Sunday, November 29, 2015

Financial Repression - Negative Interest Rates
Will Destroy Capitalism
Or Whatever Is Remaining Of "Capitalism"
"There cannot be any question of abolishing interest by any institutions, laws, or devices of bank manipulation. He who wants to “abolish” interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such decrees would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty."
- Ludwig von Mises (1881-1973)
LINK HERE to the essay
Federal Reserve Interest Rates 
To Go Up, Then Down?
Peter Schiff*, Euro Pacific Capital, says even if the Federal Reserve hikes in December, the next move might be to lower interest rates again .. 5 minutes
The Importance 
Of The Store Of Value
Argentinian-born money manager stresses the importance of currencies .. CEO of Bitcoin investment firm Pantera with Wences Casares, an Argentinian Founder of Xapo & one of the pioneers of bitcoin says his family's wealth has evaporated 3x due to hyperinflation, devaluation & confiscation .. this has led him to bitcoin .. "There are more people in the world who need a currency they can trust, than there are people in the world who can trust their currency." .. [Cliff Note: We see an emergence of cryptocurrencies in the financial system as providing key advantages on payment systems like bitcoin .. though a disadvantage of bitcoin is the lack of it being a store of value like gold, bitGold .. bitcoin is not backed by either a commodity or by the faith & credit of a government - some see this as an advantage, some see this as not being a store of value.]
LINK HERE to the article
Geo-Politics & Economics
Mish Shedlock* & Gordon T Long* discussion on the Paris attacks, Middle East wars & the ramifications for the economy & the financial system .. Global trade has slowed dramatically on a value basis (think corporate cash flows) & it is being felt on earnings & investment decisions!. U.S. freight & shipping data suggests that slowing global trade has "washed ashore" in America .. "I have been surprised for sometime that the sub-prime auto party hasn't ended by now, and it hasn't! It is like the energizer bunny that just keeps on ticking" .. "Typically banks react too late, after most of the damage has been done. It's the same every cycle. By the time credit is available to those on the bottom rung, the party is about over. Regardless, and as I have pointed out numerous times, the surge in autos is one of the few things holding up consumer spending and is also the only bright spot at all of manufacturing. What cannot go on forever won't. And it's nearly the end of the line for autos. Repercussions will be deeper than economists expect!" .. 33 minutes

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Saturday, November 28, 2015

Chinese Debt Snowball 
Gaining Momentum
"Financial crises can happen quickly, like the bursting of the tech stock bubble in early 2000, or slowly, like the late-1980s junk bond bust. The shape of the crash depends mostly on the asset in question: Equities can plunge literally overnight, while bonds and bank loans can take a while to reach critical mass. China’s bursting bubble is of the second type. During its infrastructure binge, trillions of dollars were lent to (way too many) producers of cement, steel, chemicals and other basic industrial inputs. And now a growing number of them can’t make their payments .. What happens next? In the standard script, defaults begin to snowball as companies unable to pay their off bonds, bank loans and supplier bills cause their creditors to either fail or scale back lending, which impairs other leveraged companies, and so on, until things get out of hand. Then the government either steps in and tries to bail out what’s left of the market or stands aside and allows the bad debt to liquidate . Lately everyone has been choosing option number one, which means socializing the private sector’s debt by recapitalizing banks and borrowers with government funds. This averts a crisis in the moment while setting the table for an even bigger mess in the future. It’s a safe bet that China, following the developed world’s lead, will soon toss a big chunk of its foreign exchange reserves at the problem. When this fails, the next steps include QE and negative interest rates, which take money from savers and retirees and give it to banks, again with the hope of moving the inevitable crash to some later date. The result? An even more highly-leveraged world and Potemkin markets that look real but no longer are."
- John Rubino*
LINK HERE to the commentary
Dr. Paul Craig Roberts* On 
Russia, Turkey, NATO & Where It's All Heading!
on the Richie Allen Show .. 32 minutes

Debt Bomb Ticking For U.S. Shale
Energy Intelligence report on how the U.S. energy sector could be on the cusp of a massive default & bankruptcy cycle so big it "poses a serious threat to the U.S. economy" .. "Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and with every dollar of income going to service debt at many heavily leveraged independents, there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further."
LINK HERE to the report
Jim Willie: $1 Trillion/Month 
In Reverse Repos Keeping Zombie System Alive
Wall St for Main St the editor of The Hat Trick Letter Jim Willie ..  discussion on geo-political issues, oil & the Federal Reserve .. Christine Lagarde of the IMF seems to approve of the RMB going into the SDR very soon but the U.S. government appears committed to blocking the RMB into the SDR. How much longer can the U.S. government block the RMB going into the SDR? .. will blockchain technology be the basis of a cashless society? .. will currency swaps be the main bailout tool for central banks going forward? .. almost 2 hours
[Cliff Note: Jim Willie is somewhat on the fringe; we do not agree with some of his statements, but he does make some very interesting observations occasionally - worth a listen.]
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Friday, November 27, 2015

