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Eight-Year Positive Cycle for Gold Starting Now

December 31, 2017

McClellan Financial says an eight-year cycle for gold is about to start and the next five years will likely be good ones

Via email from Tom McClellan, please consider Gold’s 8-Year Cycle.

We are now entering the upward phase of gold’s 8-year cycle, and that should bring some fun gains. And this comes at a time when gold has not been getting much of investors’ attention. If gold stays flat for a year, and Bitcoin twinkles to get all of the attention, speculators eventually drift away from gold. That sets up a great opportunity for gold to start getting more attention, and more money thrown its way.

As with most market cycles, gold’s 8-year cycle is measured bottom-to-bottom. But there is more to it than just that 8-year period between major bottoms. It typically sees a 3-year upward phase, which is where most of the big gains are seen. Then the 5-year downward phase actually has a 3-wave process of going down.

This has been evident since shortly after gold started trading freely in 1975. The cycle was probably lurking out in the wild, but it was just not evident with the Treasury department fixing gold prices prior to the 1970s. The 3-up, 5-down pattern saw one anomaly in the 2000s, when prices were mostly up all the time during that cycle. But if you look hard enough, you can see the inflection points of the 3-wave down move within that upward trend.

Now that we are in the 2010s, the pattern appears to have returned to its normal 3-year up, 5-year down phase, and reset for the next 3-year up phase. So why has gold not started screaming higher already?

My answer is that there is another independent cycle also at work that has kept gold price down in late 2017, and that is the 13-1/2 month cycle.

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

Debt to GDP: Only 4 Major Countries Worse Off Than the US

December 30, 2017

Of major nations, only Japan, Greece, Italy, and Portugal have debt-to-GDP ratios higher than the US.

With the new tax overhaul, U.S. government debt will rise by one to two trillion dollars over the next decade. I view that assessment as majorly optimistic as it assumes no recession and unlikely growth.

Citing IMF statistics, the Wall Street Journal reports Just Four Large Countries Have a Higher Debt Burden Than the U.S.

Japan’s government carries debts at 240.3% of gross domestic product, far and away the world’s largest burden. Japan has struggled in recent decades to tackle its debt, in part because its economy has been stagnant. Attempts to raise revenue via higher taxes have often knocked the economy into recessions. Tax cuts haven’t generated enough growth to ease debt burdens.

The Bank of Japan has embarked on the world’s most aggressive monetary policies, including decades of rates near zero, and the world’s largest asset-purchase program. None of it has revived growth or inflation, meaning Japan’s debt burden has been slowly grinding higher. (Although the low rates have meant the costs to the government of servicing that debt have remained under control.)

Japan’s government debt has been a persistent fiscal challenge, but never quite blossomed into a full-blown crisis.

The next three nations haven’t been so lucky. Greece’s debt-to-GDP stands at 180.2% of GDP, Italy’s at 133% and Portugal’s at 125.7%. When the global financial crisis struck, and government revenues plunged around the world, Greece and Portugal found themselves unable to manage debts on their own. Both nations turned to international bailouts to make it through the years of weak growth that followed. All three nations have had to bail out some of their largest banks in order to keep their financial systems from collapsing.

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

Lacy Hunt on the Unintended Consequences of Federal Reserve Policies

December 27, 2017

The Financial Repression Authority interviewed Lacy Hunt, Chief Economist at Hoisington Management on Fed policies.

The interview below first appeared on the FRA website along with a video. The emphasis in italics is mine.

FRA: Hi, welcome to FRA’s Roundtable Insight. Today, we have Dr. Lacy Hunt. He’s an internationally recognized economist and the Executive V.P. and Chief Economist of Hoisington Investment Management Company, a firm that manages over $4.5 billion USD and specializing in the management of fixed income accounts for large institutional clients. He also served in the past as Senior Economist for the Federal Reserve Bank of Dallas, where he was a member of the Federal Reserve System Committee on Financial Analysis. Welcome. Dr. Hunt.

Dr. Lacy Hunt: Nice to be with you, Richard.

FRA: Great. I thought we’d have a discussion on a variety of topics relating to the economy and the financial markets. You recently mentioned that you thought this was the worst economic expansion recovery in U.S. history since 1790. Wow. Can you elaborate?

