Aug 242018
 
 August 24, 2018  Posted by at 7:57 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh Café, le soir, Arles 1888

 

Thoughts On The ‘Longest Bull Market Ever’ (Black)
New Reality of China’s Failing Economy Is Coming Soon (Rickards)
UK Tells Drug Companies To Stockpile Medicine In Case Of No-Deal Brexit (Ind.)
Big Oil Asks Government To Protect It From Climate Change (AP)
Scott Morrison New Australian PM As Turnbull Denounces ‘Insurgency’ (G.)
Saudi Modernisation Drive Is Reflected In Aramco’s Faltering Sale (G.)
Libya Refuses To Take Migrants Rejected By Italy (AFP)
Italy Threatens To Stop EU Funding Unless Other States Accept Refugees (ZH)
Inflation Adjusted Gold Is At Historical Lows (von Greyerz)
Monsanto Faces A Surge In Lawsuits Following Cancer Ruling (BBC)
‘Monsanto’s History Is One Full of Vast Lies’ (Spiegel)
After 70 Years, Korean Father, Son Share A Drink For First, Last? Time (H.)

 

 

“..a full SIXTY PERCENT of corporate debt issued by companies in the Russell 2000 is rated as JUNK..”

Thoughts On The ‘Longest Bull Market Ever’ (Black)

Well, it happened. Yesterday the US stock market broke the all-time record for the longest bull market ever. This means that the US stock market has been generally rising for nearly a decade straight… or even more specifically, that the market has gone 3,453 days without a 20% correction. That’s a pretty big milestone. And there’s no end in sight. So it’s possible this market continues marching higher for the foreseeable future. But if you step back and really look at the big picture, there are a lot of things that might make a rational person scratch his/her head. For example– the Russell 2000 index (which is comprised of smaller companies whose shares are listed on various US stock exchanges) is currently right at its all-time high.

Yet simultaneously, according to the Wall Street Journal, a full SIXTY PERCENT of corporate debt issued by companies in the Russell 2000 is rated as JUNK. How is that even possible– a junk debt rating coupled with an all-time high? It’s as if investors are saying, “Well, there’s very little chance these companies will be able to pay their debts… but screw it, I’ll pay a record high price to buy the stock anyhow.” It just doesn’t make any sense. Looking at the larger companies in the Land of the Free (which make up the S&P 500 index), the current ‘CAPE ratio’ is now the second highest on record. ‘CAPE’ stands for ‘cyclically-adjusted price/earnings ratio’. Essentially it refers to how much investors are willing to pay for shares of a company, relative to the company’s long-term average earnings.

And right now investors are willing to pay 33x long-term average earnings for the typical company in the S&P 500. The median CAPE ratio based on data that goes back to the 1800s is about 15.6. So at 33, investors are literally paying more than TWICE as much for every dollar of a company’s long-term average earnings than they have throughout all of US market history. And it’s only been higher ONE other time– just before the 2000 stock market crash (when the dot-com bubble burst). 33 is higher than right before the 2008 crisis. It’s even higher than it was before the Great Depression.

Read more …

Building zombies for the future.

New Reality of China’s Failing Economy Is Coming Soon (Rickards)

There’s no denying China’s remarkable economic progress over the past thirty years. Hundreds of millions have escaped poverty and found useful employment in manufacturing or services in the major cities. Infrastructure gains have been historic, including some of the best trains in the world, state-of-the-art transportation hubs, cutting edge telecommunications systems, and a rapidly improving military. Yet, that’s only half the story. The other half is pure waste, fraud and theft. About 45% of Chinese GDP is in the category of “investment.” A developed economy GDP such as the U.S. is about 70% consumption and 20% investment. There’s nothing wrong with 45% investment in a fast-growing developing economy assuming the investment is highly productive and intelligently allocated.

That’s not the case in China. At least half of the investment there is pure waste. It takes the form of “ghost cities” that are fully-built with skyscrapers, apartments, hotels, clubs, and transportation networks – and are completely empty. This is not just western propaganda; I’ve seen the ghost cities first hand and walked around the empty offices and hotels. Chinese officials try to defend the ghost cities by claiming they are built for the future. That’s nonsense. Modern construction is impressive, but it’s also high maintenance. Those shiny new buildings require occupants, rents and continual maintenance to remain shiny and functional. The ghost cities will be obsolete long before they are ever occupied.

Other examples of investment waste include over-the-top white elephant public structures such as train stations with marble facades, 128 escalators (mostly empty), 100-foot ceilings, digital advertising and few passengers. The list can be extended to include airports, canals, highways, and ports, some of which are needed and many of which are pure waste. Communist party leaders endorse these wasteful projects because they have positive effects in terms of job creation, steel fabrication, glass installation, and construction. However, those effects are purely temporary until the project is completed. The costs are paid with borrowed money that can never be repaid. China might report 6.8% growth in GDP, but when the waste is stripped out the actual growth is closer to 4.5%. Meanwhile, China’s debts grow faster than the economy and its debt-to-GDP ratio is even worse than the U.S.

Read more …

It’s beginning to hit home that time has run out. Wait till the days shorten for real.

UK Tells Drug Companies To Stockpile Medicine In Case Of No-Deal Brexit (Ind.)

Health secretary Matt Hancock has told drug companies to ensure they have six weeks additional supplies of medicines on top of their normal stockpiles to avoid disruption caused by a possible no-deal Brexit. The remarks from Mr Hancock came as Dominic Raab, the Brexit secretary, released the first tranche of technical notes outlining the government’s preparations and warnings to businesses if Britain crashes out of the bloc without a deal. Among the 24 detailed papers it was also revealed that credit card users could be hit with a new “Brexit tax” amounting to £166m, UK citizens living in Europe face the prospect of losing access to pension income and new red tape could delay foreign sperm donations arriving in Britain.

In one of the most stark warnings, Mr Hancock told NHS staff and service providers that the move to increase pharmaceutical companies’ stockpiles was necessary “in case imports from the EU through certain routes” are affected if Theresa May fails to strike a deal with negotiators in Brussels. The request, according to the chief executive of the UK Bioindustry Association, Steve Bates, would be a “massive challenge” for the industry to deliver in less than 200 days. But Mr Hancock also warned that hospitals, GPs and community pharmacies should not hoard or stockpile additional drugs “beyond their business” as usual levels.

Read more …

Priceless.

Big Oil Asks Government To Protect It From Climate Change (AP)

As the nation plans new defenses against the more powerful storms and higher tides expected from climate change, one project stands out: an ambitious proposal to build a nearly 60-mile “spine” of concrete seawalls, earthen barriers, floating gates and steel levees on the Texas Gulf Coast. Like other oceanfront projects, this one would protect homes, delicate ecosystems and vital infrastructure, but it also has another priority — to shield some of the crown jewels of the petroleum industry, which is blamed for contributing to global warming and now wants the federal government to build safeguards against the consequences of it.

The plan is focused on a stretch of coastline that runs from the Louisiana border to industrial enclaves south of Houston that are home to one of the world’s largest concentrations of petrochemical facilities, including most of Texas’ 30 refineries, which represent 30 percent of the nation’s refining capacity. Texas is seeking at least $12 billion for the full coastal spine, with nearly all of it coming from public funds. Last month, the government fast-tracked an initial $3.9 billion for three separate, smaller storm barrier projects that would specifically protect oil facilities.

That followed Hurricane Harvey, which roared ashore last Aug. 25 and swamped Houston and parts of the coast, temporarily knocking out a quarter of the area’s oil refining capacity and causing average gasoline prices to jump 28 cents a gallon nationwide. Many Republicans argue that the Texas oil projects belong at the top of Washington’s spending list. “Our overall economy, not only in Texas but in the entire country, is so much at risk from a high storm surge,” said Matt Sebesta, a Republican who as Brazoria County judge oversees a swath of Gulf Coast. But the idea of taxpayers around the country paying to protect refineries worth billions, and in a state where top politicians still dispute climate change’s validity, doesn’t sit well with some.

Read more …

Another rightwing anti-immigrant yokel. That’s all they have down under.

Scott Morrison New Australian PM As Turnbull Denounces ‘Insurgency’ (G.)

Australia will have a new prime minister in Scott Morrison – the socially conservative architect of Australia’s hardline anti-asylum seeker policies – after he mounted a late challenge during a drawn-out struggle for power in the governing Liberal party. On Friday, incumbent Malcolm Turnbull failed in his attempt to stare down a challenge from hard right MP Peter Dutton, with insurgents in his party gathering enough signatures to call for a “spill” of the leadership. It led to a three-way challenge that included Morrison, Turnbull’s treasurer, and Julie Bishop, the foreign minister. Turnbull himself stood aside from the contest.

In a party room ballot, Bishop was eliminated in the first round, and Morrison won against former home affairs minister Dutton in a subsequent run-off, 45 votes to 40, suggesting the party is still deeply divided. There appears no end in sight to the civil war consuming the ruling Liberal-led coalition government. The country may be headed to an election, with Turnbull saying he will not stay in parliament. His resignation in between general elections would erase the government’s single-seat majority in the House of Representatives. Australia has now had five prime ministers in just over five years. Since 2010 four prime ministers have lost office not at the ballot box, but torn down by their own parties, earning Canberra the unhappy appellation “the coup capital of the Pacific”.

Read more …

Selling 5% of Aramco was supposed to finance ‘diversification’.

Saudi Modernisation Drive Is Reflected In Aramco’s Faltering Sale (G.)

For the Saudis, the implications of the Paris agreement were obvious: the drive to decarbonise the world economy would mean that a considerable part of their oil reserves would have to stay in the ground. This made a warning at the turn of the millennium by the former Saudi energy minister Sheikh Ahmed Zaki Yamani, seem suddenly urgent. “Thirty years from now, there will be a huge amount of oil – and no buyers”, Yamani said. “Oil will be left in the ground. The stone age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”

It was not long before Saudi’s rulers responded to this twin challenge. In the short term, they sought to persuade fellow oil producing nations to agree production curbs that would limit supply, drive up crude prices and so ease the pressures on the public finances. At the current oil price of around $70 a barrel, the Saudis can make their budget arithmetic stack up. In the longer term, there was a plan to diversify the economy away from oil. Saudi Vision 2030 was announced by Crown Prince Mohammed bin Salman in April 2016, shortly after the oil price reached its trough. The idea was to make Saudi Arabia a global investment giant, to turn the country into a hub linking the three continents of Europe, Asia and Africa and to be the heart of the Arab and Islamic worlds.

The proposed sale of part of the state-owned oil company – Saudi Aramco – was a key part of this attempt to transform and modernise the economy. Proceeds were earmarked for the country’s sovereign wealth fund so it could continue investing in companies such as the electric car company Tesla and the ride-hailing app Uber.

Read more …

Thank you Barack and Hillary.

Libya Refuses To Take Migrants Rejected By Italy (AFP)

Libya has refused to take in a group of 177 migrants stranded on an Italian coastguard boat off a Sicilian port after Rome insisted they would not be allowed to disembark. Italy’s Interior Minister Matteo Salvini threatened earlier this week to return the migrants to the North African country unless other European governments offered to take some of them in. But Mohamed Siala, foreign minister of the UN-backed Libyan unity government, said that “Libya does not accept this unjust and illegal measure because it already has more than 700,000 migrants” on its territory.

In a statement late Wednesday, he called on the international community “to put pressure on the countries of departure to repatriate their nationals”, adding that Libya had only served as a transit point. The Italian boat “Diciotti” arrived on Monday night off the Sicilian port of Catania. Plunged into chaos following the fall and killing of longtime dictator Moamer Kadhafi in a 2011 NATO-backed uprising, Libya has become a prime transit point for sub-Saharan African migrants making dangerous clandestine bids to reach Europe. The country takes in migrants whose boats are intercepted in its waters by the Libyan coastguard, but it has repeatedly rejected those rescued by foreign navies or by humanitarian organisations off its coast.

Read more …

Who’s going to blame them?

Italy Threatens To Stop EU Funding Unless Other States Accept Refugees (ZH)

On Thursday, out of the blue, Italy’s Deputy Prime Minister Luigi Di Maio threatened to stop financial contributions to the European Union next year unless other states agreed to take in migrants being held on a coastguard ship in Sicily. The Italian’s ultimatum comes less two months after Europe triumphantly announced a “vaguely worded” deal on how to resolve the continent’s migrant influx. “If tomorrow at the meeting of the European Commission nothing is decided on the redistribution of migrants and the Diciotti ship, I and the entire Five Star Movement are not willing to give 20 billion to the European Union,” Di Maio said in a video posted on his Facebook page.

He echoed statements by Interior Minister and Deputy Premier Matteo Salvini, who has refused to allow 177 migrants to leave the Italian coastguard ship Ubaldo Diciotti, which is docked in the Sicilian port of Catania. While Italian prosecutors opened an investigation into the detention of the migrants and 29 children were allowed to disembark, Salvini still won’t allow the rest of the people to come ashore and has attacked the EU for its “cowardly silence.” Salvini described those aboard as “illegal immigrants,” and said they won’t be allowed to step foot on Italian soil. Instead, he insisted fellow European Union nations take in some of the asylum-seekers. “Italy’s no longer Europe’s refugee camp,” he tweeted. “Upon my authorization, no one is disembarking from the Diciotti.”

Salvini, who is also interior minister, was defiant in the face of a criminal probe into possible kidnapping charges for forcing the migrants to remain on the vessel. The chief prosecutor from the Agrigento court, Luigi Patronaggio, on Wednesday boarded the Diciotti and said afterwards he had opened a probe against “unknown” persons for holding the migrants against their will. “There’s a court that is investigating whether those illegally on board the ship have been kidnapped,” Salvini said in a radio interview. “I’m not unknown. My name is Matteo Salvini… I’m the Interior Minister and I think it is my duty to defend the security of this country’s borders.”

Read more …

Just liked the graph, don’t want to tell anyone to buy anything.

Inflation Adjusted Gold Is At Historical Lows (von Greyerz)

Gold at $1,220, adjusted for real inflation, is almost as cheap as it was in 1999 at the $250 low. More importantly, inflation adjusted gold is now very near the 300 year low of 1999. So right now gold is again unloved and undervalued and therefore a bargain. On an inflation adjusted basis, the 1980 high of $850 would today be $16,650. Long before we get hyperinflationary gold prices, that $16,600 level should be easily reached. Owning physical gold for wealth protection purposes is the best preserved secret in the West. In this part of the world, virtually nobody holds gold. At the same time, the wise people in the East continue to buy all the gold that is produced annually. China, India, Iran, Turkey, Russia and many more Eastern nations understand history and economics. That is why they are accumulating major gold reserves at these levels.

Read more …

Bayer really didn’t see this coming.

Monsanto Faces A Surge In Lawsuits Following Cancer Ruling (BBC)

American agro-chemicals company Monsanto is facing a surge in lawsuits that may cost its new owners, Bayer, billions in damages. Monsanto manufactures glyphosate-based weedkillers which some believe are carcinogenic. Last month it lost a $289m (£225m) court case that alleged its products Roundup and RangerPro had led to a Californian man’s terminal cancer. Bayer said the number of outstanding cases had risen from 5,200 to 8,000. The German firm’s shares have lost 11% of their value since it lost the case in a California court to groundskeeper Dewayne Johnson, who claimed Monsanto herbicides containing glyphosate, had caused his non-Hodgkins lymphoma.

Bayer shares fell another 1.7% on Thursday. Chief executive Werner Baumann said that when it bought Monsanto, Bayer “could not foresee the scope of the current lawsuits.” The $63bn deal was completed earlier this month. “In the course of the acquisition, we carried out due diligence as is standard practice when taking over a listed company. In doing so, we of course also considered the legal risks,” he said in an interview with Germany’s Handelsblatt newspaper. In a conference call on Thursday, Mr Baumann added: “Our view is that the number is not indicative of the merits of the plaintiffs’ cases”.

Read more …

“..Another program is called “Freedom to Operate.” Its purpose is to eliminate everything that might disrupt sales of their products – laws, scientific articles, they go after everything.”

‘Monsanto’s History Is One Full of Vast Lies’ (Spiegel)

On Aug. 10, lawyer Brent Wisner, 34, scored a landmark verdict on behalf of his client, cancer patient Dewayne Johnson. A court in San Francisco ruled that Monsanto was guilty of concealing the potential health risks associated with its weed killer glyphosate, which is sold in the United States under the brand name Round Up. The jury ordered the company to pay $289 million in damages to the plaintiff, who had used Round Up at his job as a janitor for a school district. The court said Monsanto should have labeled the product’s possible dangers for consumers. Monsanto, which was recently acquired by German pharmaceuticals giant Bayer, has denied any link between the product and the disease. Wisner spoke to DER SPIEGEL about the case in an interview.

[..] DER SPIEGEL: How much does Monsanto have to do with the fact that a verdict was reached only now? Wisner: A lot! Monsanto has an internal program called “Let Nothing Go.” The aim of this program is to attack scientists who are critical of Monsanto products. They go after people directly and discredit them. They also pay others to do so. DER SPIEGEL: Are there other such PR strategies? Wisner: Another program is called “Freedom to Operate.” Its purpose is to eliminate everything that might disrupt sales of their products – laws, scientific articles, they go after everything. As part of that effort, they also engage lobbyists – scientists who Monsanto pays for their opportunism. Such programs reflect a corporate culture that shows no interest whatsoever in public health, only in profits.

