john rubino – Page 7

For what seems like decades, people have been warning that the next time some over-leveraged corner of the financial system implodes, bank and brokerage accounts will be either confiscated by desperate governments or lost during the resulting chaos.

Here, from 2012, is a representative warning from gold mining eminence grise Jim Sinclair:

My Dear Extended Family,

In bankruptcy of your bank, broker or fund, you can find your assets in the majority of cases are backing the liabilities of the entity in front of yourselves. This is why you must act to protect yourself.

No one in this financial world is going to do it for you, and few will have the courage to recommend you escape Street Name. You can wake up one day and find out that your investments are gone.

The insurance programs will function as long as the incidents of bankruptcy are isolated events.

In a systemic collapse the insurance funds are not capitalized to meet the potential obligations. The guarantor you are relying on will have to be bailed out.

For securities there are only three ways to hold them:

1. Street name.
2. Direct registration.
3. Certificate form.

Anyone advising you to stay with the Street Name option is a babbling idiot not interested at all in your welfare.

In street name the inferred ownership is the broker or bank, not you. In Direct Registrationand Certificate form, the distinct ownership is you.

In 99.9% of the cases of retirement accounts the answer is you are in Street Name.

How are your securities held? Do you even know? I dare you to ask!

Do you know what your broker’s capital ratio is? Find out as that number is the order of magnitude at which your broker is gambling on with primarily your money. I dare you to ask.

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

2017’s Real Milestone (Or Why Interest Rates Can Never Go Back To Normal)

January 25, 2017

2017’s Real Milestone (Or Why Interest Rates Can Never Go Back To Normal)

Forget about NAFTA or OPEC or TPP or crowd size or hand size or any other acronym or stat or concept that obsesses the financial press these days. Only two numbers actually matter.

The first is $20 trillion, which is the level the US federal debt will exceed sometime around June of this year. Here’s the current total as measured by the US Debt Clock:

To put $20 trillion into perspective, it’s about $160,000 per US taxpayer, and exists in addition to the mortgage, credit card, auto, and student debt that our hypothetical taxpayer probably carries. It is in short, way too much for the average wage slave to manage without some kind of existential crisis.

It’s also way more than it used to be. During his tenure, president George W. Bush (2000 – 2008) nearly doubled the government’s debt, which is to say his administration borrowed as much as all its predecessors from Washington through Clinton combined. At the time this seemed like a never-to-be-duplicated feat of governmental profligacy. But the very next administration topped it, taking the federal debt from $10 trillion to the soon-to-be-achieved $20 trillion. And the incoming administration apparently sees no problem with continuing the pattern.

The other meaningful number is 6.620. That’s the average interest rate the US government paid on its various debts in 2000, the year before the great monetary experiment of QE, ZIRP and all the rest began. When talking heads at the Fed and elsewhere refer to “normalizing” interest rates they’re proposing a return to this 6% average rate.

But of course the last time that rate prevailed our debts were just a little lower. Run the numbers on today’s obligations and you get, well, let’s see:

$20 trillion x 6% = $1.2 trillion a year in interest expense. To put that in perspective…

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

The Floodgates Begin To Open

October 16, 2016

The Floodgates Begin To Open

It’s now clear that what governments did to counter the Great Recession may have delayed systemic collapse, but did not resurrect the old normal. Growth around the world is anemic – which is to say debt continues to increase faster than the productive capacity to service it – and inflation (the other way to shrink a debt burden) remains below target.

Now “anemic” is becoming “non-existent.” In the US, mini-credit-bubbles like auto loans, home mortgages and student loans are sputtering, leading economists to dial back their rosy scenarios for 2016. The Atlanta Fed’s GDPNow forecast for Q3 growth, for instance, was a robust 3.8% in August but is now less than 2% — and still falling.

Not surprisingly, everyone is starting to panic. In the UK, where admittedly Brexit has created a unique situation:

Mark Carney: Bank of England will tolerate higher inflation for the sake of growth

(Telegraph) – Official data on Friday showed house building, infrastructure and public construction all slumped in August, indicating that the UK’s building industry is slowing sharply and could even enter a recession. Construction output dropped by 1.5pc in the month, an unexpected drop after growth of 0.6pc in July, according to the Office for National Statistics. Separate Bank of England figures showed banks suffered a big drop in demand in the months following the Brexit vote as fewer Britons were prepared to take major financial decisions. Demand for mortgages dipped strongly, with a net balance of 44pc of banks reporting a fall in customer interest – the biggest negative score in almost two years.

Bank of England Governor Mark Carney told an audience in Nottingham that the current environment of low inflation was “going to change”, with the drop in the value of the pound likely to push up prices across the economy.

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

Unintended Consequences, Part 2: Easy Money = Overcapacity = Trade Wars

May 29, 2016

Unintended Consequences, Part 2: Easy Money = Overcapacity = Trade Wars

It’s unclear what China was thinking when it was borrowed all those trillions to quadruple its capacity to make steel, cement and other basic industrial products. There’s no record of it checking in with the other countries that have such industries to see if a sudden surge of cheap imports was okay with them.

Turns out that it’s not. The US in particular seems to lack a sense of humor where the death of its steel industry is involved:

US hits China and others with more steep steel duties

(CNBC) – The U.S. Department of Commerce has imposed more duties on corrosion-resistant steel imports from China and elsewhere in an effort to protect its industry from a glut of steel imports from around the world.On Wednesday, the department’s International Trade Administration, which has conducted an investigation into the “dumping” of steel products into U.S. markets, said it had found the “dumping of imports of corrosive-resistant steel (CORE) products from China, India, Italy, Korea and Taiwan” by various steel producers that it named within those countries.

As a result, the department said that Chinese corrosion-resistant steel would be subject to a final anti-dumping duty of 210 percent and anti-subsidy duty of between 39 percent and up to 241 percent.

China’s low-cost metal producers have been widely cited as the main culprit for a glut in global steel production that has pushed down prices. Last week, the U.S. slapped tariffs of more than 500 percent on Chinese cold-rolled steel, which is used mainly in car production and appliances.

China has been accused by the U.S. and leading figures in the steel industry of “dumping” that cheap steel on to global markets due to a slowdown in domestic demand and a bid to gain global market share at any cost.

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

Can We Grow Out Of Our Problems If We’re Not Actually Growing?

April 7, 2016

Can We Grow Out Of Our Problems If We’re Not Actually Growing?

The rationale for today’s easy money policies is pretty straightforward: Falling interest rates and rising government deficits will counteract the drag of excessive debts taken on in previous stimulus programs and asset bubbles, enabling the developed world to create wealth faster than it takes on new debt. The result: a steady decline in debt/GDP to levels that allow the current system to survive without wrenching changes.

That’s a seductive, free-lunchy kind of idea — if it actually worked. But as the following chart of historical US GDP growth illustrates, as we’ve taken on more and more debt, each successive stimulus program has generated less and less growth. Compare the past few years to the rip-roaring recoveries of the 1960s through 1990s and it’s clear that whatever mechanism once converted easy money into greater wealth is no longer operating.

And note that the 2% recent growth on the above chart doesn’t include the revision of Q4 2015 growth to only 1.4%, and the Atlanta Fed’s GDPNow projection of 0.4% growth for 2016’s first quarter.

It’s the same story pretty much everywhere else. Japan, for instance:

Now the question becomes, how does the US and the rest of the world “grow out of its debt” if it can’t grow at all? Won’t the steady accretion of debt at every level of every society go parabolic in a zero-growth world? The answer is that mathematically speaking, this appears to be unavoidable.

So what will we do? More of the same of course:

OECD Calls for Urgent Increase in Government Spending

(Wall Street Journal) – Governments in the U.S., Europe and elsewhere should take urgent and collective steps to raise their investment spending and deliver a fresh boost to flagging economic growth, the Organization for Economic Growth and Development said Thursday.

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

How Stupid Do You Have To Be To Let This Happen?

March 28, 2016

How Stupid Do You Have To Be To Let This Happen?

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

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

Bad — But Better Than What’s Coming

March 27, 2016

Bad — But Better Than What’s Coming

Talk about diminished expectations. This morning’s estimate of 1.4% Q4 GDP growth is being hailed as a pleasant surprise. Which is odd, considering that for most of the past century a number this low would have been seen as weak enough to require emergency action.

And that’s just the headline number. Dig a little deeper and the picture — at least when viewed through a non-Keynesian lens — is of a system in crisis. Consider:

Corporate profits are, as today’s Bloomberg puts it, sliding.

Meanwhile (also from Bloomberg),

A firm labor market and low inflation encourage households to keep shopping. Today’s fourth-quarter growth figure reflected more spending on services, particularly on recreation and transportation. “It’s really U.S. consumers who are powering the global economy forward at this point,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh.

But if companies are earning less money, how likely is it that they’ll step up hiring going forward? Not very. And since today fewer Americans have full time jobs than in 2007 (making the current stellar 4.9% unemployment rate look like a cruel joke) a new round of mass layoffs will make the job market even more dire for anyone hoping to support a family with full-time work.

“If profits remain depressed, the prospects for capex and hiring will come under greater pressure,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in a research note.

What are the chances of profits remaining depressed? Pretty good, considering that two of the big growth drivers of the past few years have been student debt and car loans. The former is, as everyone by now knows, at levels that consign a whole generation of kids to life in their parents’ basements — not a recipe for robust consumption.

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

Why We’re Ungovernable, Part 13: The Unprotected Push Back

March 4, 2016

Why We’re Ungovernable, Part 13: The Unprotected Push Back

Peggy Noonan, former Reagan administration speech writer and current Wall Street Journal pundit has, like most of her peers, been wondering what’s gotten into the unwashed masses lately that makes them such unpredictable voters. And she’s come up with a useful conclusion: The rise of Donald Trump (and similar iconoclasts in other countries) is due to the gradual division of society into the protected — that is, people who make the rules and therefore benefit from them — and the unprotected, who don’t make the rules and end up getting screwed. The latter have finally figured this out and have stopped supporting the former. Here’s her latest OpEd piece, in its entirety:

Trump and the Rise of the Unprotected: Why political professionals are struggling to make sense of the world they created.

We’re in a funny moment. Those who do politics for a living, some of them quite brilliant, are struggling to comprehend the central fact of the Republican primary race, while regular people have already absorbed what has happened and is happening. Journalists and politicos have been sharing schemes for how Marco parlays a victory out of winning nowhere, or Ted roars back, or Kasich has to finish second in Ohio. But in my experience any nonpolitical person on the street, when asked who will win, not only knows but gets a look as if you’re teasing him. Trump, they say.I had such a conversation again Tuesday with a friend who repairs shoes in a shop on Lexington Avenue. Jimmy asked me, conversationally, what was going to happen. I deflected and asked who he thinks is going to win. “Troomp!” He’s a very nice man, an elderly, old-school Italian-American, but I saw impatience flick across his face: Aren’t you supposed to know these things?

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

This Is What Gold Does In A Currency Crisis, China Edition

January 10, 2016

This Is What Gold Does In A Currency Crisis, China Edition

Chinese citizens, meanwhile, are anxiously awaiting tomorrow’s market open while mentally repeating the same three lines:

Sure am glad I bought that gold last year.

Wish I’d bought more gold last year.

Wonder what I’ll have to pay for gold next week…

Here’s what that looks like in graphical form:

If China does spring a 15% devaluation on the already-wound-too-tight leveraged speculating community, the impact should be, well, amusing for sure, but otherwise a little hard to predict. About the only thing that can be said with near-certainty is that the above chart will have to be updated with much higher left and right axes.

Perfect Storm!

January 7, 2016

Perfect Storm!

One of the (many) fascinating things about this latest global financial crisis is that there’s no single catalyst. Unlike 2008 when the carnage could be traced back to US subprime housing, or 2000 when tech stocks crashed and pulled down everything else, this time around a whole bunch of seemingly-unrelated things are unraveling all at once.

China’s malinvestment binge is crashing global commodities, an overvalued dollar is crushing emerging markets (most recently forcing China to devalue), the pan-Islamic war has suddenly gone from simmer to boil, grossly-overvalued equities pretty much everywhere are getting a long-overdue correction, and developed-world political systems are being upended as voters lose faith in mainstream parties to deal with inequality, corporate power, entitlements, immigration, really pretty much everything. For one amusing/amazing example of the latter problem, consider Germany’s response to the mobs of men that suddenly materialized and began molesting women: Cologne mayor slammed after telling German women to keep would-be rapists at arm’s length.

Why do causes matter at times like this? Because where previous crises were “solved” with a relatively simple dose of hyper-easy money, it’s not clear that today’s diverse mix of emerging threats can be addressed in the same way. Interest rates, for instance, were high by current standards at the beginning of past crises, which gave central banks plenty of leeway to comfort the afflicted with big rate cut announcements. Today rates are near zero in most places and negative in many. Cutting from here would be an experiment to put it mildly, with myriad possible unintended consequences including a flight to cash that empties banks of deposits and a destabilizing spike in wealth inequality as negative interest rates support asset prices for the already-rich while driving down incomes for savers and retirees.

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

This Is What Gold Does In A Currency Crisis, Canadian Edition

December 27, 2015

This Is What Gold Does In A Currency Crisis, Canadian Edition

Gold, meanwhile, has been sucked down with the rest of the commodities complex, falling hard since 2013. But only in US dollars. For Canadians, with their weak domestic currency, gold has been behaving just fine. It’s up 17% in C$ terms over the past two years and looks ready to rally from here:

Protection from currency trouble is why people own it, and why in the vast majority of places it’s owners are very happy.

Now combine a falling currency with a crashing oil price and the result is a surprisingly favorable environment for Canadian and other weak-currency-country gold miners. Big mostly-Canadian miner Goldcorp, for instance, has seen its production costs fall by almost 20% in USD terms in the past two years, with more to come based on the subsequent cheapening of the diesel fuel required to run its equipment.

