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Prepare For Interest Rate Rises And Global Debt Bubble Collapse

November 9, 2017

 Prepare For Interest Rate Rises And Global Debt Bubble Collapse

– Diversify, rebalance investments and prepare for interest rate rises
– UK launches inquiry into household finances as £200bn debt pile looms
– Centuries of data forewarn of rapid reversal from ultra low interest rates
– 700-year average real interest rate is 4.78% (must see chart)
– Massive global debt bubble – over $217 trillion (see table)
– Global debt levels are building up to a gigantic tidal wave
– Move to safe haven higher ground from coming tidal wave

Source: Bloomberg

Last week, the Bank of England opted to increase interest rates for the first time in a decade. Since then alerts have been coming thick and fast for Britons warning them to prepare for some tough financial times ahead.

The UK government has launched an inquiry into household debt levels amid concerns of the impact of the Bank of England’s decision to raise rates. The tiny 0.25% rise means households on variable interest rate mortgages are expected to face about £1.8bn in additional interest payments whilst £465m more will be owed on the likes of credit cards, car loans and overdrafts.

The 0.25% rise is arguably not much given it comes against backdrop of record low rates and will have virtually no impact on any other rate. However it comes at a time of high domestic debt levels, no real wage growth and a global debt level of over $217 trillion.

Combined with low productivity across the developed world, experts are beginning to wonder how the financial system (and the individuals within) will cope.

After a decade of seeing negative real rates of interest many investors will be quietly celebrating that they may be about to see a turnaround for their savings. Many hope they will start being rewarded for their financial prudence as opposed to the punishing saving conditions of the last decade.

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

Weekly Commentary: End of an Era

November 4, 2017

Weekly Commentary: End of an Era

Of the diverse strains of inflation, asset inflation is by far the most dangerous. A bout of consumer price inflation would be generally recognized as problematic and rectified through a tightening of monetary conditions. On the other hand, asset price inflation is both celebrated and venerated. There is simply no constituency calling for a tightening of conditions to ward off the deleterious effects of rising asset prices, Bubbles and attendant economic maladjustment. And as we’ve witnessed, the bigger the Bubble the more powerful the constituencies that rationalize, justify and promote Bubble excess.

About one year ago, I was expecting a securities markets sell-off in the event of an unexpected Donald Trump win. A Trump presidency would create disruption, upheaval and major uncertainties – political, geopolitical, economic and social. Instead of a fall, the markets experienced a short squeeze and unwind of hedges. Over-liquefied markets and a powerful inflationary bias throughout global securities markets won the day – and the winning runs unabated.

We’ve come a long way since 1992 and James Carville’s “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” New age central banking has pacified bond markets and eradicated the vigilantes. These days it’s the great equities bull market as all-powerful intimidator.

The President admitted his surprise in winning the election. I suspect he and his team were astounded by the post-election market rally. I’ve always held the view that prolonged bull markets foster a portentous concentration of power – not only in the financial markets but within the financial system more generally.

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

BITCOIN vs. GOLD: Which One’s A Bubble & How Much Energy Do They Really Consume

November 2, 2017

BITCOIN vs. GOLD: Which One’s A Bubble & How Much Energy Do They Really Consume

If you are investing in either Bitcoin or Gold, it’s important to understand which asset is behaving more like a bubble than the other.  While it’s impossible to understand how the market will value these two very different assets in the future, we can provide some logical analysis that might remove some of the mystery associated with the market price of Bitcoin versus Gold.

I’ve read some analysis on Bitcoin profitability and energy consumption that seemed unreliable, so I thought I would put my two cents in on the subject.

For example, many sites are using the Digiconomist’s work on Bitcoin energy consumption.  However, I believe this analysis has overstated Bitcoin’s energy consumption by a large degree.  According to the Digiconomist, Bitcoin’s annual electric use is approximately 24 TerraWatts per year (TWh/yr):

In a recent article that was forwarded to me by one of my readers, How Many Barrels Of Oil Are Needed To Mine One Bitcoin, the author used the information in the chart above to calculate the energy cost to produce each Bitcoin.  He stated that the average energy cost for each Bitcoin equals 20 barrels of oil equivalent.  Unfortunately, that data is grossly overstated.

If we look at another website, the author explains in great detail the actual energy cost to produce each Bitcoin.  According to Marc Bevand, he calculated on July 28th, that the average electric consumption of Bitcoin was 7.7 TWh/yr, one-third of the Digiconomist’s figure.  Here is a chart and table from Marc Bevand’s site showing how he arrived at the figures:

This graph shows the increase in Bitcoin’s hash rate and the efficiency of the Bitcoin Miners at the bottom.

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

The Biggest Ponzi in Human History

November 1, 2017

The Biggest Ponzi in Human History 


Jean-Léon Gérôme Slave market 1866
Here’s the story in a nutshell: Ultra low interest rates mark a shift away from people’s wealth residing in their savings and pension plans, and into to so-called wealth residing in their homes, which are bought with ever growing levels of debt. When interest rates rise, they will lose that so-called wealth.

It is grand theft auto on an unparalleled scale, and it’s a piece of genius, because while people are getting robbed in plain daylight, they actually think they’re winning. But as I wrote back in March of this year, home sales, and bubbles, are the only thing that keeps our economies humming.

We haven’t learned a thing since March, and we haven’t learned a thing for many years. People need a place to live, and they fall for the scheme hook line and sinker. Which in a way is a good thing because the economy would have been dead without that ignorance, but at the same time it’s not because it’s a temporary relief only and the end result will be all the more painful for it.

Whatever Yellen decides as per rates, or Draghi, it doesn’t really matter anymore, this sucker’s going down something awful. This is a global issue. Housing bubbles have been blown not only in the Anglosphere, though they are strong there, many other countries have them as well, Scandinavia, Netherlands, even Germany and France. It’s what ultra low rates do.

First, here’s what I said in March:

Our Economies Run On Housing Bubbles

What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over.

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

What Could Pop The Everything Bubble?

October 28, 2017

What Could Pop The Everything Bubble?

A crisis that can’t be solved by just printing more dollars

I’ve long held that if a problem can be solved by creating $1 trillion out of thin air and buying a raft of assets with that $1 trillion, then central banks will solve the problem by creating the $1 trillion out of thin air—nothing could be easier.

This is the lesson of the past eight years: if a problem can be solved by creating new money and buying assets, then central banks will solve that problem.

Problem: stock market is declining. Solution: create new money and buy, buy, buy stock index funds. Problem solved! Market stops falling and quickly rebounds as “central banks have our backs.”

Problem: interest rates are inhibiting lending and growth. Solution: create a few trillion units of currency and buy enough sovereign bonds to drop interest rates to near-zero.

Problem: nobody’s left who can afford to buy the new nosebleed-priced flats that underpin China’s miracle-grow economy. Solution: create new currency, lend it to local government agencies who then buy the empty flats.

Problem: stagnant employment and deflation. Solution: create a trillion in new currency, buy a trillion in new government bonds that then fund infrastructure projects, i.e. bridges to nowhere.

And so on. Any problem that can be solved by creating a few trillion out of thin air and buying assets will be solved.  The mechanism to solve these problems—creating currency out of nothing—is like a perpetual motion machine: there are no intrinsic limits on the amount of new money that can created at near-zero interest, as the interest payments can be funded by new money.

Even better, the central bank (the Federal Reserve) buys Treasury bonds with the new currency that generate income, which is then returned to the Treasury: a perpetual-motion money machine!

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

China’s mortgage debt bubble raises spectre of 2007 US crisis

October 16, 2017

China’s mortgage debt bubble raises spectre of 2007 US crisis

Many young homeowners in booming cities owe more than they earn, and some even falsify salary details to get bigger mortgages

Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s.

As mortgages grow scarce in China, homebuyers turn to car and college loans, firm says

Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years.

City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.

“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.”

The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.

The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy.

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

The Fed’s Massive Bubble Is Leading To Massive Economic Pain

October 14, 2017

The Fed’s Massive Bubble Is Leading To Massive Economic Pain

There shouldn’t be a Federal Reserve, but it exists, and it’s constantly creating a world of economic pain.​

Each Federal Reserve bubble must turn into a bust. It’s unavoidable.

According to the central planners, the “solution” for the bust is more creation of new money and credit. That’s the only way they can keep their “system” alive.