DER SPIEGEL: Monsanto continues to dispute that it tried to influence scientific research. What was the critical factor for jurors in reaching the verdict? Wisner: I believe it was the scientific findings themselves. The 12 jurors were not lightweights after all. There was a molecular biologist, an environmental engineer, a lawyer. Some colleagues told me: “Be careful Brent, so much intelligence can be an impediment.” But I was certain that the arguments in the critical studies, parts of which were suppressed, were the strongest evidence we had.

Read more …

Sad and joyful. Why Korea’s really want peace.

After 70 Years, Korean Father, Son Share A Drink For First, Last? Time (H.)

As soon as 91-year-old Lee Gi-sun got up on the morning of Aug. 22, he pulled out one of the bottles of soju, a potent distilled liquor, that he’d stashed in the bottom of his suitcase. He’d brought this precious liquor to accompany a ceremony for which he’d waited his entire life – a daytime drink with his son! At 10 am on Aug. 22, the final day of the three-day reunion for families divided by the Korean War, family members met in the banquet hall on the second floor of the Mt. Kumgang Hotel to say their goodbyes. A few hours hence, they would return to their respective homes in South and North Korea, with no guarantee of seeing each other again. The father filled a cup with the soju he’d brought.

After taking a sip himself, he silently passed the cup to his son. Gi-sun’s North Korean son, Gang-son (69 years old himself), was also silent as he took the cup and brought it to his lips. This was the first drink shared by the white-haired father and son, and it very well might be their last. It was a heartrending moment when the father’s lifelong dream came true. “We were separated when he was two years old. Two years old,” the father said, letting the last phrase linger in the air. In Jan. 1951, he and his older brother had left their families behind in their home of Yonbaek County, Hwanghae Province, fleeing south with UN troops beaten back by the Chinese onslaught. Gi-sun had assumed he would soon be able to return.

Read more …

Aug 032018
 
 August 3, 2018  Posted by at 12:31 pm Finance Tagged with: , , , , , , , , , ,  


George Caleb Bingham The verdict of the people 1854

 

 

It’s been a while since we last heard from Dr. D, but here he’s back explaining why neither gold nor the yuan nor cryptocurrencies can or will replace the dollar as the reserve currency, but together they just might:

 

 

Dr. D: “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash

Over the last year or two there’s been discussion about the U.S. Federal spending moving beyond $4 TRILLION dollars, and whether a $1+ trillion dollar annual deficit, on top of a $20 Trillion national debt – Federal only – is sustainable. It isn’t.

“What can’t go on, doesn’t” is the famous quote of economist Herbert Stein. Since a spiraling deficit of $1 trillion deficit on a $20 trillion debt can’t go on, what will we replace it with when it very soon doesn’t? Historically gold. Whatever gold exists in the nation’s coffers, whether one coin or 8,000 tons, is used to as the national wealth, and fronted by paper to re-boot the currency. With some additions such as oil and real estate, this was the solution in Spain, France, Germany, and the Soviet Union among hundreds of fiat defaults. Why? Because at a time of broken promises — real goods, commodities that can be seen, touched, and used – are the tangible proof of wealth, requiring no trust, and from which the human trust system of paper and letters of credit can be rebuilt.

But in these complicated, digital times perhaps that’s too simplistic. Perhaps we have grown smarter than all our fathers and this time it will be different. Will it really be the same? Let’s look at how the system works now.

Before WWI, the world was on the gold standard. This had variations, exceptions, corruptions, but on the whole there was gold in the back that was fronted by paper promises issued by private banks. The paper moved, the promises were delivered by telegraph and telephone, and the gold remained in the vaults. It was only when men felt unsure of the truth of the promise they could and did demand delivery, called the bluff, and the bank did – or ominously didn’t – deliver the gold, and thereby keep the paper system in line with reality, with real wealth, and with the economy. This method kept men and nations honest, mostly.

The main part is that the gold didn’t move: it stayed in the same vaults and its ownership changed, just like today. It didn’t matter how much gold existed: it simply changed price, just like today.

All this changed after WWI. The nations had so impoverished themselves that they could no longer repay their real debts and restore their currencies following a 1,000 year tradition of inflating during wars and deflating after. The deflation was too high for Britain and France even while removing the total wealth of Germany, and they began to cheat, double-counting the gold on their books to relieve the pressure. And so the non-gold system began. With other causes, the inflation of this change began to be felt through the Roaring 20’s, until when the phantom money was called on – as was tradition when people began to suspect that the paper they owned was no longer backed with adequate real goods – the illusion popped.

The inflation was shown to be a fraud supported by the highest powers in government and finance, and the real economy withdrew their lack of trust until the matter was fixed. It wasn’t. As the system was fundamentally unchanged and no trust was restored, the rich were protected and law and property rights were trampled in a decade of Tom Joads, the economy never recovered. Although destroying half the nations on earth restored the real balance between paper fantasy and real production, the unemployment that never existed before WWI was never cured and has continued, ever worsening to this day. But note: before, during, and after the Depression, there was the same amount of gold. The gold did nothing, it was meaningless, only the paper promises over it expanded and contracted.

With the systemic dishonesty still in place preventing the books from matching the real wealth and production, the economy soon returned to a diseased state. While gold was illegal for men to own, the rich do as they please and as tradition, removed the gold of the United States to hold them to truth and honesty from printing too much fake money for guns and butter. They withstood the 12 year bank run until, in 1971, they folded, having lost 2/3s of the national savings, gold.

 

The world was now in uncharted territory. Much more than they never returned to honesty and a gold standard after WWI, they never attempted it after WWII, going to the -Bretton Woods” standard: the world would use the US$ as the standard, and the US$ would be backed with their 20,000 tonnes of gold. Now there was no gold, no gold standard, only unbacked US$ paper, a debt you could neither call on nor prove. As Nixon’s Treasury Secretary Connally said: “the dollar may be our currency, but it’s your problem.’

Inflation started immediately, and as the U.S. still resisted re-establishing physical trust, the connection between the books and reality, they quickly spiraled into South American malaise and high inflation, as seen in the gold price. From $20/oz, or rather a dollar value of 0.029, the dollar ran to 0.0011 – 1/26th of its former price — and looked to disappear altogether. This was not unexpected as fiat currencies on average live 40 years before collapsing. If you take 1941 as the start date, the unbacked US$ would have collapsed in 1981, exactly when it did. What to do? How to re-start the system without having to actually reform, give up war, be honest, and return to trust?

Henry Kissinger had the plan. As no one on earth was on the gold standard – not really – the US$ had only two legs, its worldwide use and military force. He made use of them both by demanding the Saudis accept only US$ for oil transactions. Although U.S. production was diminishing, the U.S. and Saudi Arabia were still the two largest oil producers at that time. Most other nations imported oil, especially Europe.

To have assurity of access to that oil — and not run afoul of the U.S. military – they needed to keep a substantial portion of their national accounts in US$, or more technically U.S. Treasury debt, sparking not just the ability, but the REQUIREMENT of a massive U.S. deficit. Kissinger just discovered social media: the truth that virtual things have value simply because other people use them. This was for all practical purposes the first virtual currency, existing only in room-sized mainframes in central banks worldwide. The world’s currency now looked like this:

 


(Courtesy of Dr. Willie)

A virtual currency backed by nothing, based on the usage in trade. But that isn’t a full chart and isn’t meant to be. On the side, back in the corners, the US$ was still convertible to gold for the “right kind of people”, using delivery in NY and London to banks in Switzerland. The volumes of US$ grew to trillions while the gold component withered to billions, yet still the Saudis banked billions in gold before it was recently stolen from their Swiss accounts, lawsuits pending. Why? Because there is still no trust between nations and billionaires who have a long history of cheating each other. The gold-in-hand safety valve existed to retain some trust, however distant, in the now-digital system.

 

“Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it.” –Alan Greenspan, 2014 interview of the Council on Foreign Relations.

So is the system still gold backed with gold as the “premier”, that is, first, real, and primary currency as Greenspan said? You tell me:


Apart from the Iraq war, the price of oil has been stable for 50 years. In 1950, two silver dimes would buy a gallon of gas. In 2018 two silver dimes are worth $2.22, or the price of a gallon of gas, minus the new taxes. Meanwhile the US$ value has dropped steadily:


Doesn’t that mean that it’s still gold and not the dollar that is the standard, the “store of value”, and the “reserve currency”, however unspoken? If not and it’s a relic, a rounding error we cannot return to, why, as Ben Bernanke was asked, do all the banks and nations still own it?

 

Back to the $20,000,000,000,000 debt the U.S. as reserve currency was REQUIRED to issue, it’s now been 40 years since 1978: what happens when the U.S. Dollar disappears as all fiat currencies do? Because it seems we would have to do something. It may be that even before 1988, people already knew this conversion, this transfer, must happen roundabout 2018:

If the old currency burns as predicted 30 years ago, what next? Will it be replaced by a gold coin or a “zero” coin, chained under the fleur-de-lis? It would seem the new currency must be trusted, which is the original problem, must be a replacement in trade, and must be large enough to handle what are now multi-billion trade and multi-trillion Forex flows. Is the answer gold? Well yes…and no. Certainly China thinks so:

And Russia:


And for that matter Germany and Holland and even Texas, who have repatriated their gold back home. But there’s one little problem:

These are the official western gold reserves; however, while the gold base remained stable, the overall financial system has expanded. This can be seen in all paper assets, but a good example can be found here:

That’s what? A 20,000-fold rise? And this is only marking “credit”, not equities or cash. We are indeed in an inflationary period: inflation in assets owned by the 1%. How out of line is this? Here’s the kindred chart in productive terms, GDP:

A 9-fold increase in ability versus 20,000-fold increase in promises. Sounds like someone won’t get paid. And you know what bankers and economists call that?

Default. Massive, system ending default, the size of WWI or the Great Depression. That’s how fiat standards end.

How big would that be? Here are some relative sizes:

Actually, that’s pretty understated. Derivatives in 2018 may be as much as $2 QUADRILLION. No one knows. Compare to this:

$3 Trillion in gold. Now that’s “official” gold and we already showed that “official” Chinese gold is 4,000 tonnes when it may be as high as 30,000 tonnes, but the principle is the same: gold is wildly smaller than the needs of the financial system. Or is it? In previous financial inflations…which I just showed we have had since 1971, in 20,000x scale…gold simply rose until it became the right size.

It’s perfectly simple. Gold rises 20,000 times or however much it must to re-back the system. It always has before, even in 1979 when the price rocketed from $35 to $880 where US debt to gold holdings ratio stabilized at a very reasonable 10:1…the classic level of fractional reserve trust. If China officially owns 5,000 tonnes, and Russia 2,000, with the west also 15,000 collectively, we have 22,000 tonnes over what BusinessInsider says is $160 Trillion in assets, and you get $7.27B/tonne or $226,000/oz.

That’s a 188x increase. 1979 was a 25x increase on an awful lot less trouble, inflation, and fraud. That’s only 7x larger. Is that unreasonable? With 40 years of inflation and very little comparative rise in gold, why shouldn’t it catch up as it did in 1979? So gold will rise and we’ll have a $200,000 gold standard? That’s what will happen?

Not so fast. We COULD have a gold standard, and China, Russia and other major nations appear ready to do so if necessary, but remember we didn’t return to the gold standard last time either. Instead, we cheated and moved to a digital standard stored in ancient mainframes. Why wouldn’t we just cheat again? Back to this:

The two problems in the original chart are trust and price. The price must restore a connection between reality -real value and real production- and price; and the “reserve currency”, the medium of exchange, must be a trusted agent or method. Why would we need coins in our pockets to make that happen? For that matter, why would we need banks, who have widely proven to be the most corrupt, untrustworthy element in the whole system? We can’t go to a new system if it’s the same as the old: that’s WHY the system failed and cycles from gold to silver, silver to paper, paper to gold. We can’t go from paper to paper, that won’t work; but we also can’t so easily go to gold, asking an 800-fold increase since 2000. It would have the same disruptions Weimar had that brought Hitler, or the Jacobins had that brought Napoleon, or that Venezuela has today. And why should we? There’s no need.

The chart above has the US/Saudi oil as the critical mass of trade that allows the US$ reserve. But that isn’t necessarily true today. Today the mass of trade is in goods to and from China. But China isn’t large enough, deep enough, or trusted enough to be the new world currency. And why should they? The reserve currency is what just hollowed out and bankrupted the United States: they would just be imitating our faults. We’d also be moving from one untrusted, unbacked currency to another, and history says that doesn’t happen. So why don’t we do this:


(Courtesy Dr. Willie)

China demands not US Treasuries in NY as collateral to ship goods as presently, and not Yuan bonds, but gold bullion posted in their hot new Shanghai market, which allows physical delivery on demand. This bullion never moves as collateral, but is simply posted by one party then released on delivery. Shanghai is already larger than London, and the largest banks are already in China, which probably has the largest economy. The West and their banks are a has-been: we’re only admitting to a reality that happened years ago.

This solves our two problems: how do we know we’re returning to fair trade, like-for-like? Real goods on container ships are trading for real goods in vaults. How do we know it’s fair, mostly? You can convert the Yuan-sponsored, gold trade note to physical delivery from Shanghai, a thing which is no longer truly possible in London and NY. Will this reversion increase the gold price? Probably. How much? Every number is a state secret, but assuming the 10:1 ratio the United States showed in 1980, let’s say it’s 1:10 of our $226,000 number above or $22,600/oz. That’s reasonable, practicable, and neither stops business nor starts wars. We can do it today, and given China, Russia, Japan, Asia, Australia, and even London appear to be joining China’s AIIB front bank, I would say it already IS happening.

Which leads to one more problem. Certainly TODAY you can take gold delivery in Shanghai, but as London, NY, and the Saudis discovered, the first thing that happens once you build a system of trust is to close the doors and cheat on it. How do we know the gold is there? Even though Shanghai is a “third party” allowing delivery, who’s to say they will be tomorrow? The banks are notorious for “hypothecating”, doubling, tripling the gold on their books with accounting fraud backed by the full faith and credibility of governments, and no one’s in the mood for trusting the Chinese any more than Wells Fargo or DeutscheBank. That would drop us back to a hard gold standard, a $220,000 price, a halt to world trade, and possible world war we were trying to avoid. We need an accounting method that is better trusted and can’t be gamed. How to fix it?

 

The gold in Shanghai has a chain of custody, no different from “London Deliverable” standards we have today. An original audit, adjusted for receipts and deliveries is all we need. Which is where we add the blockchain. With it, Shanghai cannot double the gold on their books like Europe did in 1922 or the CME does today, marking it both received and loaned, because the blockchain only allows one position, one state at a time. Gold assayed and entered by refiner is tagged to a kilo, and you can follow that kilo bar through the system, not with double counts and vanishing, ever-changing serial numbers as the Federal Reserve and the GLD ETF showed.

Can it be cheated? All systems can be cheated, that’s the nature of men. But it makes it much harder, hard enough to establish adequate trust in banks and governments that otherwise would go to war. Will it be tied to Bitcoin? Yes, but no differently than it will be tradable to the Thai bhat or the ruble. With near-zero cost conversions, all currencies, crypto or otherwise, will be far more interchangeable and thus to some extent identical. They may even disappear, as happened when Jackson closed the 2nd central bank 182 years ago and the nation essentially moved to private currencies.

What will happen to the Dollar? It will still exist, but in some new, revised form. But the US$ today is transferring 3% of the nation’s wealth from the poor to the rich via inflation. Do we really want to keep it? And if it’s not a store of value and it’s already not the reserve currency — we just showed it’s a diluted proxy for gold and oil — why should the reformed US$ be any different? The dollar will be our national currency, still diluted and still referring to the real currency: gold, the attached Trade Note, and its crypto accounting. Until the next fraud and next crisis, perhaps in 2058.

 

And that’s the long story of how we leave the present debt-backed U.S. paper dollar and move to a Yuan-sponsored gold trade note that is a gold-backed cryptocurrency. In some ways we already have. Watch and see as they have the public opening of a structure planned and established years ago.

 

 

May 062018
 
 May 6, 2018  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , , ,  


Paul Klee In the Houses of Saint Germain 1932

 

The Rising Dollar Will Trigger Next “Systemic Banking Crisis” – Napier (ZH)
Warren Buffett Compares Bitcoin To ‘Rat Poison Squared’ (Ind.)
UK Rates Will Stay Low For A Very Long Time (G.)
Trump White House Accuses China Of ‘Orwellian Nonsense’ (G.)
US Prosecutors Allege Ex-CEO of VW Knew All About Diesel Cheating (BBC)
US Freezes Funding For Syria’s “White Helmets” (CBS)
The U.S Government Can Still Confiscate Gold (GT)
Shock Figures From Top Thinktank Reveal Extent Of NHS Crisis (G.)
Earthquakes, Lava Fissures Could Last For Months On Hawaii (R.)
CO2 Levels In Earth’s Atmosphere ‘Highest In 800,000 Years’ (Ind.)
Facing Extinction, The North Atlantic Right Whale Cannot Adapt. Can We? (G.)

 

 

Emerging markets are already hurting. Watch Turkey.

The Rising Dollar Will Trigger Next “Systemic Banking Crisis” – Napier (ZH)

Fresh off his successful call earlier this year that the US dollar would strengthen in the coming months, macroeconomic strategist and market historian Russell Napier joined MacroVoices host Erik Townsend to discuss why he favors deflation and why he has such a bullish view on the US dollar. Echoing David Tepper’s concerns that the equity highs for the year might already be in, and that a 10-year yield above 3.25% could lead to market chaos, Napier said he sees interest rates rising sharply in the coming months as the dollar strengthens – a phenomenon that will push the US back into deflation.

