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Russell Napier: “The Most Dangerous Thing In Finance Is The Thing That Never Ever Moves – Until It Moves”
Russell Napier: “The Most Dangerous Thing In Finance Is The Thing That Never Ever Moves – Until It Moves”
The PBOC – How to fail in business without really flying
“Terrain seems a bit unstable…and there seems to be no sign of intelegent life anywhere”
– Buzz Lightyear (Toy Story)
“That wasn’t flying…that was falling with style”
– Woody (Toy Story)
Another day, another central bank failure. In a world of currencies backed only by confidence, every failure is masqueraded as success. Like the ballet dancer who transforms the stumble into a pirouette, central bankers, knocked to the ground by market forces, smile and pretend that this was all part of the routine. Financial market participants, having bet everything on the promised omnipotence of central bankers, do indeed seem happy to see genius in every stumble. However a fall is a fall regardless of the style of the descent. So when will investors see that the earth is rapidly approaching and that style is just style?
The key for investors today is to see behind the masquerade and the mask, the façade of those putting up a front behind a public face, and be able to tell the difference between the soaring flight of reflation and the perilous fall of deflation. The more attitude you hear from policy makers, the more you can be sure it’s style compensating for the lack of real substance and that this is falling and not flying. And as the attitude becomes more high-handed, the lower the altitude gets. The attitude quotient is rising rapidly.
Two weeks ago we noted the ‘flying’ undertaken by the Swiss National Bank as the market forced them to abandon their exchange-rate target. Deposit rates in Swiss Banks are now at such a low level that investors are better off converting deposits into bank notes and placing them under the bed. The Danish Central Bank has also instituted negative interest rates with the consequence that deposits in Denmark might also fly into paper. As the central bank managed to create over DKK106bn (US$16.3bn) in bank reserves, trying to stop a revaluation of their exchange rate last month, there will be no shortage of banknotes to go round should a ‘bank run’ from deposits to banknotes begin.
…click on the above link to read the rest of the article…
Birth Pangs Of The Coming Great Depression
Birth Pangs Of The Coming Great Depression
The signs of the times are everywhere – all you have to do is open up your eyes and look at them. When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together. But as the time for delivery approaches, they become much more frequent and much more intense. Economically, what we are experiencing right now are birth pangs of the coming Great Depression. As we get closer to the crisis that is looming on the horizon, they will become even more powerful. This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years. The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis. In addition, “Dr. Copper” and other industrial commodities continue to plunge. This almost always happens before we enter an economic downturn. Meanwhile, as I mentioned the other day, orders for durable goods are declining. This is also a traditional indicator that a recession is approaching. The warning signs are there – we just have to be open to what they are telling us.
And of course there are so many more parallels between past economic downturns and what is happening right now.
For example, volatility has returned to the markets in a big way. On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.
This is precisely how markets behave just before they crash. When markets are calm, they tend to go up. When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.
At the same time, almost every major global currency is imploding. For much more on this, see the amazing charts in this article.
In particular, I am greatly concerned about the collapse of the euro. The Swiss would not have decoupled their currency from the euro if it was healthy. And political events in Greece are certainly not going to help things either. Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point. And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.
And I haven’t even mentioned the oil crash yet.
…click on the above link to read the rest of the article…
As China’s Offshore Yuan Crashes To A 2 Year Low, Beijing Warns Its Citizens: “Don’t Buy Dollars”
As China’s Offshore Yuan Crashes To A 2 Year Low, Beijing Warns Its Citizens: “Don’t Buy Dollars”
We won’t go into the specific details of China’s burst housing bubble, the shady underworld of itspyramid scheme wealth-management products, the fact that any hard asset in China is rehypothecated literally a countless number of times, the nuances of its deflating shadow banking system, or even the complexities of its alleged capital controls (alleged, because as a reminder, they only exist for the common folks – the really wealthy Chinese are naturally exempt from any capital flow constraints). We will point out something even more disturbing.
Recall that China, a mercantilist, export-driven country, has a currency that is pegged to the dollar in all but name (yes, the technical peg was dropped in 2005 but since then the PBOC controls the daily moves in the strictest and tiniest of increments), a dollar which has soared in the past 6 months to levels which have prompted countless other central banks to ease in recent weeks, and even forced the Swiss National Bank out of the currency wars, waving a flag of surrender. As a result, China’s exports have been crushed regardless of what fabricated and goalseeked Chinese data will have gullible observes believing.