Dr. Lacy Hunt: If you calculate the average growth rate in the expansions since 1790, this is a long-running expansion, but it’s the slowest and in the last 10 years the household sector lagged very, very badly. The rate of growth in real disposable household income per capita is only 0.9 percent per year. And in the last 12 months, we’re up only 0.6 percent per year. So it’s a long-running expansion, but it’s been a poor expansion. There are certainly problems with some of the earlier data, but this appears to be the slowest expansion since the turn of the 18th Century and our households are the main problem for the growth rate lag.

FRA: And do you point a finger for this cause as primarily on the Federal Reserve or do you see structural changes happening to the economy?

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

EU Opens Article Seven Process Against Poland: Poland to Leave the EU?

December 22, 2017

The EU opened up Article 7 charges against Poland for having non-EU values. Poland is a serious risk to leave the EU.

Article seven is a charge against a country for having non-European values.

Specifically, the charge against Poland relates to its judiciary, but the EU also took Poland, Hungary, the Czech Republic, and Slovakia to the European Court of Justice (ECJ) over migrant issues.

Eurointelligence Synopsis of Poland

Yesterday the European Commission triggered an Article 7 procedure under the Lisbon treaty, which could, in theory, lead to the imposition of sanctions against a member state. This procedure’s final vote by the European Council will require unanimity, and Hungary has already said it would veto any attempt to impose sanctions on Poland. For that reason alone, the procedure is likely to fail. The Commission is going ahead because the symbolic act of starting the procedure matters more than the eventual outcome.

In the next step of the process, the Council has to pass a vote by a majority of four-fifths to determine that there is a serious risk of a member state failing to comply with the democratic values of the EU. The European Parliament will first have to give its consent. The procedure culminates with a vote at the European Council, where unanimity would apply. A veto by Hungary ends the process. The question is whether Hungary will actually come to the aid of Poland, and risk political isolation in the EU, or whether they will stick to their pre-announced position.

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

St. Louis Fed Promotes the Mathematically Impossible

December 19, 2017

It’s bad enough when economic writers are clueless about how markets work. It’s worse when Fed economists are clueless.

Check out this Tweet by @StLoiusFed.

✔@stlouisfed

Negative interest rates may seem ludicrous, but not if they succeed in pushing people to invest in something more stimulating to the economy than government bonds http://bit.ly/2ASFrRz 

170 people liked this Tweet.

Understanding the Math

  • Negative interest rates cannot push people into more stimulating investments.
  • No matter how negative the rate, someone has to hold every treasury bond and someone has to hold every dollar in circulation.
  • In the equity markets, for every buyer of stocks, there is a seller, thus the sideline cash argument fails as well.

It’s bad enough when analysts fail to understand basic economics, but even Fed economists are clueless about how markets work.

Negative rates cannot possibly do what the Fed suggests, but they can foster an artificial wealth effect when people borrow or spend more than they should.

Any economic gain spurred on by reckless borrowing will all be taken back and then some, in the next recession.

Zombie Corporations

Negative real rates also foster zombie corporations. The BIS defines Zombie firms as those with a ratio of earnings before interest and taxes to interest expenses below one, with the firm aged 10 years or more.

As it sits, 10% of corporations are zombies, unable to make interest payments from profits.They need cheap money to survive.

If the St. Louis Fed economists see a sustainable benefit from spurring zombie corporations, they are wrong about that too.

CNN & MSNBC Attempt Coverup of Bogus Story They Started 

December 13, 2017

CNN & MSNBC refuse to provide any transparency on how they blew a major anti-trump story.

The headline image is from the BBC story Russia-Trump: Who’s who in the drama to end all dramas?

The BBC names the key players, but it missed one: the media.

In a nutshell, three news outlets, starting with CNN and followed by MSNBC broke a bombshell story on Trump that false. CBS jumped on the bandwagon but later blamed CNN.

Supposedly, multiple, credible sources said Trump had access to Wikileaks information on Russia before Wikileaks posted it.

The story timeline was false.

Coverup Begins

Days later, CNN refuses to disclose its sources or say what happened.

Greenwald blasted CNN in a Tweet again today.

Glenn Greenwald
✔@ggreenwald

Slate notes that because CNN & MSNBC completely refuse to provide even the most minimal transparency about how they got their big story so wrong, we still don’t know the answer to the key question – and probablynever will, since they’re burying it: https://slate.com/news-and-politics/2017/12/medias-wikileaks-trump-jr-email-date-screwup-still-unexplained.html …

We Still Don’t Know Why Three Different Outlets “Confirmed” the Same Bogus Russia Story Last Week

Why did so many “sources” suddenly confuse the numbers 14 and 4?

slate.com

How Did It Happen?

