Sunday, March 29, 2015

High Debt &
Low Economic Growth
In his latest letter, John Mauldin* refers to a McKinsey report on debt & economic growth .. quotes: "High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions." .. thinks the imbalances in the world today are the result of massive increases in world debt & a misunderstanding about the use & consequences of debt - "Too much of the wrong kind of debt is going to be the central cause of the next investment crisis. As I highlighted in my February 24 letter, the right type of debt can be beneficial. However, as the McKinsey Report emphasizes - 'High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.' 
Read that again. This isn’t the Mises Institute. This is #$%%*# McKinsey.
As establishment as it gets. And they are clearly echoed by the BIS, the central banker’s central bank. Unless this time is different, they are saying, the high levels of debt are the reason for slow growth in the developed world, a point we have highlighted for years. There is a point at which too much debt simply sucks the life out of an economy."
Click "Mauldin March 28" to download Mauldin's letter (may need to provide your email address), or hit "View Fullscreen" at the bottom next to the Scribd logo to enlarge viewing .. John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
U.S. Oil Production 
Stops Growing In March
Seeking Alpha article points out the EIA thinks U.S. oil production would peak in the March-April 2015 timeframe which is now .. "Shale oil production in the United States could potentially stop growing as early as...now. As in March 2015. The information came out in the EIA's latest Drilling Productivity Report which was published on March 9, 2015. The report predicts that US shale production in the month of April will exceed March by only 1,000 barrels per day (bopd). 1000 bopd on 9.2 million bopd overall production is a wash, in my books. Then only three days later, on March 12, the state of North Dakota announces production from the Bakken Shale actually declined 3.3% to 1.19 million bopd, down from a record 1.23 million bopd in December. If what the EIA says is true, it is big news and could significantly change the market's view of future oil prices .. Without the big rise in U.S. shale oil production in the last 5 years, the world could have seen $150-$200/barrel oil and a big global recession."
LINK HERE to the article
A Tale of Two Americas. 
And the mini-mart where they collided
Sunday Night Special
Ten days after 9/11, a shocking attack at a Texas mini-mart shattered the lives of two men: the victim & the attacker. In this stunning talk, Anand Giridharadas, author of The True American, tells the story of what happened next. It's a parable about the two paths an American life can take, & a powerful call for reconciliation .. 19 minutes
Complacency Reigns Supreme
--Nothing Can Possibly 
Go Wrong, Right?
Charles Hugh Smith* sarcastically advises buying the stock market in the face of insane absurdity in the volatility index - by historical standards, this index is now so low that even small scare selloffs in the market only allow it go a little bit higher, prompting the Federal Reserve to come to the rescue . "This is the logical result of central banks constantly 'saving' equities every time they swoon the slightest bit: traders and punters know that the Fed making reassuring sounds is all that's needed to reverse any decline and restart the Bull advance. But a couple of things have changed recently. The QE baton has been passed from the Fed to the European Central Bank (ECB), famously ready to do 'whatever it takes,' but the ECB's QE bond-buying hasn't triggered the global rally that many expected. Secondly, China is rolling over the first time in six years. The engines that pulled the global economy out of the hole in 2009--the Federal Reserve and China--have stopped, and there are no equivalent engines warming up. So by all means, buy the dip now that the VIX soared in full-blown panic from 12 to 17. Nothing can possibly go wrong as long as a Fed flack stands ready to spew the same old assurances of 'whatever it takes' into a microphone."
link here to the analysis
De-Dollarization Continues 
As Russia Seeks AIIB Membership
Russian President Vladimir Putin is backing a Russian bid for membership in China's Asian Infrastructure Investment Bank (AIIB) ..  Zero Hedge commentary: "To make a long story short, everyone but the U.S. and Japan are on board and Japan is seriously considering a bid. The question now is not whether de-dollarization is progressing or whether a shift away from U.S.-dominated multinational institutions is in the offing, but rather whether China will be aggressive about using the AIIB to begin a push towards yuan hegemony. Of course Beijing is playing down the idea that it will use the new development bank as a means of advancing China’s global footprint, but as we noted on Thursday, actions speak louder than words."
LINK HERE to the article
LINK HERE to the commentary
"The Federal Reserve 
Is Backed Into A Corner
Equities Are My Biggest Liquidity Worry"
Fund manager Kyle Bass*: "The unintended consequence of QE has been to widen the income gap" .. discusses how the Federal Reserve is 'backed into a corner' of raising rates against their will, why long-term bond yields will drop further .. income/wealth inequality: "QE has been distributive to the rich... but now that the world has started this policy it is unable to end it" .. on the next recession: "The next recession will be a hard one because the tools in the toolbox are not there to avert a severe downturn." .. 39 minutes
click to enlarge
Letter Exposes HSBC Vault Closures 
As the War In Gold 
Continues To Rage
Eric King interview & article with London metals trader Andrew Maguire on the factors playing into the paper & physical precious metals markets .. "The key thing here is that the physical markets are now changing continents and are increasingly out of the control of the Western bullion banks." .. on China's gold strategy: "China has now accumulated enough physical gold that they are nearing the point where they will seek to revalue the price of gold significantly higher. This is now obvious as they are openly putting up billboards about a gold-backed global RMB currency."