And while the value of the local Yuan, the CNY, is set by bureaucrats and policy makers on a daily basis, and trades in a tight band around a specific, political number and thus never truly reflects the fair value of the Chinese currency, its offshore cousin, the CNH, floats and is impacted by the private demand of the Yuan. As such, the latter is far more indicative of the pressures that face the Chinese economy and what financial interests dictate should be the fair value of the domestic currency.
It is also the former, the Offshore Yuan, that overnight hit a two-year low, reaching a level not seen since September 2012.
…click on the above link to read the rest of the article…
The Swiss Franc Will Collapse
The Swiss Franc Will Collapse
I have worked to keep this piece readable, and as brief as possible. My grave diagnosis demands the evidence and reasoning to support it. One cannot explain the collapse of this currency with the conventional view. “They will print money to infinity,” may be popular but it’s not accurate. The coming destruction has nothing to do with the quantity of money. It is a story of what happens when interest rates fall into a black hole.
Yields Have Fallen Beyond Zero
The Swiss yield curve looks like nothing so much as a sinking ship. All but the 20- and 30-year bonds are now below the water line.
Look at how much it’s submerged in just one week. The top line (yellow) is January 16, and the one below it was taken just a week later on January 23. It’s terrifying how fast the whole interest rate structure sank. Here is a graph of the 10-year bond since September. For comparison, the 10-year Treasury bond would not fit on this chart. The US bond currently pays 1.8%.
China Switches to Supporting Yuan as Outflows Mount: Currencies
China Switches to Supporting Yuan as Outflows Mount: Currencies
Managing the yuan is turning into a different game for China’s policy makers these days.
After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy.
A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is at itsstrongest-ever level compared with the market price.
“Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,” Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone on Jan. 22. “The authorities need to think of a way to keep the audience in the theater” as the economy slows, he said.
China amassed a world-leading $4 trillion of foreign-exchange reserves by mid-2014 as exports surged and capital flowed in, attracted by a currency that strengthened for four consecutive years. Now that the yuan’s gains are faltering, the PBOC is trying to prevent its declines from turning into a rout that could deter investment just as the economy suffers its slowest growth in 24 years.
…click on the above link to read the rest of the article…
“This Is A Race To The Bottom Where No Fiat Currency Wins”
“This Is A Race To The Bottom Where No Fiat Currency Wins”
Following another frustrating year in the previous metals markets, 2015 is showing signs that change is afoot. As Santiago Capital’s Brent Johnson notes in this brief presentation, while being ‘wrong’ for the last 2 years on gold has been painful, is it any less crazy to believe that it will turnaround that to believe the hype that The Fed will raise rates once again (just like it promised in 2010, 2011, 2012, 2013, 2014, and now 2015…) – who is really losing their credibility? With the world’s fiat currencies waging war and dislocations mounting, gold is no longer the ‘David’ underdog fighting against the ‘Goliath’ central banks… but is – as Alan Greenspan opined – “the premier currency. No fiat currency, including the dollar, can match it.”
The currency wars are here… and they are a race to the bottom where no fiat currency wins.”
Full note below:
…click on the above link to read the rest of the article…
The Currency Illusion
The Currency Illusion
QUESTION: I want to share a true story with you.
My father as a young boy in Greece saw what gold did for his family.
My grandfather in Greece in the late 30′s and 40′s saw the rapid devaluation
happening to the drachma. English sovereigns were plentiful
there at the time as a sort of duo currency.
As you can probably figure out he was converting any of his cash to gold
sovereigns.
My question to you is why do you protect the American dollar
and not the people of the world from the rapid devaluation
of their savings.
ANSWER: This is the entire problem with currency – people do not truly understand it and attribute to a single object value that does not truly exist. You can “think: it was gold that rose, but was it simply that the Drachma declined? The difference is critical. If ONLY gold rose then what you say would be correct. But if EVERYTHING rose, you are wrong.
…click on the above link to read the rest of the article…
Nigeria, Belarus Halt All FX Trading As Central Bank Urges “Don’t Panic” | Zero Hedge
Nigeria, Belarus Halt All FX Trading As Central Bank Urges “Don’t Panic” | Zero Hedge.
