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FIAT CURRENCY ENDGAME: You Will Not Like This ONE BIT!

FIAT CURRENCY ENDGAME: You Will Not Like This ONE BIT!

No One Comes Back From This Uninjured. In one word, the devaluation is set to ESCALATE.

In fact, I term it Competitive Devaluation. There are several countries that will be the pioneers of it, but it will eventually reach the United States of America. In Europe and in Japan, we are closer to seeing it happening; in the next 2-5 years, you’ll hear about governments’ first official plans to do this.

They will NOT alert the media to notify the public to own gold and silver. They haven’t thus far (and they won’t going forward, either), and meanwhile they’ve been accumulating them at the fastest pace in more than half a century.

The central banks want to buy gold, uninterrupted. Since they do not buy silver, the mania that will ensue in that niche market will be huge.

Not just gold and silver stand to gain from devaluation; companies that are able to increase prices and not lose consumers will be great winners as well. These are the world-dominators with pricing power, and I will profile my top-5 holdings for the Endgame Decade (2020-2029) in a Special Report due to be published by September 30th.

Real estate prices in metropolitan areas will also continue to rise; these are hard assets that are difficult to increase in supply, but my analysis is that of the three – world-class companies, precious metals, and real estate, silver will be the BEST PERFORMER.

Courtesy: U.S. Global Investors

Central banks are not able to inflate the real debt levels away. The most extreme case of this is Japan, whose central bank has done ALMOST everything under the sun to relieve the country of its deflationary spiral and has failed miserably. 

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

Suffering the Profanity of Plentiful Cheap Money

Suffering the Profanity of Plentiful Cheap Money

What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?

That was the favored approach in Argentina – where the official inflation rate’s 55 percent.  But no more.  On September 2, President Mauricio Macri resorted to capital controls to preserve the central bank’s foreign exchange reserves and prop up the peso.  What gives?

Just fifteen months ago Macri secured the biggest bailout in the International Monetary Fund’s history.  Now Argentina’s delaying payment to its creditors and is rapidly approaching what will be its third sovereign default this century.  On top of that, Macri’s Peronist rival Alberto Fernández will likely take his job come election day in October.

Alas, for Macri and his countrymen, a painful lesson is being exacted.  You can’t solve a debt problem with more debt.  Eventually the currency buckles and you’re left with two poisons to pick from: inflation or default.  With Macri’s latest capital controls scheme he’s choosing to take swigs of both.

Make of Argentina’s woes what you will.  Central bankers in the United States are also guilty of programs of mass money debasement.  They may have a bigger economy to better mask their malice.  But despite what the MMT delusionals say the day of reckoning always arrives – and always at the worst possible time.

Indeed, the U.S. dollar hasn’t lost 55 percent of its value over the last 12 months.  However, according to the Bureau of Labor Statistics’ own inflation calculator, the dollar’s lost 55 percent of its value since 1988.  In other words, it takes $1 to purchase what $0.45 could buy during President Reagan’s last year in office.

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

Peter Schiff Compares Trade War to “Battle at Little Bighorn”

Peter Schiff Compares Trade War to “Battle at Little Bighorn”

Peter Schiff Compares Trade War to Battle at Little Bighorn
Photo by Gage Skidmore  | CC BY | Photoshopped

Political commentators are increasingly critical of U.S. trade policy, particularly tariffs and the trade war with China. Radio host Peter Schiff went so far as to compare U.S. trade policies to General Custer and the Battle of Little Bighorn. Meanwhile, some economic red flags seem to support their worries.

In today’s polarized political climate, there is one topic both the Left and the Right seem to agree on: the trade war with China is eventually going to hurt the average American.

Radio host Peter Schiff has been hammering on the economic dangers posed by tariffs for months. He even compared the resulting trade war with China to General Custer’s Last Stand.

“General George Custer met his doom charging into a battle he thought he could win against an opponent he did not understand. Based on [certain] views about the fast-emerging trade war with China, it looks to me that [the U.S.]…is charging into an economic version of Little Bighorn.

