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Self-destruction usually happens in stages. At first there’s a binge in which the thrill outweighs the sense of transgression. This is usually followed by remorse, acknowledgement of risks, and an attempt to reform.

But straight-and-narrow is exhausting, and because of this is frequently just temporary, eventually giving way to a kind of capitulation in which the addict drops even the pretense of self-control.

2018 is apparently the year in which the world enters this final stage of its addiction to debt. Wherever you look, leverage is soaring as governments, corporations and individuals just give up and embrace the idea that borrowing is no longer a necessary evil, but simply necessary. Some recent examples:

China January new loans surge to record 2.9 trillion yuan, blow past forecasts

(Reuters) – China’s banks extended a record 2.9 trillion yuan ($458.3 billion) in new yuan loans in January, blowing past expectations and nearly five times the previous month as policymakers aim to sustain solid economic growth while reining in debt risks.

Net new loans surpassed the previous record of 2.51 trillion yuan in January 2016, which is likely to support growth not only in China but may underpin liquidity globally as major Western central banks begin to withdraw stimulus.

Corporate loans surged to 1.78 trillion yuan from 243.2 billion yuan in December, while household loans rose to 901.6 billion yuan in January from 329.4 billion yuan in December, according to Reuters calculations based on the central bank data.

Outstanding yuan loans grew 13.2 percent in January from a year earlier, also faster than an expected 12.5 percent rise and compared with an increase of 12.7 percent in December.

———————–

Total US household debt soars to record above $13 trillion

(CNBC) – Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017 from the previous quarter, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data report released Tuesday.

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

Lynette Zang: ‘The CRIMINAL BANKS Know Something Is VERY WRONG’

February 15, 2018

Lynette Zang: ‘The CRIMINAL BANKS Know Something Is VERY WRONG’

lynettezang

Lynette Zang from ITM Trading recently joined the SGT Report to discuss the economy, precious metals, and the disastrous storm that’s brewing. According to Zang, the criminal banks have stopped lending to each other because they know something is very wrong with the economy.

The interview jumps straight to the point. The big banks are not lending to each other. What is Zang’s take on the drop in interbank lending?

“During the 2008 crisis, it absolutely plummeted but they’ve been trying to keep it a little supported at the levels back in the 80’s and…it’s plunged below where it was when they came out in ’73; and what I find interesting…is that banks don’t trust each other. They know they’re insolvent. They’re not gonna get the money back.”

Zang is then asked about Deutsche Bank. Since it’s leveraged “to the gills” is it the first bank to go?

“I don’t know whether Deutsche Bank will be the first to go, but their leverage ratio remains at 3.8%, which means if the value of their assets falls 3.9%, they are insolvent. But that can really start anywhere. It doesn’t have to start at Deutsche Bank, but Deutsche touches every single financial product in every bank. I wouldn’t say this is ‘the canary in the coal mine,’ because I’ve really been talking about pattern shifts that I’ve been witnessing since October. The pattern shifts really started in 2017. People think nothing happens until it becomes visible, but you have to look a little below…to see what you’re not seeing…the banks know that they’re not loaning to each other. And the central banks know that they’re attempting to support the mortgage markets and keep everything floating.

We’re inside of a great experiment…this is an accident that’s in the process of unfolding.“

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

Another Big British Bank Lands in Deep Trouble

February 14, 2018

Another Big British Bank Lands in Deep Trouble

Barclays faces a criminal trial in the UK. Last week it was RBS.

Now, it’s the UK’s second-largest bank Barclays’ turn to face the music. A week ago, it was the UK’s third-largest bank, state-owned Royal Bank of Scotland, that faced one of its biggest scandal yet after whistle-blowers accused the bank of systematically forging customer signatures. RBS also faces the prospect of a multi-billion dollar fine for the way it sold residential mortgage-backed securities during the lead up to the Financial Crisis.

On Monday, the UK’s Serious Fraud Office (SFO) announced that it was charging Barclays for a second time over a deeply suspicious £2.2 billion ($3 billion) loan it issued in 2008 to Qatar. To avoid a government bailout, Barclays took a £12 billion loan from Qatar Holdings, which is owned by the state of Qatar. Under that deal, Barclays loaned £2.3 billion back to Qatar Holdings, which allegedly was then used to buy shares in Barclays. If true, it would amount to “unlawful financial assistance,” the SFO says.