Napier’s thesis relies on one simple fact: With the Fed and foreign buyers pulling back, who will step into the breach and buy Treasurys? The answer is – unfortunately for anybody who borrows in dollars – nobody. In fact, the Fed is expected to allow $228 billion in Treasury debt to roll off its balance sheet this year. This “net sell” will inevitably lead to higher interest rates in the US, as well as a stronger dollar. And once the 10-year yield reaches the 4% area, signs of stress that could be a lead up to a global “credit crisis” could start to appear.

“We know what the Federal Reserve plans to sell this calendar year, $228 billion. We know what the rise in global foreign reserves is, and about 64% of that will flow into the United States’ assets. Slightly less of that will flow into Treasuries. $228 billion, at the current rate at which foreign reserves are accumulating, we are not going to see foreign central bankers offsetting the sales from the Fed. So that’s a net sell. We don’t know what that net sale will be, but it’s a net sale from central bankers at a time when the Congressional Budget Office forecasts a roughly $1 trillion fiscal deficit. This is the first time in my investment career that savers will have to fund the whole lot. And it’s perfectly normal that real rates of interest have to go higher to attract those savings.

$1 trillion is still a large amount of money. It can come from anywhere in the world. It can come from outside the United States. It can come from inside the United States. But it’s a liquidation of other assets or a rise in the savings rate, which is necessary to fund this. Either of these things is positive for the dollar.”

Read more …

“It essentially will not deliver anything other than supposed scarcity..”

Warren Buffett Compares Bitcoin To ‘Rat Poison Squared’ (Ind.)

Mega-investor Warren Buffett still is not buying into the crypto-currency craze, likening Bitcoin to “rat poison squared”. “Cryptocurrencies will come to a bad ending”, Mr Buffett told shareholders at a retreat in Omaha, Nebraska, according to the Associated Press, adding that crypto currencies have no intrinsic value. “It essentially will not deliver anything other than supposed scarcity”, added Mr Buffett, who has earned the nickname the “Oracle of Omaha” for his prescient investment decisions. The Berkshire Hathaway CEO maintained his sceptical stance even as the alternate currency’s soaring value set off a scramble last year.

In an interview with CNBC last year, he said his company did not own any cryptocurrency and was avoiding taking a position in them. “What’s going on definitely will come to a bad ending,” Mr Buffett said at the time. Other prominent economists and investors have echoed those warnings, cautioning that the frenzied speculation around crypto-currencies had the makings of a bubble. Turning to politics, Mr Buffett downplayed the risks of a trade war breaking out as a result of Donald Trump imposing tariffs on steel and aluminum, which sparked Chinese retaliation. He said it was unlikely that the two countries would “dig themselves into” a “real trade war”, suggesting the broad appeal of trade would prevent conflict.

Read more …

If the Fed raises rates, can BoE remain behind?

UK Rates Will Stay Low For A Very Long Time (G.)

Bank of England governor Mark Carney has already faced accusations of behaving like the Grand old Duke of York and he will probably do so again should Britain’s central bank opt to keep interest rates on hold. Since he joined the Bank in 2013, he has marched borrowers and savers up the hill with heavy hints about the imminent prospect of a rate rise, only to march them back down again. Last November’s restoration of 2016’s emergency rate cut hardly qualified as a major move, whatever the Bank said about its significance. Until an interview with the BBC during the IMF spring meetings a fortnight ago, it seemed to be a racing cert that the Bank was finally ready to begin the long journey back to 3% and push the base rate from 0.5% to 0.75%.

The markets were guided to expect action at a meeting of the monetary policy committee on Thursday. And it wasn’t just Carney dropping hints. Almost every member of the committee who had previously blocked a rise had gone on the record arguing that the time for a rate increase was near at hand. Speeches by external member Jan Vlieghe constituted the most startling intervention. During 2016 and much of 2017, the former hedge fund economist turned interest-rate setter was one of the most vociferous opponents of a rise. His former brethren in the Square Mile considered him an arch dove who might never vote to increase rates, such was his downbeat view of the economy’s growth potential.

Yet, towards the end of last year, he was one of the most optimistic proponents of the economy’s resilience and the likelihood of a rate rise. Just as before, a moment of central bank exuberance looks like becoming a non-event – which is strange given Vlieghe’s reasoning for backing an increase last year. Then, he said that ultra-low unemployment, steady growth and the probable end to a long period of declining real wages was enough to justify tighter monetary policy.

Read more …

Ha!

Trump White House Accuses China Of ‘Orwellian Nonsense’ (G.)

The White House on Saturday condemned Chinese efforts to control how US airlines refer to Taiwan, Hong Kong and Macao as “Orwellian nonsense”. The harshly worded statement came as a high-level trade delegation led by the Treasury secretary Steven Mnuchin returned from negotiations in China. The carriers were told to remove references on their websites or in other material that suggests Taiwan, Hong Kong and Macau are part of countries independent from China, US and airline officials said. Taiwan is China’s most sensitive territorial issue. Beijing considers the self-ruled, democratic island a wayward province. Hong Kong and Macau are former European colonies that are now part of China but run largely autonomously.

A spokesman for Airlines for America, a trade group representing United Airlines, American Airlines and other major carriers, said the group was “continuing to work with US government officials as we determine next steps”. In January, Delta Air Lines, following a demand from China over listing Taiwan and Tibet as countries on its website, apologized for making “an inadvertent error with no business or political intention” and said it had taken steps to resolve the issue. Also in January, China suspended Marriott International’s Chinese website for a week, punishing the world’s biggest hotel chain for listing Tibet, Taiwan, Hong Kong and Macau as separate countries in a customer questionnaire.

On Saturday, White House press secretary Sarah Sanders said in a statement that Donald Trump “ran against political correctness in the United States” and as president would “stand up for Americans resisting efforts by the Chinese Communist Party to impose Chinese political correctness on American companies and citizens”.

Read more …

What will Germany do?

US Prosecutors Allege Ex-CEO of VW Knew All About Diesel Cheating (BBC)

It was an “appalling” fraud that went to the very top of the company. That is the striking allegation made by US prosecutors looking into the emissions-cheating scandal at the Volkswagen Group. The indictment unsealed on Thursday claims that former CEO Martin Winterkorn was not only fully briefed about what his engineers were up to, he also authorised a continuing cover-up. These allegations have yet to be tested in a court of law. But if true, they paint a picture of extraordinary executive wrongdoing at one of the titans of German industry. Dr Winterkorn himself is unlikely ever to face trial in the US. But he remains under investigation in Germany on suspicion of deceiving investors.

The Volkswagen scandal erupted in September 2015, when the company admitted that nearly 600,000 cars sold in the US were fitted with “defeat devices” designed to circumvent emissions tests. Shortly afterwards the then head of its US operations, Michael Horn, told a congressional committee that the deception was the work of “a couple of software engineers”. We know that was far from the truth. Volkswagen has already admitted as much in an agreed “statement of facts” published last year as part of a settlement with the US Department of Justice. That document set out how Volkswagen engineers struggled to make a diesel engine which would both perform well and be capable of meeting stringent US emissions standards.

It explained how instead they designed a system to switch on emissions controls when the cars were being tested, and turn them off during normal driving. It also described how managers repeatedly sanctioned the use of this system despite objections from some employees, and encouraged engineers to hide what they were up to. The indictment against Dr Winterkorn goes considerably further – suggesting that the CEO himself was made well aware of what the engineers were doing and authorised a continued cover-up. It claims that in early 2014, engineers heard about a study commissioned by the International Council on Clean Transport, which showed that VW diesels were producing far higher emissions on the road than in official lab tests.

It says that senior managers were informed, and warned that the study might result in VW’s deception being uncovered. A memorandum was written for Dr Winterkorn explaining that the company would be unable to explain the test results to the authorities.

Read more …

No, CBS, you can’t sing the praises of these people without looking behind them.

US Freezes Funding For Syria’s “White Helmets” (CBS)

Less than two months ago the State Department hosted members of the White Helmets at Foggy Bottom. At the time, the humanitarian group was showered with praise for saving lives in Syria. “Our meetings in March were very positive. There were even remarks from senior officials about long-term commitments even into 2020. There were no suggestions whatsoever about stopping support,” Raed Saleh, the group’s leader, told CBS News. Now they are not getting any U.S funding as the State Department says the support is “under active review.” The U.S had accounted for about a third of the group’s overall funding. “This is a very worrisome development,” said an official from the White Helmets. “Ultimately, this will negatively impact the humanitarian workers ability to save lives.”

The White Helmets, formally known as the Syrian Civil Defense, are a group of 3,000 volunteer rescuers that have saved thousands of lives since the Syrian civil war began in 2011. A makeshift 911, they have run into the collapsing buildings to pull children, men and women out of danger’s way. They say they have saved more than 70,000 lives. Having not received U.S. funding in recent weeks, White Helmets are questioning what this means for the future. They have received no formal declaration from the U.S. government that the monetary assistance has come to a full halt, but the group’s people on the ground in Syria report that their funds have been cut off.

Read more …

“..gold is actually what kept the Federal Reserve solvent in 2008.”

The U.S Government Can Still Confiscate Gold (GT)

By the 1930s, the US government was facing its most severe financial crisis, and it needed gold (something of value), to stimulate the economy that was running on the fumes of fiat currency. So, it took people’s gold. It was as simple as that. Non-compliance was threatened with severe punishment. We may be facing another financial crisis, and it might be best to avoid the role of fugitive “gold hoarder.” At this point, it doesn’t make sense for the government to confiscate private gold, as a cashless society will indirectly control peoples finances. Why would the government seize gold? In 1933, under the 1913 Federal Reserve Act, the dollar had to be backed by 40 percent gold.

This would give the Federal Reserve room to print new money when needed. What’s a government to do when it needs to print money, but doesn’t have the gold reserves needed to back it up? It passes an Executive Order making gold ownership illegal but buys up the illegal gold itself. That’s what Roosevelt did. When the government continued to print more money, it declared ownership of silver illegal a year later. Soon after the government confiscated all gold, the price rose by 40 percent. As if by magic, the US government had a lot more funds than it had before. What happens is that the government buys your gold with cash, then devalues the cash and raises the value of the gold. It wins, you lose.

While the government attributes artificial value to money, it can do and does the same to the value of gold. The government currently holds 261 million ounces of gold in reserve at marked on its book at $42.22 per ounce. That’s a total value of $11 billion. Or is it? The fair market value of gold today is around $1,300 per ounce. As Jim Rickards pointed out in the New Case For Gold, gold is actually what kept the Federal Reserve solvent in 2008.

Read more …

Third world.

Shock Figures From Top Thinktank Reveal Extent Of NHS Crisis (G.)

The NHS has among the lowest per capita numbers of doctors, nurses and hospital beds in the western world, a new study of international health spending has revealed. The stark findings come from a new King’s Fund analysis of health data from 21 countries, collected by the Organisation for Economic Cooperation and Development. They reveal that only Poland has fewer doctors and nurses than the UK, while only Canada, Denmark and Sweden have fewer hospital beds, and that Britain also falls short when it comes to scanners. “If the 21 countries were a football league then the UK would be in the relegation zone in terms of the resources we put into our healthcare system, as measured by staff, equipment and beds in which to care for patients,” said Siva Anandaciva, the King’s Fund’s chief analyst.

“If you look across all these indicators – beds, staffing, scanners – the UK is consistently below the average in the resources we give the NHS relative to countries such as France and Germany. Overall, the NHS does not have the level of resources it needs to do the job we all expect it to do, given our ageing and growing population, and the OECD data confirms that,” he added. The report concludes that, given the dramatic differences between Britain and other countries: “A general picture emerges that suggests the NHS is under-resourced.”

The thinktank’s research found that the UK has the third-lowest number of doctors among the 21 nations, with just 2.8 per 1,000 people, barely half the number in Austria, which has 5.1 doctors per 1,000 of population. Similarly, the UK has the sixth-smallest number of nurses for its population: just 7.9 per 1,000 people – way behind Switzerland, which has the most: 18 nurses, more than twice as many. With hospital beds, the UK has just 2.6 for every 1,000 people, just over a third of the number in Germany, which has the most – 8.1 beds – and which places the UK 18th overall out of the 21 countries which the OECD gathered figures for. The number of hospital beds in England has halved over the last 30 years and now stands at about 100,000 ..

Read more …

How wrong can this go?

Earthquakes, Lava Fissures Could Last For Months On Hawaii (R.)

More homes on Hawaii’s Big Island were destroyed on Saturday as eruptions linked to the Kilauea volcano increased, spewing lava into residential areas and forcing nearly 2,000 people to evacuate, officials said. Scientists forecast more eruptions and more earthquakes, perhaps for months to come, after the southeast corner of the island was rocked by a 6.9 tremor on Friday, the strongest on the island since 1975. The U.S. Geological Survey (USGS) said on Saturday that several new lava fissures had opened in the Leilani Estates subdivision of Puna District, about a dozen miles (19 km) from the volcano. Not all the fissures were still active, it added.

The Hawaiian Volcano Observatory said at midday local time on Saturday that “eruptive activity is increasing and is expected to continue.” Janet Babb, a spokeswoman for the observatory, said by telephone that the eruptions could carry on “for weeks or months.” Babb said the activity since Thursday is beginning to show similarities to another event in the area in 1955 that lasted for 88 days, when far fewer people lived near the volcano.

Read more …

Rebalancing carbon: there’s too much inside the planet.

CO2 Levels In Earth’s Atmosphere ‘Highest In 800,000 Years’ (Ind.)

The concentration of carbon dioxide in the atmosphere has reached its highest level in at least 800,000 years, according to scientists. In April, CO2 concentration in the atmosphere exceeded an average of 410 parts per million (ppm) across the entire month, according to readings from the Mauna Loa Observatory in Hawaii. This is the first time in the history of the observatory’s readings that a monthly average has exceeded that level. The Scripps Institution of Oceanography said that before the Industrial Revolution, carbon dioxide levels did not exceed 300ppm in the last 800,000 years.

The Keeling Curve, which plots the concentration of carbon dioxide in the atmosphere, shows a steady rise in CO2 levels in the atmosphere for decades. Scientists have warned levels of carbon dioxide are crossing a threshold which could lead to global warming beyond the “safe” level identified by the international community, fuelling a rise in sea levels. The latest reading shows a 30 per cent increase in carbon dioxide concentration in the global atmosphere since recording began in 1958. The first measurement was recorded as 315ppm. Carbon dioxide concentration exceeded 400ppm for the first time in 2013. Prior to 1800, atmospheric CO2 averaged about 280ppm, which demonstrates the effect of manmade emissions since the industrial revolution.

Read more …

“By 1935, with as few as 60 breeding individuals left, the situation was so dire that the right whale became the first cetacean to be protected by law.”

Facing Extinction, The North Atlantic Right Whale Cannot Adapt. Can We? (G.)

As if to confound everyone, this past week Dr Charles “Stormy” Mayo and his team from the Provincetown Center for Coastal Studies reported seeing up to 150 right whales in Cape Cod Bay. Dr Mayo – who has been studying these animals for 40 years and has a scientist’s aversion to exaggeration – is stunned. “It is amazing for such a rare and utterly odd creature,” he tells me. All the more amazing since he knows this great gathering could be a final flourish. By 2040, the North Atlantic right whale may be gone. He hesitates, then uses the e-word: extinction. How can such a huge mammal simply disappear within reach of the richest and most powerful nation on earth?

Shifting food sources – due to climate change – are leading whales to areas where maritime industries are unused to them. In the past 12 months, 18 rights have died after ship strikes or entanglement in fishing gear. With as few as 430 animals left, 100 of them breeding females in a reduced gene pool, the species is unsustainable. The right whale may be the strangest beast in the ocean. Vast and rotund, its gigantic mouth is fringed with two-metre strips of baleen, once “harvested” by humans to furnish Venetian blinds and corset stays but used by the whale to strain its diet of rice-sized zooplankton from the sea.

These bizarre animals are not easily known or imagined. They live far longer than us – like its Arctic cousin, the bowhead, the right whale may reach 200, perhaps more. Individuals could be older than constitutional America. They exist beyond us in time, dimension and experience. If we lose the right whale, we lose part of our planet’s biological history. [..] By 1935, with as few as 60 breeding individuals left, the situation was so dire that the right whale became the first cetacean to be protected by law. But by the start of this century, the numbers seemed to recover. Shipping lanes were shifted and fishing industries took on board the whale’s protected status. It even got its own air exclusion zone. “Like a Hollywood star,” as John Waters quipped to me.


Eubalaena glacialis with calf

Read more …

Apr 122018
 
 April 12, 2018  Posted by at 1:09 pm Finance Tagged with: , , , , , , , , , , , , ,  


Pieter Bruegel the Elder The Triumph of Death c1562

 

This is turning into a comedy. A black comedy, for sure, but still. As both the Skripal novichok ‘poisoning’ case in Britain and the ‘chemical attack’ in Douma, Syria fall flat on their faces on a total and absolute lack of evidence, it’s becoming clear that western ‘authorities’ are not at all planning to let go of the privilege that in times gone by allowed them to claim whatever they wanted and demand to be believed.

And despite the insane amounts of spying that underlies their business models and will lead to their demise(s), here is where social media do play a decisive role. See, if you’re an ‘authority’, there’s nothing you would rather do than to close down those social media that let people spread news that contradicts and/or doubts what you just said, and undermines that privilege. But that also would mean you can’t spy on them anymore through social media. A toss-up?!