“By mistaking the real nature of international trade, the costs of tariffs, the effects of currency movements, and the supposed ease with which the United States could quickly re-establish itself as a low-cost manufacturer, [the U.S.] risks shredding the safety nets that have undergirded the U.S. economy for decades and plunging us into a war we are ill-equipped to fight.”

Those are strong words. But is Schiff’s Little Bighorn analogy accurate? Are these tariffs pushing the U.S. toward a disastrous economic “ambush” that could devastate America’s economy? Let’s look at some economic indicators to see what they point to.

Currency Manipulation

Marc Chandler, chief market strategist at Bannockburn, agrees that China’s recent currency devaluation is part of an escalating trade war: “This is another step in the currency war. This also makes trade more difficult.”

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

Powell Rate Cut Unleashes Volatility Tsunami

Powell Rate Cut Unleashes Volatility Tsunami

It wasn’t supposed to work this way.

In the rate cut playbook envisioned by Trump, Powell’s July 31st rate cut was supposed to send stocks higher while crushing the dollar. However, when the FOMC announce a “mid-cycle”, 25bps cut, the outcome was not only a surge in the dollar but also a surge in volatility not seen so far this year.

The sequence of events is familiar to all by now: at first, Powell’s rate cut spooked the market which had been expected either a 50bps cut, or an explicit promise of an easing cycle. It got neither, and neither did Trump, who the very next day realized that with the Fed now explicitly focusing on global uncertainties, read trade war, as a catalyst for future rate cuts as demonstrated by the following infamous chart

…. decided to escalate the trade war with China by announcing 10% tariffs on the remaining $300BN in Chinese imports, sending stocks and bond yields plunging, and the market pricing in as much as 100bps of more rate cuts in 12 months, forcing Powell to cut far more than just another 25bps or so as the Fed Chair suggested in the July FOMC meeting.

China immediately retaliated by devaluing the Yuan below 7.00 for the first time since 2008 and halting US ag imports, which in turn prompted the US Treasury to declare China a currency manipulator. Meanwhile, China’s yuan devaluation means the White House is set to unveil even higher tariffs, resulting in an even weaker yuan, and so on, in a toxic feedback loop that may soon escalate the trade and currency war into an all-out shooting war.

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

Hyperinflation is Becoming Common in The 21st Century

Hyperinflation is Becoming Common in The 21st Century

How destructive is hyperinflation? To quote economist Thomas Sowell, “Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all.”

A number of countries are currently experiencing the destructive effects of hyperinflation.

With the Venezuelan Bolivar at above 2,000,000 percent inflation, buying anything, even if something should be available, is virtually impossible. At towns along the Columbian border, food and medicine are bought with dollars or pesos. The Bolivar has simply lost any kind of value.

Foreign currency has become a critical means of survival in Venezuela. More than 40,000 Venezuelans, desperate for work and food, cross the border to Columbia each day. If they find work, they are paid in pesos. Should food be available, that, too, is purchased with pesos. Bolivars have become almost irrelevant to many Venezuelans. Most other currencies are eagerly accepted.

During the recent blackout that left Venezuela in the dark, food and medicine could only be bought with cash, as the electronic payment systems were non-functional. In Venezuela, cash means any foreign currency. In Maracaibo, the country’s second largest city, only U.S. currency greater than the dollar bill was accepted.

Foreign currency becomes available through friends and family who have permanently escaped the country and can send back cash. Those without such connections suffer. Some stores won’t accept the bolivar, and those that do charge a price Venezuelans cannot afford. Anyone lucky enough to have a job finds that the minimum wage of 18,000 bolivars, or $6.00, does not buy much.

With Venezuela in a state of turmoil as Maduro is fighting for his life, even the scarce goods that used to occupy the shelves are becoming rarer. This, of course, makes them more expensive, even when paid for with U.S. dollars. Even the dollar is becoming a victim of Venezuelan inflation.