“None of the outlets disclosed anything about the identities and/or motivations of the sources—and there are supposedly at least two of them!—who made such a consequential error of reading comprehension.

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

114 Italian Banks (Roughly 23%) Have NPLs Exceeding Tangible Assets

November 27, 2017

114 Italian Banks (Roughly 23%) Have NPLs Exceeding Tangible Assets

114 Italian banks have non-performing loans that exceed tangible assets. Ratios above 100% are signs of severe stress.

The headline image is from the from ilsole24ore.com. The article is dated March 25, 2017. The translated headline reads “Here are the 114 Italian banks at risk for suffering”

The image shows 24 banks where non-performing loans total 200% or more of tangible assets.

The image title “Texas Highest Rate” refers to a measure of banking stress called the “Texas Ratio“.

The Texas Ratio was developed by Gerard Cassidy and others at RBC Capital Markets. It is calculated by dividing the value of the lender’s non-performing assets (NPL + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

Texas Ratio Analysis

In 2012, the Dallas Fed did an article on the So-Called Texas Ratio.

“So-called” pertains to a discussion as to whether or not the measured should be renamed the “Georgia Ratio”.

Georgia Ratio?

US vs Italy (6% vs 23%)

At the peak of the SNL crisis in the 1980s, just over 5% of US banks had Texas ratios over 100%.

In the Great Financial crisis the number approached but did not top 6%.

In Italy, 114 of “almost” 500 banks have NPLs that exceed tangible assets. If were to add real estate owned (bank-owned real estate) to the Italian banks, they would be in even worse shape.

2015 Data

The caveat in this analysis is the article’s numbers are from 2015. But are Italian banks better or worse today?

I suspect worse.

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

Newsweek Embarrassment: “What Russia Did to Control the American Mind” 

November 22, 2017

In yet another mindless fake news story about fake news, NewsWeek explains how “Russia Controls the American Mind”

The all caps shouting is theirs.

Fake news tweets and social media posts that flooded the internet leading up to the 2016 presidential election came from a Russian troll factory that works around the clock like any IT facility—except lies were pumping out to control the American mind and put Donald Trump in the White House.

Early this month, Twitter testified before Congress and provided the Senate Intelligence Committee with more than 2,700 accounts tied to the agency, while Facebook identified more than 80,000 pieces of content linked to the agency. Meanwhile, Google found about $4,700 worth of search-and-display ads with dubious Russian ties.

Mercy!

Imagine that.

$4,700 worth of search-and-display ads took down the Clinton campaign, despite the fact Clinton outspent Trump $969.1 million to $531.0 million according to a Bloomberg article on Campaign Fundraising.​

Writer Jessica Kwong also moaned about trolls being paid between $1,300 and $2,000 per month. Kwong also makes this amusing claim “Twitter users in swing states in the U.S. received more fake news than real stories in the days leading up to the 2016 presidential election.”

Yes folks, this is how Trump won the election:

By spending a mere $4,700 for paid Tweets and $1,000 or so a month for some trolls, Russia now controls our minds.

If you click on that inane article, you may be treated (as I was) to three autoplay videos, two of them were ads, running simultaneously.

You will also find a barrage of Newsweek Fake News articles like these.​

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

Central Bank Group Think: Convince the Public More Inflation is Coming 

November 17, 2017

Chicago Fed chief Charles Evans is worried about the lack of inflation primarily because he is clueless about where to find it. As further proof of his economic illiteracy, Evans says “Low inflation expectations keep inflation down”.

The Federal Reserve should take a more aggressive stance toward boosting inflation and stop talking so much about using interest rates to ensure financial stability, Chicago Fed President Charles Evans said.

Evans expressed concerns Wednesday that the public was losing faith in policy makers’ commitment to bring inflation back up to their 2 percent target.

The central banker has consistently argued for a slower pace of interest-rate increases than many of his colleagues on the policy-setting Federal Open Market Committee.

“In order to dispel any impression that 2 percent is a ceiling, our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5 percent in the future than what has been communicated in the past,” he said in remarks prepared for a speech in London.

Two Asinine Economic Theories

  1. There is a need for inflation
  2. The Fed can achieve it by talking about it

For proof of number 2, look at Japan.