Barclays is the first British bank to face a criminal trial in the UK related to its conduct during the Financial Crisis. The fresh charge of “unlawful financial assistance” comes after charges were brought against Barclays’ holding company and four former executives last July.

Founded in 1690, Barclays is one of the world’s oldest banks. As the Financial Times notes, the original lender was established on a bedrock of honesty, integrity and plain dealing — a reflection of the sober values of the Quaker families that founded the bank. Today, things could not be more different. The bank now boasts one of the longest rap sheets of any bank in Europe, which — given the pedigree of the local competition, including Deutsche Bank, HSBC, RBS, UBS, BNP and Credit Suisse — is no mean feat.

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

Take It To The Bank: Interest Rates Won’t Rise, Report 11 Feb 2018

February 12, 2018

Take It To The Bank: Interest Rates Won’t Rise, Report 11 Feb 2018

How Not to Predict Interest Rates

We continue our hiatus from capital destruction to look further at interest rates. Last week, our Report was almost prescient. We said:

The first thing we must say about this is that people should pick one: (A) rising stock market or (B) rising interest rates. They both cannot be true (though we could have falling rates and falling stocks).

We write these Reports over the weekend. At the time of last week’s writing session, Friday’s close on the S&P was 2757 (futures). Monday this week saw a crash, with the S&P down to 2529 at the low point in the evening. That is a drop of -8.3%.

We are not stock prognosticators, and we will neither tell you “short the market” nor “buy the dip”. We have a different point to make.

Rising interest rates, by a variety of mechanisms, cause stocks and all asset prices to go down. We have touched on a few in this Report. One is that investors have a choice between the risk-free asset—the Treasury bond—and anything else (note: the Treasury bond is not risk free, but if it defaults then everything else will be wiped out in the collapse). Why would they accept a lower yield on stocks along with the greater risk? Another is that corporations can borrow to buy their own shares. Management may do this if the interest rate is lower than their shares yield. But they can sell shares to pay off debt if the shares have lower yield than the interest rate.

Let’s look at a few more.

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

The Looming Crisis in the Private Provision of Public Services Close Parallels With the Systemic Failure of Banks

February 12, 2018

THE LOOMING CRISIS IN THE PRIVATE PROVISION OF PUBLIC SERVICES CLOSE PARALLELS WITH THE SYSTEMIC FAILURE OF BANKS

The collapse in January of Carillion PLC, the UK’s second largest construction and outsourcing company has attracted considerable media coverage. Carillion was principally engaged in public sector contracts to build (and in some cases operate) hospitals, prisons, roads, and part of the new high-speed rail link between London and Leeds.

Mainstream media rightly reported many unpalatable aspects of the collapse: aggressive accounting, suspension of pension fund contributions, the company’s rapid growth by acquisition. However, they generally missed the parallel with the story of systemically important financial institutions. The truth is that companies such as Carillion, Capita, G4S and MITIE now manage such a large slice of UK public services that the failure of more than one raises the spectre of the armed forces being deployed to keep schools open. Unfortunately, all these companies might be in financial trouble because, just like large banks, it is impossible to assess their health or lack of it by studying their financial reports and accounts.

Background – 25 Years of Privatisation of UK Public Sector Procurement
Since the early 1990s, all British governments have embraced public-private partnerships as the preferred construction procurement method. The initial appeal of such partnerships was an accounting trick whereby the payments were expressed as conditional upon service provision, and hence the long-term liabilities did not appear on the public sector balance sheet. They came on balance sheet in 2012, but the procurement method persists.

However, the privatisation of public sector infrastructure quickly changed the industry. So great was the volume of business, and so complex was the tendering process that initially consortia of building companies and facilities management companies were formed to pool resources and submit joint tenders.

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

Bailed-Out RBS Systemically Forged Customer Signatures: Whistle-Blowers

February 7, 2018

Bailed-Out RBS Systemically Forged Customer Signatures: Whistle-Blowers

Small-business customers suffered most at the bank’s hands.

The Royal Bank of Scotland, the UK mega-lender that has already cost British taxpayers over £90 billion in bailouts, losses, fines and legal fees, could be about to face its biggest scandal yet following allegations staff were routinely “trained” to forge customer signatures.

First, managers were taught how to fake the names on key customer documents, according to whistle-blowers at the bank, cited by the Scottish Mail on Sunday. Staff were then allegedly shown how to download authentic signatures from the bank’s online system, trace them on to new documents by holding them against a window and to photocopy the paperwork a number of times, to “obscure the image somewhat” and thus avoid detection — a blatantly criminal practice that allegedly became commonplace throughout the bank to speed up processing.