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

Blain: European Banks Are The Most Successful Ponzi Scheme Of All Time

Blain: European Banks Are The Most Successful Ponzi Scheme Of All Time

“Lenin was right. There is subtler, no surer means of overturning the existing basis of society than to debauch the currency.”

I must post this line from one of my favourite Financial sector commentaries – Duncan Farr of Jeffries who covers banks: “Here we are 5 weeks ahead of Brexit, and the top 2 performing banks in Europe are Lloyds followed by RBoS.” If you ever wanted a clearer hint the supposed Brexit crisis and imminent collapse of UK plc might just be a fictitious political construct, then there you are.  Its fascinating just how sanguine the markets have become about the divorce. Sterling is up and who cares?

I have often been told I worry about all the wrong things. According to BAML, (reported on BBerg), the biggest fear of European investors currently is a Worldwide Economic Slump, with 30% of respondents citing it as their primary worry. Yep. I can see why that would be an issue. Only 2% of European investors surveyed by BAML rank Brexit as their primary fear. It’s not even in the top 5! (For the record, my primary fear is a Global Liquidity Storm – the sudden and catastrophic drying up of liquidity following a shock..)

Politics and markets are intertwined, but… maybe no longer in the case of Brexit? It’s just become background noise – meaning it; doesn’t matter, or we’re overly complacent. UK politics has never looked so dire. Markets appear increasingly disinterested. A new UK political party, and unstated threats a whole slew of ministers are set to resign if we get/don’t get a Brexit deal. Rumours are a deal is already inked with Brussels. Rumours are the Tory Brexiteers will reject it – whatever it says. It Theresa May is capable of getting together a deal in parliament – then this would probably be a good time..

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

Weekly Commentary: “Whatever They Want” Coming Home to Roost

Weekly Commentary: “Whatever They Want” Coming Home to Roost

Let’s begin with global. China’s yuan (CNY) traded to 6.9644 to the dollar in early-Friday trading, almost matching the low (vs. dollar) from December 2016 (6.9649). CNY is basically trading at lows going back to 2008 – and has neared the key psychological 7.0 level. CNY rallied late in Friday trading to close the week at 6.9435. From Bloomberg (Tian Chen): “Three traders said at least one big Chinese bank sold the dollar, triggering stop-losses.” Earlier, a PBOC governor “told a briefing that the central bank would continue taking measures to stabilize sentiment. We have dealt with short-sellers of the yuan a few years ago, and we are very familiar with each other. I think we both have vivid memories of the past.”
The PBOC eventually won that 2016 skirmish with the CNY “shorts”. In general, however, you don’t want your central bank feeling compelled to do battle against the markets. It’s no sign of strength. For “developing” central banks, in particular, it has too often in the past proved a perilous proposition. Threats and actions are taken, and a lot can ride on the market’s response. In a brewing confrontation, the market will test the central bank. If the central bank’s response appears ineffective, markets will instinctively pounce.

Often unobtrusively, the stakes can grow incredibly large. There’s a dynamic that has been replayed in the past throughout the emerging markets. Bubbles are pierced and “hot money” heads for the exits. Central banks and government officials then work aggressively to bolster their faltering currencies. These efforts appear to stabilize the situation for a period of time, although the relative calm masks assertive market efforts to hedge against future currency devaluation in the derivatives markets.

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

“What A Disaster”: Chaos Returns To Venezuela One Day After Massive Devaluation

Just one day after Venezuela’s historic currency devaluation, which lopped off 5 zeros from the currency and prices while bizarrely pegging the “sovereign Bolivar” – the country’s latest currency incarnation – to the petro, an oil-backed cryptocurrency (which has been banned by the US Treasury), chaos has predictably returned to the country with the greatest petroleum deposits in the world…. and hyperinflation failed to depart for even one day.

