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Ron Paul: The Market Correction Could Make Things ‘Worse Than 1929’

Ron Paul: The Market Correction Could Make Things ‘Worse Than 1929’

Former presidential candidate, Dr. Ron Paul says that the current market conditions are ripe for a correction of 50% and Wall Street is vulnerable to depression-like conditions in the next year. “It could be worse than 1929,” Dr. Paul said recently in an interview.

Paul said Thursday on CNBC‘sFutures Now that “Once this volatility shows that we’re not going to resume the bull market, then people are going to rush for the exits.”  Paul added that “it could be worse than 1929.”  He was referencing the fateful day in October of 1929 when the stock market crashed, and the United States was flung into the Great Depression that lasted ten years. During that year, a worldwide depression was ignited because of the U.S.’s market crash.  The stock market began hemorrhaging and after falling almost 90 percent, sent the U.S. economy crashing a burning.

And of course, no one believes it could happen again. But Dr. Paul is continuously warning against the media’s constant optimism. As well-known Libertarian, Paul has been warning Wall Street that a massive market plunge is inevitable for years. He’s currently projecting a 50 percent decline from current levels as his base case, citing the ongoing U.S.-China trade war as a growing risk factor. “I’m not optimistic that all of the sudden, you’re going to eliminate the tariff problem. I think that’s here to stay,” he said. “Tariffs are taxes.”  And these tariffs are a direct tax on the American economy and consumer.

Paul places the blame for the inevitable future crash on the Federal Reserve’s “easy money policies” also known as quantitative easing.  He contended the Federal Reserve’s quantitative easing has caused the “biggest bubble in the history of mankind.” And this time, it’s an everything bubble.

…click on the above link to read the rest of the article…

The Bubble’s Losing Air. Get Ready for a Crisis

The Bubble’s Losing Air. Get Ready for a Crisis

Investors need to focus on their response to financial stresses in an era in which policymakers will be constrained.

Not much to do once it pops.

Photographer: Spencer Platt/Getty Images

The “everything bubble” is deflating. The fact that it’s happening relatively slowly shouldn’t blind us to the real threat: The world is dangerously underestimating how hard it’ll be to deal with the fallout once it pops.

Frothy markets can’t disguise the warning signs. The shift to tighter monetary policies in the West is putting pressure on global equity and real-estate values. Even more critically, it’s weakening credit markets. Over-indebted emerging markets face headwinds from rising borrowing costs and dollar shortages.

At the same time, investors are underestimating how disruptive trade conflicts and sanctions could turn out to be. That’s not to mention rising non-financial risks — from the legal difficulties of the U.S. administration, to the U.K.’s Brexit debacle, to political instability in France, Germany, Italy and even Saudi Arabia. Uncertainty will impact the real economy, primarily through the wealth effect of declining asset values and a reduced supply of credit.

Investors need to start focusing on how best to respond to a new crisis. The choices are more limited than many realize. Historically, central banks have needed to slash official rates as much as 4-5 percent in order to offset the effects of a financial crisis or an economic slowdown. That’s why former U.S. Federal Reserve Chair Janet Yellen talked about the need to raise rates in good times — to provide room to cut when necessary.

…click on the above link to read the rest of the article…

The Bank of England and the Manipulation of Sterling

The Bank of England and the Manipulation of Sterling

In a recent article where I discussed the Bank of England being at the heart of the Brexit process, I mentioned how the fall in the value of sterling following the 2016 referendum was pigeonholed by the bank as being the sole cause for inflation breaching their 2% target.

After the article was re-posted by Zero Hedge, a reader commented on something I did not make specific mention of, which was that six weeks after the referendum the BOE halved interest rates to 0.25%, prompting the pound to drop further in value. The reader pointed out that cutting interest rates usually results in currencies depreciating, and that the bank’s actions were the cause of a subsequent rise in inflation and not Brexit itself. Essentially, the premise here is that the BOE were responsible for devaluing the pound and creating the conditions to eventually raise interest rates a year later.

A similar comment from another reader in October last year spoke of how the BOE extending quantitative easing by £60 billion, as well as lowering rates, were ‘two sure fire things to lower the value of the pound.’

Whilst I have touched upon this in previous articles, it is a subject that deserves more attention and fresh context.

Let’s start by first going back to December 2007 when the Bank of England cut interest rates from 5.75% to 5.5%. At the time sterling was valued at $1.96. Two more rate cuts followed in February and April 2008, taking rates down to 5%. The pound remained stable around $1.97. So far the bank lowering rates had not prompted a fall in sterling.

Five months later Lehman Brothers collapsed, and so began a violent downward trend in interest rates. The next cut came in October, down to 4.5%. The chaos within financial markets had fed through to sterling – the $1.97 from five months ago was now $1.72.

…click on the above link to read the rest of the article…

Gold – A Perfect Storm For 2019

Gold – A Perfect Storm For 2019

This article is an overview of the principal factors likely to drive the gold price in 2019. It looks at the global factors that have developed in 2018 for both gold and the dollar, how geopolitics are likely to evolve, the economic outlook and how it is worsened for the dollar by President Trump’s tariff war against China, the availability and likely demand for bullion, and the technical position in paper markets. Taken together, the outlook is bullish for gold.

2018 reprise

For gold bulls, 2018 was disappointing. From 11 December 2017, when gold made a significant bottom against the dollar at $1243, it has ended virtually unchanged today, after being 4.2% up. Gold had to struggle against a rising dollar, whose trade-weighted index rose a net 3.7% over the same period, and as much as 9.4% from its mid-February low.

Dollar strength has been driven less by trade imbalances and more by interest rate differentials. A speculating bank for its own book or for a hedge fund client can borrow 3-month Euro Libor at minus0.354% and invest it in 3-month US Treasury bills at 2.36%, for a round trip of over 2.7%. Gear this up ten times or more, either on a bank’s capital, or through reverse repos for annualised returns of over 27%. To this can be added the currency gain, which at times has added enough to overall returns for an unhedged geared position to double the investment.

Not that these forex returns have been guaranteed, but you get the picture. The ECB and the Bank of Japan have been frozen into inactivity, reluctant to raise rates to correct this imbalance, and the punters have known it.

…click on the above link to read the rest of the article…

The Neutral Interest Rate Myth

In his speech to the Economic Club of New York on November 28 2018, the Federal Reserve Board Chairman Jerome Powell said that the US central bank’s policy interest rate is just below the neutral rate. This prompted many commentators to suggest that a tighter interest rate stance of the Fed is likely coming to an end.  At the end of October the fed funds rate target stood at 2.25%.

It is widely held that by means of suitable monetary policies the US central bank can navigate the economy towards a growth path of economic stability and prosperity. The key ingredient in achieving this is price stability. Most experts are of the view that what prevents the attainment of price stability are the fluctuations of the federal funds rate around the neutral rate of interest.

The neutral rate, it is held, is one that is consistent with stable prices and a balanced economy. What is required is Fed policy makers successfully targeting the federal funds rate towards the neutral interest rate.

The Swedish economist Knut Wicksell articulated this framework of thinking in late 19th century, which has its origins in the 18th century writings of British economist Henry Thornton.

The Neutral Interest Rate Framework

According to Wicksell, there is a certain rate of interest on loans, which is neutral in respect to commodity prices, and tend neither to raise nor to lower them.

According to this view, the main source of economic instability is the variance between the money market interest rate and the neutral rate.

If the money market rate falls below the neutral rate, investment will exceed saving implying that aggregate demand will be greater than aggregate supply.

…click on the above link to read the rest of the article…

The Trade War Distraction: Huawei And Linchpin Theory

The Trade War Distraction: Huawei And Linchpin Theory

Since the beginning of this year, I have been warning that trade tariffs initiated by Donald Trump would develop into a full-blown trade war with China, and perhaps other nations, and that the timing of this trade war is rather suspicious. Suspicious how? Almost every instance of further escalation was made by Trump around the exact time that the Federal Reserve was also making a large cut to its balance sheet or raising interest rates. Instead of focusing on the fact that extreme volatility has returned to markets because central banks are pulling the plug on life support, the mainstream media is holding up the trade war as the ultimate culprit behind the accelerating crash.

In other words, Trump’s trade war is acting as a perfect distraction from the crisis which the banking establishment has now deliberately triggered.

The initial response to my suggestion by a minority of liberty movement activists and skeptics was outright denial. Some people argued that the trade war would be over before it even began and that China would immediately capitulate in fear of losing the U.S. consumer market. Others argued that the trade war “had been started by the Chinese years ago” and Trump was simply “fighting back.”

Clearly, the trade war is not fading away as many assumed. As I predicted, it is only continuing to grow. And the notion that a trade war is necessary at this time in defense of the U.S. economy ignores certain realities. For example, the trade deficit itself was never “theft” by the Chinese, but a BARTER between the Chinese and the U.S. government and U.S. corporations.

…click on the above link to read the rest of the article…

ECB Confirms It Will End Asset Purchases, Will Reinvest Maturities In Full

As expected, the ECB – which obviously is keeping its rates unchanged – confirmed it would end its asset purchases in December 2018, while clarifying for the first time that it would “continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates.” Previously, the ECB had only committed to reinvesting “for an extended period after the end of QE.”

Also of note, the ECB announced it “expects interest rates to remain at their present levels at least through the summer of 2019” which however the market no longer believes, having priced out a full rate hike in 2019.

In any case look for more clarity in 45 minutes when Draghi speaks.

Full statement below:

At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the net purchases under the asset purchase programme (APP) will end in December 2018. At the same time, the Governing Council is enhancing its forward guidance on reinvestment. Accordingly, the Governing Council intends to continue reinvesting, in full…

…click on the above link to read the rest of the article…

International Monetary Fund: Storm Clouds Of The Next Financial Crisis Are Gathering

International Monetary Fund: Storm Clouds Of The Next Financial Crisis Are Gathering

The International Monetary Fund is sounding the alarms of another global crisis.  IMF is warning that the storm clouds are currently gathering for another financial crisis.

According to a report by The Guardian, David Lipton, the first deputy managing director of the IMF, said that “crisis prevention is incomplete” more than a decade on from the last meltdown in the global banking system.  Not only that but on an individual basis, people are largely unprepared for a major financial downturn. “As we have put it, ‘fix the roof while the sun shines.’ But like many of you, I see storm clouds building and fear the work on crisis prevention is incomplete,” Lipton said.

Lipton said individual nation states alone would lack the firepower to combat the next recession while calling on governments to work together to tackle the issues that could spark another crash.

“We ought to be concerned about the potency of monetary policy,” he said of the ability of the US Federal Reserve and other central banks to cut interest rates to boost the economy in the event of another downturn, while also warning that high levels of government borrowing constrained their scope for cutting taxes and raising spending. –The Guardian

Lipton said individual nation states alone would lack the firepower to combat the next recession while calling on governments to work together to tackle the issues that could spark another crash.  Which is an odd position to take considering the central banks and governments of the world cause recession and economic crises in the first place.

…click on the above link to read the rest of the article…

Historic Debt Is At The Core Of Our Economic Decline

debt at core of economic decline

From Brandon Smith

As I predicted just after the 2016 presidential election, a sordid theater of blame has exploded over the state of the U.S. economy, with fingers pointing everywhere except (in most cases) at the true culprits behind the crash. Some people point to the current administration and its pursuit of a trade war. Others point to the Federal Reserve, with its adverse interest rate hikes into economic weakness and its balance sheet cuts.

Some blame the Democrats for doubling the national debt under the Obama Administration and creating massive trade and budget deficits. And others look towards Republicans for not yet stemming the continually increasing national debt and deficits.

In today’s economic landscape, the debt issue is absolutely critical. While it is often brought up in regards to our fiscal uncertainty, it is rarely explored deeply enough.

I believe that economic crisis events are engineered deliberately by the financial elite in order to create advantageous conditions for themselves. To understand why, it is important to know the root of their power.

Without extreme debt conditions, economic downturns cannot be created (or at least sustained for long periods of time). According to the amount of debt weighing down a system, banking institutions can predict the outcomes of certain actions and also influence certain end results. For example, if the Fed were to seek out conjuring a debt based bubble, a classic strategy would be to set interest rates artificially low for far too long. Conversely, raising interest rates into economic weakness is a strategy that can be employed in order to collapse a bubble. I believe that it is what launched the Great Depression, it is what ignited the crash of 2008, and it is what’s going on today.

…click on the above link to read the rest of the article…

Dear Canada, WTF?

Dear Canada, WTF?

Just hours ago, The Bank of Canada held rates steady and complained about various internal and external factors that were negatively impacting the Canadian economy…

Holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

moderating global growth,
a “materially weaker” outlook for the oil sector,
a faster-than-expected deceleration of inflation,
a drop in business investment and downward historical revisions to output

And today we get this…

Canada added 94,100 jobs in November – the most ever! Sending the Canadian unemployment rate to a record low 5.6%…

So WTF!?

Economic Downturn: Credit Cards Aren’t Being Paid, Accounts Are Being Closed

Economic Downturn: Credit Cards Aren’t Being Paid, Accounts Are Being Closed

A new report is shining some light on an indicator that the economy is about to take a major downturn. Credit card accounts are not being paid and some accounts are being closed in anticipation for an upcoming recession.

Credit-card delinquencies, application rejections, and involuntary account closures are all on the upswing, according to a report from the Federal Reserve Bank of New York. According to Business Insider, The Fed says these developments reported are “potentially concerning” given the strength of the economy and comparatively low interest rates. Does the Fed not remember that they themselves have been jacking up the interest rates for months now? Sure, they are still relatively low, but that’s little consolation for the person who lives paycheck to paycheck and just saw another rate hike.

The Fed released the results of this report this week. It’s called the “Credit Access Survey” which is a quarterly report on United States borrowers. It brought to the surface a couple of alarming trends that suggest credit-card issuers are getting skittish and paring back risk: Both credit-card rejection rates and involuntary account closures are on the rise.

A separate New York Fed report released last month, the “Quarterly Report on Household Debt and Credit,” produced a similar finding. The report, which mines Equifax consumer credit reports for data, showed an uptick in the past year and a half in account closures, again primarily from credit cards.

The reason credit card companies may be closing accounts and rejecting borrowing increases is that they may be spooked by the increasing number of people who already aren’t paying off their cards. Credit-card delinquency rates began to climb sharply toward the end of 2016, a trend that hasn’t reversed in 2018, according to Fed data.

… click on the above link to read the rest of the article…

 

Why buy gold now? Because I don’t know

Why buy gold now? Because I don’t know

From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.

Then, in 2013, gold took a nose dive, losing over 27% of its value.

It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.

As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).

And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.

So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, ismoney.

Plus, the SNB wasn’t holding gold to speculate…

Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.

And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.

And JPMorgan Chase says they’ll buy another 650 tons this year and next.

Why?

Gold is for the I don’t knows.

And right now, there are a LOT of I don’t knows.

Markets have been going crazy over the past few months.

After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.

…click on the above link to read the rest of the article…

Loonie Slumps As Bank Of Canada Folds On Economic Enthusiasm

Amid near-record-low Canadian crude prices and a housing crisis, The Bank of Canada appears to have finally given up its narrative that ‘everything is awesome’.

The BoC walked back much of its enthusiasm about the nation’s outlook in a decision that kept interest rates unchanged, spinning bad news as good by saying that the economy may have “additional room for non-inflationary growth.” Of course, if the economy was growing faster, the BOC would simply say that the economy is growing… well, faster or “near potential.”