The latest allegations are further confirmation of just how poisoned a legacy the pre-crisis management team left behind at the bank. Obsessed with achieving rapid growth at just about any cost, executives “bred a culture of impunity that affected most aspects of [RBS’] business,” says British financial journalist Ian Fraser.

Fraser was one of the first journalists to expose how some of the bank’s employees edited minutes of telephone conversations with customers to avoid the bank having to shell out compensation for misselling insurance products. At one point as many as 1,000 employees at RBS’s investment banking division (nearly a tenth of its back-office staff) were solely engaged in data-clean up and reconciliation — i.e., doctoring or recreating documents, such as loan and derivatives contracts, in ways that suited the bank and often undermined the position of counterparties.

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

It’s Looking A Lot Like 2008 Now…

February 3, 2018

It’s Looking A Lot Like 2008 Now…

Did today’s market plunge mark the start of the next crash?

Economic and market conditions are eerily like they were in late 2007/early 2008.

Remember back then? Everything was going great.

Home prices were soaring. Jobs were plentiful.

The great cultural marketing machine was busy proclaiming that a new era of permanent prosperity had dawned, thanks to the steady leadership of Alan Greenspan and later Ben Bernanke.

And only a small cadre of cranks, like me, was singing a different tune; warning instead that a painful reckoning in our financial system was approaching fast.

It’s fitting that I’m writing this on Groundhog Day, as to these veteran eyes, it sure has been looking a lot like late 2007/early 2008 lately…

The Fed’s ‘Reign Of Error’

Of course, the Great Financial Crisis arrived in late 2008, proving that the public’s faith in central bankers had been badly misplaced.

In reality, all Ben Bernanke did was to drop interest rates to 1%. This provided an unprecedented incentive for investors and institutions to borrow, igniting a massive housing bubble as well as outsized equity and bond gains.

It’s worth taking a moment to understand the mechanism the Federal Reserve used back then to lower interest rates (it’s different today). It did so by flooding the banking system with enough “liquidity” (i.e. electronically printed digital currency units) until all the banks felt comfortable lending or borrowing from each other at an average rate of 1%.

The knock-on effect of flooding the US banking system (and, really, the entire world) in this way created an echo bubble to replace the one created earlier during Alan Greenspan’s tenure (known as the Dot-Com Bubble, though ‘Sweep Account’ Bubble is more accurate in my opinion):

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

Tomgram: Nomi Prins, How to Set the Economy on Fire

February 3, 2018

Tomgram: Nomi Prins, How to Set the Economy on Fire

There’s no way to measure just how cheery this period really is — not if you’re the CEO of a major company. Just as the World Economic Summit was opening in Davos, Switzerland, and President Donald Trump was flying in to put his mark on the moment, PwS, a global consulting firm, released its annual survey of 1,300 CEOs. “The report,” wrote the Washington Post‘s Tory Newmyer, “found CEO optimism at a record high — with 57% predicting growth would accelerate worldwide this year — after lodging its biggest single-year leap, up from just 29% who predicted as much last year.” In the wake of the passage of staggering tax cuts for corporations and the truly wealthy, the most ebullient among them were, of course, North American CEOs!

And that wasn’t even the best news, not if you lived in a penthouse somewhere on this planet anyway. As Davos began, Oxfam issued “Reward Work, Not Wealth,” its new report indicating that “82% of the wealth generated last year went to the richest one percent of the global population, while the 3.7 billion people who make up the poorest half of the world saw no increase in their wealth.” Oh, and here’s a footnote of further cheer from Oxfam: “It takes just four days for a CEO from one of the top five global fashion brands to earn what a Bangladeshi garment worker will earn in her lifetime. In the U.S., it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year.”

In that context, Donald Trump gave an America First, exceptionalist pep talk at Davos filled with expectable falsehoods, lies, and exaggerations to a crowd — “some of the remarkable citizens from all over the world,” as he put it — primed to applaud (though there were a few hisses and boos and the rare protest, too).

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

QE…The Gift That Just Kept Giving…Is Now Taking

February 1, 2018

QE…The Gift That Just Kept Giving…Is Now Taking

I know the Federal Reserve doesn’t effectively create money or directly monetize. I know this because then Fed chief, Ben Bernanke, told us so (HERE). But still, something has me wondering about that exchange, now almost a decade ago. The simplest of math.

