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“The System Simply Isn’t Working” – Hugh Hendry Warns Of 1930s-Style “Dramatic Fulcrum Point” In Europe

October 16, 2016

“The System Simply Isn’t Working” – Hugh Hendry Warns Of 1930s-Style “Dramatic Fulcrum Point” In Europe

Having warned in Q1 of the possibility of a China-devaluation-driven collapse in to a “Mad Max” world, Eclectica’s Hugh Hendry lays out the next steps and catalysts for ‘change’…

Via ValueWalk.com,

We believe we are approaching a dramatic fulcrum point in public opinion in Europe which could deliver another bout of outsized positive returns from a unique Eclectica trade.

Since the Brexit referendum we have been developing our thoughts about what the Leave vote might mean, not just for the UK, but for the European project as a whole. And our main conclusion is that by doing the unthinkable and actually voting to leave, Brexit substantially increases the likelihood that other members of the European Union will also seek to break away. Remember, just two years after the UK similarly rejected the gold standard back in 1931 there were just 12 remaining members versus the 45 that had previously been committed. And the so far robust performance of the UK economy since the vote will do little to dissuade others from following suit.

So we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst.

First of all we have the still too close to call US presidential election where a Trump victory would be hailed as a triumph for the same arguments that led to Brexit. Closer to home there is the Italian referendum on constitutional reform set for the first week in December, where it looks increasingly likely the government will be defeated.

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

China Is Cracking Down On Shadow Banking, But One European Country Is Encouraging It

September 25, 2016

China Is Cracking Down On Shadow Banking, But One European Country Is Encouraging It

When you hear about Shadow Banking, most people still associate it with dodgy Chinese schemes where more and more financial transactions were conducted outside of the normal and regulated banking system. In a previous column, we already briefly discussed how the Chinese shadow banking system had an impact on the copper price.

The scheme was actually pretty simple, and was aimed at maximizing the potential profits on borrowed money as even though copper importers in China received letters of credit valid for 3-6 months, the purchased copper was immediately sold on the domestic market, meaning the importer basically had a ‘free’ line of credit as it could invest the proceeds from the copper sales before having to repay the money drawn down from the letter of credit.

China has been trying to reduce the size of the shadow banking sector, and we argued this was one of the main reasons for the copper price weakness. As the world economy is correlated with how China is doing, the world is obviously keeping a close eye on the Chinese policies, and several first world countries blamed the Chinese regulators for letting things escalate.

But the truth is, the shadow banking issue is much more wide-spread than just China. Sure, the Chinese situation escalated pretty quickly, so it attracted more (unwanted) attention, but let’s have a look at how the shadow banking system is working elsewhere in the world. There is very little doubt peer to peer lending, which is essentially the basis of any shadow banking system, is booming and crowdfunding websites and simple P2P websites are popping up everywhere.

Source: ECB

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

10 Years (Or Less): Orwell’s Vision Coming True

July 10, 2016

10 Years (Or Less): Orwell’s Vision Coming True

orwell-map

In the wake of all of the Brexit vote, a chilling blurb made headlines and it went largely unnoticed and uncommented upon. The line was couched within comments made by Boris Titov, an economic policy maker for Russia’s Kremlin. Actually all of the following merits attention, but one line stands out. The source for this excerpt is a Facebook post by Titov. Here it is:

“…it seems it has happened — UK out!!! In my opinion, the most important long-term consequence of all this is that the exit will take Europe away from the anglo-saxons, meaning from the USA. It’s not the independence of Britain from Europe, but the independence of Europe from the USA. And it’s not long until a united Eurasia — about 10 years.”

This is a very revealing post to show how unfavorably the past 50 years of post-World War II American imperialism has been viewed. The tipping point, as mentioned in a previous articlewas the outright 180-degree that George H.W. Bush pulled on Mikhail Gorbachev: the promise of NATO membership upon reunification of the two Germany’s and the dissolution of the Soviet Union, and then not fulfilling that promise.

