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There are all sorts of positive fundamentals when it comes to the price of gold. There are the positive supply/demand fundamentals. The gold market is in a supply deficit. Mine reserves are at a 30-year low . The price of gold is below what is necessary to sustain the gold mining industry .

There are the positive geopolitical fundamentals. The world’s two most-unstable leaders – Kim Jong-un and Donald Trump – have been constantly trading threats and insults. And both of these people have nuclear weapons at their disposal. There is the endless “War on Terror”.

There are the positive economic fundamentals. Western real estate bubbles in major urban centers are at never-before-seen levels of insanity. Western markets are generally also at bubble levels, with U.S. markets representing bubbles on steroids . Western governments are bankrupt.

In relative terms, none of these fundamentals count .

There is one more important fundamental for the price of gold. Not only is it the most important fundamental, but it involves a variable which dwarfs all other fundamentals in magnitude — combined.

Regular readers have heard many times before that gold (and silver) is “a monetary metal” . The definition is simple. Gold is money. Therefore the price of gold must change proportionate to changes in the supplyof other forms of “money” (i.e. currency).

This is not a theory. It is a function of simple arithmetic. An elementary numerical example will illustrate this principle.

Suppose (in the entire world) there was a total of 10 oz’s of gold. Suppose also (in this hypothetical world) that there was a total of only $10,000 U.S. dollars. And in this hypothetical world, the price of gold is $1,000/oz.

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

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

September 26, 2017

Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says “Default Virtual Certainty”

Two months after S&P downgraded the state capital of Connecticut, Hartford, to junk, when it cuts its bond rating from BB+ to BB- citing growing liquidity pressures and weaker market access, the city which has been rumored is preparing to file for bankruptcy protection and which has seen an exodus of corporations and businesses in recent months, just got more bad news when S&P downgraded it by a whopping 4 notches deeper into junk territory, from BB- to CC, stating that “a default, a distressed exchange, or redemption appears to be a virtual certainty.”

“The downgrade to ‘CC’ reflects our opinion that a default, a distressed exchange, or redemption appears to be a virtual certainty,” said S&P Global Ratings credit analyst Victor Medeiros.

The rating agency also warned that it could take additional action to lower the rating to ‘Default’ if the city executes a bond restructuring or distressed exchange, or files for bankruptcy.

In our view, the potential for a bond restructuring or distressed exchange offering has solidified with the news that both bond insurers are open to supporting such a measure in an effort to head off a bankruptcy filing. Under our criteria, we would consider any distressed offer where the investor receives less value than the promise of the original securities to be tantamount to a default.

In short: while Chicago has so far dodged the bullet, the capital of America’s richest state (on a per capita basis), will – according to S&P – be also the first to default in the coming months.

Full S&P note below:

Hartford, CT GO Debt Rating Lowered Four Notches To ‘CC’ On Likely Default

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

Venezuela Bankrupt? Caracas Fails To Make Sept 15 Interest Payment

September 20, 2017

Venezuela Bankrupt? Caracas Fails To Make Sept 15 Interest Payment

Exactly one week ago, we wrote that a “Venezuelan default is only a matter of time”. We said that “while debt servicing has been a government priority, declining external liquidity and a deteriorating domestic situation (three-digit hyperinflation, shortages, and a political crisis between the government and the National Assembly) make it a daunting task. By 2020, the country must repay 30% of the external debt due to expire in the next 23 years.”

Among other things we warned that “default seems inevitable in the medium term due to the prolonged period of low oil prices and increased US sanctions. President Trump’s executive order of August 24, 2017, strengthened sanctions against PDVSA by prohibiting all transactions related to new debt with a maturity greater than 90 days and by forbidding Citgo from repatriating dividends in Venezuela.”

Well, the default may have come in far sooner than even we expected as moments ago Bloomberg reported that according to sources, intermediaries tasked with processing Venezuela’s $185 million interest payment due Sept. 15 haven’t received the cash to do so.

It adds that “several holders of bonds due in 2027 haven’t received a payment”, and that an “official at the public credit office in Caracas declined to comment on whether the funds have been transferred or when investors will receive them.”

Further suggesting that Venezuela may have indeed entered its 30 day grace period, the country’s National Office of Public Credit hasn’t made any public statements about transferring funds for the coupon. In the past, Bloomberg notes that the office has used its Twitter account to alert the market when the bond’s fiscal agent has been paid.

For now the bond market appears to not have noticed with Venezuela bond issues still trading at respectable levels.