The plan to utilize quantitative easing and avoid direct monetization went like this. The Fed would digitally conjure “money” to buy the US Treasury bonds and Mortgage Backed Securities (remove assets from the market) from the big banks. However, the Fed would force those banks to deposit the newly conjured “money” at the Federal Reserve. This would avoid the trillions of newly created dollars from going in search of the remaining assets (particularly levered from somewhere between 5x’s to 10x’s…turning a trillion into five to 10 trillion…or more).

The chart below shows the Federal Reserve balance sheet (red line) and the quantity of those newly created dollars that the recipients of those dollars, the banks, deposited at the Federal Reserve (blue line). But the green line is the quantity of newly created dollars that have “leaked” out…also known as “monetized”.

The interplay of QE and excess reserves resulted in the peak QE impact taking effect long after QE was tapered and had ceased (chart below). The trillions in assets remaining with the Fed, but the new cash no longer under lock and key at the Fed.

The impact of $800+ billion of pure monetization from late 2014 through year end 2016 was spectacular. In the hands of the largest banks (multiplied by “conservative” leverage somewhere between 5 to 10x’s) easily amounting to trillions in new cash looking for assets. A “bull market” beyond belief should not have been surprising.

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

ECB Forced to postpone New Stricter Credit Rules Indefinitely

January 27, 2018

ECB Forced to postpone New Stricter Credit Rules Indefinitely

The ECB’s was forced to suspend its new stricter credit rules indefinitely concerning bad loans. The banks were screaming “you idiot” for it would have pushed way too many banks over the edge, particularly in Italy. With the Italian elections coming in March, the new rules would have been a major issue why Italy should also exit the EU.

The ECB originally sought to introduce new rules for dealing with new bad loans previously. As of January, banks were expected to cover all loans, which are now classified as default risk. There was no possible way that could be accomplished.

In Italy, their domestic banks would be oppressed and that fewer new loans would ever be issued. This was finally seen as a major negative consequence for the economy. Only with an extreme rebellion by the banks was the ECB forced to back off.

This illustrates the banking crisis that is still brewing in Europe even after nearly 10 years of quantitative easing. There is little prospect for this crisis to be fixed. All that can happen is to postpone the inevitable.

Mastercard Pushes Biometrics, Banks Follow

January 26, 2018

Mastercard Pushes Biometrics, Banks Follow

Biometric authentication “will be of great benefit to everyone.”

Mastercard has set a deadline for widespread use of biometric identification for its services across the whole of the EU: April 2019. Mastercard Identity Check, currently available in 37 countries, enables individuals to use biometric identifiers, such as fingerprint, facial, and iris recognition, to verify their identities when using a mobile device for online shopping and banking. The technology is not mandatory for customers, but from next year it will be vigorously promoted throughout the EU and many consumers will welcome it.

The impact will be felt not just by consumers but also by most European banks, since any bank that issues or accepts Mastercard payments will have to support identification mechanisms for remote transactions, alongside existing PIN and password verification. The deadline will also apply to all contactless transactions made at terminals with a mobile device.

Citing research it carried out with Oxford University, Mastercard says that 92% of banking professionals want to introduce biometric ID. This high number shouldn’t come as much of a surprise given the vast untapped value consumer data holds for banks and corporations as well the preference most banks have for electronic transactions. The study also claims that 93% of consumers would prefer biometric security to passwords, which is a surprise given the array of thorny issues biometrics throws up, including the threat it poses to privacy and anonymity and its deceptively public nature.

“A password is inherently private,” says Alvaro Bedoya, Professor of Law at Georgetown University. “The whole point of a password is that you don’t tell anyone about it. A credit card is inherently private in the sense that you only have one credit card.”

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

WARNING: Markets Reaching Extreme Leverage

January 20, 2018

WARNING: Markets Reaching Extreme Leverage

As investors’ bullish sentiment moves up to euphoric levels, the markets are reaching extreme leverage. This is terrible news because a lot of people are going to lose one heck of a lot of money. According to CNN Money’s Fear & Greed Index, the market is now at the “extreme greed” level and if we go by Yardeni Research on “Investor Intelligence Bull-Bear Ratio,” it’s also is the highest ratio in 30 years.

