence of an over-bought to bubble stage of bond-prices (of highly indebted countries), which makes these pension-funds very vulnerable to rising interest rates.

The above means that pension and social security funds, might become insolvent or unable to comply with their pension obligation to retirees, if interest rates don’t return to normal values of between 4-5 percent soon!

On the other hand, higher interest rates will kill the already fragile housing market and ballooned government debts, in the West.

Which means that, Central Banks and governments in the WEST are heading for the;

In our previous blog articles, several times indicated that, the increasing value of the US-Dollar will hurt the USA-Export, the consolidated earning of US-multinationals and the GDP of the country.

Earnings report of USA multinationals like Procter & Gambler (NYSE: PG) and the GDP report of last Friday, January 30, prove that we are right about this.

When we consider the consumer spending portion of the USA Q4-2014, GDP figures –  as can be seen from below chart – we notice that the Healthcare spending, due to the Obamacare system, was the biggest portion of it, which is not a positive development.

It is also worth mentioning, that when we measure the USA GDP growth in the same way they do it in Europe, the GDP growth in the Q4-2014, in the USA, was only 0.6 percent instead of 2.6 as reported last Friday and the one of Q3-2014, only 1.2 percent instead of the 5 percent as reported by the department of economic affairs of the country in October last year.

Demand for gold as a diversification and monetary asset continues to be very robust and central banks remain net buyers of gold which should be supportive of prices.

Data of the IMF and the Gold Council of January 26, 2015, show that Russia raised its gold reserves for a ninth straight month in December 2014, as the country continued its multi month gold buying spree.

Russia continues to diversify its reserves into gold and has increased its bullion holdings by another hefty 20.73 tonnes to 1,208.23 tonnes in December, as can be seen from below chart.

The December figure for Russia, which has the fifth largest reserve in the world, brings their officially stated reserves to 1208.23 tonnes. If this trend were to continue their officially stated reserves would increase 20.6% this year.

Although denied by the Dutch Central bank, the IMF Data of January 26, 2015, shows that, the Netherlands added 9.61 tonnes to its official holdings in December, on top of the 122 tonnes of gold they shipped home from New York in November. This represents the first increase in their official reserves since 1998. The Dutch central bank’s holdings have been unchanged since late 2008.

The Dutch purchase is noteworthy and it will be important to keep an eye on their demand in the coming months to see if this was a once off or the start of a trend of the Dutch central bank and other western central banks buying gold.

Last but not least, if statistics are applied for 2015, in the sense that


we may see a decline of the USA Index, a rise of the Gold and Silver prices and Central Banks continuing to accumulate Gold, this year.

Until Next Time,

Yours sincerely,

Eric Panneflek

Geef een reactie

Het e-mailadres wordt niet gepubliceerd. Vereiste velden zijn gemarkeerd met *