Whatever the outcome will be, it’s obvious that Donald Trump is having war talks with his military and closest advisers. And they can basically tell him anything, he’s not a military man. Which is fine, Lincoln wasn’t either. But it does mean he’s vulnerable to narratives and briefings that are simply not true. Lincoln went to great lengths to surround himself with people who could trust.

What about Trump? Does he know that, as Paul Craig Roberts said on Twitter yesterday ..

The Russians know that they can, at will within a few minutes, sink the entire US fleet, destroy every US airplane & ship in the ME & within range of the ME, completely destroy all of Israel’s military capability & wipe out the military of the two-bit punk state of Saudi Arabia.

.. or do they keep that from him? Because if he did know, why have this entire circus going on? Why did the King of Twitter yesterday threaten with his new and shiny toys and then today switch to:

Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?”

We already knew that US military won’t be ready for another 10 days or so for an attack on Syrian targets. So that makes sense. It takes the surprise factor out of the game, but nobody seems to want to surprise anyone much anyway. Syrian and Russian military are already way out of the way, and left the most decrepit infrastructure behind for the coalition of the willing (no Germany, Canada) to waste their firepower on.

But does Trump really want to start shooting anything? Certainly only if he knows he will win. And that, he doesn’t. And there’s something else. he’s not only talking to his military people, he’s got a financial/economic team as well. What will the financial effects of a military action be? That might give him some pause. And his military guys can’t fill him in on that.

Can Trump risk imploding the ‘markets’? They’re not actually markets anymore, and that makes them much less predictable.

As Bill Holter says talking to Greg Hunter:

 

It’s Pure Math – We’re Headed for a Train Wreck

Holter also points out the explosion of global debt. Holter charges, “It’s now $237 trillion. The amount of debt grew by $21 trillion globally over the last 12 months. That’s roughly 10 %. How much did global GDP grow? 2% or 3%, I mean that is totally unsustainable.” The biggest worry for Holter right now is escalating military action in Syria. Holter warns, “This is so, so dangerous. Obviously, you worry about a hot war because with the weapons you have today, you could have WWIII start in a heartbeat. But look at the market today. It’s up 400 or 500 points. You have talk of trade wars. You have talk of hot wars. It’s amazing the markets can hold together and ignore potential annihilation.”

David Stockman has something very similar:

 

The Deep State Closes In On The Donald, Part 1

Yes, maybe Wall Street has figured out that the Donald is more bluster than bite. Yet when you consider the broader context and what the Russian side is now saying, it is just plain idiotic to own the S&P 500 at 24X. After all, earnings that have been going nowhere for the past three years (earnings per share have inched-up from $106 in September 2014 to $109 in December 2017), and now could be ambushed by a hot war accident in Syria that would rapidly escalate.

Indeed, did the robo-machines and boys and girls down in the casino not ponder the meaning of this message from the Kremlin? It does not leave much to the imagination: #Russian ambassador in Beirut : “If there is a strike by the Americans on #Syria , then… the missiles will be downed and even the sources from which the missiles were fired..”

Trump would be much more likely to fire away if he thought he would win. And even then. Even if he could win, the whole situation is replete with unknown unknowns. If god forbid the thing escalates and the US and Russia end up facing each other, what will China do? Don’t forget that Beijing and the PBOC play an instrumental part in propping up the world economy, and the S&P 500.

It wouldn’t be hard for Xi to pull that carpet out from under Trump’s feet; it would be costly for China too, but if war were the reality, the rules and priorities change. And you can bet Xi and his people have run through the kinds of scenarios many many times. They’re prepared to “withdraw upon themselves”.

As for the US, the ‘markets are holding on to crazy levels so far despite the threat that hangs in the air, but once the first rockets fly, and gold and bitcoin -oil?- are still available, why hold on to stocks?

It’s the insanity of the so-called markets that makes them so vulnerable and unpredictable. And starting a war on very shaky grounds increases that unpredictability by a factor of 10 or so. And the MSM may -well, there’s no doubt- still fill their role as cheerleaders the way they used to, but social media are a different story.

And besides, which investors are going to say, hell, I feel so patriotic, I’m going to hold on to stocks that have been onvervalued for years already, just to support Bolton and McCain and Tony Blair and Boris Johnson’s fantasies? Who would do that who understands that it is at least quite possible that Russia has the better weapons today? Or that perhaps this kind of conflict is simply not winnable anymore?!

I don’t think there’ll be many. Nor do I think Trump wants to be known as the man who collapsed the S&P 500. So, abandoned buildings in the desert it is. And lots of CNN. Anderson Cooper’s your MC.

 

 

Jan 242018
 
 January 24, 2018  Posted by at 3:59 pm Finance Tagged with: , , , , , , , , , , , ,  


Rembrandt van Rijn The Storm on the Sea of Galilee 1633
On March 18, 1990, the painting was stolen by thieves disguised as police officers. They broke into the Isabella Stewart Gardener Museum in Boston, MA, and stole this painting, along with 12 other works. The paintings have never been recovered, and it is considered the biggest art theft in history. The empty frames still hang in their original location.

 

 

This is an article written by Dr. D, who last month wrote a series at the Automatic Earth entitled Bitcoin Doesn’t Exist.

It shouldn’t surprise you that bitcoin plays a cameo in his Modest -but actually quite grand- Plan as well.

 

 

Dr. D: With all the talk about the bubble market, people are once again saying Donald Trump is a fool, he should never have taken credit for a Dow that’s about to collapse. In addition, how does he think he can get away with claiming we have a great economy made greater? He said in the election the economy was terrible and the Dow was a bubble, that’s why he won.

But hold on: you have to remember, they’re politicians; they may be dishonest but they’re not stupid. Let’s try a scenario to see what they’re thinking:

We have a situation in the U.S. where 100 million people are out of the workforce, the real economy is on life-support, debt is crushing, and monetary velocity is at an all-time low. The Fed’s every effort at market-rigging, lowering rates and pumping in money, bailing out the banks and giving unearned interest for Fed deposits have run up both the housing market and the stock market, neither of which is their legal mandate. If either one goes higher, they’ll pop as workers, particularly millennials, have no income to buy houses, and stocks are levitating on just 5 insider-paid FAANG stocks.

It’s untenable. However, if either falls, the collateral that upholds the whole system will fail, margins will be called, the housing market will fall, and there will be an instant Depression… You know, more than the 100 million out of work Depression we already have. A Depression that makes Congressmen and government workers lose their profits and 401k’s instead of just turning students to open prostitution, and mass opioid death, and starving people in Oklahoma – you know, a Depression that finally hurts someone who matters.

Since this is self-evident and unsustainable, isn’t Trump just stepping in it by pushing all the same policies as Obama? Not necessarily. Look at what matters to him. A tax plan, and barely, not one he liked, but look at what he settled for: return of foreign profits abroad. Why? Large as it is – and it’s already creating long-withheld bonuses – that’s not enough to turn the dial. But that’s a card he wanted. Tax policy and a high stock market. What else?

Well, we have a crippling high debt, easily 100% even 200% of GDP. With that weight, nothing can move, no way to win. Pensions also are nearly dead, along with insurance companies; the high Dow is all that’s saving them from bankruptcy. What else? Well he was interested in health reform but was willing to let it remain for now. He wrote deferrals but not pardons for 5 banks showing he’d like to keep them functioning for the moment. He wanted to increase the military.

Certainly the only other promise was to create jobs and economies again, in a way saying the few protected industries: Finance, Health Care, and Military would have to become a smaller % of GDP, so those dollars could be returned back to Main Street. But we just said those three aren’t happening.

So. What if instead of pulling money from intractable lobbying groups he got new investment money from abroad? We saw this initially with Carrier and Ford and more recently with Japan. But it’s not enough and he knows all this; they all do. How do you solve the problem? How do you get more?

Calling all 1st year econ students: how do you attract capital to your country? With higher rates. As the US 10-year breaks out above 2.6% you’d have to think that’s attractive. Attractive investing in a bankrupt nation that’s barely moving? It does if you’re a company that must maintain legal investment ratios and you’re getting 0% in Japan, and negative rates in Europe, both with economies as bad or worse.

But aren’t rising rates bad? The Fed model raises rates to clamp down on the economy. Money will leave the stock market and go to bonds. Housing prices will fall as the monthly cost increases. Cats and Dogs living together….except it isn’t true.

 

Let’s go down the list:

 

1. Trump starts with plausible seed corn, a billboard sign: a tax cut and a few trillion overseas to start economic motion.

2. If the Fed raises rates, that will draw in trillions of world capital Trump wants, enough to turn the dial and really matter.

3. Enough money flowing into the U.S. will create demand for the US$, and the US$ will rise. This part has to work. Be flashy, attract attention. Go big or go home.

4. The US$ rising will attract foreign buyers into U.S. investment and together the stock market will counterintuitively rise.

5. The Fed will detect overheating and raise rates again and again in a reinforcing cycle, drawing capital to only the U.S. and suffocating the world.

6. The massive investment re-industrializes the U.S. to some extent while the high US$ gives some relief to Main Street.

7. Foreign buying, better jobs, and low exchange rates hold off the housing collapse, while all the mortgage bonds are also sold overseas.

8. Emerging markets are hammered by the high US$ and fail, driving ever-more capital to safe havens like the US.

9. Ultimately, the U.S. does what all reserve currencies do and fails LAST.

 

See why they think they can get away with this? The U.S. can still ravage the world, and Trump can, in fact, call it his “success.” …Just like all the Presidents since Nixon.

But this is history, and it never ends there.

 

10. The whole world, strangled by the US and its dollar have no choice but to reject the US system entirely in private contracts and move to an alternative.

11. We now have at least three alternatives: the CIPS/Yuan banking bloc, gold, and cryptocurrencies. They aren’t exclusive: the most likely outcome is a gold-backed trading note priced in Yuan on a blockchain, perhaps in the Shanghai Exchange.

12. Being entirely too high the US$ ultimately cripples the U.S. as well, but the alternative currency the world creates becomes the lifeboat to escape. Let’s be simple and say it’s Bitcoin (it won’t be): Bitcoin hits John McAfee’s $1 million. What do you call it when a currency rapidly becomes worth 1/10th, 1/100th, 1/1,000,000th of the standard? Isn’t that hyperinflation?

13. The U.S., like every nation since Adam Smith, defaults on its $20T in $ debt – and all its internal consumer, corporate, and pension debt – using “hyperinflation” of the dollar. New twist is that, instead of gold, it hyperinflates vs. cryptos or the new world exchange standard as planned in 1971 and publicized in 1988.

14. The reset occurs, no one dies (in the U.S.), supply chains are maintained, oil flows, and the economy stops being a feral, diabolical means of theft and control and returns to being a fair, voluntary exchange. For now.

 

That’s not to say they’ll succeed, but this is why they think they can go this way and win at it. What does the Trump world look like?

 

1. Stock market rose, like he said.

2. Manufacturing returns, reindustrializing a hollow nation and allowing the country to catch up to the stock prices, like he said.

3. Unemployment drops, like he said.

4. Crime is reduced and the cities are improved, like he said.

5. This helps win the black vote, snatching the rest of the Democratic base and locking them out for years, like Bannon said.

6. Economic growth normalizes the banking/medical oversize, like he wanted.

7. Free, untracked money for bribes and illegal cover end and law and order returns with fair exchange, like he said.

8. The U.S. is unwelcome overseas, and the breaking of bonds re-sets the multipolar world, where the U.S. is just one trading nation among many, like he said.

9. Without the money of empire the military returns home, like he said.

10. The world is pretty mad at us and that renewed military came in handy. That’s okay, they’ll be consoled that the economy now works and the U.S. can no longer start wars and act terribly.

 

What does the world look like after? A lot more like it was before 1945. You know, back when we were great and before we got terrible.

Again, not to say this WILL happen, but you can see that it CAN happen, and they are now in control of most of the levers required. From their rhetoric, you can see the glass darkly that this is what they find a priority, a possibility, and therefore a doorway out. In addition, downsizing and re-establishing honesty will not allow their opponents to wiggle out and reverse it.

Why wasn’t this done before? My guess is that a) previous planners thought with a little more effort they could take over the world, as seen in the Arab Spring plan that would culminate in the capture of Iran, the only remaining oilfields on the planet, and b) given the world’s first entirely fiat financial system, it was too complex and disruptive to return to a gold standard.

Without a lighting fast crypto base, banking and trade would fail and millions would die. Only when the one was burned out and the other made available could this move be attempted. Watch and see.

 

 

Dec 222017
 
 December 22, 2017  Posted by at 8:56 am Finance Tagged with: , , , , , , , , , , ,  


Bill Watterson is God

 

He Died For Our Debts, Not Our Sins – Michael Hudson (Ren.)
Bitcoin Tumbles Below $13,000, Down Almost 40% From Record Peak (BBG)
Crypto Carnage Continues, Bitcoin Falls Back To $13,000 Handle (ZH)
Gold Only Safe Asset Left – David Stockman (USAW)
What Will the Tax Law Do to Over-Indebted Corporate America? (WS)
Subprime Auto Defaults Are Soaring, and Private Equity Has No Way Out (BBG)
The Ghost of Gann: Another Crash is Coming (Ren.)
Catalan Separatists Win Election In Rebuke To Spain and EU (R.)
China’s Creditor Imperialism (PS)
China Uses Cheap Debt To ‘Bend Other Countries To Its Will’ (CNBC)
Fannie And Freddie Are Here To Stay – There Is No Alternative (ZH)
UK’s Secret Brexit Studies Reveal That Airbus Makes Planes (BBG)
Eco-Terrorists Threaten To Inject Acid In Greek Supermarket Products (WaPo)
New Zealand Gives Mount Taranaki Same Legal Rights As A Person (G.)

 

 

Got to love this angle.

He Died For Our Debts, Not Our Sins – Michael Hudson (Ren.)

As many people turn towards their Christian and Jewish faiths this Christmas and Hanukkah in an attempt to make sense of the year that was, at least one economist says we have been reading the bible in an anachronistic way. In fact he has written an entire book on the topic. In ‘…And Forgive them their Debts: Credit and Redemption’ (available this spring on Amazon), Professor Michael Hudson makes the argument that far from being about sex, the bible is actually about economics, and debt in particular. “The Christianity we know today is not the Christianity of Jesus,” says Professor Hudson. Indeed the Judaism that we know today is not the Judaism of Jesus either. The economist told Renegade the Lord’s Prayer, ‘forgive us our sins even as we forgive all who are indebted to us’, refers specifically to debt.

“Most religious leaders say that Christianity is all about sin, not debt,” he says. “But actually, the word for sin and debt is the same in almost every language.” “‘Schuld’, in German, means ‘debt’ as well as ‘offense’ or, ‘sin’. It’s ‘devoir’ in French. It had the same duality in meaning in the Babylonian language of Akkadian.” Professor Michael Hudson has achieved near complete consensus with the assyriologists & biblical scholars that the Bible is preoccupied with debt, not sin. The idea harks back to the concept of ‘wergeld’, which existed in parts of Europe and Babylonia, and set the value of a human life based on their rank, paid as compensation to the family of someone who has been injured or killed. “The payment – the Schuld or obligation – expiates you of the injury caused by the offense,” Dr Hudson said.

People tend to think of the Commandment ‘do not covet your neighbour’s wife’ in purely sexual terms but actually, the economist says it refers specifically to creditors who would force the wives and daughters of debtors into sex slavery as collateral for unpaid debt. “This goes all the way back to Sumer in the third millennium,” he said. Similarly, the Commandment ‘thou shalt not steal’ refers to usury and exploitation by threat for debts owing. The economist says Jesus was crucified for his views on debt. Crucifixion being a punishment reserved especially for political dissidents. “To understand the crucifixion of Jesus is to understand it was his punishment for his economic views,” says Professor Hudson. “He was a threat to the creditors.”

Read more …

That’s still some serious losses.

Bitcoin Tumbles Below $13,000, Down Almost 40% From Record Peak (BBG)

Bitcoin sank as much as 21% on Friday, extending its loss from its intraday high this month toward 40%. The digital currency dropped to as low as $12,191.80 before trading at $12,601.75 as of 3:29 p.m. in Hong Kong. Bitcoin, which is down 38% from its peak of $19,511, is still up more than 1,100% this year. Investors are having a “reality check,” said Stephen Innes, head of trading for Asia Pacific at Oanda. “At the heart of the matter was a frenzied demand for coins with limited supply has now led to unsophisticated investors holding the bag at the top.” Bitcoin’s drop comes amid concern that an offshoot is becoming a stronger rival to the more well-known cryptocurrency. Bitcoin cash, which emerged earlier this year amid a split between factions over proposed software upgrades, was added to Coinbase offerings this week.


Read more …

Zero Hedge overnight. It’s hard to keep up.

Crypto Carnage Continues, Bitcoin Falls Back To $13,000 Handle (ZH)

The carnage across cyrptocurrencies has escalated with Bitcoin back to a $13K handle, Ethereum back below $700, and Bitcoin Cash below $2,600… Bitcoin is now almost $6,000 off its record high…

ETH and BCH in trouble too…

The question is – which happens first – Bitcoin $10,000 or Gold $1,300?

[..] renowned analyst Peter Schiff issued a foreboding warning to investors buying Bitcoin at current prices. Even with a shaky week, Bitcoin is hovering around the $15,000 mark, after a two-month bull run that saw the price rise by more than 200%. Schiff says those trying to ride the bubble are too late: “People who got it years ago, even people who got it at the beginning of the year have the opportunity to cash out and make a lot of money. But people who are buying it at these prices or higher prices are going to lose practically everything.” The old adage, “buy on the rumor and sell on the news,” seems to be the perfect way to sum up Schiff’s sentiments: “These currencies are going to trade to zero or pretty close to it when the bubble pops. Right now, the only reason why people are buying Bitcoin is because the price is going up. When it turns around, they are not going to sell it for the same reason.”

Read more …

Fed flying blind.

Gold Only Safe Asset Left – David Stockman (USAW)

Record high stock and bond prices are flashing danger signs to former Reagan White House Budget Director David Stockman. Stockman contends, “I don’t think we are going to have a liquidity crisis. I think it’s going to be a value reset. I think there is going to be a jarring downward price adjustment both in the stock market and in the bond market. This phantom or phony wealth that has been created since the last crisis is going to basically evaporate.” So, what asset is safe? Stockman says gold and goes onto explain, “I think the time to buy (gold and silver) is ideal. Gold is the ultimate and only real money. Gold is the only safe asset when push comes to shove. They tell you to buy the government bond, that’s a safe asset. It’s not a safe asset at its current price. I am not saying the federal government is going to default in the next two or three years.

I am saying the yield on a 10-year bond of 2.4% is way below of where it’s going to end up. So, the only safe asset left is gold. This crazy Bitcoin mania has drained off what would otherwise be a demand for gold. . . . When Bitcoin collapses, spectacularly, which it will because it’s sheer mania in the markets right now. When it collapses, I think a lot of that demand will come back into gold, as well as people fleeing the standard stock and bond markets for the first time in 9 or 10 years.” What about the so-called Trump tax cuts? Stockman predicts, “I think it’s going to be a fiscal calamity of Biblical proportions. I want to be clear. I am always for tax cuts and shrinking the size of government, but you have to earn it. You have to cut spending and entitlements and this massive defense budget. Obviously, they didn’t do that.

If you look at honest accounting . . this bill will add $2.5 trillion to the public debt which, and this is a key point, is already going to rise by $10 trillion over the next decade based on the current law and taxes that is still in.” “More importantly,” Stockman says, “The central banks realize they cannot keep printing money at these crazy rates, and by that I mean the bond buying. Now, they are going to begin to normalize and shrink their balance sheet . . By the fall (of 2018), they (the Federal Reserve) will be shrinking their balance sheet by $600 billion a year. What that means in plain simple English is that they (the Fed) are dumping $600 billion a year of existing bonds into the market just as Uncle Sam will be attempting to borrow $1.25 trillion more. Now, if you don’t think that is a financial collision waiting to happen, then I am not sure what would be.

Read more …

The tax bill is not one-dimensional.

What Will the Tax Law Do to Over-Indebted Corporate America? (WS)

The new tax law is larded with goodies for Corporate America, but there is one shift – a much needed shift – in this debt-obsessed world that will punish over-indebted companies, discourage companies from taking on too much leverage, and perhaps, just maybe, make these companies less risky: The new law sharply limits the deductibility of corporate interest expense. Starting in 2018, a company can only deduct interest expense of up to 30% of its Ebitda (earnings before interest, taxes, depreciation, and amortization). Any amount in interest expense beyond it will no longer be deductible. This will tighten further in 2022, when the deductibility of corporate debt will be capped at 30% of earnings before interest and taxes but after depreciation and amortization expenses.

This is a much smaller number than Ebitda. And interest expense deduction is capped at 30% of that much smaller amount. This will raise the tax bill further. Most impacted will be highly indebted companies, which often have a junk credit rating. And due to this junk credit rating, they also pay higher interest rates. This made the interest expense deduction very valuable. But now it is getting partially gutted. Businesses have long been incentivized to borrow, not only by the extraordinarily low interest rates even for junk-rated companies, but also by the full deductibility of interest expense. And thus encouraged by the tax code, corporate debt has surged. Mergers & acquisitions, share buybacks, leveraged buyouts, and dividends have often been funded at least partially with debt. And over the years, companies have piled on an enormous amount of debt.

According to estimates by the Congressional Joint Committee on Taxation, cited by The Wall Street Journal, the first phase of curtailing interest-expense deductibility – the phase that kicks in next year – would raise $171 billion in tax revenues over 10 years. The second phase that commences in 2022 would raise $307 billion over 10 years. This would be the billions of dollars that highly indebted companies would pay more in taxes because they’re losing the deductible of some of their debts. It will be a significant hit to their after-tax income. It won’t kill them, but it will lower the incentive to borrow.

Read more …

It’ll get messier than subprime housing.

Subprime Auto Defaults Are Soaring, and Private Equity Has No Way Out (BBG)

Private-equity firms that plunged headlong into subprime auto lending are discovering just how hard it might be to get out. A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times. And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits. In the years after the financial crisis, buyout firms poured billions into auto finance, angling for the big profits that come with offering high-interest loans to buyers with the weakest credit.

At rates of 11% or more, there was plenty to be made as sales boomed. But now, with new car demand waning, they’ve found the intense competition – and the lax underwriting standards it fostered – are taking a toll on profits. Delinquencies on subprime loans made by non-bank lenders are soaring toward crisis levels. Fresh investment has dried up and some of the big banks, long seen as potential suitors, have pulled back from the auto lending business. To top it off, state regulators are circling the industry, asking whether it preyed on borrowers and put them in cars they couldn’t afford. “The PE guys sailed into this thing with stars in their eyes. Some of the businesses have done fine and some haven’t,” said Chris Gillock at Colonnade Advisors, a boutique investment bank. But right now, “it’s about as out-of-favor a sector as I can think of.”

Read more …

Two more years to go? I don’t know about that. But then, I didn’t predict the ’29 crash either.

The Ghost of Gann: Another Crash is Coming (Ren.)

While the metrics noted above can accurately indicate the peak of an equities bubbles several months in advance, they cannot tell us anything years ahead of time. For this, we must turn to the research of the original wizard of Wall Street, W.D. Gann. He was a finance trader who developed technical analysis tools and forecasting methods based on geometry, astronomy, astrology and ancient mathematics. He was a successful and wealthy speculator, spending decades investigating patterns in equities markets. He concluded that equities exhibited a cyclical trend over decades and thus prices could be predicted long in advance. In 1908, Gann constructed his financial timetable, which tabulated the booms and busts, peaks and troughs of the US equities market.

Just like the Geoist land market cycle, there is a repeating 18-year average between every major cycle. Gann managed to predict the crash of 1929 years in advance. He realised that the timetable would have to be recalibrated on the 25th December 1989. The updated timetable is amazingly accurate from that date onward, predicting the Dot-Com bubble peak in 2000 and its collapse. The GFC peak was off by one year; 2007 instead of one year earlier in 2006. The trough was in 2009, followed by a minor panic in 2015, when the S&P500 dipped but has since boomed. According to the timetable, 2020 will be the peak of the equities bubble, followed by a major crash similar to that of the Dot-Com bubble.

To the economists we’ve spoken to, the peak could range between 2019M09 to 2020M03. Given how large the S&P500 bubble has become, it is worth treading very carefully during this period for those exposed to US equities. Gann is famous for saying: “Every movement in the market is the result of a natural law and of a Cause which exists long before the effect takes place and can be determined years in advance. The future is but a repetition of the past, as the Bible plainly states…”

Read more …

How hard will they come down on Catalunya this time? Neither Rajoy nor Brussels can afford to lose face.

Catalan Separatists Win Election In Rebuke To Spain and EU (R.)

Catalonia’s separatists look set to regain power in the wealthy Spanish region after local elections on Thursday, deepening the nation’s political crisis in a sharp rebuke to Prime Minister Mariano Rajoy and European Union leaders who backed him. With nearly all votes counted, separatist parties won a slim majority in Catalan parliament, a result that promises to prolong political tensions which have damaged Spain’s economy and prompted a business exodus from the region. Rajoy, who called the elections after sacking the previous secessionist government, had hoped Catalonia’s “silent majority” would deal separatism a decisive blow in what was a de facto independence referendum, but his hard line backfired.

The unexpected result sets the stage for the return to power of deposed Catalan president Carles Puigdemont who campaigned from self-exile in Brussels. State prosecutors accuse him of sedition, and he faces arrest if he were to return home. “Either Rajoy changes his recipe or we change the country,” Puigdemont, said in a televised speech. He was flanked by four former cabinet members that fled with him. At jubilant pro-independence rallies around Barcelona, supporters chanted “President Puigdemont” and unfurled giant red-and-yellow Catalan flags as the results came in. Puigdemont’s spokesman told Reuters in a text message: “We are the comeback kids.” The result unnerved global markets, contributing to a softer euro and subdued sentiment in stock markets.

Opinion polls had predicted secessionists to fall short of a majority. More than 3,100 firms have moved their legal headquarters outside Catalonia, concerned that the indebted region, which accounts for a fifth of the national economy, could split from Spain and tumble out of the EU and the euro zone by default. Spain has trimmed its growth forecasts for next year, and official data shows foreign direct investment in Catalonia fell 75% in the third quarter from a year earlier, dragging down national investment. The EU’s major powers, Germany and France, have backed Rajoy’s stance despite some criticism of his methods at times.

Read more …

China exports Ponzi and overcapacity.

China’s Creditor Imperialism (PS)

Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will. As Sri Lanka’s handover of the strategic Hambantota port shows, states caught in debt bondage to the new imperial giant risk losing both natural assets and their very sovereignty. This month, Sri Lanka, unable to pay the onerous debt to China it has accumulated, formally handed over its strategically located Hambantota port to the Asian giant. It was a major acquisition for China’s Belt and Road Initiative (BRI) – which President Xi Jinping calls the “project of the century” – and proof of just how effective China’s debt-trap diplomacy can be.

Unlike International Monetary Fund and World Bank lending, Chinese loans are collateralized by strategically important natural assets with high long-term value (even if they lack short-term commercial viability). Hambantota, for example, straddles Indian Ocean trade routes linking Europe, Africa, and the Middle East to Asia. In exchange for financing and building the infrastructure that poorer countries need, China demands favorable access to their natural assets, from mineral resources to ports. Moreover, as Sri Lanka’s experience starkly illustrates, Chinese financing can shackle its “partner” countries. Rather than offering grants or concessionary loans, China provides huge project-related loans at market-based rates, without transparency, much less environmental- or social-impact assessments.

As US Secretary of State Rex Tillerson put it recently, with the BRI, China is aiming to define “its own rules and norms.” To strengthen its position further, China has encouraged its companies to bid for outright purchase of strategic ports, where possible. The Mediterranean port of Piraeus, which a Chinese firm acquired for $436 million from cash-strapped Greece last year, will serve as the BRI’s “dragon head” in Europe. By wielding its financial clout in this manner, China seeks to kill two birds with one stone. First, it wants to address overcapacity at home by boosting exports. And, second, it hopes to advance its strategic interests, including expanding its diplomatic influence, securing natural resources, promoting the international use of its currency, and gaining a relative advantage over other powers.

Read more …

Same story. I’ve said a thousand times that China is buying the world with Monopoly money. It is.

China Uses Cheap Debt To ‘Bend Other Countries To Its Will’ (CNBC)

China’s continents-spanning Belt and Road network threatens to “shackle” partner countries and deprive them of valuable natural assets, according to one critic. Beijing is financing and executing massive infrastructure projects across the 68 nations participating in the ambitious scheme, which snakes along Europe, the Middle East and Asia. These recipient countries, many of them emerging economies in dire need of investment, obtain funding in various forms such as sovereign loans from Chinese President Xi Jinping’s administration and credit from Chinese state-owned banks. But concerns of developing countries taking on unrealistic financial obligations have sparked allegations of what’s being called ‘dept-trap diplomacy.’

Earlier this year, Indian Prime Minister Narendra Modi’s administration released a statement warning of unsustainable debt burdens being created by Belt and Road. “Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will,” according to Brahma Chellaney, professor of strategic studies at the New Delhi-based Center for Policy Research, who described Beijing’s policies as “creditor imperialism.” In a stinging editorial published on Project Syndicate, Chellaney — a former adviser to India’s National Security Council — pointed to Sri Lanka as an example. The South Asian state, unable to pay back onerous bills to China, recently handed over its Hambantota port to state owned China Merchants Port Holdings in a $1.1 billion deal that was widely viewed as an erosion of sovereignty.

“As Hambantota shows, China is now establishing its own Hong Kong-style neocolonial arrangements,” Chellaney said. “Like the opium the British exported to China, the easy loans China offers are addictive. And, because China chooses its projects according to their long-term strategic value, they may yield short-term returns that are insufficient for countries to repay their debts,” he explained. As a result, the world’s second-largest economy holds political leverage over governments and can “force borrowers to swap debt for equity, thereby expanding China’s global footprint by trapping a growing number of countries in debt servitude.”

Read more …

The government in charge of the bubble.

Fannie And Freddie Are Here To Stay – There Is No Alternative (ZH)

Since the US government nationalized the two GSEs in 2008 in a $187 billion bailout of the mortgage giants, there have been consistent calls for them to be wound down and for the private sector to fill the void. As we discussed, this view is, or was, shared by new Fed Chairman, Jay Powell. Mr. Powell has called on Congress to overhaul the housing finance system, saying he’d like to see the country’s two large mortgage-finance firms, Fannie Mae and Freddie Mac, move out from under government conservatorship. More private capital in those firms would reduce the risk of a taxpayer-funded bailout in the event of a downturn, he said in a speech in July. Although the Fed isn’t responsible for housing finance, it supervises some of the country’s largest lenders who frequently sell their loan to the two agencies. “No single housing finance institution should be too big to fail,” he said.

In August this year, Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), published the results of its latest annual stress tests on the two GSE’s. The FHFA outlined a “severely adverse” scenario in which US real GDP decline 6.5%, the unemployment rate rises to 10.0%, equity prices decline almost 50%, home prices decline 25% and commercial real estate prices by 35%. Under these conditions, it estimates Fannie and Freddie would need a bailout of up to $100 billion in the form of a draw on the Treasury (depending on how they treat assets to offset tax). Sadly, after almost a decade of federal ownership, the hope that Fannie and Freddie could be wound down has evaporated. Senators on both sides of the political divide have concluded that they are too big and too risky to replace. Proposed legislation in 2018 will see them retained at the centre of the US mortgage industry, rather than replacing them as a previous senate proposal tried and failed four years ago.


Mortgages guaranteed by Fannie and Freddie amount to about $4 trillion and account for about 40% of the total US market.

Read more …

The incompetence is painful.

UK’s Secret Brexit Studies Reveal That Airbus Makes Planes (BBG)

For months, journalists tried to get their hands on government papers setting out how leaving the European Union will affect different parts of the British economy. They contained, according to Brexit Secretary David Davis, “excruciating detail.” But despite boasting about their contents, ministers were reluctant to let anyone else see the documents. In November, after being forced to give way by a vote in Parliament, the government allowed lawmakers to read them under controlled conditions. Their phones were confiscated, and they were only permitted to make notes with pen and paper, lest too much information leak into the public domain. “These documents in aggregate represent the most comprehensive picture of our economy on this issue to date,” Davis wrote this month, explaining why he was being cautious about publication.

On Thursday, the documents were released online. There was detail, as promised. “The parts of an aircraft can be simplistically split into three areas,” began the first, on aerospace. It was explained what the industry makes: “structures which include the nose, fuselage, wings, engine nacelles (which encase the engines) and tail; propulsion system which includes engines and propellers, or fan blades; and systems which include the electronics used in the flight system.” It went on to reveal that there are two companies in the world that make large passenger aircraft. Now that the documents are public, these firms can be named as Boeing and Airbus. The paper covering the insurance and pensions sector, which employs one in every 100 British workers, is 2,732 words long. “Insurance business operates by firms writing insurance policies for clients, intermediated by brokers,” it reveals.

Read more …

You sure that you want to victimize the victims?

Eco-Terrorists Threaten To Inject Acid In Greek Supermarket Products (WaPo)

Greek supermarkets were forced to withdraw several food and beverage products from their shelves this week, after a group threatened to contaminate them with acid as part of an environmentally influenced protest of Christmas consumerism. Authorities urged residents in Athens and the city of Thessaloniki not to buy or consume certain types of Coca-Cola, a Greek milk brand and packages of meat. Thessaloniki and Athens combined have about 1 million residents who were affected by the precautionary measures. The “Blackgreen Arsonists” — whose name suggests an eco-anarchist outlook — threatened to inject the products with hydrochloric acid, a powerful, colorless corrosive used in research and industry.

They said it was because the thousands of people doing their Christmas shopping meant “the sacrifice of millions of living creatures, slaughtered and drained to the last drop to satisfy consumers’ needs.” To protest this need every year for people to fill their empty lives with “consumer garbage with beautiful and glittering wrappings,” the sabotaged products would be placed on supermarket shelves in the run-up to Christmas. Authorities said they have no information on the identities of the group members. Similar threats have emerged in the past and nothing has happened, though in this case the group included photos of its members injecting something into the products as part of their online threat.

Read more …

Real values.

New Zealand Gives Mount Taranaki Same Legal Rights As A Person (G.)

Mount Taranaki in New Zealand is to be granted the same legal rights as a person, becoming the third geographic feature in the country to be granted a “legal personality”. Eight local Maori tribes and the government will share guardianship of the sacred mountain on the east coast of the North Island, in a long-awaited acknowledgement of the indigenous people’s relationship to the mountain, who view it as an ancestor and whanau, or family member. The new status of the mountain means if someone abuses or harms it, it is the same legally as harming the tribe. In the record of understanding signed this week, Mount Taranaki will become “a legal personality, in its own right”, said the minister for treaty negotiations, Andrew Little, gaining similar rights to the Whanganui river, which was granted legal personhood earlier this year.

