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The Next Economic Crisis – Will Your Wealth Survive?

The Next Economic Crisis – Will Your Wealth Survive?

The greatest wealth transfer in history has already begun and the next crisis will only accelerate the process. As the printing presses continue cranking out more and more money, looking forward to a time when the markets pause or another economic crisis consumes the world is an issue we all should think about. How much wealth will escape the next large financial reset is very important because it will set the bar that determines the rate of inflation or deflation in coming years. If you believe we did not solve many of our financial problems after 2008 but merely masked them with a huge amount of newly printed money you are likely to embrace this concept.

The Shell Game Of Wealth Transfer

Much like a shell game where wealth is transferred about, in our modern society wealth is always on the move. Wealth and how things are valued is far from constant, it is fungible and constantly changing. While we may try to deny it, wealth is in a constant state of flux and constantly moving. Wealth comes in many forms, it can be held in the form of paper, promises, or as something more tangible and real such as property or goods.

Some items such as a tool hold “utility value” and its value may be based on how much work it can perform or the revenue it can produce. Replacement cost, supply and demand, and factors such as whether something can spoil or might grow obsolete over time also help determine its value as a place wealth can be safely stored. The term, safely stored in this case also includes placing it out of the reach of governments’ ability to tax it or make it illegal to own.
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The $2.3 Quadrilliion Global Timebomb

THE $2.3 QUADRILLION GLOBAL TIMEBOMB

Credit Suisse is hours from collapse and the consequences could be a systemic failure of the financial system.

Disappointingly, my dream last night stopped there. So unfortunately I didn’t experience what actually happened.

As I warned in last week’s article on Archegos and Credit Suisse, investment banks have created a timebomb with the $1.5 quadrillion derivatives monster.

A few years ago, the BIS (Bank of International Settlement) in Basel reduced the $1.5 quadrillion to $600 trillion with a pen stroke. But the real gross figure was still $1.5q at the time. According to my sources, the real figure today is probably over $2 quadrillion.

A major part of the outstanding derivatives are OTC (over the counter) and hidden in off balance sheet special purpose vehicles.

LEVERAGED ASSETS JUST GO UP IN SMOKE

The $30 billion in Archegos derivatives that went up in smoke over a weekend is just the tip of the iceberg. The hedge fund Archegos lost everything and the normal uber-leveraged players Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura etc lost at least $30 billion.

These investment banks are making casino bets that they can’t afford to lose. What their boards and top management don’t realise or understand is that the traders, supported by easily manipulated risk managers, are betting the bank on a daily basis.

Most of these ludicrously high bets are in the derivatives market. The management doesn’t understand how they work or what the risks are and the account managers and traders can bet billions on a daily basis with no skin in the game but massive potential upside if nothing goes wrong.

DEUTSCHE BANK – DERIVATIVES 600X EQUITY

But we are now entering an era when things will go wrong. The leverage is just too high and the bets totally out of proportion to the equity.

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Supply chain slowdown hits at key pillars of economy and will likely get worse: Dan Yergin

KEY POINTS
  • The pressures on supply chains are increasing and global disruptions are likely to only get worse as summer approaches and the economy booms.
  • Disruptions have converged at the same time in three important pillars of the global economy – shipping, computer chips, and plastics.
  • Port backups are described as the worst ever and delivery times are the longest in 20 years of data collection.
  • The system will ultimately adjust, but that will take time and requires new investment in ports and capacity.
Shipping containers are unloaded from ships at a container terminal at the Port of Long Beach-Port of Los Angeles complex, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, U.S., April 7, 2021.
Shipping containers are unloaded from ships at a container terminal at the Port of Long Beach-Port of Los Angeles complex, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, April 7, 2021.     Lucy Nicholson | Reuters

If you’re wondering why your new couch is going to take three or four months to arrive, not just a few weeks, the reason is simple:  You are at the very end of a global supply chain that has buckled.

For similar reasons, GM and Ford and other automakers around the world are slowing down manufacturing, temporarily shutting auto plants, and furloughing workers.

A recovering world economy that depends upon the synchronized, smooth running of global supply chains is now being slammed by what has turned out to be synchronized disruptions.

Although the massive Ever Given container ship has been unstuck from the Suez Canal, its continuing impact is only adding to the woes.