Discussion in this article of a likely coming cash settlement on futures exchange-based gold contracts which will likely reset the price of gold significantly higher .. Eric King: "Andrew, King World News has made 5 phone calls to HSBC, but so far HSBC has refused to issue any public statement or press release regarding the closure of their 7 vaults in London. If you look at the letter below, it was made public by an individual at Quilter Cheviot, one of the largest asset management companies in Europe, with roots dating back to 1771 (see below):
That letter was from a sub-custodian storing gold bullion for clients in HSBC vaults. In the letter they state that 'HSBC Bank Plc are closing all their vaults,' and that the vault closures are forcing them to relocate their gold stock. From the letter: 'We wish to inform you that HSBC Bank Plc are closing all their vaults including 31 Holborn, London EC1N 2HR. Therefore we shall be moving all the above-mentioned stock by Secured Delivery to new vaults in April 2015 to the address below.' Maguire: "There was some misinformation released this week by an individual who acted as a mouthpiece for HSBC. We already covered the correct HSBC information in our March 10th KWN interview. Regardless, as you can see from the letter, clearly this has to do with HSBC vault closures, not just 'retail safe deposit boxes.' Also, faced with only two months notice, some clients did in fact choose to sell their gold, rather than face the logistics and expense of moving it."
LINK HERE to the article
LINK HERE to a prior article
LINK HERE to the related podcast
David Rosenberg*:
Big Obstacles Facing
The Stock Market
1. Earnings momentum has slowed. Bottom-up consensus forecasts for S&P 500 operating earnings growth in the first quarter have fallen to -3.1% from +5.3% year-over-year.2. Valuations are high. The trailing P/E ratio is 20x, compared to the long-run norm of 16x.
3. Economic data has been disappointing. The Citigroup Economic Surprise Index is at the lowest level since August 2011, and in that month, the S&P 500 dipped in a way that led some to think the economic cycle was turning.
4. The strong dollar is hurting profits. "There is such a thing as too much of a good thing," Rosenberg wrote, & the dollar bull market is not over.
link here to the article
A Bubble in Monetary Policy
recommended cartoon by Mish Shedlock*
click to enlarge
Absolute Bottom
in the Gold Sector?
Palisade Radio interviews Jeb Handwerger on precious metals .. discussion on how Apple & other NYSE majors are completely dependent on rare earth metals . why uranium supply/demand fundamentals has no correlation to oil & gas prices .. what are the major catalysts which are increasing the demand for yellow cake? . general stock market – why Jeb is certain it has reached parabolic highs after a prolonged bull market .. If this is the bottom in the gold sector, are you ready for million dollar profits? .. 19 minutes
click to enlarge
Will Cash Always Be Trash, 
Or Will It One Day Be King? 
Charles Hugh Smith*:
"At present, cash is trash: cash earns almost no yield, and in some countries it now earns a negative interest rate, meaning it costs you to park your cash in a bank .. What would have to happen for cash to be transformed from trash to 'cash is king'? The basic answer is: all the risk-on credit/asset bubbles that have richly rewarded those who have speculated with borrowed money will have to implode and be impervious to central bank attempts to re-inflate the bubbles .. What conditions would have to be present for credit/assets to implode and not recover? Here are some possibilities:1. Credit growth falters.
2. Borrowing dries up (despite abundant credit).
3. A global scramble for cash to pay debt and the costs of lavish lifestyles triggers the liquidation of risk-on assets.
4. The risk-on assets go bidless, i.e. nobody wants luxury yachts, super-cars, estates, etc. at any price because the value is plummeting.
5. As phantom wealth evaporates, everyone realizes the collateral propping up the mountains of debt is either impaired or non-existent.
When the phantom wealth evaporates and risk assets go bidless, cash will once again be king, for the simple reason there will be so little of it. When the opposite of the present dynamic is 'impossible,' then the 'impossible' becomes not just likely but inevitable."
LINK HERE to the essay
James Grant*:
"Risk can be usually found
where you are not
looking for it"
James Grant* of Grant’s Interest Rate Observer discusses risk in the markets & the Federal Reserve .. 5 minutes
Investors fly away from U.S. 
Stock Funds at a rate last seen 
During the Financial Crisis
MarketWatch sees evidence that the "leave-America-for-Europe" trade is alive & well among stock investors at least for now .. "Back in 2013, 'euphoric inflows' to Japanese equity funds peaked about eight weeks after quantitative-easing efforts were announced there, and European flows could end up following that same path."
LINK HERE to the article
Remember the Last Time 
people got paid to borrow money? 
It didn’t end well
Sovereign Man highlights how many are now chasing the latest investment fad, characterized by high risk & the potential for only very little return .. "This is what happens when interest rates are effectively zero… or even negative as they are in certain cases in Europe. We’ve talked about this before— Europe has such dangerous financial incentives now that in certain cases there are SAVERS who are paying the bank to deposit their money, and BORROWERS who are being paid by the bank to go into debt. It’s completely upside down .. Now interest rates literally are negative. Most notably, you have to pay money for the privilege of loaning your savings to bankrupt governments." .. 25 minutes podcast
LINK HERE to the podcast
link here to the article
click to enlarge