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

Offshore Drilling Giant Seadrill Files For Bankruptcy

September 13, 2017

Offshore Drilling Giant Seadrill Files For Bankruptcy

Seadrill Ltd., the London-based offshore driller controlled by billionaire Norwegian shipping magnate John Fredriksen, filed bankruptcy protection in the Southern District of Texas after working out a deal with most of its senior lenders to inject $1 billion of new money into the company pursuant to a pre-arranged plan of reorganization. The filing was largely expected and came just a couple of days before the company’s $843 million 5.625% Notes of 2017 came due.

According to Bloomberg, Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services. Daily leases for the company’s rigs, which once commanded up to $800,000, have dropped to around $200,000 as cheap oil from U.S. shale drilling continues to flood the market.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” Chief Executive Officer Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Bondholders are currently predicting their ultimate recovery is worth about 25 cents on the dollar as of today.

Of course, Seadrill is just the latest bankruptcy filing in an industry that has been devastated by persistently weak commodity prices.

In late July, Ocean Rig UDW Inc. filed for bankruptcy protection in the U.S. Hercules Offshore Inc., GulfMark Offshore Inc., Toisa Ltd. and Vantage Drilling Co. have also spent time in bankruptcy court since oil and gas prices cratered.

Paragon Offshore PLC emerged from Chapter 11 in August but was forced back into bankruptcy after it was unable to transfer two rigs to its reorganized entity. Its successor, Paragon Offshore Ltd., isn’t under bankruptcy protection and was unaffected by Paragon Offshore PLC’s new filing.

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

“Greatest Fiscal Crisis In Our City’s History”: Hartford Warns It Will Be Broke In 60 Days

September 8, 2017

“Greatest Fiscal Crisis In Our City’s History”: Hartford Warns It Will Be Broke In 60 Days

Well, that escalated quickly.

Just two months after Standard & Poor’s downgraded its general obligation debt to junk status, warning that the historic Connecticut capital could soon follow other once-proud cities like Detroit into bankruptcy, Hartford city officials confirmed as much when they warned on Thursday that the city could be forced into insolvency within two months if the state doesn’t provide emergency financial relief, the WSJ reports.

“City officials warned Gov. Dannel Malloy, a Democrat, and state lawmakers that Hartford, which has a deficit approaching $50 million, wouldn’t be able to pay all of its bills within 60 days. Hartford officials said it would file for bankruptcy at that point unless the state legislature passes a budget that gives the city more funding or otherwise provides it with more cash.

‘We face the greatest fiscal crisis in our city’s history,’ officials said in a letter signed by Mayor Luke Bronin, Treasurer Adam Cloud and Thomas Clarke II, president of the court of common council.”

Hartford has been plagued by political corruption and a disintegrating corporate tax base – most recently exemplified by health-insurance giant Aetna’s decision to move its corporate headquarters away from the city, which was once proudly called “the Insurance Capital of the World.”

And unfortunately for the struggling capital, political discord involving both lame-duck Gov. Dannel Malloy and leaders in the state legislature suggests that an agreement to save the city won’t be forthcoming.

State legislators won’t return from recess until next week. But according to the Connecticut Mirror legislative leaders have yet to reach a budget deal with Malloy after failing to pass one in late June, forcing the governor to fund the state’s operations using emergency measures, slashing funding for municipal services across the state.

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

Why you might as well paint a giant bulls-eye on your bank account

September 6, 2017

Why you might as well paint a giant bulls-eye on your bank account

Vegetarians be forewarned… you won’t like what follows.

We slaughtered a pig yesterday at the farm. I have two freezers full of pork now, and countless strips of bacon curing in the kitchen.

I’ve written about this before– out here at the farm I’m able to organically produce almost everything that I eat… meat, eggs, rice, nuts, and just about every kind of fruit and vegetable imaginable. A lot of it gets canned and stored.

We even grow wheat which we turn into organic flour, plus oats and all sorts of other grains.

As I’ve described in the past, this is a pretty powerful feeling. I know that, no matter what happens in the world, I’ll always have a source of food.

And even if it’s all rainbows and buttercups from here on out, I get to eat clean, organic food. There’s hardly any downside.

Invariably as I meet people throughout my travels around the world, I’m always asked why I spend so much time in Chile.

I usually tell them about my business ventures here and that I founded a company that’s rapidly becoming one of the largest blueberry producers in the world.

But when I talk about the farm and growing my own food, people often respond with furrowed eyebrows and a hint of derision– “Oh, so you’re, like, preparing for the end of the world…”

It’s as if embracing a little bit of independence and self-reliance requires paranoid delusion and chronic pessimism.

Fortunately I’m no longer in middle school, so my decisions aren’t based on what the cool kids might think.

In truth I’m wildly optimistic about the future.