The American corporate interests inserted themselves, as the communist government shattered, leaving in its wake oligarchs, the Russian mafia, and a “Wild West” environment within Russia proper and the ex-SSR’s, the former Soviet satellite nations. A tremendous amount of chaos occurred for a decade that was both enabled and further fostered by the United States. The perception in Russia even before the Soviet Union came into being was that Russians were in an economic war with Great Britain, and the United States was looked upon as an “extension” of Britain: a country with language, law, and cultural parallels,especially in terms of expansion.

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

Here We Go Again——August 2007 Redux

July 5, 2016

Here We Go Again——August 2007 Redux

Nearly everywhere on the planet the giant financial bubbles created by the central banks during the last two decades are fracturing. The latest examples are the crashing bank stocks in Italy and elsewhere in Europe and the sudden trading suspensions by three UK commercial property funds.

If this is beginning to sound like August 2007 that’s because it is. And the denials from the casino operators are coming in just as thick and fast.

Back then, the perma-bulls were out in full force peddling what can be called the “one-off” bromide. That is, evidence of a brewing storm was spun as just a few isolated mistakes that had no bearing on the broad market trends because the “goldilocks” economy was purportedly rock solid.

Thus, the unexpected collapse of Countrywide Financial was blamed on the empire building excesses of the Orange Man (Angelo Mozillo) and the collapse of the Bear Stearns mortgage funds was purportedly owing to a lapse in supervision.

So it boiled down to an injunction of “nothing to see here”. Just move along and keep buying.

In fact, after reaching a peak of 1550 on July 18, 2007, the S&P 500 stumbled by about 9% during the August crisis, but the dip-buyers kept coming back in force on the one-off assurances of the sell-side “experts”. By October 9 the index was back up to the pre-crisis peak at 1565 and then drifted lower in sideways fashion until September 2008.

The bromides were false, of course. Upon the Lehman event the fractures exploded, and the hammer dropped on the stock market in violent fashion.

During the next 160 days, the S&P 500 plunged by a further 50%. Altogether, more than $10 trillion of market cap was ionized.

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

Thoughts on the Media and the EU Referendum 190

July 3, 2016

Thoughts on the Media and the EU Referendum 190

Al Jazeera’s Listening Post programme on the EU referendum media coverage was just broadcast. They only used about 5% of what they recorded of me, split into four soundbites to fit their format.

I think the much more interesting points I made were not used at all. So just for the record, I also made these points:

a) I did not accept the argument that the BBC was biased in the referendum campaign towards Brexit. Indeed especially in the last few days, I thought it was biased towards Remain.
b) However the BBC had been guilty of helping promote Brexit by giving Farage massive and disproportionate publicity for many years, from when UKIP was a negligible electoral force. They were always willing to give right wings views publicity but not left wing views.
c) The right wing print media were indeed a major problem distorting democracy. However the solution to this should be to break up media ownership, not impose government control of content.
d) Project Fear had not succeeded in the Scottish referendum. It had seen a 35 point unionist lead cut to a 10 point lead, making it one of the most disastrous campaigns in history. The question of why Project Fear “succeeded” in Scotland but not the EU referendum was therefore a false one.
e) Media coverage focused on the despised political class rather than the facts.

I do not blame Al Jazeera at all or accuse them of doing anything unethical – they were looking for soundbites for their broadcast. But I do think the above points which they did not broadcast, were a great deal more interesting than their programme!

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

Are We Living In “A Riskless World”, Deutsche Asks

July 3, 2016

Are We Living In “A Riskless World”, Deutsche Asks

Two weeks ago, when looking at the performance of bank stocks, Deutsche Bank’s Oleg Melentyev noticed that the ongoing collapse in US bank stocks relative to the change in the S&P from all time highs was starting to hint at patterns last seen just before the last three major market crashes.

Needless to say, European stocks (and especially Melentyev’s own employer, Deutsche Bank) have been in a world of pain of their own. Which in turn brings us to Melentyev’s latest note, one which looks at a world without risk, courtesy of central banks.