But, of course… this time is different. I continue to receive emails and comments on my blog that the Fed will continue to prop up the markets. Unfortunately, there is only so much the Fed can do to rig the markets. Furthermore, the Fed can’t do much to mitigate investor insanity in record NYSE margin debt or the massive $2 trillion in the global short volatility trade.

The record NYSE margin debt suggests traders have racked up a record amount of margin debt (33% more since 2007) and the largest short volatility trade in history. By shorting volatility, investors are betting that it will continue to move lower. A falling volatility index suggests more calm and complacency in the markets.

So, the market will likely continue higher and higher, until it finally POPS. And when it does, watch out.

I’ve put together some charts showing the extreme amount of leverage in the markets. While this leverage may increase for a while, at some point the insanity will end in one hell of a market correction-crash.

The Commercial Banks Are Betting On Much Lower Oil Prices

As I mentioned in previous articles and my Youtube video, Coming Big Oil Price Drop & Market Crash, the Commercial banks have the highest net short positions in the oil market in over 20 years. In the video, I explained how the Commercial net short position in oil increased from 648,000 to 678,000 contracts in just one week.

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

2017 Year In Review

December 27, 2017

Tortoon/Shutterstock

2017 Year In Review

Markets fiddle while Rome burns

Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam

Introduction

“He is funnier than you are.”

~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review

Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition—the likes of Dave Barry on one extreme¹ and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime.² (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup).³ I rely on quotes to let others do the intellectual heavy lifting.

“Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.”

~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review

“Just the facts, ma’am.”

~Joe Friday

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

In Legalizing Marijuana, Uruguay Trips over the Dollar, US Laws, and Global Banks

December 19, 2017

In Legalizing Marijuana, Uruguay Trips over the Dollar, US Laws, and Global Banks

It’s far from easy to do business without the financial support of any bank. But Uruguay, in its efforts to create a legal, regulated market for the recreational use of marijuana, is trying. In August it was revealed that some of the pharmacies that had agreed to sell the two varieties of cannabis distributed by the Uruguayan State had received threats from their respective banks, including the local subsidiary of Spain’s Santander, that they would close their accounts unless they stopped participating in the state-controlled sales.

To fill the funding void, the state-owned lender Banco República (BROU) announced that it would provide credit to the pharmacies involved in the scheme as well as producers and clubs. But within days, it too was given a stark ultimatum, this time from two of Wall Street’s biggest hitters, Bank of America and Citi: Either it stopped providing financing for Uruguay’s licensed marijuana producers and vendors or it’s dollar operations could be at risk — a very serious threat in a country where US dollars are used so widely that they can even be withdrawn from ATMs.

Why Drug Lords Love the Patriot Act

The main reason why this is all happening is that under the US Patriot Act, handling money from marijuana is illegal and violates measures to control money laundering and terrorist acts. Despite the fact that US regulators have made it clear that banks will not be prosecuted for providing services to businesses that are lawfully selling cannabis in states where pot has been legalized for recreational use, major banks have shied away from the expanding industry, deciding that the burdens and risks of doing business with marijuana sellers, both within and beyond U.S. borders, are not worth the bother.

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

“Dark Money” Runs the World

December 17, 2017

“Dark Money” Runs the World

Few people know financial markets’ biggest secret…

For the last 40 years, most people believed the stock market always goes up. Simply buy and hold long enough, the theory went, and you could sit back and watch the money accumulate in your account. No thought or hard work needed.

It was a nifty strategy — until the idea burned most investors in 2008. Almost a decade later, the scar tissue is still fresh for many investors.

Even today, after the U.S. stock market has rallied by 271% since the bottom on March 6, 2009 — nearly tripling investors’ money — only about half of Americans are invested in the stock market, according to NPR. That’s down from two-thirds compared to a decade ago.

The rest are in cash on the sidelines. Maybe that’s been you.

And who can blame you? “Fool me once, shame on you,” the saying goes. “Fool me twice, shame on me.”

Last June, Fortune surveyed readers. 71% of respondents said “the economic system in the U.S. is rigged in favor of certain groups.”

A few years earlier, the Los Angeles Times reported “Poll finds 64% of voters believe stock market is rigged against them…”

They’re not wrong.

Somebody’s made gains from all of those sectors in the stock market. It just hasn’t been Main Street.

Since I’ve left the world of big banking, I’ve made it my mission to change that. That leads me to the catalyst for my new project…

Dark money.

Dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

I learned this firsthand from my career on Wall Street. My first full year working on Wall Street was in 1987.

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

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