Just because Russia has managed to stabilize its currency for the time being as crude tries to find a floor, that certainly does not mean the soaring dollar tantrum-cum-crude crash episode is anywhere near over, nor that stability has returned to the rest of the oil-exporting countries. Case in point, crude-exporting powerhouse Nigeria, where things are going from worse to #REF!
As Bloomberg reported yesterday, the temporary Russian FX-trading halt appears to have inspired all other nations with plunging currencies (the Nigeria Naira just hit a new record low against the dollar in recent trade), and as a result Nigerian FX dealers halted trading after a central bank rule change meant to “limit speculation” against the plunging naira confused investors. “This raises concerns about the credibility of the central bank,” Kevin Daly, senior portfolio manager at Aberdeen Asset Management Plc, said by phone from London. “If it was their intention to stabilize or see some appreciation of the naira, it’s backfired.”
Bid and ask prices for the naira were quoted from 162 to 190 per dollar with only 16 trades by 1 p.m. in Lagos [yesterday], compared with more than 170 by the same time yesterday, according to data compiled by Bloomberg. The naira fell 12 percent against the dollar this quarter, the worst among 24 African currencies tracked by Bloomberg after Malawi’s kwacha. Investors dropped Nigerian assets as the outlook for Africa’s biggest oil producer worsened with Brent crude prices almost halving since late June.
Surprise! Guess which currency has stronger fundamentals— the dollar or… ruble?
Surprise! Guess which currency has stronger fundamentals— the dollar or… ruble?.
Last night, the Russian central bank announced a shock decision to hike up its key interest rate from 10.5% to 17%, effective immediately. Incredible.
On Monday alone the ruble declined more than 9% against the dollar, and almost 50% in 2014. It looks like a massacre.
If you listen to conventional financial news, they’ll all tell you that you’d have to be insane to own anything in Russia right now—stocks, bonds, currency, etc.
They’ll tell you that the ruble is in freefall, and that the dollar is the place to be.
But if you have been a reader of this column for any length of time, you know that I am a very data-driven person.
So… just for kicks, I decided to dive into the numbers and make an objective comparison between the US dollar and the Russian ruble.
Russia Shocks With Emergency Rate Hike, Boosts Interest Rate From 10.5% To 17%
Russia Shocks With Emergency Rate Hike, Boosts Interest Rate From 10.5% To 17%
Following the biggest rout to the Ruble in ages, Russia – unlike Mario Draghi – instead of talking the talk decided to walk the bazooka walk and shocked all those long the USDRUB by unleashing an emergency rate hike (at 1 am in the morning) from the recently raised interest rate of 10.50% to… hold on to your hats… 17.00%, a 650 bps increase!
From the press release:
The Board of Directors of the Bank of Russia has decided to increase from December 16, 2014 the key rate to 17.00% per annum. This decision was driven by the need to limit significantly increased in recent devaluation and inflation risks.
In order to enhance the effectiveness of interest rate policy loans secured by non-marketable assets or guarantees for a period of 2 to 549 days from 16 December 2014 will be granted at a floating interest rate established at the level of the key rate of the Bank of Russia increased by 1.75 percentage points (Previously these loans for a period of 2 to 90 days, provided at a fixed rate).
In addition, to enhance the capacity of credit institutions to manage their own currency liquidity was decided to increase the maximum amount of funds to repurchase auctions in foreign currency for a period of 28 days from 1.5 to 5.0 billion. US dollars, as well as on similar operations for a period of 12 months on a weekly basis.
And for the Russian-speakers, the full breakdown of rates.
…click on the above link to read the rest of the article…
Canadian Dollar Plunges To 5-Year Low Of 86.69 US
Canadian Dollar Plunges To 5-Year Low Of 86.69 US.
The Canadian dollar plunged to 86 cents today in the wake of turmoil in oil and stock markets.
The loonie was trading at a 5½-year low of 86.69 cents US.
Oil prices seemed to pause in the steep descent they’ve made in the last two weeks.
West Texas Intermediate crude, the contract traded in New York, was down just 18 cents at 11.30 a.m. ET, to $60.76 US a barrel, after falling more than $2 Wednesday.
Brent crude edged higher, up 23 cents, to $64.47 US. It is down 37 per cent over the last three months.