If 2016 plays out according to the script that has rising US interest rates producing an even stronger dollar (and correspondingly weaker currencies elsewhere) the terms of trade for non-US gold miners should become even more favorable. Many of them will report positive earnings comparisons while most other industries are doing the opposite, putting them on the radar screens of momentum traders and value investors who haven’t been paying attention since the last gold/USD bull market ended.

As The World Rolls Over

November 14, 2015

As The World Rolls Over

Brutal news is pouring in from pretty much everywhere.

US retail sales are flat and wholesale prices are falling. Big retail chains are missing on earnings and seeing their shares plunge.

Chinese nonperforming loans are soaring while imports, car sales and steel production are way down.

Oil is flirting with multi-year lows as tankers wander the ocean with nowhere to offload their crude. Other commodities like aluminum and copper are back at 2009 levels and still falling.

A general strike has paralyzed Greece and a far-left coalition is taking power in Portugal. Middle Eastern refugees keep pouring into Europe and no one seems to know where to put them. Eurozone growth is sliding back towards zero and the once-bulletproof Scandinavian countries are now the “sick men” of the region.

Argentine inflation is 35%, Brazil’s political/economic crisis is threatening to topple the government, and a giant copper mine just dumped millions of gallons of toxic sludge on some Brazilian villages.

Equities in Asia, Europe and the US are getting whacked as the sheer volume of bad news swamps the hope that European and Chinese QE programs will keep the asset price party going.

The world, in short, is rolling over. Debt monetization on the scale so far attempted has failed to stop the implosion of tens of trillions of dollars of bad paper, growth has stalled and geopolitics has begun to resemble the parking lot of a British soccer match, with scary people doing random, incomprehensibly violent things and no generally recognized authority able to impose control. Elections are now fearful rather than hopeful prospects and anti-status quo parties in France, Britain, Italy and Spain have become serious contenders.

And none of this is a surprise. It’s just what you get when you put monetary printing presses in the hands of governments and/or big banks.

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

China Cannot Let This Happen

September 26, 2015

China Cannot Let This Happen

After borrowing — and largely wasting — $15 trillion during the Great Recession, China now looks like a typical decadent developed-world country, complete with slow growth, anemic consumer spending and unstable financial markets.

But it’s not France, Canada or the US, where recessions happen and voters peacefully replace one major party with the other. China, within living memory, has seen civil unrest beget open rebellion beget multi-decade civil war.

Just as Germany is never going back to hyperinflation, China will not tolerate mass protests. Which means it somehow has to find jobs for the tens of millions of citizens who aspire to middle class life. This need for growth at any price explains the borrowing/infrastructure binge of the past five years. And soon it will explain a massive devaluation/QE program. From Monday’s Wall Street Journal:

China’s Workers Stumble as Factories Stall

XIGUOZHUANG, China—For decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums.

The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price.

Now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.

In Xiguozhuang, a village among cornfields some 155 miles south of Beijing, it had been rare to see working-age men for much of the year. This year, however, many of the men are at home, sidelined by a fading property boom.

“Times are tough now,” said Wang Hongxing, a 39-year-old father of three who has worked at building sites across China’s northeast since his teens, but who has spent the past two months tending his farmland plot. “There are too many workers and wages are dropping.”

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

This Is Actually Going To Happen Next Year

September 13, 2015

This Is Actually Going To Happen Next Year

The intellectual groundwork is being laid for the next stage of the Money Bubble, and it’s going to be epic. Here are excerpts from two articles that appeared over the weekend (and which should be read in their entirety). Both deal with Japan, which went all-in on debt monetization, lost badly, and now needs a new plan.

The first is from a University of Michigan economics professor:

Japan should be trying out a next-generation monetary policy

Japan is wasting its time trying to raise inflation.

Japan may succeed at bringing annual inflation up to 2%; indeed, it has made some real progress toward that goal. But suppose Japan succeeds in getting inflation up to 2%; would that be enough? The US economy has struggled mightily despite the fact that it went into the Great Recession with a 2% annual rate of core inflation. Japan could try to target an even higher rate of inflation, as Blanchard, Ball and Krugman recommend, or Japan could leave behind quantitative easing and higher inflation targets to make the leap to next-generation monetary policy.

The key to next-generation monetary policy is to cut interest rates directly instead of trying to supercharge a zero interest rate by raising inflation. Of course, cutting interest rates below zero pushes them into negative territory. But Switzerland, Denmark, Sweden and the euro zone have already shown that can be done. There is a widespread myth that cutting interest rates much deeper than -0.75% would inevitably cause people and firms to do an end run around those negative interest rates by taking their money out of the banking system as paper currency. Not so!

It is easy to neuter cash taken out of the bank as a way to defeat negative interest rates simply by removing the guarantee that the Bank of Japan will take that cash back at face value.

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

Central Banks Ready To Panic — Again

July 26, 2015

Central Banks Ready To Panic — Again

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.The Fed’s Countdown
Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks.

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

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