Little said the agreement offered the best possible protection for the landmark, which is becoming an increasingly popular tourist attraction after Lonely Planet named the Taranaki region the second best place to visit in the world last year. “As a New Plymouth local I grew up under the gaze of the maunga [mountain] so I’m particularly pleased with the respect accorded to local tangata whenua [local people] and the legal protection and personality given to the mountain,” Little said. “Today’s agreements are a major milestone in acknowledging the grievances and hurt from the past as the Taranaki iwi experienced some of the worst examples of Crown behaviour in the 19th century.” As part of the agreement the New Zealand government will apologise to local Maori for historical breaches of the Treaty of Waitangi against the mountain, although local tribes will receive no financial or commercial redress.

Read more …

Oct 032017
 
 October 3, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  


Fan Ho Obsession 1964

 

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)
The Pricing of Risk is Kaput (WS)
Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)
What You Are Not Being Told About The Economy – Steve Keen (RT)
An Accountant Smells a Rat in Our Global Credit Bubble (WS)
26 Recession-Free Years Hide a Darker Picture for Australia (BBG) >
Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)
Fall of the Great Pumpkin (Jim Kunstler)
Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)
Catalonia Set For General Strike Over Independence Poll Violence (AFP)
100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

 

 

 

 

A point I made again recentlly “It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.”

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)

It would be a dangerous bet to say interest rates are going to stay low forever, but I don’t see many people taking that bet. And you see, even if interest rates were to stay where they are, that would argue for P/E ratios to stay where they are. And if they do, then stocks will only appreciate at the same rate as earnings, which is not really fast; there would be no multiple expansion. This market is not built on some euphoric view of the future, but mainly on the unwillingness to accept zero or negative returns on cash and safe instruments. It’s based on the view that there is no alternative: people are afraid to be out of the market. But then again, a perceived lack of alternatives is not a good argument for chasing yield and taking big risks. That’s why I think this is the time to turn cautious.

It’s not smart, but people think that’s what they have to do now. You remember Chuck Prince, the CEO of Citigroup, who in July of 2007 said «when the liquidity dries up, this will end badly, but as long as the music is playing, you have to dance?» What does that even mean? People always say they’ll stay in the market, thinking it has further to go, but if it starts to turn down they will get out. Maybe that’s what people are thinking in today’s stock market: «It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.

[..] I see a lot of worries. One example: What’s going to happen when central banks start unwinding their balance sheets? We have no clue. There is no historical precedent for the measures they used to stimulate the economies in the past years, so we don’t know what will happen when they unwind them. If QE was stimulative, won’t the unwinding of it be the opposite of stimulative? I don’t know where the money came from for the QE programs, and I don’t know where the money will go to next. We don’t know what it will mean for interest rates and inflation.

Another worry is the low economic growth, combined with politics. All these right-wing populist movements – what are the implications of that? This is not imaginary. Where will the person with a low education level get a job in ten or twenty years, when all the cars are self-driving and all the stores have no clerks? I don’t know what the solution is. But I see a lack of political leadership around the world. Another worry concerns our pension systems. In the US and in other countries, defined benefit systems are hundreds of billions of dollars in the red. What’s going to happen to the people who expect to get their promised retirement payments? But today, nobody’s talking about the problems in our pension systems.

Read more …

“..when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.”

The Pricing of Risk is Kaput (WS)

US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it’s still in denial of the Fed’s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone. The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%. Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default.

There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they’re called “junk” is because of their high risk of default. And yet, prices of these junk bonds have been inflated by the ECB’s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there. The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

They include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It’s not a secret. But they don’t mind. They’re institutional investors plowing other people’s money into these bonds, and they don’t need to mind, but they have to buy these bonds because that’s their job. This chart, based on BofA Merrill Lynch Euro High Yield Index Effective Yield via the St. Louis Fed, shows that the average euro junk bond yield is on the way to what? Zero?

During the peak of the Financial Crisis, the average junk bond yield hit 25%. During the dog days of the euro debt crisis in the summer of 2012, when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%. The yield dropped below 5% in October 2013, for the first time ever. This juxtaposition of the already low 10-year US Treasury yield and the even lower euro junk bond yield creates one of the most fascinating WTF-charts for our amusement at central-bank absurdist policies – and we’d be laughing at these bond investors gone nuts, if it weren’t so serious:

.. this is Draghi’s ultimate accomplishment in his nutty bailiwick: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money – this includes pension funds and life insurance companies that play a large role in Europe’s private pension system. They have to buy corporate bonds. Their beneficiaries that paid into the systems will have to bear the costs in future years. And then there’s the comforting thought that when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.

Read more …

“..when we had the taper tantrum they hadn’t even done anything yet, they’d just threatened to taper..”

Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)

Market veteran Art Cashin, the head of NYSE floor operations for UBS, made an interesting observation earlier today just minutes before the close, as US stocks headed for another record finish after shrugging off the worst mass shooting in US history. Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that’s spanned more than six decades, he’s never seen anything like today’s market. “I’ve been doing this for over 50 years and I’ve never seen anything like it so it is rather odd.” And given global stocks’ strong performance this year, with markets weathering a series of political crises, natural disasters, terror attacks and other nominally destabilizing events (with a little help from central banks, of course) – Cashin says the outlook isn’t as dire as some would believe.

“Right now, Europe’s doing all right emerging markets are okay, and maybe they’re not going to take away the punchbowl that quickly – so we’ll see,” Cashin said. In September, the Fed suggested that while it would likely raise interest rates more quickly than previously believed during the coming quarters, median forecasts for the Fed funds rate in 2019, as well as the longer-run median target, declined compared with a set of forecasts released in July. Looking ahead to the fourth quarter, the most pressing questions that investors should be asking themselves is ‘is this the quarter where tapering – or the expectation of further tapering – finally triggers a market correction.

“What’s really going to be interesting to watch in this final quarter, is will there be an impact of quantitative tightening. As Peter Boockvar points out…it’s only going to be a token amount. But when we had the taper tantrum they hadn’t even done anything yet they’d just threatened to taper. When asked what it would take to spark a meaningful correction in stocks, Cashin said he expects investors will take notice once the 10-year yield climbs above 3%. “I think we’ve got to get a bit higher. Probably up around 3% you start to get everybody’s attention and you’ll start to hear that in the conversation more and more.”

Read more …

Are you rational? Economics is not.

What You Are Not Being Told About The Economy – Steve Keen (RT)

As Karl Marx’s ‘Das Kapital’ turns 150 and the global financial crisis enters its tenth year, we ask why it is that we are still no closer to creating an economy that actually works. Perhaps more importantly, why do mainstream economists continue to miss the fundamental drivers of financial instability? Host Ross Ashcroft talks about what’s next for the global economy with Professor Steve Keen, an economist who correctly predicted the financial crisis and the author of ‘Debunking Economics.’

Read more …

“Economists can’t see it. They can’t model money and credit. ”

An Accountant Smells a Rat in Our Global Credit Bubble (WS)

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis. However a coming implosion, he says, could be the biggest yet. “We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.” Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output. Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050. Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows. In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t? One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist. He is thus not burdened with the “dismal science’s” limitations. Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession. Noland is thus free to incorporate historical, financial, geographical and other data into his analyses. Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

Read more …

 

 

But Australians won’t believe it until it hits them in the head.

26 Recession-Free Years Hide a Darker Picture for Australia (BBG)

The global crown for the longest stretch of uninterrupted economic growth is within sight for Australia. But it’s limping to the line as policy paralysis weighs on the nation’s prospects. Twenty-six years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak and government, central bank and economist forecasts all suggest it’ll take the mantle. After all, the economy has a head start with 2.5% growth virtually baked in – 1.5% from population gains that are among the developed world’s quickest and 1% from resource exports feeding Asia’s giant economies. Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians living in major cities.

Meantime, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out. There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre. “Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist.

“The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.” A decade of political infighting has seen the nation change prime ministers five times since 2007 and sidelined substantive policy debate. Meanwhile, attempts at reform have been held hostage by populists and single-issue parties who’ve harnessed voter frustration with mainstream politicians to take the balance of power in parliament’s upper house. That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet.

Read more …

“The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. ”

Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)

Vladimir Putin is doing his part to keep the upswing in gold alive. Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017. A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year. Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data. In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.” Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.

Read more …

 

 

“Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.”

Fall of the Great Pumpkin (Jim Kunstler)

Welcome to the witching month when America’s entropy-fueled death-wish expresses itself with as much Halloween jollity and merriment as the old Christmas spirit of yore. The outdoor displays alone take on a Babylonian scale, thanks to the plastic factories of China. I saw a half-life-size T-Rex skeleton for sale at a garden shop last week surrounded by an entire crew of moldering corpse Pirates of the Caribbean in full costume ho-ho-ho-ing among the jack-o-lanterns. What homeowner in this sore-beset floundering economy of three-job gig-workers can shell out four thousand bucks to decorate his lawn like the set of a zombie movie? The overnight news sure took on that Halloween tang as the nation woke up to what is probably a national record for a civilian mad-shooter incident.

So far, fifty dead and two hundred wounded at the Las Vegas at the Route 91 Harvest Festival (one up in fatalities from last year’s Florida Pulse nightclub massacre, and way more injured this time). The incident will live in infamy for maybe a day and a half in the US media. Stand by today as there will be calls far and wide, by personas masquerading as political leaders, for measures to make sure something like this never happens again. That’s rich, isn’t it? Meanwhile, the same six a.m. headlines declared that S &P futures were up in the overnight markets. Nothing can faze this mad bull, apparently. Except maybe the $90 trillion combined derivatives books of CitiBank, JP Morgan, and Goldman Sachs, who have gone back whole hog into manufacturing the same kind of hallucinatory collateralized debt obligations (giant sacks of non-performing loans) that gave Wall Street a heart attack in the fall of 2008.

Europe’s quaint doings must seem dull compared to the suicidal potlatch of life in the USA, but, believe me, it’s a big deal when the Spanish authorities start cracking the heads of Catalonian grandmothers for nothing more than casting a ballot. The video scenes of mayhem at the Barcelona polls looked like something out of the 1968 Prague uprising. And now that the Catalonia secession referendum passed with a 90% “yes” vote, it’s hard to imagine that a good deal more violent mischief will not follow. So far, the European Union stands dumbly on the sidelines. (For details, read the excellent Raul Ilargi Meijer column on today’s TheAutomaticEarth.)

[..] Finally — well, who know what else may pop up now — there is the matter of Puerto Rico. Halloween there is not like New England, with our nippy fall mornings, steaming mugs of hot cider, and quickening fall color. It will remain 90-degrees-plus down there in the fetid, stinking ruins, with lots of still-standing water, broken communications, shattered supply lines, and very little electricity. FEMA and the US Military may be doing all they can now, but they must be on watch for the ominous blossoming of tropical disease epidemics. The story there is far from over. Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.

Read more …

Catalonia wants to talk. But it will no longer accept many of the things it would have before Sunday.

Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)

In Madrid, Barcelona, Bilbao and beyond, the question is the same: Now what? Sunday’s vote for independence in Catalonia, one of Spain’s most populous and prosperous regions, has thrust the country into its gravest political crisis since the days of the dictator Francisco Franco. Few see an easy way out. The results of the referendum give Prime Minister Mariano Rajoy stark choices – try to deal a blow to the independence movement by suspending Catalonia’s semi-autonomous status, or meet the secessionists halfway and start talks with Catalan President Carles Puigdemont. Puigdemont said the vote, rejected by the central government as illegal, justifies a unilateral declaration of independence. That could come by the end of the week, if the regional parliament agrees.

The European Union refused to recognize the rebel region’s bid, but Spanish bonds and stocks fell Monday as the risks of a breakaway rose. The clash puts Rajoy in a tight corner. Head of a minority government that relies on support from regional parties to rule, he has pledged to protect Spain’s territorial integrity. His main ally in parliament, Ciudadanos party leader Albert Rivera, called on the prime minister to invoke a never-before-used article of the 1978 constitution and pull Catalonia’s special regional standing, which gives it certain administrative powers. “It’s the moment to act with calm but with firmness,” said Rivera, who is Catalan, after meeting with Rajoy on Monday. Rivera said an independence declaration may be 72 hours away and suggested invoking Article 155 would cut off any attempt to make such a move.

But Pedro Sanchez, head of the main Socialist opposition party, said after his own meeting with Rajoy that the central government should hold talks with the secessionists. While Sanchez made no mention of Article 155 in the statement he issued, socialists in Catalonia said the party wouldn’t support the prime minister taking that step. That means Rajoy will have little political cover if he opts to suspend Catalan self-government – the most powerful card he has left. The crisis has already caused him problems: Last week, he had to withdraw plans to present his 2018 budget after allies in the Basque PNV party withheld their support as they criticized his position on Catalonia.

Read more …

The Guardia Civil will have to leave Catalonia at some point. And what then?

Catalonia Set For General Strike Over Independence Poll Violence (AFP)

Large numbers of Catalans are expected to observe a general strike on Tuesday to condemn police violence at a banned weekend referendum on independence, as Madrid comes under growing international pressure to resolve its worst political crisis in decades. Flights and train services could be disrupted as well as port operations, after unions called for the stoppage to “vigorously condemn” the police response to the poll, in which Catalonia’s leader said 90% of voters backed independence from Spain. Barcelona’s public universities are expected to join the strike, as is the contemporary art museum, football club FC Barcelona and the Sagrada Familia, the basilica designed by Antoni Gaudi and one of the city’s most popular tourist sites. “I am convinced that this strike will be widely followed,” Catalan leader Carles Puigdemont said ahead of the protest.

The central government has vowed to stop the wealthy northeastern region, which accounts for a fifth of Spain’s GDP, breaking away from Spain and has dismissed Sunday’s poll as unconstitutional and a “farce”. Violent scenes played out in towns and cities across the region on Sunday as riot police moved in on polling stations to stop people from casting their ballots, in some cases charging with batons and firing rubber bullets to disperse crowds. UN rights chief Zeid Ra’ad Al Hussein said he was “very disturbed” by the unrest while EU President Donald Tusk urged Madrid to avoid “further use of violence”. The European Parliament will hold a special debate on Wednesday on the issue. “We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics,” European Commission spokesman Margaritis Schinas said, breaking weeks of virtual EU silence on the Catalan issue.

Read more …

“Florida Gov. Rick Scott has declared a state of emergency in Florida..”

100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

As mayors of cities with large Puerto Rican populations continue to advocate for federal assistance to help with the resettlement of hundreds of thousands of Puerto Ricans who are expected to temporarily seek shelter with friends and families in the US, Florida Gov. Rick Scott has declared a state of emergency in Florida, allowing state agencies to take extraordinary measures to assist families that will soon be arriving in droves to cities like Orlando and Miami, both of which feature large Puerto Rican populations. The Orlando Sentinel reports that Scott announced that disaster relief centers will be set up at Orlando International Airport and in Miami to help those seeking refuge in Florida. “Puerto Rico is absolutely devastated and so many families have lost everything,” Scott said in a released statement.

“Our goal is to make sure that while [Puerto Rican] Governor [Ricardo] Rosselló is working to rebuild Puerto Rico, any families displaced by Maria that come to Florida are welcomed and offered every available resource from the state.” The relief center at OIA, and two others at Miami International Airport and the Port of Miami, open Tuesday, according to a release from Scott’s office, just days after Puerto Rican airports reopened following the devastation caused by Hurricane Maria. [..] Scott’s emergency order will allow state agencies broad autonomy to waive regulations and do whatever is necessary to help Puerto Ricans. Importantly, it could also help bring more federal funding to help the state cope with aid efforts.

State lawmakers have said they expect at least 100,000 Puerto Ricans to flee to Florida because of Maria, forcing the state to step up its education, housing and job-placement offerings. It’s expected that some of those displaced by the storm could resettle permanently, as the reconstruction effort in Puerto Rico is expected to take months, if not years. State Rep. Carlos Guillermo Smith, D-Orlando, said the Legislature should hold a special session, as he estimates hundreds of thousands of Puerto Ricans are coming to Florida. The 2018 regular session starts in January. “FL needs 2 deal w/humanitarian crisis + over 100K Boricuas who’ll seek refuge here right now, not in Jan.,” he tweeted.

We now wait to hear from New York Gov. Andrew Cuomo and New York City Mayor Bill De Blasio. NYC officials have said more than 100,000 Puerto Ricans could arrive in NYC alone.

Read more …

 

 

 

Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  


Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

Read more …

Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

Read more …

Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

Read more …

There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

Read more …

I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

Read more …

How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

Read more …

Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

Read more …

Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

Read more …

Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

Read more …

As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

Read more …

A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

Read more …

Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

Read more …

More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

Read more …

Aug 122017
 
 August 12, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , ,  


Giorgio de Chirico The Enigma of the Hour 1910

 

The Logic of War (Jim Rickards)
Russia Says Bellicose Rhetoric On North Korea Is ‘Over The Top’ (R.)
US ‘Volatility Index’ Spikes To Highest Level Since Election (G.)
Chinese Foreign Real-Estate Spending Plunges 82% (ZH)
Battle of the Behemoths (Jim Kunstler)
US Poised To Become World’s Largest Public-Private Partnership Market (IBT)
The Fed Has 6,200 Tons of Gold in a Manhattan Basement—Or Does It? (WSJ)
UK Risks International Court Case Over Theresa May’s Brexit Plans (Ind.)
Greenspan’s Legacy Explains Current Conundrums (DDMB)
Social Security Requires Bailout 60x Greater Than 2008 Bank Bailout (Black)
All Is Not As It Seems In Venezuela (Ren.)
Asylum Seekers At Canada Border Tents Unfazed By Delays, Uncertainty (R.)
People Smugglers Pushing Refugees To Their Deaths At Sea Off Yemen (Ind.)