A Riskless World

Only a few days into the post-UK referendum world, the market is back on its feet, fearing nothing and laughing at skeptics. So what if a 30yr socio-economic alliance at the heart of post-WWII world has ended? Politicians will figure out a Swiss-like arrangement for the UK, and the ECB will throw the capital keys out of the window. Everything’s gonna be all right.

Such an optimistic narrative does not surprise us in and of itself. What surprises us is zero value being put on a probability of this scenario not playing out. We tend to like markets that present either a discount for uncertainty or a convincing case for improving outlook. It is hard to argue that either one is here today. Even if one believes in the possibility of a watered-down political compromise between the UK and EU, pricing in zero risk of achieving and implementing it leaves no room for error. A long implementation time is not a benefit as it only creates more uncertainty. Several major EU economies are facing elections in the next 18 months, and the markets are going to react every time the word “referendum” is mentioned.

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

ANALYSIS: Brexit vote a sign U.K. ‘longing for a time and place that never was’

June 25, 2016

ANALYSIS: Brexit vote a sign U.K. ‘longing for a time and place that never was’

‘Free movement of people is a major point of European integration,’ says political scientist

European Union leaders said Friday that the U.K. should begin the process of leaving the EU as soon as possible. It's expected that some countries will take a tough approach in negotiations over new trade deals, which will take at least two years to complete.

European Union leaders said Friday that the U.K. should begin the process of leaving the EU as soon as possible. It’s expected that some countries will take a tough approach in negotiations over new trade deals, which will take at least two years to complete. (Neil Hall/Reuters)

If it’s difficult to understand why the United Kingdom would vote to leave the European Union, spawning deep uncertainty about what happens next on any number of fronts, look no further than immigration.

The Brexit result was, in large part, a reaction to growing anxieties over migration to the U.K., realistic or not.

Immigration was a top priority for voters in the Leave camp, according to pre-referendum polling, and Leave leaders like the U.K. Independence Party’s Nigel Farage and former London mayor and likely next prime minister Boris Johnson have been clear on their position that “taking back control” of the U.K.’s borders is critical to future economic health.

It was a deliberate strategy to target migrants and the nostalgic whims of Britons “longing for a time and place that never was,” said Geoff Smith, professor emeritus of history at Queen’s University in Kingston, Ont.

A pro-European Union protester holds a sign near the Palace of Westminster in London on Friday, protesting Britain's decision to leave the European Union.

A pro-European Union protester holds a sign near the Palace of Westminster in London on Friday, protesting Britain’s decision to leave the European Union. (Marc-André Cossette/CBC)

“There’s an unhappiness with the status quo and the tendency has been to blame it on migrants,” Smith said. “They became a scapegoat, and it worked.”

Part of that scapegoating has been to point the finger at migrants for the U.K.’s slow and disappointing recovery from the financial crisis of 2008, as well as for disappearing public services, especially in places outside of major urban centres.

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

The consequences of leaving the party

June 25, 2016

The consequences of leaving the party

The collective decision of the British electorate is to reject the recommendation of its government, excepting those of its few dissenting ministers, that Britain should remain in Europe.

It is a signal failure of government policy. Above all, it is a failure that undermines the state’s control over ordinary people. Time will tell whether it is just a temporary setback for the world’s economic planners, or the removal of a keystone supporting the whole structure of modern statism.

There are, therefore, two aspects of this development that must be considered, domestic UK politics and the international economic and political consequences.

There can be little doubt that David Cameron and George Osborne the Chancellor are now only caretakers, with the duty of managing a planned withdrawal from Europe until their replacement as executive politicians. The withdrawal will be a lengthy process, which over the next two years at least, will lead to the final, official separation. It is possible there will be attempts by the European elite in Frankfurt and Paris, to come up with proposals to keep Britain in the EU club and to force a second referendum. Any such attempt will fail, because it cannot even be entertained by a caretaker Prime Minister.