…click on the above link to read the rest of the article…
As Oil Prices Plunge, Nigeria Exclaims It Is Not Zimbabwe | Zero Hedge
As Oil Prices Plunge, Nigeria Exclaims It Is Not Zimbabwe | Zero Hedge.
Having already raised rates and devalued the Naira (and widened its trading bands), theNigerian currency continues to collapse to new record lows as crude crashes lower and lower. Having tumbled 11.5% since oil prices peaked, the Naira is holdinga round 184/USD – over 9% above the new peg and dramatically outside of the new trading bands of +/-5% as it seems capital flight is out of control. That is probably why, as Bloomberg reports, Finance Minister Ngozi Okonjo-Iweala has commented that Nigeria won’t resort to printing money or imprudent borrowing as it adjusts to lower prices of oil. “This is not the first time this country has gone through lower oil prices and it will not be the last,” she said – making it very clear that Nigeria is not Zimbabwe (yet).
…click on the above link to read the rest of the article…
Venezuela “Boosts” Reserves With Rocks, Other “Easily Converted To Cash” Stuff; Suffers Major Blackout | Zero Hedge
With its bonds trading at 50% of face value, CDS implying an 84% chance of default, a black-market FX rate that signals massive devaluation is likely, and a teetering-on-the-brink of social unrest population entirely dependent on President Maduro’s generosity (and the military junta), it is perhaps not entirely surprising that they are trying any trick in the book to bolster reserves. The Venezuelan Central Bank issued a statement today (akin to Europe’s hookers-and-blow GDP adjustment) that enables them to count a whole new set of ‘assets’ as potential international reserves including “stones” and “precious metals held in their vaults on behalf of foreign financial institutions.” Hey presto… new reserves.
Risk is rising…
And Reserves are sliding
So make up some new ones…As Bloomberg reports, Central bank sends e-mailed statement explaining parts of new central bank law issued by President Nicolas Maduro.
…click on the above link to read the rest of the article…
Swiss Gold No – Repatriation, Demand from Russia, India and China More Important | www.goldcore.com
Swiss Gold No – Repatriation, Demand from Russia, India and China More Important | www.goldcore.com.
Introduction
Switzerland’s ‘Save our Swiss Gold’ referendum was convincingly rejected yesterday by the Swiss electorate following an aggressive anti-gold campaign in recent weeks that had been closely watched both in Switzerland and abroad.
Unusually, it involved the Swiss National Bank (SNB) very actively, and ultimately successfully, trying to convince the electorate along with the main political parties to return a ‘no’ vote.
The initiative had proposed a series of measures which would have obliged the SNB to hold a minimum of 20% of its reserves in gold, prevent the SNB from selling any gold, and force the SNB to repatriate that portion of its gold reserves that are currently stored abroad and to store gold in Switzerland.
The referendum campaign had evolved out of a popular initiative which had initially collected over 100,000 signatures between 2011 and 2013. Under Swiss law, this allowed the motion to go forward as an official referendum, even though the Swiss government, Swiss parliament and Swiss National Bank had all come out in opposition to the Gold Initiative.
…click on the above link to read the rest of the article…
Ruble Freefall: And the Ugliest Currencies Are? | Wolf Street
Ruble Freefall: And the Ugliest Currencies Are? | Wolf Street.
The 35% plunge of the price of oil since June and the sanction spiral imposed on Russia are wreaking havoc on the ruble. Oil and gas revenues are crucial to the finances of the Russian government and to the oil-and-gas dominated economy. So the ruble continues its free-fall that started in June. It hit a new low of 50.21 rubles to the dollar. Down 33.55% year to date, and down 32% since June.
After the collapse of the Soviet Union, the ruble got wiped out completely. When I went to Russia for the first time in 1996, it traded for 5,000 rubles to the dollar and was falling so fast that all prices were denoted in dollars and payable in rubles at the exchange rate of the day, which every Russian knew. By 1998, during the “ruble crisis,” Russia defaulted on its debt and devalued to ruble to where it lost practically all its value from just a few years earlier. A process no Russian will ever forget.
The distrust in the ruble as a store of value has been so ingrained that chitters in the world incite Russians to dump their rubles for dollars and euros. Their distrust goes far beyond the distrust many Americans have in the dollar!
This chart shows the ruble’s dual collapse against the dollar since 2003:
