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Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

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

About 38% of All the Comex Gold in Hong Kong Left the Warehouses Yesterday

November 14, 2015

About 38% of All the Comex Gold in Hong Kong Left the Warehouses Yesterday

Perhaps it went out for some dim sum. TTFN, but be right back!

Roughly 21 tonnes, or 685,652 troy ounces of gold in .999 fine kilo bars, was withdrawn, net of a small deposit of 27,328 ounces, from the Brinks warehouse in Hong Kong yesterday.

To put that into some perspective, that is the same amount of all gold in the entire JPM warehouse in the US.

Now compared to the Comex US, in which very little gold bullion actually changes hands or goes anywhere, that is a huge number. But Hong Kong is typically seeing large inflows and outflows of gold. Because that is how the precious metals market has been manifesting in Asia since about 2007: not with endless chains of paper just changing hands in a grand game of liar’s poker, but with the physical exchange of bullion.

And most of that bullion leaves the warehouse and does not come right back, as Koos Jansen has explained repeatedly about the operations on the Shanghai Gold Exchange. It is being accumulated on the mainland, and this probably does not include the PBOC official purchases.

The point of this is that the price discovery in New York is becoming increasingly distinct from the actual physical supply and demand flows of bullion which are taking place in Asia. As I have said, gold is ‘trading like a modern currency’ without respect to its nature as a commodity bound by physical supply. The Fed et al. can print money, but they cannot print bullion. That is the point of it.

And that is a potentially dangerous development, especially with respect to a commodity that is being traded at a leverage in excess of 200:1. And in the face of shrinking inventories of gold available for delivery at current prices in both New York and London….click on the above link to read the rest of the article…

Gold Standard Nonsense Compelling Us To Repeat History

October 14, 2015

Gold Standard Nonsense Compelling Us To Repeat History

COMMENT:

“The system is collapsing. It is not because of some derivatives bubble. It is not because of fiat. This is because of the debt gone wild”

Sure! And you don’t see the connection with the lack of a gold standard?
This would never have happened during a gold standard, without someone having gone out of business. Honest money =gold
I think that much should be clear by now.

kind regards

gk
REPLY: The degree of people indoctrinated with gold propaganda is the greatest threat we have to solving any crisis or advancing in society. They constantly regurgitate this nonsense without any factual proof relying completely on made up sophistry. We had Bretton Woods that was a gold standard which collapsed because they tried to peg gold at $35 yet increased the supply of dollars. So where did gold prevent anything?

ANYONE who believes this nonsense that a gold standard will miraculously convert politicians into saints should really just check yourself into an insane asylum. Long before there was paper money, there has always been debt. People borrowed and you still had the same leverage on gold for there was more debt owed in gold than there was ever gold.

This rhetoric seriously prevents us from observing a simple fact. There was debt under a gold standard and every gold standard has also collapsed in history. NOT A SINGLE gold standard ever survived. You just do not understand history. It is politicians that blow it up regardless of what you call money.

As long as you argue for this nonsense, we will never advance as a society. If you really think returning to a gold standard, which has never worked in history, you will condemn us and your children to the same financial chaos time and time again.

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

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

October 9, 2015

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.

But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.

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

The Next Financial Crisis Won’t be Like the Last One

September 15, 2015

The Next Financial Crisis Won’t be Like the Last One

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets.

Central banks are like generals: they tend to fight the last war. The Great Financial meltdown of 2008 was centered in too big to fail, too big to jailtransnational banks and other financial entities with enormous exposure to collateral risk (such as subprime mortgages), highly leveraged bets and counterparty risk (the guys who were supposed to pay off your portfolio insurance vanish in a puff of digital smoke, leaving you to absorb the loss).

In response, the central banks and treasuries of the major economies “did whatever it took” to save the private banking sector from insolvency and collapse. In effect, central banks launched a multi-pronged bailout of banks and other financial heavyweights (such as AIG) and hastily constructed a clumsy and costly Maginot Line to protect the now-indispensable private banks from a similar meltdown.

The problem with preparing to fight the last war is that crises arise not from what is visible to all but from what is largely invisible to the mainstream.

The other factor is what’s within the power of central banks to fix and what’s beyond their power to fix. Correspondent Mark G. and I refer to this as the set of problems that can be solved by printing a trillion dollars. It’s widely assumed that virtually any problem can be fixed by printing a trillion dollars (or multiple trillions) and throwing it at the problem.

Yes, the looming student-loan debacle can be fixed by printing a trillion dollars and paying down a majority of the existing student debt.

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

Manipulation = Fragility

August 30, 2015

Manipulation = Fragility

In markets distorted by permanent manipulation the most powerful incentive is to borrow as much money as you can and leverage it as much as you can to maximize your gains in risk-on asset bubbles.

A core dynamic is laying waste to global financial markets: the greater the level of central bank/government manipulation, the greater the systemic fragility.

There are a number of moving parts to this dynamic of steadily increasing fragility.One key characteristic of this fragility is that it invisibly accumulates beneath the surface stability until some minor disturbance cracks the thinning layer of apparent stability. At that point, the system destabilizes, as it has been hollowed out by ceaseless manipulation, a.k.a. intervention.

One is that any system quickly habituates to the manipulation, that is, the system soon adds the manipulation to its essential inputs.

For example: if you lower interest rates to near-zero, the system soon needs near-zero interest rates to remain stable. Raising rates even a mere percentage point threatens to fatally disrupt the entire system.

Another is that permanent intervention (i.e. manipulation, or to use a less threatening word, management) strips the system of resilience. When participants are rescued from risk by central bank/central state authorities, they take bigger and bigger gambles, knowing that if the bet goes south, the central bank/state will rush to their rescue.

One of the core sources of resilience is a healthy fear of losses. If you’re going to face the consequences of your actions and choices, prudence forces you to either hedge your bets or diversify very broadly, so if bets in one sector go south you won’t be wiped out.

Thanks to the permanent manipulation of central banks and states, trillions of dollars have concentrated in high-risk, high-yield carry trades that are now blowing up.

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

Counterintuitive: (Some) volatility is good for you, stability not so much

August 23, 2015

Counterintuitive: (Some) volatility is good for you, stability not so much

With stock markets around the world plunging and commodity prices in free fall, it seems appropriate to return to a theme which I’ve taken up previously: That a certain amount of volatility is good for humans and the systems they build, and that attempts to stifle the natural and healthy volatility of a system can lead to greater and even catastrophic volatility in the end.

All of this runs counter to the propaganda with which we are regaled on a daily basis. For example, investors are told that the lower the volatility of their portfolios, the lower the risk. But, in 2008 that turned out not to be true. More recently, as volatility in the widely watched S&P 500 settled down to historic lows this year, investors believed that the magic of low volatility was here to stay. Central banks–through their periodic interventions when markets began to fall–had somehow engineered a no-lose situation for investors. It was going to be clear sailing ahead for…well, forever if you listen to Wall Street.

The history of volatility in markets and in life suggests that high volatility lies just around the bend after a prolonged period of low volatility. It is impossible to say what would trigger the kind of crash we saw in 2008. For now, the Chinese stock market crash and recent negative economic news in China and the United States have unnerved many investors. The Chinese stock market is now more than halfway to a 2008-style meltdown. Stocks in Europe and the United States have finally started to fall in earnest after holding up and even advancing in the face ofmajor declines in emerging markets such as Brazil, Indonesia, Malaysia, and Turkey. Money rushed from the emerging markets to major developed economies looking for–you guessed it–stability.

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

Only The Date Is Unknown

August 18, 2015

Only The Date Is Unknown

economy09-29-10outlookRGB20100929043641 The US and world economies are frauds that are coming unraveled. The Greek bailout is the most recent example of “kick the can down the road” solutions. The US housing bubble was an attempt to cover up/recover from the dot-com bust. Now the US is in a financial bubble engineered to recover from the housing bubble debacle. Soon this bubble will burst. Only the date is unknown.

Two predictions can be made with reasonable confidence:

The stock market is likely to be halved and that might be optimistic. Only the date is unknown.
The economy will eventually resemble the Great Depression. Only the date is unknown.

Nothing is ever certain. An experienced CFO told me at the beginning of my career that “even the impossible has a 20% probability.” In deference to him and years of empirical evidence, I put the the above two events as virtually certain, i.e., an 80% probability.

The Current Problem

Phoenix Capital provided reasons to expect horrible outcomes: dow death cross

The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.
The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.

Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.
Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.

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

The Big Picture

July 11, 2015

The Big Picture

The past four years or so have been extremely frustrating for investors like me who have structured their portfolios around the belief that the current experiments in central bank stimulus, the anti-business drift in Washington, and America’s mediocre economy and unresolved debt issues would push down the value of the dollar, push up commodity prices, and favor assets in economies with relatively low debt levels and higher GDP growth. But since the beginning of 2011, the Dow Jones Industrial Average has rallied 67% while the rest of the world has been largely stuck in the mud. This dominance is reminiscent of the four years from the end of 1996 to the end of 2000, when the Dow rallied 54% while overseas markets languished. Although past performance is no guarantee of future results, a casual look back at how the U.S. out-performance trend played out the last time it had occurred should give investors much to think about.

The late 1990s was the original “Goldilocks” era of U.S. economic history, one in which all the inputs seemed to offer investors the best of all possible worlds. The Clinton Administration and the first Republican-controlled Congress in a generation had implemented policies that lowered taxes, eased business conditions, and encouraged business investment. But, more importantly, the Federal Reserve was led by Alan Greenspan, whose efforts to orchestrate smooth sailing on Wall Street led many to dub Mr. Greenspan “The Maestro.”