As government stimulus seeks to fuel a hyper recovery and the world economy accelerates over the rest of this year, the pressures on supply chains are increasing and disruptions are likely to grow as we head into summer.

Stretching supply chains   

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Inflation, real interest rates revisited

If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall?

If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall?

Nobody thinks a euphoric rally could ever go bidless, but as Greenspan belatedly admitted, liquidity is not guaranteed.

The current market melt-up is taken as nearly risk-free because the Fed has our back, i.e. the Federal Reserve will intervene long before any market decline does any damage.

It’s assumed the Fed or its proxies, i.e. the Plunge Protection Team, will be the buyer in any freefall sell-off: no matter how many punters are selling, the PPT will keep buying with its presumably unlimited billions.

If this looks risk-free, ask who else will be “buying the dip” in a freefall?Former Fed Chair Alan Greenspan answered this question in his post-2008 crash essayNever Saw It Coming: Why the Financial Crisis Took Economists By Surprise (Dec. 2013 Foreign Affairs):

“They (financial firms) failed to recognize that market liquidity is largely a function of the degree of investors’ risk aversion, the most dominant animal spirit that drives financial markets. But when fear-induced market retrenchment set in, that liquidity disappeared overnight, as buyers pulled back. In fact, in many markets, at the height of the crisis of 2008, bids virtually disappeared.”

For the uninitiated, bids are the price offered to buyers of stocks and ETFs and the ask is the price offered to sellers. When bids virtually disappear, this means buyers have vanished: everyone willing to buy on the way down (known as catching the falling knife) has already bought and been crushed with losses, and so there’s nobody left (and no trading bots, either) to buy.

When buyers vanish, the market goes bidless, meaning when you enter your “sell” order at a specific price (limit order), there’s nobody willing to buy your shares at the current price. The shares remains yours all the way down.

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Unwelcome Inflation Heats Up in Mexico, Brazil, and as Always in Argentina

Unwelcome Inflation Heats Up in Mexico, Brazil, and as Always in Argentina

Brazil’s central bank struck back with shock-and-awe rate hike. Mexico’s central bank faces tough spot after big hit to economy. Argentina’s inflation exceeds 42%.

Around the world, there has been massive fiscal and monetary stimulus, an unprecedented growth in government-guaranteed lending, an explosion in the broad money supply, coupled with low inventories, supply chain shocks, rising shipping costs, and surging demand for certain commodities and consumer goods in developed countries, particularly the US. Companies are able to raise prices and pass on higher costs without triggering a buyers strike as the inflationary mindset has kicked in.

Many emerging economies are also having to contend with the additional inflationary impact of weaker domestic currencies. They include Mexico, where consumer prices rose to 4.7% in March — their highest level since December 2018. Prices are now firmly above the Bank of Mexico’s target inflation rate of 3%, with a one percentage point tolerance threshold above and below that level. In March alone, consumer prices grew 0.8%:

The items that saw the biggest month-on-month price increases were domestic LP gas (5.2%), low-octane gasoline (6%), and staple foods such as eggs (8%).

Surging commodities prices are being passed on to retail products. The price of corn reached $5.68 per bushel in March, up 74% from a year ago. Since last June, the price of this essential grain, for both human and livestock consumption, has risen every month. With consequences: The price of corn tortilla, Mexico’s most important staple food, rose by almost 3% in March from February.

Last year Mexico’s economy suffered its biggest contraction (8.5%) since the worst year of the Great Depression, 1932. It also appears to have contracted in the first quarter of 2021. But prices continue to rise, leaving the Bank of Mexico little choice but to abandon its plan to cut interest rates this month.

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Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

In 2018, the Chinese launched a gold-backed, yuan-denominated oil futures contract.  These contracts were priced in yuan, but convertible to gold, raising the prospect that “the rise of the petroyuan could be the death blow for the dollar.

Two weeks ago, The IMF reported that the global share of US-dollar-denominated exchange reserves dropped to 59.0% in the fourth quarter, according to the IMF’s COFER data released today. This matched the 25-year low of 1995.

Also last week, Peter Thiel warned “Bitcoin should also be thought [of] in part as a Chinese financial weapon against the US… It threatens fiat money, but it especially threatens the U.S. dollar.”