In regards to point number 1, the BIS agrees that routine price deflation may be beneficial.

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

“*Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive*,” stated the study.

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

Central Bank Group Think: Convince the Public More Inflation is Coming 

November 16, 2017

Chicago Fed chief Charles Evans is worried about the lack of inflation primarily because he is clueless about where to find it. As further proof of his economic illiteracy, Evans says “Low inflation expectations keep inflation down”.

The Federal Reserve should take a more aggressive stance toward boosting inflation and stop talking so much about using interest rates to ensure financial stability, Chicago Fed President Charles Evans said.

Evans expressed concerns Wednesday that the public was losing faith in policy makers’ commitment to bring inflation back up to their 2 percent target.

The central banker has consistently argued for a slower pace of interest-rate increases than many of his colleagues on the policy-setting Federal Open Market Committee.

“In order to dispel any impression that 2 percent is a ceiling, our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5 percent in the future than what has been communicated in the past,” he said in remarks prepared for a speech in London.

Two Asinine Economic Theories

  1. There is a need for inflation
  2. The Fed can achieve it by talking about it

For proof of number 2, look at Japan.

In regards to point number 1, the BIS agrees that routine price deflation may be beneficial.

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

“*Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive*,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

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

“Smart City” Dumb Location: Bill Gates Spends $80 Million on Az Desert Land to Create “Smart City” 

November 14, 2017

Billionaire Bill Gates purchased 24,800 acres near Phoenix to create a “smart city”. The community, to be named Belmont, will integrate driverless technology and high-speed data into its infrastructure.

Does it make sense to build a “smart city” in the middle of the Arizona desert with questionable, at best, water resources? We are about to find out.

Bill Gates has plans for a “smart city” located about 45 minutes west of downtown Phoenix.

According to a press release from Belmont Partners, “Belmont will create a forward-thinking community with a communication and infrastructure spine that embraces cutting-edge technology, designed around high-speed digital networks, data centers, new manufacturing technologies and distribution models, autonomous vehicles and autonomous logistics hubs.”

A proposed freeway, I-11, will connect Belmont to Las Vegas.

“Comparable in square miles and projected population to Tempe, Arizona, Belmont will transform a raw, blank slate into a purpose-built edge city built around a flexible infrastructure model,” Belmont Properties said.

Belmont Video

Energy and Water Consumption

Let’s connect the “smart city” to Las Vegas, an Energy Consumption Nightmare.

More importantly, the Smithsonian reports Arizona Could Be Out of Water in Six Years.

According to the EPA, “Warming has already contributed to decreases in spring snowpack and Colorado River flows, which are an important source of water for the region. Future warming is projected to produce more severe droughts in the region, with further reductions in water supplies. Future water scarcity will be compounded by the region’s rapid population growth, which is the highest in the nation.”

I am not a global warming advocate, but I am a believer that a water shortage crisis is in the foreseeable future. The land was cheap for a reason. It’s a desert hellhole.

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

Pension Ponzi Bailout: Democrats Sponsor US Treasury Bailout Scheme

November 13, 2017

Most defined benefit pension plans are nothing but Ponzi schemes. Plans are now unraveling because of demographics. An increasing number of retirees, needing untenable returns, are supported by fewer and fewer people putting money in the system. Democrats sponsored a bailout scheme. Will it pass?

Sen. Sherrod Brown, D-Ohio, plans to introduce legislation that would allow struggling multiemployer pension funds to borrow from the U.S. Treasury to remain solvent.

The bill, co-sponsored by Rep. Tim Ryan, D-Ohio, could be introduced later this week or shortly after. It would create a new office within the Treasury Department called the Pension Rehabilitation Administration. The funds would come from the sale of Treasury-issued bonds to financial institutions. The pension funds could borrow for 30 years at low interest rates. One restriction for borrowers is they could not make risky investments.

The bill would also fund a program at the Pension Benefit Guaranty Corp. to finance any remaining needs of pension plans borrowing from the new program. “Any money needed for the PBGC would be a tiny fraction of what it would otherwise be on the hook for if Congress fails to act,” said an analysis by Mr. Brown’s office.

Mr. Brown told a group of retired Teamsters in Ohio on Monday that the bill will be out shortly.

It Begins: Pension Bailout Bill

A reader asked me to comment on the story after reading ZeroHedge’s take: It Begins: Pension Bailout Bill To Be Introduced This Week.

