Wednesday, October 22, 2014

European Bond Market Could 
See A Stampede For The Exit
"What ECB President Mario Draghi’s undeliverable pledge actually did was to incite the fast money crowd into frenetic peripheral bond buying on the usual front-running presumption that smart guys buy now what the central banks announce they will be buying later. Soon the prices of these sovereign junk credits were ripping higher, and the rest of the market piled on—- especially the very same Spanish and Italian banks .. .. That means that virtually any unexpected catalyst could start a run on the trillions of Greek, Italian, Spanish, Portuguese and Irish debt that is now insanely over-valued. Accordingly, the European bond market is a massive conflagration waiting for an ignition. Worse still, Germany now has all the matches, and it is becoming more evident by the day that its politicians and financial statesman have finally drawn a line in the sand. There will be no outright QE, and, therefore, there is no way to keep ... from experiencing an eventual stampede for the exit gates."
- David Stockman*
LINK HERE to the essay
Currency Wars Are Evolving
The Goal Is To Avoid Deflation
Bloomberg article on how currency wars are moving with the motivation of increasing inflation, not necessarily economic growth .. currency strategist: "This beggar-thy-neighbor policy is not about rebalancing, not about growth .. This is about deflation, exporting your deflationary problems to someone else." .. Japan is taking this approach .. Europe is taking this approach .. another currency strategist: "Deflation is such a major part of the story that dealing with that, by whatever means necessary, is key .. If that involves getting the currency lower, then so be it. You have to deal with it."
LINK HERE to the article
U.S. Banks are Buying Treasuries, 
Taking Deposits, but not Lending
Currency guru Marc Chandler identifies U.S. banks as stepping up now to buy U.S. Treasury bonds as the Federal Reserve has been tapering its buying of them .. For the past  months, U.S. banks have bought a little more than $145 bln .. points out deposits have grown a lot, outpacing loans .. "They are taking in deposits, but are not lending it out. Households are not re-leveraging .. These excess deposits are part of the highly liquid capital sloshing around the system. Roughly half of the excess deposits are being used to buy U.S. government paper. The deposits cost practically nothing, so the banks earn the entire carry." .. Chandler also identifies an additional driver of buying - new liquidity rules: "This source of pressure on bank to own more government paper is unlikely to ease up soon .. The new and evolving regulatory environment strongly encourage banks to buy U.S. government paper."
LINK HERE to the essay
"When you come to the fork in the road, take it."
- Yogi Berra
Matterhorn Interview of
Keith Barron on Peak Gold
Interview with exploration geologist & mining entrepreneur Keith Barron .. discusion on the challenges for gold mining companies; the effects of a downward rigged gold price on Third World countries; the “inevitability” of a gold price at 5000 USD per ounce in the future; Barron’s support for the Swiss gold initiative .. 47 minutes
'Federal Reserve is Slowing
Down the Economy & Holding Up The Stock Market'
Zero Hedge commentary on current state of the financial markets, references David Einhorn's observation: "They're actually slowing down the economy, even though they don't realize that they're doing that" & also Carl Icahn: "The Fed is really holding the market up.... The Fed turned this market around here because it let it be known that the Fed funds rate isn't going to be raised in March. I am concerned about the high yield market, I think that's in a major bubble, but nobody knows when it's gonna burst."
LINK HERE to the commentary
Deflation then Inflation 
Through the Roof
Interview with Michael Snyder .. "When there is a financial crisis, all of a sudden, banks don’t want to lend. They don’t want to lend to each other, and they don’t want to lend to anyone else. Credit freezes up, and our financial system is based on debt and the flow of money from the banks lending it to the rest of us. I believe we will have a brief period of deflation before the response by the Federal Reserve and the federal government, where we are going to then have tremendous inflation through the roof." .. emphasizes a lot of people are quick to say let the banks fail, but if we go in that direction, the economy is going to die as well .. NNOO on all issues .. 26 minutes
click to enlarge
Canadian Capital On Lock Down
As A Result Of Ongoing
"Terrorist" Shooting Incident
- Still active shooter
- 3 separate shooting sites
- Multiple gunmen
- 1 gunmen dead
LINK HERE to the coverage
In the Year 2024?