That what Henrique Rosales discovered when he went to an ATM on Tuesday – the day after Venezuela’s historic currency transformation took place – to withdraw Venezuela’s new currency: he found it dispensed a maximum of 10 sovereign bolivars a day, the equivalent of 15 U.S. cents.

“This money is going to disappear out of my hands in no time,” said the 29-year-old waiter, who told the Wall Street Journal he hasn’t seen cash in five months. He hasn’t been able to pay for bus fare and walks several miles a day from his hilltop slum to the seafood eatery where he works.

“I’m realizing the government has no plan to get us out of this nightmare. What a disaster.

Rosales’ reaction was predictable (we previewed the chaos that lay in store for the Latin American socialist paradise over the weekend): he is among the many Venezuelans swept by confusion and anger as the government of President Nicolás Maduro rolled out its latest economic overhaul as part of its struggle to keep up with the world’s greatest hyperinflation, surpassing even that of the Weimar Republic.

Maduro called the measures “a really impressive magical formula” intended to stabilize the economy, including a new, highly devalued currency as well as tax and wage increases.

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

Venezuela In Chaos After Maduro Announces Massive 95% Devaluation, New FX Rate Tied To Cryptocurrency

Chaos and confusion erupted across Venezuela, and most stores were shuttered on Saturday, after president Nicolas Maduro announced that the government would enact a massive currency devaluation, implement a new minimum wage, hike taxes, and also raise gasoline prices for most citizens even as the country struggles with the greatest hyperinflation on record, surpassing even that of the Weimar Republic.

As a result of the enacted actions, the new version of the bolivar will be pegged to the value of the state cryptocurrency, the etro, which according to Bloomberg amounts to a 95% devaluation of the official rate, and will trade in line with where the black market was; the government will also raise the minimum wage more than 3,000 percent,  which works out to about $30 a month.

Maduro said the new currency, set to enter circulation on Monday, will be called the “sovereign bolivar” and will be based on the petro, which is valued at $60 or 3,600 sovereign bolivars, after the redenomination planned for August 20 slashes five zeroes off the national currency. The minimum wage will be set at half that, 1,800 sovereign bolivars.  The government would cover the minimum wage increase at small and medium-size companies for 90 days, Maduro added. It was not clear what happens after.

“They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices,” Maduro explained in a Friday televised address. “We are going to convert the petro into the reference that pegs the entire economy’s movements.”

In other words, for the first time ever, an oil-linked cryptocurrency effectively replaces the sovereign currency. As a result the petro, which will fluctuate dramatically, will be used to set prices for goods. The package of measures combine the necessary with the baffling, Luis Vicente Leon, president of the Caracas-based pollster Datanalisis, said in a Twitter post on Friday.

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

“Virtually Everybody Knew This Was Coming”

Was it Turkey’s “executive presidency” and its unwillingness to hike rates in the face of soaring inflation? Or maybe the record global debt accumulated over the past decade? Maybe the artificially low interest rates? Or perhaps it was the pervasive current account deficits amid easy outside capital. How about the rapid slowdown in China, its escalating trade war with the US, and the Yuan devaluation? Or perhaps it’s just the rising US interest rates and global quantitative tightening soaking up billions in excess liquidity?

However one justifies the current emerging market crisis, one thing is clear “virtually everybody knew this was coming.

At least that’s the common theme according to SocGen’s Albert Edwards, who after an extended absence has returned, with a new note looking at the turmoil gripping the EM sector. It’s hardly new territory for the SocGen strategist, who prior to his current role, was most famous for his correct predictions and observations on the Asian Financial Crisis of 1997.

Fast forward some 21 years, when the veteran SocGen strategist believes the current turmoil boils down to two things: the Fed’s ongoing tightening – a point we discussed earlier this week in “Forget About Turkey: Asia Is The Elephant In The Room” – and China’s rapid devaluation. Turmoil, which as Nedbank noted previously, is about much more than just Turkey, which is merely the symptomatic “tip of the iceberg.”