David Cameron’s days as Prime Minister are numbered and he now has no real authority. The Conservatives will have to elect a new leader, and the bookies’ favourite is almost certain to be Boris Johnson. He is likely to be elected by the Conservative Party by the end of this year.

Britain’s future will therefore be subject to the policies of a Boris-led government, which it has to be admitted, will have obtained power basically through the failure of the Remain camp to come up with a convincing argument. It was arguably Remain that lost, and not Leave that won.

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

Another Stern Stock Market Crash Warning Was Just Issued by the IMF

May 29, 2016

Another Stern Stock Market Crash Warning Was Just Issued by the IMF

Another stern stock market crash warning was just issued from the International Monetary Fund (IMF), and it’s fueling fear across global markets.

The IMF, an organization of 189 countries, is worried about the ripple effects should the United Kingdom vote to leave the European Union (EU).

A British vote to exit the EU, or “Brexit,” could have significant and negative effects on the UK economy, the IMF said last Friday. The quickly approaching Brexit voting date is June 23.

Christine Lagarde, the IMF’s managing director, said nothing positive could come from a Brexit. She cautioned a vote in favor of a Brexit could lead to a technical recession. Bank of England Governor Mark Carney shares a similar sentiment.

Dow Jones Industrial Average That has many investors worried that tensions overseas could lead to a 2016 stock market crash…

A Brexit vote would cause a “protracted period of heightened uncertainty” and “severe regional and global damage,” the IMF warned. A spike in interest rates, extreme financial market volatility, and damage to London’s revered status as a global financial hub are all likely outcomes.

Other concerns include falling stock prices, a plunge in real estate values, surging borrowing costs for businesses and households, and a steep drop-off in foreign investment.

The UK’s economy could contract by 1% to 9% following a Brexit, according to the IMF’s research. If the UK chooses to stay in the 28-country bloc next month, the IMF expects the economy to grow about 2% this year and around 2.25% in 2017.

And the issue isn’t isolated to the United Kingdom. All global economies will be affected, which is what has sparked the stock market crash fears.

Atlanta U.S. Federal Reserve President Dennis Lockhart said last month that a vote for the UK to leave the EU might have destabilizing consequences for the world economy.

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

NATO Announces War Policy Against Russia

May 18, 2016

NATO Announces War Policy Against Russia

On May 18th, Britain’s Guardian headlined “West and Russia on course for war, says ex-Nato deputy commander” and reported that the former deputy commander of NATO, the former British general Sir Alexander Richard Shirreff (who was Supreme Allied Commander in Europe from 2011-2014), expressed outrage that Britain isn’t urgently preparing for war against Russia, and also reported that “He describes Russia as now the west’s most dangerous adversary and says Putin’s course can only be stopped if the west wakes up to the real possibility of war and takes urgent action. … In a chilling scenario, he predicts that Russia, in order to escape what it believes to be encirclement by Nato, will seize territory in eastern Ukraine.” (That’s the Donbass region, where there has been a civil war.)

This encirclement by NATO is, apparently, about to be expanded: Shirreff will now be satisfied by NATO, even if not by its member the UK, of which Shirreff happens to be a citizen. New Europe bannered the same day, “NATO lays down the cards on its Russia policy”, and reported that, “In two distinct pre-ministerial press conferences on Wednesday [May 18th], the General Secretary of NATO Jens Stoltenberg and the US Ambassador to NATO, Daglas Lute, introduced the Russia agenda to be covered. Both NATO leaders said that the Accession Protocol Montenegro is signing on Thursday is a strong affirmation of NATO’s open door policy, mentioning explicitly Georgia. ‘We will continue to defend Georgia’s right to make its own decisions,’ Stoltenberg said.” Georgia is on Russia’s southwestern flank; so, it could be yet another a nuclear-missile base right on Russia’s borders, complementing Poland and the Baltics on Russia’s northwestern flank. (The U.S. itself has around 800 military bases in foreign countries, and so even Russia’s less-populous eastern regions would be able to be obliterated virtually in an instant, if the U.S. President so decides.