"All of the gold in the world was confiscated in 2020 .. Some lucky ones had purchased gold in 2014 and sold it when it reached $40,000 per ounce in 2019. By then, inflation was out of control and the power elites knew that all confidence in paper currencies had been lost. The only way to re-establish control of money was to confiscate gold. But those who sold near the top were able to purchase land or art, which the authorities did not confiscate .. Those who never owned gold in the first place saw their savings, retirement incomes, pensions and insurance policies turn to dust once the hyperinflation began. Now it seems so obvious. The only way to preserve wealth through the Panic of 2018 was to have gold, land and fine art. But investors not only needed to have the foresight to buy it… they also had to be nimble enough to sell the gold before the confiscation in 2020, and then buy more land and art and hang onto it. For that reason, many lost everything. Land and personal property were not confiscated, because much of it was needed for living arrangements and agriculture. Personal property was too difficult to confiscate and of little use to the state. Fine art was lumped in with cheap art and mundane personal property and ignored."
- Jim Rickards*
LINK HERE to the fictional dystopia
Europe’s Brush with Debt
Economist Hans-Werner Sinn* points out that Italy & France have just made the decision to not comply with the euro zone's fiscal agreements (agreed to in 2012) - they intend to run up new & more debt .. "France’s debt/GDP ratio will rise to 96% by the end of this year, from 91% in 2012, while Italy’s will reach 135%, up from 127% in 2012. The effective renunciation of the fiscal compact by Valls and Renzi suggests that these ratios will rise even further in the coming years .. In this context, eurozone leaders must ask themselves tough questions about the sustainability of the current system for managing debt in the EMU." .. Sinn suggests 2 possible models for ensuring stability & debt sustainability.
LINK HERE to the essay
Predatory Lending
Boom Bu$t .. discussion on predatory loans .. interview of Karl Denninger on regulating payday loans & what the appropriate regulatory response to predatory lending should be .. also a discussion with George Magnus on emerging markets .. 1/2 hour total program
Financial Repression Takes Away 
Private Risk Taking & Investment
Courtesy of Gordon T Long*:  
"The Stampede is only beginning, 
as government grows in size 
and use of regulations to direct money 
to support increasing government needs."
click to enlarge
Danielle Park – 
Getting Ready For 
The Other Shoe To Drop
Discussion on the financial markets & economy with Danielle Park .. nothing in this market is normal, volatility is up & so is fear .. is this the start of a secular bear market or not? .. 26 minutes
LINK HERE to the podcast
click to enlarge
James Grant* Conference Video: 
"Europe Has Become Japan"
Provided by Mish Shedlock*, this video comes from this year's conference which is titled Investing Opportunistically, Separating the Beta from the Alpha .. opening speech starts after about 3 minutes of fluff. Marc Seidner, CFA at GMO, on inflation expectations: "From this perspective of the bond market, Europe has become Japan ... There is an inconsistency in my mind between a path of forward interest rates that Europe that reflects such slow economic growth that interest rates never get off zero-bound... that there will be enough growth to enable high-debt countries to delever safely is a complete inconsistency." .. At about the 25 minute mark is James Grant* who covers price discovery & inflation - "Ladies and gentlemen, we have no interest rates. We used to have them and they were swell. Some of your parents may have lived off them .. Interest rate suppression is price control by another name .. Can prices even be measured?" .. Grant on gold: "Gold is the anti-debt. It is money that cannot be conjured on a computer screen. It is that money that has no counterpart on the balance sheet of a central bank indicating that it's a liability. It's money pure. It's out of favor. So we at Grant's continue to carry a torch for gold."