Towards the end of the 1990’s, Greenspan worked hard to insulate the markets from some of the more negative developments in global finance. These included the Asian Debt Crisis of 1997 and the Russian debt default of 1998. But the most telling policy move of the Greenspan Fed in the late 1990’s was its response to the rapid demise of hedge fund Long term Capital Management (LTCM), whose strategy of heavily leveraged arbitrage backfired spectacularly in 1998.

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

The German Siege Of Greece Begins (No, This Is Not A Repeat From 1941)

July 7, 2015

The German Siege Of Greece Begins (No, This Is Not A Repeat From 1941)

Did you notice that Greece’s creditors are not rushing to offer the Greeks a new deal in the wake of the stunning referendum result on Sunday? In fact, it is being reported that the initial reaction to the “no” vote from top European politicians was “a thunderous silence“. Needless to say, the European elite were not pleased by how the Greek people voted, but they still have all of the leverage. In particular, it is the Germans that are holding all of the cards. If the Germans want to cave in and give the Greeks the kind of deal that they desire, everyone else would follow suit. And if the Germans want to maintain a hard line with Greece, they can block any deal from happening all by themselves. So in the final analysis, this is really an economic test of wills between Germany and Greece, and time is on Germany’s side. Germany doesn’t have to offer anything new. The Germans can just sit back and wait for the Greek government to default on their debts, for Greek banks to totally run out of cash and for civil unrest to erupt in Greek cities as the economy grinds to a standstill.

In ancient times, if a conquering army came up against a walled city that was quite formidable, often a decision would be made to conduct a siege. Instead of attacking a heavily defended city directly and taking heavy casualties, it was often much more cost effective to simply surround the city from a safe distance and starve the inhabitants into submission.

In a sense, that is exactly what the Germans appear to want to do to the Greeks. Without more cash, the Greek government cannot pay their bills. Without more cash, Greek banks are going to start collapsing left and right. Without more cash, the Greek economy is going to completely and utterly collapse.

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

“It’s Time To Hold Physical Cash”, Fidelity Manager Warns Ahead Of “Systemic Event”

June 22, 2015

“It’s Time To Hold Physical Cash”, Fidelity Manager Warns Ahead Of “Systemic Event”

As Jamie Dimon recently noted while discussing the perils of illiquid fixed income markets, the statistics around “tail events” can no longer be trusted.

In other words, 6, 7, or 8 standard deviation moves that in theory should only happen once every two or three billion years may now start to show up once every two to three months. Evidence of this can be found in October’s Treasury flash crash, January’s fantastic franc fuss, and last month’s Bund VaR shock.

Why is this happening? Simple. There’s no liquidity left and the idea of efficient markets facilitating reliable price discovery is an anachronism.

Today’s broken, “mangled” (to use Citi’s descriptor) markets come courtesy of: 1)frontrunning, parasitic HFTs, 2) the post-crisis regulatory regime which, to the extent it’s well meaning, was conceived by people who never had any hope of evaluating the likely knock-on effects of their policies, and 3) central banks, who have commandeered sovereign debt markets, leaving a trail of illiquidity and shrunken repo in their wake.

Meanwhile, equity and fixed income bubbles continue to inflate on the back on central bank largesse and the only two options for rescuing a highly leveraged world are writedowns and/or inflating away the debt.

So what is a savvy investor to do in this powderkeg environment? Simple, says Fidelity’s Ian Spreadbury: own gold, silver, and physical cash.

Via The Telegraph:

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.

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

Wave of Defaults, Bankruptcies Spook Bond Investors

June 20, 2015

Wave of Defaults, Bankruptcies Spook Bond Investors

First things first: Investor desperation for yield, any discernible yield no matter what the risks, and blind confidence that all this will work out somehow are waning.

Now questions pop up here and there, and investors are beginning to open their eyes just a tad amid waves of defaults and bankruptcies, after years of worriless fixed-income bliss during which cheap new money made investors forgive and forget all sins of the past. But now investors are pulling big chunks of money out.

For the week ended June 17, investors yanked “a whopping” $2.9 billion out of junk bond funds, according to S&P Capital IQ/ LCD’s HighYieldBond.com, on top of the $2.6 billion they’d yanked out in the prior week. Those redemptions dragged down the year-to-date inflows to $3.6 billion, nearly 40% below last year at this time. But $201.5 billion remain in those funds.