All of which sets the stage for the dramatic headlines that hit this morning, as Reuters reports that China has given domestic and international banks permission to import large amounts of gold into the country,

The People’s Bank of China (PBOC), the nation’s central bank, controls how much gold enters China through a system of quotas given to commercial banks.It usually allows enough metal in to satisfy local demand but sometimes restricts the flow.

In recent weeks it has given permission for large amounts of bullion to enter, the sources said.

“We had no quotas for a while. Now we are getting them … the most since 2019,”said a source at one of the banks moving gold into China.

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It’s The Media’s Job To Normalize War: Notes From The Edge Of The Narrative Matrix

It’s The Media’s Job To Normalize War: Notes From The Edge Of The Narrative Matrix

Exactly zero percent of the world’s worst criminals are in prison. Imperialists. War profiteers. Ecocide profiteers. The very worst of thieves are financial elites. The system isn’t designed to protect us from society’s worst, it’s designed to protect society’s worst from us.

I don’t write much about the specific individuals who drive the oligarchic empire because individuals are not the problem, the system is. Right-wing conspiracy analysts prefer to focus on specific corrupt elites because they like to think if you just got rid of them, capitalism would work fine. And it just wouldn’t. If you rounded up and executed all the sociopathic ruling elites today but left our current systems intact they’d just be replaced tomorrow. A competition-based model where war, corruption, oppression and exploitation remain profitable guarantees this.

A lot of right-wing conspiracy analysis today ultimately boils down to “These bastards are ruining the capitalism!” But capitalism is already ruined, and ruinous. As long as it’s profitable to destroy each other and our ecosystem, the ruin will continue. That’s the real problem. Making it about individuals feeds into the false impression that the individuals are the problem, and absolves us of our collective responsibility to move out of our competition-based model to one in which we collaborate with each other and our ecosystem to create a healthy world.

As long as we have systems in which it’s advantageous to be sociopathic enough to do whatever it takes to get ahead, we will find ourselves ruled by sociopaths. The names and faces on those sociopaths are ultimately irrelevant. They’re a symptom of the underlying disease.

It’s the mass media’s job to normalize war and abnormalize peace. It’s our job to do the exact opposite.

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“Things Are Out Of Control”: Supply Chain Collapse Leads To Lumber Frenzy, Soaring Home Prices

“Things Are Out Of Control”: Supply Chain Collapse Leads To Lumber Frenzy, Soaring Home Prices

With median prices for both existing and new homes at all time highs, and soaring at a record annualized rate of almost 20%…

… increasingly more Americans find themselves priced out of homeownership, while still cautious banks refuse to lend them the mortgages they so desperately need to live the American Dream (on credit).

And unfortunately, since most US houses are made out of wood, we have even more bad news: home prices are about to get even more expensive if for no other reason than the frenzy sweeping the lumber market is set to keep going through the summer peak of US home building as labor shortages and depleted inventories mean that supplies can’t keep up with skyrocketing demand.

As Bloomberg summarizes what we have observed across the past few months of torrid, sometimes panicked, ISM Survey Responses such as this one

“Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages.”

…  there is an unprecedented shortage and tightness across the entire timber supply chain. Sawmills have had trouble ramping up fast enough to meet the surge in demand. Meanwhile, trucking delays and worker shortages at lumber yards have added to costs, which are now getting passed on to consumers. Worst of all, the bigger cost component of any new house l Lumber prices – have surged more than 60% to record highs this year, and analysts aren’t expecting any relief until late 2021, if not later.

That, according to Bloomberg, will keep pouring fuel on red-hot home prices, making ownership less affordable for large swathes of the population (one would almost think it was the Fed’s plan to destroy the middle class)…

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War on Cash: The Next Phase

War on Cash: The Next Phase

With so much news about an economic reopening, a border crisis, massive government spending and exploding deficits, it’s easy to overlook the ongoing war on cash.

That’s a mistake because it has serious implications not only for your money, but for your privacy and personal freedom, as you’ll see today.

Cash prevents central banks from imposing negative interest rates because if they did, people would withdraw their cash from the banking system.

If they stuff their cash in a mattress, they don’t earn anything on it; that’s true. But at least they’re not losing anything on it.

Once all money is digital, you won’t have the option of withdrawing your cash and avoiding negative rates. You will be trapped in a digital pen with no way out.

What about moving your money into cryptocurrencies like Bitcoin?

Governments Won’t Surrender Their Monopoly Over Money

Let’s first understand that governments enjoy a monopoly on money creation, and they’re not about to surrender that monopoly to digital currencies like Bitcoin.

Libertarian supporters of cryptos celebrate their decentralized nature and lack of government control. Yet, their belief in the sustainability of powerful systems outside government control is naïve.

Blockchain does not exist in the ether (despite the name of one cryptocurrency), and it does not reside on Mars.

Blockchain depends on critical infrastructure, including servers, telecommunications networks, the banking system, and the power grid, all of which are subject to government control.

But governments know they cannot stop the technology platforms on which cryptocurrencies are based. The technology has come too far to turn back now.

So central governments don’t want to kill the distributed ledger technology behind cryptos. They’ve been patiently watching the technology develop and grow — so they could ultimately control it.

Anyone who controls the money controls political power, the economy, and people’s lives.

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Dollar’s Purchasing Power Drops Sharply to Record Low, But It’s a Lot Worse than CPI Shows

Dollar’s Purchasing Power Drops Sharply to Record Low, But It’s a Lot Worse than CPI Shows

If the homeownership component in CPI mirrors the Case-Shiller Home Price Index, CPI would jump 5.1%! Not to speak of new & used vehicle prices, which I nevertheless speak of.

The Consumer Price Index jumped 0.6% in March compared to February, the sharpest month-to-month jump since 2009, according to the Bureau of Labor Statistics today, and was up 2.6% from a year earlier, after the 1.7% rise in February.

The infamous Base Effect, which I discussed last week in anticipation of what is now coming, was responsible for part of it: CPI had dipped in March last year, which created a lower base for today’s year-over-year comparison. Over the 13 months since February last year, which eliminates the Base Effect, CPI rose 2.3%.

  • Prices of durable goods continued their upward surge, rising 3.7% from a year ago (purple line);
  • Prices of nondurable goods, which are largely food and energy, including gasoline, jumped 4.2% (green line);
  • Prices of services rose 1.8%. This is the biggie, accounting for two-thirds of overall CPI. It is dominated by a measure for homeownership costs, which ludicrously, as home prices are exploding, merely ticked up 2.0% from a year ago. More on that in a moment.

Consumer price inflation means loss of purchasing power of the consumer dollar, and thereby the loss of the purchasing power of labor denominated in dollars. And the purchasing power thus measured dropped 0.5% in March from February to a new record low, according to the BLS data. Given the insistence by the Fed on perma-inflation, the dollar’s purchasing power keeps dropping from record low to record low:

But wait, it’s a lot worse…

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I Now Track the Most Important Measure of the Fed’s Economy: the “Wealth Effect” and How it Impacts Americans Individually

I Now Track the Most Important Measure of the Fed’s Economy: the “Wealth Effect” and How it Impacts Americans Individually

The Fed provides the data quarterly, I dissect it at the stunning per-capita level.

The Federal Reserve is pursuing monetary policies that are explicitly designed to inflate asset prices. The rationalization is that ballooning asset prices will create the “wealth effect.” This is a concept Janet Yellen, when she was still president of the San Francisco Fed, propagated in a paper. In 2010, Fed Chair Ben Bernanke explained the wealth effect to the American people in a Washington Post editorial. And in early 2020, Fed Chair Jerome Powell pushed the wealth effect all the way to miracle levels.

Today we will see the per-capita progress of that wealth effect – what it means and what it accomplishes – based on the Fed’s wealth distribution datathrough Q4 2020, and based on Census Bureau estimates for the US population over the years. Here are some key results. At the end of 2020, the per-capita wealth (assets minus debts) of:

  • The 1% = $11.7 million per person (green);
  • The next 9% = $1.6 million per person (blue);
  • The 50% to 90% = $263,016 per person (red line at the bottom).
  • The bottom 50% = $15,027 per person. That amount of wealth is so small it doesn’t show up on this per-capita chart that is on a scale of wealth that accommodates the 1%.

The total population in 2020, according to the Census Bureau, was 330 million people. The 1% amount to 3.3 million people. Back in 2000, the population was 283 million people, and the 1% amounted to 2.8 million people. So the 1% has grown by 473,000 people because the population has gotten larger. And the 50% – the have-nots, as we’ll see in a moment – have grown by 24 million people.