 

 

There are different kinds of logic. I hope for once Rickards is wrong.

The Logic of War (Jim Rickards)

This was the week that the logic of war collided with the illogic of bubbles. So far, the bubble is winning, but that’s about to change. The “logic of war” is an English translation of a French phrase, la logique de la guerre, which refers to the dynamic of how wars begin despite the fact that the war itself will be horrendous, counterproductive, and possibly end in complete defeat. [..] Given these outcomes, “logic” says that war should be prevented. This would not be difficult to do. If North Korea verifiably stopped its weapons testing and engaged in some dialogue, the U.S. would meet the regime more than halfway with sanctions relief and some expanded trade and investment opportunities.

The problem is that the logic of war proceeds differently than the logic of optimization. It relies on imperfect assessments of the intentions and capabilities of an adversary in an existential situation that offers little time to react. North Korea believes that the U.S. is bluffing based in part on the prior failures of the U.S. to back up “red line” declarations in Syria, and based on the horrendous damage that would be inflicted upon America’s key ally, South Korea. North Korea also looks at regimes like Libya and Iraq that gave up nuclear weapons programs and were overthrown. It looks at regimes like Iran that did not give up nuclear weapons programs and were not overthrown.

It concludes that in dealing with the U.S., the best path is not to give up your nuclear weapons programs. That’s not entirely irrational given the history of U.S. foreign policy over the past thirty years. But, the U.S. is not bluffing. Trump is not Obama, he does not use rhetoric for show, he means what he says. Trump’s cabinet officials, generals and admirals also mean what they say. No flag officer wants to lose an American city like Los Angeles on his or her watch. They won’t take even a small chance of letting that happen. The Trump administration will end the North Korean threat now before the stakes are raised to the nuclear level. Despite the logic of diplomacy and negotiation, the war with North Korea is coming. That’s the logic of war.

Read more …

It is crucial that Trump communicate with Putin and Lavrov. And Washington does all it can to prevent it. Let’s hope they’ve found a back channel.

Russia Says Bellicose Rhetoric On North Korea Is ‘Over The Top’ (R.)

Russian Foreign Minister Sergei Lavrov said on Friday the risks of a military conflict over North Korea’s nuclear program are very high, and Moscow is deeply worried by the mutual threats being traded by Washington and Pyongyang. “Unfortunately, the rhetoric in Washington and Pyongyang is now starting to go over the top,” Lavrov said. “We still hope and believe that common sense will prevail.” Asked at a forum for Russian students about the risks of the stand-off escalating into armed conflict, he said: “The risks are very high, especially taking into account the rhetoric.” “Direct threats of using force are heard… The talk (in Washington) is that there must be a preventive strike made on North Korea, while Pyongyang is threatening to carry out a missile strike on the U.S. base in Guam. These (threats) continue non-stop, and they worry us a lot.”

“I won’t get into guessing what happens ‘if’. We will do whatever we can to prevent this ‘if’.” “My personal opinion is that when you get close to the point of a fight breaking out, the side that is stronger and cleverer should take the first step away from the threshold of danger,” said Lavrov, in remarks broadcast on state television. He encouraged Pyongyang and Washington to sign up to a joint Russian-Chinese plan, under which North Korea would freeze its missile tests and the United States and South Korea would impose a moratorium on large-scale military exercises. “If this double freezing finally takes place, then we can sit down and start from the very beginning – to sign a paper which will stress respect for the sovereignty of all those parties involved, including North Korea,” Lavrov said.

Read more …

And that’s a good thing. Ultra low VIX means no price discovery.

US ‘Volatility Index’ Spikes To Highest Level Since Election (G.)

A US stock market gauge known as the “fear index” has spiked to its highest level since Donald Trump was elected president in a sign that his brinkmanship with North Korea is starting to unnerve investors. The Vix index has been at record lows in recent weeks but has been rattled by the remarks Trump has been making about North Korea. A breakthrough in Pyongyang’s weapons programme prompted Trump to warn on Tuesday that he would unleash “fire and fury like the world has never seen” on North Korea if the regime continued to threaten the US. On Friday the US president tweeted that US military options were “locked and loaded” for use if Pyongyang “acted unwisely”. The Vix index measures expectations of volatility on the S&P 500 index of the US’s largest publicly quoted companies.

Its rise in the early hours of Friday prompted Neil Wilson, a senior market analyst at financial firm ETX Capital, to comment: “Volatility is back.” “The Vix just popped to its highest since the election of Donald Trump as jitters about North Korea roil risk sentiment. It’s about time the market woke up – nothing like the prospect of a nuclear standoff to sharpen mind of investors who had become a tad complacent,” said Wilson. oshua Mahony, a market analyst at IG, said: “For a week that has been largely devoid of major economic releases, Donald Trump’s confrontational stance with North Korea has raised volatility across the board, pushing the Vix from a rock-bottom reading on Tuesday, to the highest level in almost a year. “This has been a week of two halves, with complaints over a lack of volatility giving way to complaints over unpredictable volatility,” he added.

Read more …

Does that cover all housing bubbles? Well, not Holland and Scandinavia, probably.

Chinese Foreign Real-Estate Spending Plunges 82% (ZH)

Earlier this month, Morgan Stanley warned that commercial real estate prices in New York City, Sydney and London would likely take a hit over the next two years as Chinese investors pull out of foreign property markets. The pullback, they said, would be driven by China’s latest crackdown on capital outflows and corporate leverage, which they argued would lead to an 84% drop in overseas property investment by Chinese corporations during 2017, and another 18% in 2018. Sure enough, official data released by China’s Ministry of Commerce have proven the first part of Morgan Stanley’s thesis correct. Data showed that outbound investment in real estate was particularly hard hit during the first half of the year, plunging 82%. “According to official data, outbound investment by China’s real estate sector fell 82% year-on-year in the first half, to comprise just 2% of all outbound investment for the period.”

Overall, outbound direct investment to 145 countries declined to $48.19 billion, an annualized drop of 45.8%, according to China Banking News. The decline is a result of a crackdown by Chinese authorities after corporations went on a foreign-acquisition spree that saw them spend nearly $300 billion buying foreign companies and assets, with China’s four most acquisitive firms accounting for $55 billion, or 18%, of the country’s total. The acquisitions aggravated capital outflows, creating a mountain of debt and making regulators uneasy. Late last month, Chinese authorities ordered Anbang Insurance Group to liquidate its overseas holdings. In June, authorities asked local banks to evaluate whether Anbang and three of its peers posed a “systemic risk” to the country’s financial system. As Morgan Stanley noted, these firms were responsible for billions of dollars of commercial real-estate investments in the US, UK, Australia and Hong Kong.

Read more …

“..a great deal of American suburbia will have to be abandoned..”

Battle of the Behemoths (Jim Kunstler)

This has been a sensational year for retail failure so far with a record number of brick-and-mortar store closings. But it is hardly due solely to Internet shopping. The nation was vastly over-stored by big chain operations. Their replication was based on a suicidal business model that demanded constant expansion, and was nourished by a regime of ultra-low interest rates promulgated by the Federal Reserve (and its cheerleaders in the academic econ departments). The goal of the business model was to enrich the executives and shareholders as rapidly as possible, not to build sustainable enterprise. As the companies march off the cliff of bankruptcy, these individuals will be left with enormous fortunes — and the American landscape will be left with empty, flat-roofed, throwaway buildings unsuited to adaptive re-use. Eventually, the empty Walmarts will be among them.

Just about everybody yakking in the public arena assumes that commerce will just migrate to the web. Think again. What you’re seeing now is a very short term aberration, the terminal expression of the cheap oil economy that is fumbling to a close. Apart from Amazon’s failure so far to ever show a corporate profit, Internet shopping requires every purchase to make a journey in a truck to the customer. In theory, it might not seem all that different from the Monkey Ward model of a hundred years ago. But things have changed in this land. We made the unfortunate decision to suburbanize the nation, and now we’re stuck with the results: a living arrangement that can’t be serviced or maintained going forward, a living arrangement with no future. This includes the home delivery of every product under sun to every farflung housing subdivision from Rancho Cucamonga to Hackensack.

Of course, the Big Box model, like Walmart, has also recruited every householder in his or her SUV into the company’s distribution network, and that’s going to become a big problem, too, as the beleaguered middle-class finds itself incrementally foreclosed from Happy Motoring and sinking into conditions of overt peonage. The actual destination of retail in America is to be severely downscaled and reorganized locally. Main Street will be the new mall, and it will be a whole lot less glitzy than the failed gallerias of yore, but it will represent a range of activities that will put a lot of people back to work at the community level. It will necessarily entail the rebuilding of local and regional wholesale networks and means of distribution that don’t require trucking.

Read more …

But then combine Jim Kunstler’s piece with this:

US Poised To Become World’s Largest Public-Private Partnership Market (IBT)

As the debate over infrastructure policy intensifies, there is no dispute that the Trump administration’s initiative could open up a huge new market for financial firms on Wall Street. The American Society of Civil Engineers estimates that there are $4.6 trillion worth of needed investments to maintain and upgrade infrastructure throughout the U.S. In light of that, recent reports from Moody’s and AIG project a financial jackpot for private investors, with the latter predicting that America “is poised to become the largest public-private partnership market in the world for infrastructure projects.” That market appears to be a ripe profit opportunity for politically connected firms. On top of Pence’s overtures to investors in Australia, a country that has aggressively embraced privatization, Trump recently secured a pledge from Saudi Arabia’s government to invest billions in American infrastructure.

The Saudi money is slated to flow through the private equity firm Blackstone, which has been eyeing opportunities to profit from American infrastructure privatization since its CEO, Stephen Schwarzman, was named by Trump to run a White House economic advisory panel shaping federal infrastructure policy. At the same time, Cohn’s former employer, Goldman Sachs, has said in its financial filings that it too has plans to expand investment in privatized infrastructure. (Neither Schwarzman or Cohn have recused themselves from working on White House infrastructure policy that could benefit the firms, even though both own stakes in the companies.)

In the United States, the recent enthusiasm for public-private partnerships has stemmed from the visible success of several late-1990s toll road projects such as California’s State Route 91, the first fully-automated toll road with electronic transponders in the U.S., and Virginia’s Dulles Greenway, according to Robert Poole, the director of transportation policy at the libertarian Reason Foundation. More recently, he noted, states like Florida have enacted laws streamlining the legislative approval process for public-private partnership transportation projects. Both the GOP and Democratic Party listed infrastructure spending as objectives in their 2016 platforms. The Republican platform explicitly embraced public-private partnerships and “outside investment.” Prominent Democrats from former President Barack Obama to Bill and Hillary Clinton have also warmed to the idea of public-private partnerships — and the party’s officials have led some of America’s earliest precedent-setting privatization projects.

Read more …

Do we send in Dan Brown and Tom Hanks?

The Fed Has 6,200 Tons of Gold in a Manhattan Basement—Or Does It? (WSJ)

Eighty feet below the streets of lower Manhattan, a Federal Reserve vault protected by armed guards contains about 6,200 tons of gold. Or doesn’t. The Fed tells visitors its basement vault holds the world’s biggest official gold stash and values it at $240 billion to $260 billion. But “no one at all can be sure the gold is really there except Fed employees with access,” said Ronan Manly, a precious-metals analyst at gold dealer BullionStar in Singapore. If it is all there, he said, the central bank has “never in its history provided any proof.” Mr. Manly is among gold aficionados who wonder if the bank is hiding something about what it’s hiding. Other theorists suspect the gold beneath the New York Fed’s headquarters at 33 Liberty St. may be gold-plated fakes. Some conspiracy-minded investors think the Fed has been secretly leasing out the gold to manipulate prices.

“There has to have been a central bank spewing their gold into the market,” said John Embry, an investment strategist for Sprott Asset Management in Toronto until 2014 who once managed its gold fund. “The gold price didn’t act right” during the time he was watching it and the likely explanation for the movement was Fed action, said Mr. Embry. Fed officials have heard theories about their gold holdings for many years and don’t think much of them. After this article was published, a Fed spokeswoman said the Fed doesn’t own any of the gold housed at the New York Fed, which “does not use it in any way for any purposes including loaning or leasing it out.” The Fed has been selective in giving details about the contents of the vault and in the past has said it can’t comment on individual customer accounts due to confidentiality agreements.

[..] The Fed gives some information about the vault on a website and offers tours. A guide on one tour gave some details: Inside is enough oxygen for a person to survive 72 hours, should someone get trapped; custodians wear magnesium shoe covers to help prevent injuries, should they drop 27-pound bars; the Fed charges $1.75 a bar to move gold but nothing to store it; most of the gold is owned by foreign governments. [..] Visitors on vault tours see only a display sample and can’t verify bars up close. “All you see is the front row of gold bars,” said James Turk, co-founder of Goldmoney, a gold custodian. “There’s no way of knowing how deep the chamber is or how many rows there are.” Mr. Turk, based in London, believes much of the gold has been “hypothecated,” or lent out to other parties, and then rehypothecated, or lent to multiple parties at once. In doing so, he says, “central banks actually own less gold than people believe.”

Read more …

A phenomenal mess lies in your future. Wait till various courts get involved, representing entirely different jurisdictions, different laws.

UK Risks International Court Case Over Theresa May’s Brexit Plans (Ind.)

Britain risks a new Brexit fight in international courts if it tries to quit the EU’s single market without giving other countries official notice, The Independent can reveal. Legal experts, including one who advised the Treasury, agree Theresa May will leave the UK open to legal action in The Hague if she pulls out of the European Economic Area (EEA) without formally telling its other members 12 months in advance, to avoid disrupting their trade. The notice is demanded by an international agreement, but ministers do not intend to follow the process because, insiders believe, they want to avoid a Commons vote on staying in the EEA – and, therefore, the single market – that they might lose. As well as the a court battle, experts warn the stigma from breaking the agreement could also make it harder for Britain to secure the trade deals it desperately needs to secure the economy after Brexit.

Pro-EU MPs hope the legal opinion will help persuade the Commons to force and win the vote on staying in the EEA planned for the autumn. The Government has insisted EEA membership will end automatically with EU withdrawal but former Treasury legal adviser Charles Marquand, said: “A failure by the UK to give notice of its intention to leave would, I think, be a breach of the EEA Agreement, which is an international treaty.” The barrister said it was difficult to predict how another EEA states might seek to take action, if it believed its single market rights had been removed wrongly. But he added: “I believe there is a potential for international proceedings. One possibility is the Permanent Court of Arbitration in The Hague.”

Read more …

Are we going to lock him up?

Greenspan’s Legacy Explains Current Conundrums (DDMB)

On Aug. 11, 1987, the U.S. Senate confirmed Alan Greenspan as chairman of the Board of Governors of the Federal Reserve System. Thirty years later, the fallout from that occasion is still being felt around the world as the central bank’s focus shifted under Greenspan from economics and the banking system to the financial industry. Greenspan’s first speech as Fed chairman took place less than a month into his tenure when he dedicated the Jacksonville, Florida, branch of the Atlanta Fed. Some 73 miles north of where he stood was Jekyll Island, Georgia, where the foundations of the Fed were first laid in November 1910. Rather than look back at the Fed’s roots, however, Greenspan peered into its future: “We have entered the age of the truly global marketplace. Today the monetary policy decisions of our nation reverberate around the globe.”

Those words resonate today as policy makers worldwide struggle to extricate themselves from extraordinary levels of market intervention. How did we get to the point where central bankers endeavor to resolve structural issues with the power of the printing press? Greenspan’s legacy provides the answers. It is notable that in the days before the Senate vote, President Ronald Reagan cited the “banking system” as one of the Fed’s primary responsibilities. While Greenspan included banking system stability as one of the “instrumentalities” of the government’s designs of the Fed, he emphasized that the Fed was “NOT just another federal agency.” The Fed was also a leader “within the financial industry.” It wouldn’t take long for the financial system to stress test Greenspan’s resolve. On Oct. 19, 1987, the Dow Jones Industrial Average dropped 22.6% in what remains the steepest one-day loss on record. From his first day in office to that October closing low, the Dow was down by 35%.

Few recall that Greenspan was in the air on his way to Dallas during the worst of Black Monday’s selloff, where he was scheduled to address the American Bankers Association convention the next morning. It wasn’t until he landed that he learned of the day’s events. Against his wishes, Greenspan never made it to the podium; he thought the better way to communicate calm was by maintaining his scheduled appearance. Compelled back to Washington due to the gravity of the situation, Greenspan issued the following statement in his name at 8:41 a.m. that Tuesday, less than an hour before stocks opened for trading: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

Read more …

Best reason ever for a Universal Basic Income.

Social Security Requires Bailout 60x Greater Than 2008 Bank Bailout (Black)

A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money. Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone. But that didn’t happen. The story was hardly picked up. It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history. That’s not hyperbole either– the numbers are very clear.

The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION. In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout. Fat chance. That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy. Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008. So this is a pretty big deal. More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic. In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future. What will interest rates be in the future? What will the population growth rate be? How high (or low) will inflation be?