Leverage-loan funds have been plagued by outflows as investors have been warned for a couple of years about their risks. Banks extend high-risk loans to over-indebted, junk-rated companies but don’t want to keep these iffy loans on their books. So they sell them to loan funds or repackage them into CLOs and then sell them. Even the Fed has gotten concerned. This week brought more of the same, with $311 million leaving leveraged-loan funds, bringing year-to-date outflows to $3.6 billion. Total fund assets are now down to $94 billion.

On the investment-grade side, it didn’t look pretty either. Business Insider cited Bank of America Merrill Lynch strategists: “High grade credit funds suffered their biggest outflow this year, and double the previous week.” The biggest outflows since the Taper Tantrum in June 2013. There was more doom and gloom:

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

How the Liquidity “Delusion” Leads to a Crash

May 8, 2015

How the Liquidity “Delusion” Leads to a Crash

They were just about all there at the Las Vegas SkyBridge Alternatives Conference, or SALT: Daniel Loeb, T. Boone Pickens, and of course George Papandreou, who in March 2011 as Greek prime minister had produced one of the funniest official Eurozone lies ever when he reassured those that were being shanghaied into bailing out Greece: “We will pay back every penny.”

A couple of thousand others were there, including John Paulson, who made billions after betting against bonds backed by subprime mortgages using credit default swaps. “Hedge fund stars,” the New York Times called them. One of these “stars” was Ben Bernanke who, in his function as Fed Chairman, has done more for these hedge funds stars than anyone else, ever, period.

They all have one thing in common: They’re going to ride this Fed-gravy-train all the way to the end. They’re going to max out this rally in stocks and bonds and real estate and what not, though the oil-price crash has knocked a serious dent into their shiny veneer. And they’re going to add to their gains to the very last minute, fully leveraged, fully aware that this won’t last, totally cognizant that this is artificial and that its end is drawing closer. Then, at the first rate increase or whatever other sign they might see that the gravy train starts derailing, they’ll jump off.

That’s the plan. In this overleveraged market, their twitchy fingers are going to hit the sell button all at once, assuming that there will still be buyers out there, that there will be enough liquidity in the markets to where they can get out without having to pay an extraordinary price, and before everyone else is trying to get out.

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

The Moment When The San Francisco Fed Finally Figures Out What “Debt” Is

March 23, 2015

The Moment When The San Francisco Fed Finally Figures Out What “Debt” Is

The San Fran Fed, in addition to being the lair that hatched the current Fed chairmanwoman, is best know for spending millions in taxpayer funds to “contemplate” such profound topics as:

And let’s not forget “San Fran Fed Spends More Money To Justify Colossal Failure At Anticipating Consequences Of Its Actions.”

So today, in the latest example of misappropriation of millions in taxpayer “R&D” funds by a Federal Reserve bank, has released a note titled, mysteriously enough, “Mortgaging the Future?” unleashes the following shocker: “Leverage is risky.”

* * *

This coming from the institution that monetized $3 trillion in US debt, and whose balance sheet will never be unwound without a global market crash so profound it would likely lead to a global war?

Why yes. That’s right.

* * *

So for all those curious to learn just how stupid the Fed is, and desperate for laughter in these centrally-planned times, here are several excerpts of deep intellectual work from what according to many is the most important regional Fed in the US (now that everyone is aware Goldman Sachs is in charge of the NY Fed and is scrambling to limit the vampire squid’s domination over the world’s most levered hedge fund in the world):

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

Household Debt Soars in Canada, “Stability” at Risk

March 13, 2015

Household Debt Soars in Canada, “Stability” at Risk

Debt by Canadian households is a special phenomenon. Statistics Canada reported today that in the fourth quarter, household debt set another breath-taking record.

Earlier this month, even Equifax Canada, which is in the business of facilitating and increasing this indebtedness, had warned about it. The total indebtedness of Canadian households, according to its own measure, had jumped 7.7% from prior year, which had already been at record levels. The biggest culprits were installment and auto loans. Households are powering consumer spending, and thus the overall economy, with ever larger amounts of ultimately unsustainable debt.

A “a cautionary tale,” the report called it.

The rapid decline in oil prices caught many by surprise. And, that’s the point – consumers and business owners need to be more vigilant. When economic change happens, it can happen very quickly and can challenge previously observed stability of key economic and credit indicators.

In other words, as the price of oil collapsed, as housing stumbled, and as layoffs began – the “economic change” that “can happen very quickly” – the “stability” of different aspects of the economy, including household debt, is suddenly at risk. It’s a warning that consumers might buckle under that mountain of debt.

Now Statistics Canada weighed in. In Q4, household borrowing, on a seasonally adjusted basis, jumped by C$22.6 billion from the third quarter. Credit cards and auto loans accounted “for the majority of the overall increase.” Total household debt (consumer credit, mortgage, and non-mortgage loans) rose 1.1% from the prior quarter to C$1.825 trillion, with consumer credit hitting $519 billion and mortgage debt C$1.184 trillion.

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

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