When the Fed’s stock market bubble burst in 2000, it responded by creating new money and credit. Lo and behold, this led directly to the next bubble that was even bigger.

When the housing bubble burst in 2008, Wall Street was bailed out by taxpayers, and TRILLIONS of new dollars were created as the “solution.”

And now, almost 10 years later, we have an even bigger bubble than 2008. The central planners at The Fed have done it again.

How much longer will we allow this “system” to last? How much economic pain will it take to return to sound money again?

Ron Paul discusses the latest bubble below:

Only China Can Restore Stability in The Global Economy

October 12, 2017

Only China Can Restore Stability in The Global Economy

Fan Ho East meets west 1963

For those of you who don’t know Andy Xie, he’s an MIT-educated former IMF economist and was once Morgan Stanley’s chief Asia-Pacific economist. Xie is known for a bearish view of China, and not Beijing’s favorite person. He’s now an ‘independent’ economist based in Shanghai. He gained respect for multiple bubble predictions, including the 1997 Asian crisis and the 2008 US subprime crisis.

Andy Xie posted an article in the South China Morning Post a few days ago that warrants attention. Quite a lot of it, actually. In it, he mentions some pretty stunning numbers and predictions. Perhaps most significant are:

“only China can restore stability in the global economy”

and

“The festering political tension [in the West] could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.”

Here are some highlights.

The bubble economy is set to burst, and US elections may well be the trigger

Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising inequality and made mass consumer inflation less likely. Since the 2008 financial crisis, asset inflation has fully recovered, and then some.

The US household net worth is 34% above the peak in 2007, versus 30% for nominal GDP. China’s property value may have surpassed the total in the rest of the world combined. The world is stuck in a vicious cycle of asset bubbles, low consumer inflation, stagnant productivity and low wage growth.

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

The Waiting Is The Hardest Part

October 5, 2017

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The Waiting Is The Hardest Part

Tom Petty’s anthem for today’s investors

Man, what an awful stretch of events.

When I penned last week’s article on tragedy, little did I expect something as horrible as the Las Vegas massacre would immediately follow. And nearly lost in the headlines was the untimely passing of rock legend, Tom Petty, one of my all-time favorite musicians. Sure can’t wait for this week to be over…

In memory of Tom, I’ve been listening to a lot of his and the Heartbreakers’ best hits. The lyrics to one song in particular, The Waiting, well-captures an important message today’s investors should take to heart:

The waiting is the hardest part
Don’t let it kill you baby, don’t let it get to you

Those waiting for the financial markets to experience some sort (any sort!) of pullback have been waiting a long, looong time. How long?

  • It has been over 100 months (more than 8.5 years) since the current bull market began in April of 2009
  • It has been 15 months since the last (and very brief) drop of 5% in the S&P 500
  • This past September saw record low volatility, including a stretch now claimed to be “the most peaceful days in the history of the markets”
  • Since last year’s presidential election, at which point the markets were already considered dangerously overvalued, the Dow Jones Industrial Average is up over 20%
  • As of this article’s publishing, the Dow, the S&P and the NASDAQ are all trading at record highs

Or, to put it visually:

The stock market is now 70% higher than it was at the previous bubble peak immediately preceding the 2008 Great Financial Crisis.

Reflect for a moment how painful the crash from Oct 2008-March 2009 was. How much more painful will a crash from today’s much dizzier heights be?

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

World’s Biggest Ever Junk Bond Bubble in Pictures: What Hath Draghi Wrought?

October 5, 2017

World’s Biggest Ever Junk Bond Bubble in Pictures: What Hath Draghi Wrought? 

In regards to ECB QE bond purchases, inquiring minds may be asking: What hath ECB president Mario Draghi wrought?

I can explain in one picture.

The answer in words: The world’s biggest junk bond bubble.

I prefer gold.

On August 4, I commented on the Bubblicious Debate: Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble

There’s a bond bubble for sure, but it’s in corporate bonds, not treasuries.

This also isn’t the first time Greenspan has expressed concern about a bond bubble. Two years ago, when the 10-year Treasury yield was 2.44% and the CPI was 0.2%, he told Bloomberg TV that “we have a pending bond market bubble.” In a Bloomberg TV interview July 2016, he expressed concerns about stagflation and said “we’re seeing the very early signs of inflation beginning to tick up.” He also said with the 10-year Treasury yield pushed down to 1.50% by Brexit concerns, that he was “nervous” bond prices were too high.