Here’s Edwards’ take on where we stand:

Many commentators have thought for some time that Turkey was a macro-accident waiting to happen. But the key issue is not Turkey’s idiosyncratic macro problems. The unfolding crisis in EM is the direct result of Fed tightening and the strong dollar. The Fed always raises rates until something breaks.

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

These people lost one-third of their savings in a single week (not in crypto)

These people lost one-third of their savings in a single week (not in crypto)

It happens every year around this time when I hold the annual Liberty and Entrepreneurship Camp that I’ve been sponsoring for the past nine years.

The event is incredible: I bring in top entrepreneurs and business executives, plus students from all over the world– places like Ivory Coast, Brazil, Singapore, Russia and the United States.

It’s five days of mentorship that seemingly goes round-the-clock. It’s exhilarating… but exhausting.  And the Notes from the Field schedule always suffers as a result.

Did you know? You can receive all our actionable articles straight to your email inbox… Click here to signup for our Notes from the Field newsletter.

I’ll tell you more about the event later this week.  But in the meantime, I thought it was more pressing to talk about the unbelievable situation currently unfolding in Turkey… because it’s pretty extraordinary what’s happening right now.

As you may know, Turkey has imprisoned a US pastor named Andrew Brunson for alleged terrorism and espionage.

Obviously the US government wants him back. So Uncle Sam has slammed Turkey with economic sanctions.

Turkey’s economy was already wobbly before the sanctions. The country is suffering the effects of debilitating debt and persistent recession.

Now the economy is getting absolutely destroyed.

Turkey’s currency, the lira, is down some 45% this year. Just yesterday the lira was down a whopping 7%.

If you don’t speculate in currencies very much, a 7% move in a single day is basically unprecedented. It almost never happens. So this is a pretty big deal.

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

Prepare for a Chinese Maxi-devaluation

The news is being dominated by breathless headlines about the new trade war between the U.S. and China. But this trade war has been brewing for years and came as no surprise to readers of my newsletter, Project Prophesy. In fact, the new trade war is simply a continuation of the currency wars that began in 2010.

I’ve warned for over a year that President Trump’s threats of tariffs should be taken seriously, while most of Wall Street discounted Trump’s talk as mere bluster. Now the trade wars are here as we expected, and they will get much worse before they are resolved.

Currency wars arise in a condition of too much debt and too little growth. Economic powers try to steal growth from their trading partners by devaluing their currencies to promote exports and import inflation.

But China can’t keep going with tariffs.

They only import about $150 billion of U.S. exports. At the rate they’re going, they’ll run out of goods to impose tariffs on. Trump can keep going because the U.S. imports so much more from China than they buy from us.

But the Chinese are obsessed with not losing face. Chinese President Xi has just been named in effect dictator for life. He doesn’t want to start out his new dictatorial regime by backing down from a stare-fest with Donald Trump. So he needs another option.

For China to keep fighting, they need an asymmetric response; they need to fight the trade war with something other than tariffs.

China holds over $1.2 trillion of U.S. Treasury securities. Some analysts say China can dump those Treasuries on world markets and drive up U.S. interest rates. This will also drive up mortgage rates, damage the U.S. housing market, and possibly drive the U.S. economy into a recession. Analysts call this China’s “nuclear option” when it comes to fighting a financial war with Trump.

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

Has the PBoC deliberately weakened CNY as part of the trade war?

Has the PBoC deliberately weakened CNY as part of the trade war?

It has been another trade war week, as the market has been looking for clues on the Chinese retaliation measures against the Trump tariffs that are planned to go live on 6 July.

Global trade momentum started to weaken even before the trade conflict escalated. The three months from February until April marked the weakest running 3-month period for world trade since early 2015. A bad sign given that the period included a temporary cease-fire between Trump and Xi Jinping. Usually it adds downwards pressure on 10yr bond yields, when world trade is slowing (at least initially). A further slowdown of global trade in June/July/August could keep long bond yields under pressure over the summer. In other words, the trade war fog needs to dissipate for the 10yr US Treasury yield to unfold its upside potential to the range between 3.25%-3.50% (Major Forecast Update: USD to remain in the driving seat)

Chart 1: Less global trade, lower long bond yields

Last week we wrote that we found trade-based Chinese retaliation measures more likely than attempts to retaliate via the financial markets. The fact that Trump is threatening with new tariffs on goods worth a total of USD 450bn makes the retaliation process trickier for China. It is simply not possible to retaliate symmetrically, as there are not enough US exports into China to tax. This leaves an elevated risk of unorthodox retaliation measures being used. Prohibiting symbolic US products from entering Chinese territory could be one way of doing it. Expect more clarity on whether Xi Jinping will deliver an ALL-IN answer as early as this weekend.

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

China Has Quietly Implemented A 6% Across The Board ‘Tariff’ On All US Imports

Trump and Xi have spent much of the last few weeks tossing tariff grenades across the Pacific Ocean as retaliatory retaliations grow ever stronger in rhetoric and potential escalations.

Then this week, Trump seemed to back away from his most serious threats (direct Chinese investment restrictions).

We wonder if this is why…

Since Trump started to rattle his trade war sabre, the last three months have seen the offshore Chinese Yuan tumble over 6% (crashing almost 4% in the last two weeks alone)…

Nothing happens by accident in China and this massive drop in the value of the Yuan mirrors the violent devaluation, snap in 2015…

All of which suddenly makes US imports to China 6% more expensive than they were in Q1 – a stealth tariff that no one is talking about.

And before this is dismissed as just the mirror of USD strength, we suggest the following chart shows very clearly the PBOC allowing the Yuan to weaken notably against just the dollar while – until the last few days – maintaining Yuan’s buying power against the rest of the world.

However, as Capital Economics points out, if the PBOC is using the exchange rate to fight back against the US, it is pulling its punches: the PBOC’s daily reference exchange rate has in the past few days been stronger than market rates might have suggested, not weaker.

It is of course still notable that the PBOC has done relatively little to stand in the way of the currency slide, even if it isn’t directly responsible for it. It always argues that the exchange rate is driven by market forces.

But its tolerance will probably only go so far, given the painful experiences of 2015 and 2016: any benefit to exporters would be swamped if depreciation triggered economic and financial instability.

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

Pakistan Panic: 3rd Currency Devaluation In 2018 Sends Sovereign Risk Soaring Above Argentina, Ukraine

While many of the world’s eyes are on the carnage in Argentina as EM collapses, Pakistan has quietly devalued the Rupee three times this year, amid tumbling reserves which has sparked enough investor anxiety to send CDS spiking.

Pakistan is now ‘riskier’ than Greece, Ukraine, and Argentina…

The country has been roiled by domestic political and economic turmoil and was not helped this week when Moody’s changed the outlook on Pakistan to negative from stable citing heightened external vulnerability risk.

Moody’s affirmed its B3 rating

Says foreign exchange reserves have fallen to low levels and will not be replenished over the next 12-18 months, absent significant capital inflows.

Moody’s says low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks.

It certainly looks like they are losing control of the currency…

 

And to pile on – Pakistan’s main stock index – down 33% YTD in USD terms – just suffered a ‘death cross’…

Notably all of this carnage has accelerated since the start of January which coincided with Pakistan’s decision to ditch the dollar(following Trump’s remarks) and get closer to China.

“SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions,” the State Bank of Pakistan (SBP) said in a press release late Tuesday, ensuring that imports, exports and financing transactions can be denominated in the Chinese currency.

“The SBP, in the capacity of the policy maker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in yuan,” Dawn news, Pakistan’s most widely read English-language daily, announced while quoting the SBP press release.

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Image source: WION News

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

Olduvai IV: Courage
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Olduvai II: Exodus
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