These variables can dramatically impact the outcome for Social Security. For example, Social Security assumes that productivity growth in the US economy will average between 1.7% and 2% per year. This is an important assumption: the higher US productivity growth, the faster the economy will grow. And this ultimately means more tax revenue (and more income) for the program. But -actual- US productivity growth is WAY below their assumption. Over the past ten years productivity growth has been about 25% below their expectations. And in 2016 US productivity growth was actually NEGATIVE.

Read more …

Venezuela is dead simple. It has the largest oil reserves on the planet. Chavez kept Exxon and CIA out. Now they’re moving back in.

All Is Not As It Seems In Venezuela (Ren.)

An opposition backed by Exxon Mobil, a failed military coup that killed 40 people, staged photo-propaganda designed to create the perception of a failed state: Foreign powers have conspired to create the perfect conditions for yet another western ‘humanitarian’ intervention, this time in Venezuela. Former US Army solider turned documentary-maker, Mike Prysner, says the reality of Venezuela is very different from what we are being fed by the western press. [..] When I heard that Jeremy Corbyn had condemned violence on both sides in Venezuela, I was angry at first – because 80% or more of the violence is being committed by anti-government protesters. Their violence has far surpassed anything committed against them – and what has been done to them has been deliberately provoked. But then I began to recognise the skill in his statement – forcing everyone to confront the reality of what’s happening on the ground there. The reality bears little resemblance to what’s being presented to people.

The BBC is responsible for some of the most disingenuous portrayals. They’re showing violent protesters as if they’re some kind of defenders of peaceful protesters against a repressive police force, but in reality peaceful protests have been untouched by police. What happens is that the Guarimbas (violent, armed opposition groups) follow the peaceful protests and when they come near police, they insert themselves in between the two. They then push and push and push until there’s a reaction – and they have cameras and journalists on hand to record the reaction, so it looks like the police are being aggressive. We were once filming a protest and a group of Guarimbas challenged us. If we’d said we were with teleSur, at the very least they’d have beaten us and taken our equipment. But we told them we were American freelance journalists – they need Americans to film them and publicise them, so we were accepted.

The battles with police are actually quite small, but they’re planned, co-ordinated to disrupt different area each day to maximise their impact – but in most places life is pretty normal. It’s all about the portrayal. The US media mobilise everything for Guarimbas – there will be maybe 150 people but it’s made to look bigger and tactics are 100% violent – trying to provoke a response. And the level of police restraint is remarkable – the government knows the world is watching. One evening protesters were burning buildings for around two hours, with no intervention by the police. They only react when the protesters start throwing petrol bombs at the police or military, or their bases – but as soon as they do react, the Guarimbas film as if they’re victims of an unprovoked attack.

Read more …

Over 200 a day into Québec alone.

Asylum Seekers At Canada Border Tents Unfazed By Delays, Uncertainty (R.)

Asylum seekers, mainly from Haiti, clambering over a gully from upstate New York into Canada on Friday were undeterred by the prospect of days in border tents, months of uncertainty and signs of a right-wing backlash in Quebec. More than 200 people a day are illegally walking across the U.S. border into Quebec to seek asylum, government officials said. Army tents have been erected near the border to house up to 500 people as they undergo security screenings. Over 4,000 asylum seekers have walked into Canada in the first half of this year, with some citing U.S. President Donald Trump’s tougher stance on immigration. The cars carrying the latest asylum seekers begin arriving at dawn in Champlain, New York, across from the Canadian border.

On Friday, the first groups included two young Haitian men, a family of five from Yemen and a Haitian family with young twins. “We have no house. We have no family. If we return we have nowhere to sleep, no money to eat,” said a Haitian mother of a 2-year-old boy, who declined to give her name. Each family pauses a moment when a Royal Canadian Mounted police officer warns them they will be arrested if they cross the border illegally, before walking a well-trodden path across the narrow gully into Canada. Asylum seekers are crossing the border illegally because a loophole in a U.S. pact allows anyone who manages to enter Canada to file an asylum claim and stay in Canada while they await their application outcome.

Because the pact requires refugees to claim asylum in whatever country they first arrive, they would be turned back to the United States at legal border crossings. They Haitian family is arrested immediately and bussed to the makeshift camp. Border agents led a line of about two dozen asylum seekers on Friday into a government building at Saint-Bernard-de-Lacolle to be processed. The Red Cross is providing food, hygiene items and telephone access, spokesman Carl Boisvert said. He estimated the fenced-off camp, which has been separated into sections for families and single migrants, is about half full. Border staff and settlement agencies are straining to accommodate the influx, which has been partly spurred by false rumors of guaranteed residency permits.

Read more …

The values of our own lives are set by how we value other people’s lives.

People Smugglers Pushing Refugees To Their Deaths At Sea Off Yemen (Ind.)

At least 19 migrants are presumed to have drowned after 160 people were forced from a boat into rough seas off the coast of Yemen by smugglers in what may be a worrying new trend, the UN migration agency has said. The report from the International Organisation for Migration came less than a day after it said up to 50 migrants from Ethiopia and Somalia were “deliberately drowned” by smugglers who pushed them from a separate boat off the coast of Shabwa province in southern Yemen. “We’re wondering if this is a new trend,” Olivia Headon, an IOM spokesperson, told The Independent. “The smugglers are well aware of what’s happening in Yemen, so it may just be they’re trying to protect their own neck while putting other people’s lives at risk.” Six bodies were found on the beach, while 13 remain missing, presumed dead, Ms Headon said.

Read more …

Feb 232017
 
 February 23, 2017  Posted by at 2:47 pm Finance Tagged with: , , , , , , , , ,  


Times Square New York City, 1958

 

A few days ago, I wrote an essay entitled “Not Nearly Enough Growth To Keep Growing”, in which I posited, among many other things, that “..the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s” along with the question “..was America at its richest right before or right after Nixon took the country off the gold standard in 1971?”

That same day, I received an email from (very) long time Automatic Earth reader and afficionado Ken Latta, who implied he thought the peak of American wealth was even earlier. That turned into a nice conversation. I really like the way his head works to frame his words. And Ken knows what he’s talking about by grace of the fact that he was a witness to it all.

I like that he defines wealth as “best measured by the capacity to be utterly wasteful”, and the early 1960’s in America as “a golden age, overshadowed, of course, by excess hubris.”. And I wonder many of you would agree that America was at the summit of its wealth perhaps as much as 55-60 years ago?

Here’s his first mail:

Ken Latta: Ilargi, A darned good editorial, but I would like to suggest a different baseline for America’s peak wealth. As experienced by the common man, now pronounced “deplorable”.

In my humble estimation based on having been there at the time. Peak wealth occurred somewhere in the neighborhood of 1963. It was a time when the Beach Boys and their music biz competitors were making money with songs about hi-powered cars and a life of surfing waves. Working Joes bought those cars and drove them on the street. Those on the coasts spent inordinate amounts of time surfing. A lot of ordinary car buyers were committed to trading in every three years. Some of the better off even thought every two years was the way to go. We wuz feelin invincible and we enjoyed such a comfortable way of life without forcing the majority of our wimmin into wage slavery. It was a golden age, overshadowed, of course, by excess hubris.

The national perception of wealthiness was such that the Pedernales Poltroon (LBJ) felt emboldened to declare simultaneous war on Poverty and Viet-Nam. When both had finished kicking our ass, wealth was something only to be found in the future. The best and the brightest immediately set about creating ways to steal that wealth. Most of the female population faced a choice between wage slavery or more privation than they were prepared to tolerate.

So, here we are in that future with the wealth thoroughly plundered and nothing much more comforting to anticipate than a new version of iPhone. Wealth is best measured by the capacity to be utterly wasteful and today for a large segment a new phone seems to be close to the limit. As for a big segment of new car buyers, instead of trying to calculate the optimal trade-in period, many focus on hiding it from the repo man.

To which I replied:

Yeah, there’s a good argument to be made for 1963 as well. But then, the whole Woodstock thing seems similar to that, in the terms you use. The carefree and wasteful. Where did the hippies get the time to be hippies? Then again, you could argue that Woodstock was already a first protest against that very attitude. On the finance front, Nixon couldn’t pay back everyone in gold anymore, so that’s a bad sign right there. His 1971 move was born of necessity.

And Ken said:

Ken Latta: I just picked 1963 because it happened to be a significant year for me personally. I don’t think it really useful to think of peaks as being so much like a curve with zero radius. I’d really put the period of peak actual American wealth as approximately 1958 to about 1967. Being a hippy didn’t cost much and in most cases their parents could comfortably provide their essentials. Hippies weren’t opposed to working, when they needed to, and they generally existed within a sharing economy.

Yes, Nixon had no choice on closing the gold window. The rumors of Fort Knox vault being more or less empty might well be true. What we know is that in recent times we always steal the bank gold from our conquests. Somali pirates are second raters in comparison.

I suspect that an important factor behind the gold rush might have been a consequence of an MIC logistical move prior to our little Viet-Nam adventure. A huge stockpile of decommissioned WW-II bomb casings had been sold for scrap to European companies. You know since we weren’t going to fight any more non-nuke wars. The Pentagon desperately bought them back because we had very limited production capacity at the beginning of the project for rapid promotion of military officers. That must have created a pretty big pile of Eurodollars and de Gaulle seems to have preferred gold.

When Tricky closed the window we were already poor and Detroit’s new cars were almost without exception, junk. They like to credit news anchor Walter Cronkite for ending the war when he told his audience that the war couldn’t be won. I suspect we was put up to it by Washington when they could no longer ignore that it was unaffordable. It has been downhill ever since. The borgified media cooperated in obscuring that by focusing our attention on acts of petty criminals, acts of god, the Kardashian sisters and their ilk. Plus, of course, random examples of techno dazzlement.

That’s when I thought getting an article out of him would be great:

You should write an article about this. It’s the most crucial thing, and I wasn’t there. Why that period was what it was, vs not being what this one is, will be a very big story.

And he complied. So here’s Ken Latta:

 

 

Ken Latta: A recent post on The Automatic Earth contained a question regarding the point of peak wealth in The United States and whether President Nixon’s closing of the gold window initiated the decline. Being now 73 years old and still able to recall many impressions of that era, I pondered the issue to see if I might come up with a somewhat acceptable answer.

Back in the day we commonly joked that statistics lie and we have the numbers to prove it. Us having the numbers was the joke part. When it comes to concepts like wealth, I do not see numbers such as GDP as being reliable indicators. As the French and Russian revolutions revealed, a grossly unequal society is a poor society. Though it might display an image of being rich and powerful, that is only a mirage.

As was once common knowledge to most Earthlings, the 1930’s saw wealth disappear all over the world. That was the common view, but it is wrong. The social wealth was well and truly squandered during the first three decades of the twentieth century. The creeping social impoverishment just burst into public view in the 30’s. As is the custom, when poverty haunts the land barbarians will appear at the gates. And so the first half of the fifth decade was devoted to destroying as much of civilization as was deemed feasible at the time.

The USA government borrowed massive amounts of money to create the means of wreaking such havoc. There are always consequences from such actions. At the beginning of USA mobilization almost all of its industrial capacity was re-engineered and expanded to efficiently produce war materiel. The factories hummed and employed large numbers of women on the production lines. A consequence was the very limited availability of consumer goods, which were subject to rationing. With steady pay envelopes and little available to buy, lots of small denomination war bonds were sold to the populace. We might assume that some of it found its way into mattresses.

 

When peace broke out the populace had surplus cash and claims against the government. They were exuberant over victory and tired of not having anything new to enjoy. Millions of men were being discharged from the armed forces and those young factory girls wanted some babies. Those men would replace many of the women in the factories, but the factories needed to retool again to produce the consumer goods everybody wanted. Part of the new consumer demand was met by selling military surplus goods to the public. A lot of jeeps, trucks, industrial tools, materials such as steel panels for Quonset Huts and even light aircraft and cargo planes ended up in the hands of former GI Joe’s.

The Industrial Concerns gained another respite when President Truman signed an executive order declaring the USA would be forever more a permanent war economy. So outfits like Boeing, Douglas, Lockheed, Martin et al could keep right on producing large numbers of warplanes. Shipyards continued building aircraft carriers, submarines, etc. New versions of battle tanks rolled off the lines every few years. And of course, the nuclear devices kept getting more powerful and numerous.

Those GI Joe’s had experienced in the services a sense of brotherhood and unity in the face of us versus them. They brought those ideas into the factories and cemented the gains made by prewar union organizers. Very lucrative contracts were forced on employers and for once national wealth was being spread fairly evenly across social strata.

 


Ad for Ford Woodie, 1960

 

The working class began to feel sufficiently wealthy that they turned to indulging their fantasies and emulating as best they could the actions of the truly rich. Around the middle of the 1950’s they increasingly opted for more luxuriously appointed and/or higher performance cars and trucks than the economical versions that had been the norm for that class. Many also embraced the published suggestions that these vehicles should be traded for a new one every three years, which at that time was the standard term for auto financing.

In other words, why enjoy the net worth benefits of driving a paid for vehicle when you could enjoy the increased status of once again driving a brand new car. The propaganda was quite effective and the practice quite wasteful. They discovered the joys of power boating and over time the boats kept getting bigger and fancier. It is with much justification that this period is often described as the Golden Age. It wasn’t just that so many people were living well. It was a time when the working class seemed to have been most comfortable with their civilization. I put it down to people having full permission to be as wasteful as they wanted.

 

It could not last. The rulers filled with hubris arrogantly declared simultaneous war on poverty, Viet-Nam and the Moon. While also running a bodacious arms race with the USSR. At first it seemed to bode well for old GI Joe. The already very active military industries had to gear up to supply the weapons, munitions and materiel. Not to mention moon rockets. More good jobs to be had. But, as it turned out only the Moon war went mostly as planned. Though there were casualties. The flamboyant Gus Grissom and two crew mates were burned alive in a sealed Apollo capsule while waiting for launch. The Moon war ended with a unilateral cease fire when it was finally determined there was nothing there worth destroying. Aside from some junk scattered across the Lunar landscape, the Moon was left largely unmolested. Except for a few pounds of stolen rocks.

The other two wars unleashed a whole lot of grief across the land. GI Joe found himself looking out across a land he no longer understood. His kids had become hippies, freedom riders and flag burners. A good many had fled to Canada. The kids that failed to avoid the draft, after too many bad experiences in pursuit of an apparently phantom goal started behaving mutinously. A not entirely rare action was to slip an armed hand grenade into an officers tent. It happened to a young Marine officer who the author had met at my fiancée’s family home prior to his shipping out.

 

The Golden Age was over. Worse yet, petroleum geologist M. King Hubbert’s prediction of a peak of US oil production in the early 70’s was about to come true. Confidence began to wain and habits changed. Auto buyers increasingly focused on finding a model that might last long enough to get it paid for and be economical to operate. The door was opened for Japan and Germany to sell cars here and they soon sold a lot of them. US manufacturers fell victim to a labor force that no longer believed and management hubris.

The nation was hemorrhaging dollars to Europe, Japan and the OPEC cartel. According to the Bretton Woods agreement, those dollars were convertible to gold. Some nations, in particular France under de Gaulle, decided they wanted the gold. As the gold pile diminished, Nixon had no choice and closed the so called gold window thus breaking the Bretton Woods agreement. The subsequent creeping expansion of poverty and financial insecurity has reduced our civilization to a sullen mockery of its glory days.

The period following WW-II was anomalous for the era in that the State was encumbered with enormous debt while private debt was very modest. According to economists like Michael Hudson and Steve Keen, that is a recipe for citizen prosperity. The post war era seems to be a good example. Prior to the war state debt had been very low and private debt had swollen enormously. That ended rather badly. As Keen insists, private debt is a killer. A good reason being for example that it’s hard to repossess a government, but things like cars and houses are fairly trivial exercises.

When people see themselves as at constant risk of losing almost everything they are rarely happy campers. During the 70’s buyers and their lenders began offering ridiculous prices for houses. Car dealers often marked desirable new cars above MSRP. In the years that followed almost everything was bought on credit. To paraphrase Sen. Dirksen, a debt here a debt there after a while it turns into a real nightmare.

 

According to Dr. Hudson, in ancient Babylon credit was widely used. The principle creditors were the palace and the temple. It mostly consisted of running a tab for citizens using their services and buying supplies and typically paid when the crop came in. A practice of our small town grocer back in the 50’s. Though not for such extended periods. The custom of their civilization was, on ascension of a new king or crop failure or a war, to forgive all the palace and temple debts. This was deemed necessary to prevent too many of the population from falling into bondservitude, which would have brought down the kingdom.

In more recent times that was called a debt jubilee. It could work because most debt was owed to entities that had ultimate claims on all wealth in the domain. They could handle writing off debt without suffering bankruptcy. Private creditors, written as banksters, cannot do so unless the Palace (White House) and Temple (Federal Reserve) pay them full price for their worthless paper. In 2008 even the intellectually challenged GW Bush observed that ‘this sucker could go down’. I would never bet that it won’t go down next time, which could be most any time now. The barbarians are already wearing war paint (well actually pussy hats) and brandishing war clubs (signs on sticks). One can guess that unaccredited schools may already be training a cadre of mixologists in the proper preparation of Mr Molotov’s favorite cocktail.

It seems like a cosmic joke that Hammurabi and his ilk had better economic advisors than any of our modern meathead leadership. Of course, in his time civilization and turning wasteful practices into wealth was still a fairly new idea. It’s an old idea now apparently closing in on its pull date. I am drawn to wonder if civilization could ever have worked any other way. I’m calling it not very likely.