“It’s bad enough that Wall Street squandered workers’ money — and it’s worse that the government that’s supposed to look out for these folks is trying to break the promise made to these workers. Not on our watch. We won’t allow that to happen,” said Brown.

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

Venezuela Officially Defaults; Annual Inflation 2689 Percent: When Does the Military Take Over?

November 11, 2017

Electricidad de Caracas, a Venezuelan state-owned electric company, officially defaulted on a $650 million bond payment. The company was already a month late on its payment before the trustee, Wilmington Trust, issued a statement. Meaanwhile, Professor Steve Hanke notes annual inflation is 2689%.

Venezuela’s Electricidad de Caracas — a state-owned electric company — has defaulted on a $650 million bond payment, Wilmington Trust said Friday.

The default comes as the International Swaps and Derivatives Association (ISDA) prepares to decide next Monday whether state-run oil giant Petroleos de Venezuela (PDVSA) experienced a credit event earlier this month.

PDVSA missed a $1.12 billion bond payment on Nov. 2. If ISDA decides that PDVSA did experience a credit event, that could lead bondholders to declare a default, which could trigger an avalanche.

“We expect if holders do declare a default then that could be used to trigger cross default across the whole US$28bn of PDVSA bonds,” Stuart Culverhouse, chief economist at Exotix Capital, said in a note. He noted, however, that bondholders “may simply give the government more time to make the payment, as the intention seems to be there, but coordinating a large group of holders with different incentives could prove challenging.”

Food Shortages

President Nicolas Maduro erased any remnants of democracy in late July, stripping political opponents of power and establishing a new legislature filled with his cronies.

But Maduro’s cemented regime still faces the same problems it started years ago: An exodus of its educated class combined with mass shortages of food, medicine, money and — most importantly — time.

Shortages of basic medicine and proper medical equipment are common. More than 750 women died during or shortly after childbirth in 2016, a 66% increase from 2015, according to the Venezuelan health ministry.

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

Too Safe to Fail: Implied Default Rate for European Junk Bond is Negative 1.1% 

November 9, 2017

Apparently, European junk bonds are too safe to fail. Fundstrat Global Advisors’ Thomas Lee says the market-implied default rate for a European junk bond sits at a negative 1.1%.

The market’s expectation for an average European high-yield bond to default on its payments stood at negative 1.1% on Oct. 26, versus a long-term average of a positive 5.8%, according to an analysis released Friday by Thomas Lee, the head of research at Fundstrat Global Advisors, who attempted to demonstrate the pernicious consequences of quantitative easing.

“We see this creating a ‘moral hazard’ which allows bad businesses to borrow money and misallocate. After all, wouldn’t anyone want to borrow money at cost of debt less than the U.S. government?” said Lee.

But Martin Fridson, chief investment officer of Lehman Livian Fridson Advisors and a veteran high-yield bond analyst, has criticized the principal way money managers and market strategists like Lee calculate the market’s expectations for the default rate, which uses the option-adjusted spread as a jumping-off point. By his own calculations, the default rate for an average European junk bond should be 0.2%, still a very low level.

Fridson, nonetheless, conceded the ECB was one “root cause” for the seemingly stretched valuations seen in the market for European corporate paper.

Debate Over Risk

Depending on your point of view, the implied default rate on European junk bonds is -1.1% or as high a 0.2%.

One hell of an unwind is coming. I wish I could tell you when.

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges 

November 7, 2017

Contrary to ECB propaganda, Target2 imbalances are a direct result an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

The interesting aspect of Italy’s new record Target2 Imbalance is that it comes just as Dwindling Trust in Italian Banks is on the rise.

Just 16 percent of Italians have confidence in the country’s lenders, down from an already meager 17 percent in June, according to a poll by the SWG research group of Trieste on Friday. Only 24 percent trust the Bank of Italy, plunging from 36 percent in June.

One likely reason: a tortuous bank crisis that caused losses for savers and led the government to rescue three lenders with taxpayers’ money this year. The vanishing confidence is likely to show in campaigns for national elections expected by next spring.

Supporters of the populist Five Star Movement and anti-migrant Northern League have the least confidence in lenders and the Bank of Italy among those with a definite opinion, according to the survey of 1,000 adults conducted Oct. 23-25.

Confidence in Banks Plunges

The eurosceptic Five Star Movement just happens to have the largest share of the vote in recent polls.

Target2 Discussion

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.”

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

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