“No Irrational Exuberance in Stocks”

“There is no irrational exuberance that I can see. In fact, it is just the opposite at this stage.”

Greenspan the Contrarian Indicator

Major comments by Alan Greenspan, widely portrayed by the media are most likely perfect contrarian indicators.

He has been calling the bond market a bubble for years but only recently did he say there was no stock market bubble.

With Greenspan, one needs to be careful. He is frequently correct about some things. However, the things about which he is correct are either never widely published, or they are widely disputed.

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

Bubble About to Burst?

September 26, 2017

Bubble About to Burst?

(ANTIMEDIA) — Last month, Anti-Media reported that some of the biggest institutions on Wall Street have issued warnings to investors that planet-wide financial markets are nearing a downturn. From an August 22 article by Bloomberg:

“HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

“Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.”

It appears the fear may be spreading. Citing a new financial survey, Mark DeCambre of MarketWatch reported on Friday that a vast majority of Wall Street executives interviewed think the currently record-setting stock market is about ready to decompress:

“More than 80% of chief financial officers surveyed by accounting firm Deloitte said U.S. stock markets are overvalued, marking the highest level since Deloitte began conducting its quarterly poll about eight years ago.

“The findings underline an increasing sense of dread by market participants that stock valuations have become bloated after the S&P 500 index, the Dow Jones Industrial Average and the Nasdaq Composite Index have registered repeated records and remain less than a percentage point from fresh records in recent trade.”

Specifically, DeCambre writes, the Dow has hit 42 records thus far in 2017, Nasdaq has hit 49, and the S&P 500 has ended on record highs 37 times.

MarketWatch’s Ciara Linnane also reported on the new survey on Friday. Linanne spoke with the survey’s lead author and managing director of Deloitte’s CFO program, Greg Dickinson, who said one of the most worrisome risks to the market CFOs cited was tension between the United States and North Korea.

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

Julian Robertson: “There’s A Bubble” And “It’s The Federal Reserve’s Fault”

September 12, 2017

Julian Robertson: “There’s A Bubble” And “It’s The Federal Reserve’s Fault”

Call it the “bearish billionaire” curse. One month ago, MarketWatch penned “7 billionaires who are worried about a stock-market correction” which listed Carl Icahn, David Tepper, Howard Marks, George Soros, Jeff Gundlach, Warren Buffett and Eliot Singer as some of the world’s wealthiest people who are losing sleep over the S&P trading at all time highs.

Today we can add another investing billionaire – one of the original hedgers, Tiger Management co-founder Julian Robertson – who spoke to CNBC’s Kelly Evans, and stated in no uncertain words that the market is a bubble and that “it’s the Federal Reserve’s fault, and the Federal Reserves all over the world.”

KELLY EVANS: … I just wonder what you think generally of where we are in the equity market today, where we are in the stock market in terms of valuation.

JULIAN ROBERTSON: Well, we’re very, very high — have very high valuations in most stocks. The market, as a whole, is quite high on a historic basis. And I think that’s due to the fact that interest rates are so low that there’s no real competition for the money other than art and real estate. And so I think that’s why the valuations are so high. I think when rates do start to go up and the bonds become more attractive to investors, it will affect the margins.

KELLY EVANS: Do you think they’re dangerously high right now?

JULIAN ROBERTSON: Well, that’s a — you know, it’s pretty — they’re high.

KELLY EVANS: Is it the Federal Reserve’s fault or…

JULIAN ROBERTSON: Yes. It’s the Federal Reserve’s fault, and the Federal Reserves all over the world. I mean, in Germany, in order to buy a bond, until recently, you actually had to pay interest.

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

Spain’s New Big Bubble Begins to Wobble

August 13, 2017

Spain’s New Big Bubble Begins to Wobble

Tourism is now bigger than construction was during the real estate bubble.

Since hitting rock bottom in 2013, Spain has been one of the biggest engines of economic growth in Europe, expanding at around 3% per year. But according to a report by the Bank of Spain, most of the factors behind this growth — such as cheaper global oil prices, the ECB’s expansionary monetary policy, and the subsequent decline in value of the Euro — are externally driven and transitory in nature.

This is particularly true for arguably the biggest driver of Spain’s economic recovery, its unprecedented tourism boom, which some local economists are finally beginning to call a bubble.

In large part the boom/bubble is a result of the recent surge in geopolitical risks affecting rival tourist destinations like Turkey, Egypt, Tunisia and, in smaller measure, France, which helped boost the number of foreign visitors to Spain in 2016 to a historic record of 75.3 million people — an 11.8% increase on 2015.

Based on first-half figures for this year, the trend is set to continue, at least for a little while longer. Between January and June 2017 36.3 million foreign visitors came to Spain — an increase of 11.6% on the same period of 2016. But if recent developments are any indication, this year’s surge in visitors could well represent Spain’s tourist boom’s final swansong.

Rising “Tourism-phobia.” After years of growing public opposition to the unrestrained growth of the Barcelona’s tourist industry, the city has witnessed a rash of coordinated attacks against tourist targets led by Arran, the youth wing of the radical separatist CUP (Popular Unity Candidacy) party. Arran’s highly publicized actions have spawned a flurry of copycat attacks in places like Palma de Mallorca, San Sebastian and most recently Tenerife.

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

Signs Of Distress

August 12, 2017

Signs Of Distress

The need to change is becoming more obvious than ever
The world is edging closer to the final moments after which everything will be forever changed. Grand delusions, perpetuated over decades, will finally hit the limits of reality and collapse in on themselves.

We’re over-budget and have eaten deeply into the principal balances of all of our main trust accounts. We are ecologically overdrawn, financially insolvent, monetarily out past the Twilight Zone, consuming fossil fuels (as in literally eating them), and adding 80,000,000 net souls to the planet’s surface — each year! — without regard to the consequences.

Someday there will be hell to pay financially, economically, and ecologically as there simply isn’t any way to maintain these overdrafts forever. Reality does not renegotiate. Its deal terms aren’t compromisable.

For those who have the neural plasticity to actually see what’s happening around us, the changes are already here, blatant and frightening. Younger folks, with their fresher eyes and fewer ties to the past, can see them a lot easier than their elders.

The prosperity enjoyed by the past few generations — especially the Baby Boomers — was stolen from future generations. All the while, they pretended as if their borrowing-heavy standards of living were the result of sheer genius and intelligence; like trust fund babies who mistake being born on third base for hitting a triple.

Young people have sussed this out; and are now pulling back from many of the principal occupations of their forebears — like marriage, babies and buying homes and cars. This perplexes older folks, who are beginning to find themselves increasingly at odds with the generations following after them.

Humans can be very very smart, but the flip-side of our ingenuity is our capacity for self-delusion. We’ve very consistently preferred to look past our faults. That can work for a while, but eventually an incomplete view will lead to a complete disaster.

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

Central Banks ARE The Crisis

July 25, 2017

Central Banks ARE The Crisis


Walter Langley Never morning wore to evening but some heart did break 1894
If there’s one myth -and there are many- that we should invalidate in the cross-over world of politics and economics, it‘s that central banks have saved us from a financial crisis. It’s a carefully construed myth, but it’s as false as can be. Our central banks have caused our financial crises, not saved us from them.

It really should -but doesn’t- make us cringe uncontrollably to see Bank of England governor-for-hire Mark Carney announce -straightfaced- that:

“A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.”

Or, for that matter, to see Fed chief Janet Yellen declare that there won’t be another financial crisis in her lifetime, while she’s busy-bee busy building that next crisis as we speak. These people are now saying increasingly crazy things, and that should make us pause.

Central banks don’t serve people, or even societies, as that same myth claims. They serve banks. Even if central bankers themselves believe that this is one and the same thing, that doesn’t make it true. And if they don’t understand this, they should never be let anywhere near the positions they hold.

You can pin the moment central banks went awry at any point in time you like. The Bank of England’s foundation in 1694, the Federal Reserve’s in 1913, the ECB much more recently. What’s crucial in the timing is where and when the best interests of the banks split off from those of their societies. Because that is when central banks will stop serving those societies. We are at such a -turning?!- point right now. And it’s been coming for some time, ‘slowly’ working its way towards an inevitable abyss.

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

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