Instead, holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

  • moderating global growth,
  • a “materially weaker” outlook for the oil sector,
  • a faster-than-expected deceleration of inflation,
  • a drop in business investment and downward historical revisions to output

Following the latest central bank dovish relent, the USDCAD jumped 0.8% to ~1.3374 after touching highest (i.e. the CAD dropping the most) in more than five months on the cautious language, a dovish outlook that could change expectations for 2019 BOC rate hikes.

Even with the dovish undertones, the statement reiterated that rates will need to rise to “neutral range” – which like the Fed it has no idea what it is – within its discussion of recent downside risks, to wit:

“Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target.”

Still, the generally less-confident tone is an acknowledgement of developments over the past few weeks that have cast doubt on the strength of the nation’s expansion and prompted investors to scale back the expected pace of future rate increases.

The final nail in the hawkish case coffin was the key shift in tone (red rectangle below) which notes that while the Canadian economy growing in line with expectations, “data suggest less momentum going into the fourth quarter.”

…click on the above link to read the rest of the article…

Empty Words Are Failing. A Timeline For What Comes Next

Empty Words Are Failing. A Timeline For What Comes Next

A quick recap of the past couple of months: 

Stocks plunge.

The politicians, bureaucrats and bankers who depend on artificially-elevated financial asset prices start to panic.

The Fed announces that maybe it won’t have to raise interest rates any more, and the president announces a temporary cease-fire in the trade war with China.

The markets bounce, leading some to conclude that the worst is over and it’s time to go back to buying the dip.

A larger number of people conclude that the changes in policy were really just empty words. No actual actions had taken place.

Stocks start falling again. You are here — as this is written on Tuesday Dec 4, the Dow is down about 300 points.

What happens next?
Think of the past few months as the first act in a play that is performed in virtually every business cycle, with later acts following a predictable script. Here’s how it’s likely to go this time:

Words give way to modest action (early 2019). When the markets figure out that empty promises don’t change the underlying reality of slowing growth, falling corporate profits and rising loan defaults, they return to panic mode. Governments are then forced to actually do things to try to stop the bleeding. In the current US case, that means the Fed will announce that it’s done raising rates and will soon start cutting. Trump, meanwhile, will cut a trade deal with China that accomplishes little but removes the future uncertainty.

This will be greeted with another few days of market euphoria, followed by the realization that, again, nothing substantive has changed. Stocks will resume their decline. Let’s call this “2008 revisited.”

DJIA 2008 empty words fail

…click on the above link to read the rest of the article…

Chairman Powell Talks Out of Both Sides of His Mouth

Chairman Powell Talks Out of Both Sides of His Mouth

jerome powell talks rates

In a speech on Wednesday, Federal Reserve Chairman Jerome Powell stated that he had a “neutral” outlook on rates. According to a CNBC article, he was quoted:

Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.

But CNBC notes that, as recently as October, Powell’s was indicating that rates were “a long way from neutral.” Could the change in tone simply be public relations damage control?

It’s important to note that rates may still be “low” by historical standards, but only if you include 35+ years of interest rate history. However, if you look at just this century, rates are headed towards the highest levels since 2007 (see chart below). And keep in mind there’s a good chance that we’ll see one more rate hike in December, as the Fed has alluded to in their November meeting statement.

rates on a rise

In response to Powell’s “neutral” language, the Dow Jones jumped 617 points. This represents its biggest one-day gain since this March, according to CNBC. Of course, the Dow has rebounded two other times since October 3, only to lose those gains each time.

Another strange part of Powell’s statement was the indication that the Fed’s “neutral” rates were “neither speeding up nor slowing down growth.” His analysis is odd, because CPI inflation has been on the rise for the last several years (see red arrow):

FRED cpi

And yet, the Dow jump and Powell’s “neutral rate” statement oddities somehow aren’t the strangest items from Wednesday’s speech.

Seems the Fed Want to “Have It Both Ways”

The Fed issued a stark warning about a potential trifecta that could impact the economy. Their warning reads:

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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