The World Is Collapsing In Geo-Political & 
Financial Chaos With $200 Trillion In Debt 
That Can Never Be Repaid
"Commodity prices are plunging, the dollar is powering higher, the yield curve is flattening, ObamaCare is collapsing, global trade is plummeting and terrorism is spreading across the globe. The high yield credit markets are sending distress signals and 10-year swap spreads are negative. Energy companies are going out of business faster than you can say 'frack' and trillions of dollars of European bonds are again trading at negative interest rates. The world is drowning in more than $200 trillion of debt that can never be repaid while European and Japanese central bankers promise to print more money and the Federal Reserve is being dragged kicking-and-screaming into raising interest rates by a paltry 25 basis points. Accurate pricing signals in the markets are distorted by overregulation, monetary policy overreach and group think. Hedge funds are hemorrhaging and investors, desperate to generate any kind of nominal return on their capital, continue to ignore the concept of risk-adjusted returns. Some market strategists believe this is a positive environment for risk assets; I am not among them."
- Michael Lewitt, The Credit Strategist
LINK HERE to the reference
Sandy Sandfort, Michael Pento: 
'Buy & Hold Gold'
The Daily Bell essay describes the thoughts of free marketeer Michael Pento on the benefits & drivers of gold relative to the U.S.$ .. "Michael Pento suggests that Wall Street money managers ought to look at the intrinsic value of the dollar rather than an index like the DXY. He states clearly that one ought to examine "the level of real interest rates, the rate of growth in the money supply and the fiscal health of the U.S. government. When analyzing the dollar using those metrics, it becomes clear that the intrinsic value of the dollar is eroding and, therefore, should cause the dollar price of gold to increase regardless of what is going on with other fiat currencies .. Other places in the world are more comfortable with gold and silver. China and India contain a consuming public with a sustained demand for precious metals. In the West, however, official antagonism to gold has retarded the public's interest in the yellow metal and it has also caused a good deal of distrust when it comes to how gold is priced and traded. This may be changing, finally."
LINK HERE to the essay
The Federal Reserve's Stimulus
Hurts Ordinary People
Mises Institute posted essay refers to the recent letter to the Federal Reserve from the "savers of America" written by Ralph Nader .. the letter emphasizes how savers & retirees have been shafted by very low interest rates on bank accounts & fixed income investments .. it's financial repression .. it's the result of the unintended consequences of central bank & government policies & financial reform/regulations .. the essay makes a few great points to counter those seeing the "positive" short-term boom aspects of central bank money printing: "If Yellen is asserting that things are more affordable because it's easier to borrow cheap money, then she's just ignoring the trade-offs involved. Low interest rates and inflation mean that people must borrow more because it's far more difficult to save under those conditions. Yes, debt is cheaper, but people must also take on more debt because it's so difficult to save or make money off investments unless you're not already rich. And, of course, this just applies to people who are at a stage of their life where it makes sense to take on more debt. If you're old or on a fixed income, all you're getting from the Fed is a huge 'screw you.' Moreover, when it comes to affordability of everyday, things, who is Yellen kidding? Home price growth and rent growth are at historic highs. Are we to believe that immense growth in rents and mortgage payments (the largest single expense for families) are a good thing for families? For people who already own homes, rising home prices are often a hurdle that can be overcome. But for people who don't already own real estate, there's little hope of buying one under these conditions. Surely, the Fed has played no small part in driving the homeownership rate in America down to a 30-year low. And again, if you're retired: good luck. You're gonna need it. Yellen no doubt believes that wages are higher because of Fed intervention. But in a world of sky-high rents, real wages are in fact lower."
LINK HERE to the essay
LINK HERE to our recent related post
SocGen's 5 Black Swans For 2016
- Brexit at a probability of 45%, remains our highest probability risk
- China hard landing remains a significant risk at 30%. .. The most likely trigger for a China hard- landing is policy error with miscalculation of how much financial risk management or structural reform the system can absorb. We identify three main triggers .. Credit crunch; Dry-up in housing demand; Capacity overhang 
- China hard landing and/or a renewed EM crisis are both potential triggers for a shock that could trigger global recession (10% probability)
[- Consumers hold the key to recovery in the advanced economies. We place a 25% probability on the risk that consumers in the advanced economies save more of the gains in real disposable income than we expect
- "Fed hikes to late"
LINK HERE to the analysis
Over-Regulation & Regulatory Capture
On The Economy & The Financial Markets 
Peter Schiff* & Stefan Molyneux discussion on the role of government regulation in the economy & the financial system .. are government agencies & regulation serving the interests of the banks & big corporations, preventing healthy competitiveness .. did over-regulation cause the financial crisis? .. 51 minutes