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

Gold is the spectre haunting our monetary system

April 22, 2016

Close-up of bars of pure gold bullion — A scramble for gold has begun as central banks bet against US dollar inflation CREDIT:ALAMY

For a century, elites have worked to eliminate monetary gold, both physically and ideologically.

This began in 1914, with the UK’s entry into the First World War. The Bank of England wanted to suspend convertibility of bank notes into gold. Keynes counselled wisely that the bank should not do so. Gold was finite, but credit elastic.

By staying on gold, the UK could maintain its credit, and finance the war effort. This transpired. The House of Morgan organised massive credits for the UK, and none for Germany. This finance was crucial, and sustained the UK until the US abandoned neutrality and tipped the military balance against Germany.

Despite formal convertibility of sterling to gold, the Bank of England successfully discouraged actual conversion.

Gold sovereigns were withdrawn from circulation and turned into 400-ounce bars. This form of bullion limited gold ownership to the wealthy, and confined gold’s presence to vaults. A similar disappearance of gold as a circulating currency occurred in the US.

Gold graph — The price of gold has jumped in recent years CREDIT: LONDON METAL EXCHANGE

In 1933, US President Franklin Roosevelt issued an executive order making ownership of gold a crime. FDR relied on the Trading with the Enemy Act of 1917 as statutory authority for this edict. Since the US was not at war in 1933, the enemy was presumably the American people.

In 1971, US President Richard Nixon ended convertibility of US dollars into gold by trading partners of the US. Closing the gold window was said by Nixon to be temporary. Forty-five years later the window is still closed.

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

UK Oil Industry At The “Edge Of A Chasm”

February 25, 2016

UK Oil Industry At The “Edge Of A Chasm”

Oil & Gas UK, an industry trade group, said in a new report that the North Sea is entering a period of “super maturity.” The North Sea has been a source of sizable oil production for decades, but it is long past its prime.

The UK’s offshore sector is already a shadow of its former self. Consider this: three decades ago the UK produced twice as much oil from its offshore sector than it does today, and that oil came from one quarter of the number of fields. That was possible because the fields of yesteryear were large – on average five times the size of new discoveries today. The industry is now merely picking over the remaining scraps of the North Sea, most of which comes at great expense.

Maturing and high-cost oil fields had significant challenges before the oil price downturn. But at current prices, half of the UK’s North Sea oil fields are not recovering even their operating costs. The number of fields expected to be shut down between 2015 and 2020 increased by 20 percent since last year. The worrying thing from the industry’s perspective is that as fields cease production, the cost of maintaining infrastructure – often shared among producers – stays the same, raising the costs for the remaining players. That could lead to a “domino effect” that spread to other companies. In 2015, 21 oil fields shut down because of low oil prices.

If companies are not able to even cover their operating costs, investing in new fields makes no sense at all. Oil & Gas UK estimate in their report that the sector will see less than £1 billion in investment in 2016.

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

The Public Is Being Looted By Privatization And Deregulation

February 23, 2016

The Public Is Being Looted By Privatization And Deregulation

The privatization movement and the deregulation movement have turned out to be failures.

Privatization in Britain under the Thatcher government had its origin in the belief that the absence of incentivized managers and shareholders with a stake in the bottom line resulted in nationalized companies operating inefficiently, with their losses covered by government like the big private banks’ losses today. Thatcher’s government believed that privatizing socialized firms would reduce the UK budget deficit and take pressure off the British pound.

Today privatization is a way that governments can reward cronies by giving them valuable public resources for a low price. When the UK government privatized the postal system, there were news reports that one postal property in London alone was worth the purchase price of the entire postal service.

Privatization is also a way that conservatives, who object to social pensions and national health, can stop “taxpayer support of welfare.” In the US conservatives want to privatize Social Security and Medicare. In the UK conservatives want to privatize the National Health System.