LINK HERE to the video also

Ever Deeper Into Uncharted Waters
"What I see as extremes that must necessarily end badly, others see as mere extensions of recently successful policies and trends. Consider how much new debt is now required to lift GDP ("growth") off the flat line:
click on charts to enlarge
The slightest pause in the expansion of credit nearly collapsed the entire global economy:
The Federal Reserve has pushed astonishingly extreme policies for six years. Now that the Fed owns significant chunks of the Treasury bond and mortgage bond markets, it's being forced to limit these easing programs:
All the Fed money-printing and bond buying has sent money velocity in the real economy into a tailspin: this is good, right? No, actually it's a calamity. Money has slipped into a coma. Extend the trendlines in these charts, and then ask yourself: where do they end? What will they trigger as they push ever deeper into uncharted waters?"
- Charles Hugh Smith*
LINK HERE to the commentary
Private Citizen Ben Bernanke 
Wants A 3% Inflation Target; 
Skeptical of EU QE
Article describes former Federal Reserve Chairman Ben Bernanke's opinions on inflation & global monetary policy .. Bernanke thinks the Federal Reserve's current 2% target is too low, suggests the target should be 3% .. Bernanke stresses the importance of fiscal stimulus to help economic recovery from the financial crisis..
does not think QE can succeed in Europe. They have a "policy of fiscal rectitude".
LINK HERE to the article
Ben Bernanke (as a private citizen in October 2014):
“How can QE succeed in generating a sustained rebound in the Eurozone given a gold-type currency regime and a policy of fiscal rectitude?”
noun: rectitude; morally correct behavior or thinking; righteousness.
[Cliff Comment: Germany is the main country that is insisting on some level of rectitude. The former Chairman of our monetary system is critical of Germany for facing the financial crisis with rectitude .. a word that the Thesaurus shows as synonym for honesty, decency, morality, goodness, virtue & integrity. Cliff Küle wishes that those who control our monetary system would display the same rectitude, honesty, integrity & virtue. The system which our Federal Reserve is employing is to debase & debauch the currency for the benefit of the government & the banks. Their benefit comes at the expense of all the 'little people'. The talk from the Fed & from Washington is a 'whitewash' of this ugly truth.
Debasing the currency is a dishonest way to distribute the pain
that the government & the banks would have had to suffer if we had honest free markets.
It seems like an extraordinary irony: All the small boys in the United States of the 1950s & early 1960s played 'Army' .. & the Germans were always the bad guys. How ironic is it that today
Germany is the country insisting on some level of integrity
while our authorities believe it is fine to shaft all the common citizens?] 
The Government & the Federal Reserve should be honest with the American people. Instead, they are trying to maintain their wealth & power at the people's expense. Debasing the currency screws all the little people so slowly that they might not notice.
How Much do Central Banks
Need to Inject to Keep the
Stock Market from Crashing?
Citi's Matt King has done the math to answer that question .. click on the chart to enlarge - "This chart shows the rolling 3month combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3month change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years .. It takes around $200bn per quarter just to keep markets from selling off."
[Küle Questions: Cui Bono? Who benefits? & Who pays? .. We hope our readers understand that
there is no such thing as a free lunch
(... unless you & your friends received a government contract in 1913 to have a monopoly on printing money. Then, over the coming generations, all constitutional restrictions were removed on the power & freedom to create money from nothing. It is too bad every American doesn't have that freedom or share that power .. As the American Revolution had intended.)] 
LINK HERE to the analysis
Dominic Frisby's new book
on Bitcoin: The Future of Money?
John Rubino* writes a book review on the new book out by Dominic Frisby on Bitcoin & cryptocurrencies .. the big question is whether Bitcoin or other competitor cryptocurrencies will be used as a currency in replacement or in conjunction with other currencies .. the basic message is: yes cryptocurrencies are truly transformational .. "Which cryptocurrency will win out? Besides bitcoin there are hundreds in existence already and several, including Litecoin and Dogecoin, are gaining traction. What would the emergence of one or two winners do to the utility and monetary value of the others? By decade’s end we’ll know the answers. In the meantime this is a great place to start." .. [Cliff Note: One challenge is that cyptocurrencies are not backed by a commodity like gold nor by a government in its "full faith and credit" (which looks like it could turn out to be useless anyway) .. as a form of currency they are likely to coexist with other currencies, but without tangible backing they are not likely to be a "store of value".]
LINK HERE to the review