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The Hunt for Global Taxes

The proposal is to create a global tax rate as world leaders move to create a one-world government. The United Nations, behind the curtain, is preaching that ONLY they can solve the world crisis in climate change, for it requires a single government to control the world. On top of that, Bill Gates has taken over the funding for studies by Ivermectin & Fluvoxamine Clinical Trial Targeting COVID-19. We can bet that given his monopoly over vaccines, taking over the funding of studies to show an alternative to vaccines will by no means be legitimate. The conflicts of interest are vast.

As I have warned, they desperately needed to remove Trump from office because they viewed him as an outsider and someone elected by “populism,” which threatened the world establishment of political control by elite career politicians. They are now moving in high gear to eliminate democracy by 2022, but certainly, their goal is by 2024.

As I have warned, our models of politics have NEVER shown Panic Cycles since the 1930s. It appears that some states are trying to fight back where the Democrats want mail-in ballots that are not secure and same-day registration to vote to ensure there can be no verification of who the people even are. The Supreme Court has abandoned its role to protect our constitution by refusing to hear any of the cases, which may not have overturned the election but would have dealt with changing the rules as they went.

People have no idea what is at stake. These people in power want ABSOLUTE control, and they never want another popular person to run for office anywhere that would dare to threaten their goal of eliminating democracy.

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Fed and Treasury Steer Their Unsinkable Ship toward Iceberg

Fed and Treasury Steer Their Unsinkable Ship toward Iceberg

Illustration of the Titanic sinking with iceberg in backgroundThis past week we got to observe Fed Chair Jerome Powell and the US stock market andthe US bond market do everything I said they would do in their complicated shuffle of ships-and-icebergs:

“I’m sure many helium-headed stock investors believe the lilly-livered Fed will turn tail and run from its goal of letting inflation rise as soon as bonds begin to clobber stocks more seriously…. I believe the Fed is more committed than ever to raising inflation as it has been saying it wanted to do for years.”

Stocks in Bondage but Fed Not Fazed

While bond yields had already begun to rise and compete against stocks, the Fed stayed the course, iceberg dead ahead. As a result, longterm bond interest rose even more because the Fed did nothing to jawbone the idea of increasing its bond-buying QE to take interest rates back down (which it accomplishes by purchasing US government bonds from banks to take them off the market, putting them on its own balance sheet).

You see, the Fed is — I believe — caught in its own catch-22. Usually, to lower interest (in order to stimulate the economy and hit the higher inflation number the Fed says it is targeting), the Fed would buy more bonds; however, buying bonds and adding them to its balance sheet tends to create more money in the system, and the bond market is already afraid of rising inflation because much of the new money is now going into the hands of average people. (This game only worked when all new money was going into the stock market.)

As a result, aiming for higher inflation by purchasing more bonds will cause the reinvigorated bond vigilantes to up their demand on bond yields to cover inflation, making it impossible to lower longterm yields by purchasing bonds.

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Producer Prices Blow Out

Producer Prices Blow Out

And companies have been reporting that they’re able to pass on those surging costs. So here we go with inflation.

Inflation that producers are experiencing is now blowing out. The surging input costs and the ability to pass on those higher input costs that have been reported by company executives as part of the services PMIs and manufacturing PMIs, and that owners of small businesses have told me about for months, have now solidly fired up the Producer Price Index for final demand, which in March jumped by 1.0% from February – double the rate that economists polled by Reuters had forecast – after having jumped 0.5% in February, and 1.3% in January. The PPI has now taken off, after hovering in fairly benign territory last year.

Compared to March last year, the PPI jumped by 4.2%, the sharpest year-over-year increase since 2011, according to the Bureau of Labor Statisticstoday. Note the surge over the past three months (data via YCharts):

The “Base Effect” that I discussed yesterday can be blamed for only a portion of the year-over-year increase. A big part of the base effect is going to come in April.

The PPI hit a high in January 2020 with an index value of 119.2. In February and March last year, it dropped 0.5% from the prior month, and in April it plunged 1.1% to an index value of 116.7, driven by the collapse in fuel prices. And that was it in terms of declines. It has been rising ever since (data via YCharts):

What might April look like? Today’s index value at 123.1 is already 5.5% higher than that of April last year. If the PPI rises 0.5% in April from today’s level, it would make for a 6% year-over-year increase, the highest since the index was started in November 2009. And this would include the full brunt of the base effect.

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Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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