Yes, there will come a time when bankrupt western governments will have to suffer the consequences of their reckless financial decisions.

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

Rome’s Transport System Faces “Meltdown,” On Brink Of Collapse

July 30, 2017

Rome’s Transport System Faces “Meltdown,” On Brink Of Collapse

New York City’s deteriorating subway has a rival for world’s most dysfunctional public transportation system. After only three months on the job, Bruno Rota, the head of Rome’s public-transit company has announced that he’s leaving his post, saying that the Italian capital city’s decaying transportation system should declare bankruptcy, according to Reuters.

Rota’s departure is an embarrassment for the anti-establishment five-star movement and one of its most high-profile politicians, Rome Mayor Virginia Raggi. Since taking office last year, Raggi’s administration has been paralyzed by internal tumult while the city’s infrastructure has continued to decay. The party’s failures in Rome suggest that it’s not prepared to govern, and may have contributed to Five-Star’s losses in a series of municipal elections last month. Meanwhile, the situation could hurt the party’s chances in next year’s general election.

Rome Mayor Virginia Raggi

“Bruno Rota quit Atac on Friday, just three months after taking charge of the Italian capital’s bus, metro and tram network, saying he was unable to salvage the firm and feared possible legal action tied to any eventual collapse.

“It is an appalling scandal,” said Rota, who was called down to Rome after helping to turn around the transport system in the northern city of Milan. “The situation is worse than you can imagine,” he told la Repubblica newspaper.

Rota’s dramatic departure has triggered yet another crisis for the city’s 5-Star administration, which won power last year in what was seen as a litmus test of whether the anti-establishment group was ready to run Italy.”

City officials are publicly criticizing Raggi, saying that Rome needs a “change in direction” after the city nearly adopted water rationing laws last week amid a worsening drought.

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

Italian Government Approves Alitalia Bankruptcy, Bonds Collapse

May 2, 2017

Italian Government Approves Alitalia Bankruptcy, Bonds Collapse

Earlier we reported that Italy’s national carrier, Alitalia, did what many expected it to do after last week’s rescue plan, which would have cut 1,700 jobs and slashed pay, failed and filed for bankruptcy. What was less expected is that just hours after filing, the Italian government approved the bankruptcy process following a short cabinet meeting, an outcome that will lead to either Alitalia’s sale or liquidation, raising the possibility that Alitalia it will follow in the path of KLM and Iberia in ending a storied history as one of Europe’s major standalone airlines.

Why the speedy decision to grant administration proceedings caught many investors, and certainly bondholders by surprise, is that as we noted earlier, the carrier is losing about €1 million ($1.1 million) a day and without government support risks running out of cash by the middle of May. The government has already thrown it a short-term lifeline, a bridging loan of up to 600 million euros to see it through the bankruptcy process. Absent a sale – which looks highly unlikely – or a nationalization, up to 12,000 workers are likely to lose their jobs, potentially resulting in another major shock to the Italian economy.

This is precisely the scenario that the Italian Economic Development minister warned about last Sunday: “A [sudden closure] would be a shock for GDP much greater than the scenario that we are looking at: a brief period of six months covered by a bridging loan from the government so as to find a buyer who could provide services that Italians need as travelers,” he said in an interview with Sky TG24 television.

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

Trying to Save Monte Paschi – Oldest Bank in the World

April 16, 2017

Trying to Save Monte Paschi – Oldest Bank in the World

The EU Commission is looking to bailout Monte Paschi by almost eliminating more than 5,000 jobs. The Monte Paschi plan that was presented last October called for 2600 layoffs. It is the oldest surviving bank in the world and the third largest Italian commercial and retail bank by total assets. This makes it a critical bank in Italy. It has been struggling to avoid a collapse. It was founded in 1472 by the magistrates of the city state of Siena as a “mount of piety” by name.

It was Pope Gregory IX (1127-1241) who became the first Pope to appoint a noble merchant family of Siena as the official Papal depository in 1233 – the Piccolomini headed by Angeliero Solafico. The appointment of the Piccolomini family as the Papal Depository in 1233, led to Siena rising to become the first Financial Capital of Europe emerging at this time.

The Piccolomini family rose in credibility among all the merchants. Their Palazzo Piccolomini still exists which was their Palace. Eventually, their family would later produce two Popes, Pius II (1458-1464) and Pius III (1503). The Piccolomini were conservative merchants who had offices in Genoa, Venice, Aquileria. Triests, and above the Alps they opened both in France and Germany.

Siena was therefore the rebirth of banking after the Dark Age. The Banca Monte dei Paschi di Siena was founded by order of the Magistrature of the Republic of Siena as Monte di Pietà back in 1472. Since then the bank has been in operation without interruption to the present day. It formed on the second economic expansionary wave that came 224 years after the birth of the first economic wave in the 13th century.