It looks like the UK Conservative government is taking a step in the direction of privatizing the national health system, one of the great social reforms in British history. https://www.rt.com/uk/333270-nhs-professionals-privatized-deloitte/

In the US there are advocates of privatizing the national forests. In some ways the forests are already privatized as private timber companies are allowed to “harvest” the trees at favorable prices, and often the government even builds the roads for them.

In the US deregulation has resulted in high prices and poor service. When airlines were regulated, they competed on service. They had spare equipment so that mechanical problems did not mean cancelled flights. Stopovers did not involve additional costs.

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

Saudi war for Yemen oil pipeline is empowering al-Qaeda, IS

February 12, 2016

Saudi war for Yemen oil pipeline is empowering al-Qaeda, IS

Secret cable and Dutch government official confirm that Saudi Arabia’s war on Yemen is partly motivated by an ambitious US-backed pipeline fantasy

Nearly 3,000 civilians have been slaughtered and a million displaced in Saudi Arabia’s noble aerial bombardment of Yemen, which is backed by the United States and Britain.

Over 14 million Yemenis face food insecurity – a jump of 12 percent since June 2015. Out of these, three million children are malnourished. And across the country, an estimated 20 million people cannot safely access clean water.

The Saudi air force has systematically bombed Yemen’s civilian infrastructure in flagrant violation of international humanitarian law. An official UN report to the Security Council leaked last month found that the Saudis have “conducted airstrikes targeting civilians and civilian objects … including camps for internally displaced persons and refugees; civilian gatherings, including weddings; civilian vehicles, including buses; civilian residential areas; medical facilities; schools; mosques; markets, factories and food storage warehouses; and other essential civilian infrastructure, such as the airport in Sanaa, the port in Hudaida and domestic transit routes.”

US-made cluster bombs have been dropped on residential areas – an act that even the UN Secretary General Ban Ki-Moon tepidly concedes “may amount to a war crime”.

In other words, Saudi Arabia is a rogue state. But make no mistake. This kingdom is our rogue state.

The US and British governments supplying Saudi Arabia with weapons to be unleashed on Yemeni civilians pretend they are not involved in the war, not responsible for the war crimes of our rogue state ally.

A UK Ministry of Defence spokesperson insisted that British forces were merely advising “on best practice targeting techniques … UK military personnel are not directly involved in Saudi-led coalition operations.”

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

UK Blackout Risk – Amber Warning

February 11, 2016

UK Blackout Risk – Amber Warning

In recent months, three companies have announced closure of 4 large coal-fired power stations in the UK representing a total loss of 6.671 GW base load capacity*. Combined with closure of 1 nuclear station and the pending closure of two CCGTs, total capacity loss in 2016 will amount to 8.726 GW. If there was a blackout risk this winter, then things will obviously be much worse next winter.

In effect traditional generators are throwing in the towel confronted with a neo-Marxist system of production quotas, targets, subsidies, levies and regulation that places their superior technology at an impossible disadvantage to inferior wind and solar power, both of which are useless in averting a blackout risk when it is highest during a calm winter evening. UK Secretary of State for Energy and Climate Change, Amber Rudd, needs to re-discover her Tory credentials and sort this situation out.

[* Note that this is a fluid situation with other announcements made since I wrote these words]

The last time I visited this topic was in October 2015 and at that time I saw little risk of UK blackouts this winter. The lights have thus far stayed on! But in the five months since, a lot has changed. The main variable is on-going closure of legacy base load power stations. But I have also learned a bit more about system operation and how the statistics should be interpreted. Mainly I have learned that power stations located in Northern Ireland should not be counted in UK generating statistics since National Grid does not include Northern Ireland in UK demand figures. And plant availability is never 100% and needs to be de-rated by approximately 15% to represent the real world of fires, boiler leaks and vibrations that are common place in the world of electricity generation and maintenance schedules.

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

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