A Bankruptcy of Nuclear Proportions

April 14, 2017

A Bankruptcy of Nuclear Proportions

With the failure of Westinghouse, the future of American nuclear power looks even bleaker. (JEFF FUSCO/Getty Images)

Summary

In any given year, a handful of companies file for Chapter 11 bankruptcy in the United States. Rarely, however, does one of these filings reverberate beyond the boardroom and into the realm of geopolitics. Those that do — Lehman Brothers in 2008, or several U.S. automakers in 2008-10 — usually involve hundreds of billions of dollars. But the next big geopolitically relevant bankruptcy may be on the horizon, and the amount of money involved is tiny next to the collapses of the past decade.

Analysis

On March 29, Westinghouse Electric Co., a subsidiary of Japanese conglomerate Toshiba, filed for bankruptcy. The U.S.-based nuclear power company has been building two state-of-the-art nuclear power plants in Georgia and South Carolina, but it has been plagued by delays and cost overruns. The filing sent Toshiba scrambling to cut its losses by March 31, the end of Japan’s fiscal year. The Japanese conglomerate ended up writing down over $6 billion on its nuclear reactor business. But Toshiba’s troubles don’t end there; the firm is also working to sell off a portion of its chip manufacturing holdings.

The U.S. government is worried about what the sale of Westinghouse could mean for the future of traditional nuclear power in the United States and for nuclear power in China, which is keen to learn the secrets of a Western firm such as Westinghouse. The Japanese government, meanwhile, is wary of how Beijing could benefit in the long term, should a Chinese firm acquire Toshiba’s semiconductor unit.

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

What A Westinghouse Bankruptcy Could Mean For U.S. Utilities

March 29, 2017

What A Westinghouse Bankruptcy Could Mean For U.S. Utilities

International news services now report that Japan’s Toshiba Corporation (9502.T) is preparing to make a chapter 11 bankruptcy filing for its Westinghouse Electric subsidiary as soon as this Monday, March 27. For most of our readers this news evokes little surprise. This is merely another chapter of a slow moving financial and accounting train wreck involving nuclear design and construction firm Westinghouse and its troubled Japanese parent, Toshiba. But like an old, leaky garbage scow there is much to clean up in its wake.

The two U.S. utilities with the most at risk are Southern Company and SCANA Corp. Westinghouse is presently constructing two unit, AP 1000 nuclear power stations for each utility. These projects are over-budget and behind schedule. It appears that Westinghouse offered both utilities a fixed price contract for these new nuclear plants. Our best guess is that this fixed price construction guarantee has doomed Westinghouse and prevented other potentially willing buyers from stepping in. No one it seems is willing to take on this seemingly open-ended nuclear construction liability.

What does this mean for the two domestic utilities embroiled in this international financial quagmire?

First, we expect that they will complete both nuclear construction projects. The bulk of heavy capital expenditures for both utilities seem to be in the 2017-2019 period.

Second, it is in all interest of all potential litigants to see these plants completed. Westinghouse/Toshiba, for one, would at least get to showcase the AP 1000 design and its successor entity could advocate for additional sales of this reactor design. A working design has value. (What happens in the UK is another matter where Toshiba hoped to build several plants). The utilities, which need new power stations, get large, rate based, non-fossil base load power generating resources for the next 40-60 years.

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

This Region Of The World Is Being Hit By The Worst Economic Collapse It Has Ever Experienced

March 9, 2017

This Region Of The World Is Being Hit By The Worst Economic Collapse It Has Ever Experienced

The ninth largest economy in the entire world is currently experiencing “its longest and deepest recession in recorded history”, and in a country right next door people are being encouraged to label their trash so that the thousands upon thousands of desperately hungry people that are digging through trash bins on the streets can find discarded food more easily. Of course the two nations that I am talking about are Brazil and Venezuela. The Brazilian economy was once the seventh largest on the globe, but after shrinking for eight consecutive quarters it has now fallen to ninth place. And in Venezuela the economic collapse has gotten so bad that more than 70 percent of the population lost weight last year due to a severe lack of food. Most of us living in the northern hemisphere don’t think that anything like this could happen to us any time soon, but the truth is that trouble signs are already starting to erupt all around us. It is just a matter of time before the things currently happening in Brazil and Venezuela start happening here, but unfortunately most people are not heeding the warnings.

Just a few years ago, the Brazilian economy was absolutely roaring and it was being hailed as a model for the rest of the world to follow. But now Brazil’s GDP has been imploding for two years in a row, and this downturn is being described as “the worst recession in recorded history” for that South American nation…

Latin America’s largest economy Brazil has contracted by 3.6 percent in 2016, shrinking for the second year in a row; statistics agency IBGE said on Tuesday. It confirmed the country is facing its longest and deepest recession in recorded history.

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

How Cheap Debt Avoids Countries Of Going Bankrupt

March 5, 2017

How Cheap Debt Avoids Countries Of Going Bankrupt

It’s not a secret the cheap debt policy from the European Central Bank has really helped out several European countries to keep the government finances under control. Well, more or less, as several members of the Eurozone are still running huge budget deficits.

Source: European Commission

When the ECB was created, its main ( and sole) mission was to keep an eye on the monetary policy in the Eurozone and to ensure price stability. The focus was on the inflation rate, which should be approximately 2% as that was thought to be ideal in the longer term. In order to keep the economy going and to boost the inflation rate, the ECB has started an asset purchase program just a few years ago. This would allow the Central Bank to pump more liquidity into the system.

Source: ECB.europa.eu

This plan was expected to have a ‘trickle down’ effect, but in reality most of the cash has been sticking to the wrong fingers. Banks and asset managers are benefiting, but the common man on the street doesn’t notice any benefit.

Au contraire, as the requirements for mortgages are becoming more strict, and you can just forget about easy access to credit cards or personal loans.

So let’s be clear, the low interest rate isn’t serving any other purpose than to make the institutions rich.

And we aren’t talking about a few billion and not even about a few hundred billion euro, as you can see on the next chart. The counter is at in excess of 1.6 trillion… and counting.

Source: Royal Bank of Canada

But perhaps more important, it also avoids the annual government budgets to fall off a cliff. In fact, even Jens Weidmann, one of the most fierce opponents of the buyback program, now expects the ECB to continue the purchase program.

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

Retailpocalypse 2017: Hundreds of Stores Will Be Closing

January 13, 2017

Retailpocalypse 2017: Hundreds of Stores Will Be Closing

After Christmas, all is not calm and bright in the retail world.

For those who are still under the illusion that our economy is great and prosperity is nigh, you might want to consider the massive loss of jobs that will be forthcoming as stores across the country go into damage control mode to try to stop the hemorrhaging from lackluster holiday sales.

Thousands of non-seasonal jobs are being cut as retail stores across the country close down or slash expenditures. If December is the most wonderful time of the year, then January is the most dismal. The beginning of the first quarter is the most common time to announce store closures and assess budgets.

The start of the year is a popular time to announce store closures. Nearly half of annual store closings announced since 2010 have occurred in the first quarter, CNBC reports. (source)

Last year, Wal-Mart stunned the country when they closed 269 stores in January.

Macy’s

The department store chain blames online sales for their woes.

Macy’s said Wednesday it has either closed or will shutter 68 stores and cut an additional 6,200 positions at a time when shoppers are going online to buy everything from scarves to lipstick.

Of the 68 stores out of 730 in total, nine closings had been previously announced and three locations have already shut down. But the retail giant revealed the locations of the remaining 59 stores, which will be shuttered by the middle of this year and affect 3,900 employees, some of whom may be offered jobs at other locations

…Additionally the retail giant says that it will be cutting “layers of management” at its central operations, and paring the number of managers supporting stores, making up the bulk of 6,200 jobs that will be lost.

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

Savings Guarantee? U.N. Warns Next Financial Crisis Imminent

September 24, 2016

Savings Guarantee? U.N. Warns Next Financial Crisis Imminent

“There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis …”

UN Conference on Trade and Development’s Annual Report (UNCTAD), September 22, 2016

Image from “Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay – Wikipedia

This hard hitting critique in the UN Conference on Trade and Development’s Annual Report, released this week, is suggesting that the ‘third leg of the world’s intractable depression is yet to come.’

“Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out,” said the annual report of the UN Conference on Trade and Development (UNCTAD).

But what does these grand, scary predictions really mean for us? Bankruptcy? Economic collapse? Apocalypse now? End of the world as we know it?

The UN economists certainly think that a la 2007/2008, we are on the verge of the third leg of the global financial crisis – with prospect of epic debt defaults.

We may soon experience the end of the financial world as we know it … but investors and savers feel fine! Many bond and stock markets, including the S&P 500, continue on their merry way to all time record highs.

Few know, or (it seems) care anymore. As we end yet another week with yet another anticlimactic announcement from the “all powerful” Fed, it is understandable that many of us are feeling some cognitive dissonance when it comes to the real impact of central bank announcements, economic forecasts and political changes.

Bail-In Regime Cometh

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

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