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Over the years I’ve written almost ad nauseum about the crazy I see (and saw) around me as a fund manager, family office principal and individual investor.

The list includes: 1) an entire book on the grotesque central bank distortions of free market price discovery, 2) the open (and now accepted) dishonesty on everything from front-running Musk tweets and bogus inflation reporting to COMEX price fixing, 3) the insanity of 100-Year Austrian bonds or just plain negative-yielding bonds going mainstream, 4) the open death of classic capitalism and the rise of economic feudalism, 5) asset bubble hysteria seen in everything from BTC to Tesla; 5) rising social unrest, 6) the serious implications of Yield Curve Controland the gross mispricing of debt that has midwifed the greatest credit binge/bubble in recorded history, and 7) the ignored power of logical delusion that so characterizes the madness of crowds in the current investment era.

In short, there a great deal of things which, as our advisory colleague, Grant Williams, would say: Makes me go hmmm.

Speaking of exceptional team advisors at Matterhorn Asset Management, Ronni Stoeferle recently had a compelling discussion with the equally brilliant, and hitherto deflationary thinker, Russell Napier.

Among the many compelling take-aways from that discussion is the fact that Mr. Napier is now turning inflationary.

As we’ll see below, this broader and structural inflationary pivot, now undeniably on the horizon, has massive (and positive) implications not only for precious metal ownership, but also the very structure of the financial world going forward (negative).

In short, the inflation topic is not just an academic topic nor fodder for podcasters and economic tenure-seekers—it’s a critical signal of the repressive financial world staring us straight in the eyes today and heading toward ever-more financial repressions tomorrow.

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

Matthew Piepenburg, inflation, financial repression, gold switzerland, central banks, money printing, credit expansion

Why Sweden Ended Its Negative Interest Rate Experiment

January 8, 2020

Why Sweden Ended Its Negative Interest Rate Experiment

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists, who start with a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and that therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.

Inflation and growth are not low due to excess savings, but because of excess debt, perpetuating overcapacity with low rates and high liquidity, and zombifying the economy by subsidizing the low-productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

Historical evidence of negative rates shows that they do not help reduce debt, they incentivize it. They do not strengthen the credit capacity of families, because the prices of nonreplicable assets (real estate, etc.) skyrockets because of monetary excess, and the lower cost of debt does not compensate for the greater risk.

Investment and credit growth are not subdued because economic agents are ignorant or saving too much, but because they don’t have amnesia. Families and businesses are more cautious in their investment and spending decisions, because they perceive, correctly, that the reality of the economy that they see each day does not correspond to the cost and the quantity of money.

It is completely incorrect to think that families and businesses are not investing or spending. They are only spending less than what central planners would want. However, that is not a mistake from the private sector side, but a typical case of central planners’ misguided estimates, which come from using 2001–7 as a “base case” of investment and credit demand instead of what those years really were: a bubble.

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

THE WOLF STREET REPORT: The Giant Sucking Sound of Financial Repression

July 29, 2019

THE WOLF STREET REPORT: The Giant Sucking Sound of Financial Repression

In the US alone, it impacts nearly $40 trillion. And there are consequences for the real economy (10 minutes).

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Amid Market Rout, Decade of “Financial Repression” Ends, Capital Preservation Suddenly is a Thing

October 12, 2018

Amid Market Rout, Decade of “Financial Repression” Ends, Capital Preservation Suddenly is a Thing

This will dog the stock market going forward.

Fixed-income investors – a financially conservative bunch buying Treasury securities, FDIC-insured CDs, and similar products that largely eliminate risk – have been getting crushed for a decade: Except for brief periods when inflation dipped to near zero or below zero, their minuscule returns have been eaten up by inflation, or worse, they lost money after inflation, as was the case with shorter-term Treasuries and just about all savings products. But it has ended.

The Consumer Price Index (CPI) rose 2.3% in September (2.27%), compared to September a year ago, the Bureau of Labor Statistics reported this morning. This was down from the 2.9% increase in July. These numbers are volatile, but the trend is pretty clear: Outside of the Oil Bust and a few quarters during the Financial Crisis, inflation is a fixture in the US economy:

The CPI without food and energy – “core CPI” – rose 2.2% in September. Cost of shelter rose 3.3%. Cost of transportation services rose 4.0%. So prices are going up as measured by CPI.

What has changed is that interest rates and yields are also going up, and they’re now higher than inflation as measured by CPI across nearly the entire spectrum of US Treasury securities – and if you shop around, across many CDs too.

This ends a decade of “financial repression” — a condition when the Fed repressed interest rates below the rate of inflation.

The chart below shows the US Treasury yield curve across the maturity spectrum, from 1-month to 30 years, at the close yesterday. The 1-month yield, at 2.18%, was the only yield still below the rate of inflation. The 3-month yield at 2.27% is right on top of CPI (green line). Every Treasury security with a maturity longer than three months is beating inflation.

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

Why Trade Wars Ignite and Why They’re Spreading

April 13, 2018

Why Trade Wars Ignite and Why They’re Spreading

The monetary distortions, imbalances and perverse incentives are finally bearing fruit: trade wars.

What ignites trade wars? The oft-cited sources include unfair trade practices and big trade deficits. But since these have been in place for decades, they don’t explain why trade wars are igniting now.

To truly understand why trade wars are igniting and spreading, we need to start with financial repression, a catch-all for all the monetary stimulus programs launched after the Global Financial Meltdown/Crisis of 2008/09.

These include zero interest rate policy (ZIRP), quantitative easing (QE), central bank purchases of government and corporate bonds and stocks and measures to backstop lenders and increase liquidity.

The policies of financial repression force risk-averse investors back into risk assets if they want any return on their capital, and brings consumption forward, that is, encourages consumers to borrow and buy now rather than delay purchases until they can be funded with savings.

As Gordon Long and I explain in the second part of our series on Trade Wars, financial repression generates over-capacity and over-consumption: with credit almost free to corporations and financiers, new production facilities are brought online in the hopes of earning a profit as the global economy “recovers.”

Soon there is more productive capacity than there is demand for the good being produced: this is over-capacity, and it leads to over-production, which as a result of supply and demand, leads to a loss of pricing power: producers can’t raise prices due to global gluts, so they end up dumping their over-production wherever they can.

If the producers are state-owned enterprises subsidized by governments and central banks, these producers can sell at a loss because their only function is to sustain employment; profitability is a bonus.

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

Bob Dylan as Economic Prophet

January 17, 2018

Bob Dylan as Economic Prophet

We have a habit on our trading floor of playing Bob Dylan whenever the markets start selling off. We hardly ever play Dylan these days. Though I consider the Nobel Laureate something of a personal classical liberal icon, I don’t remember exactly how this office tradition ever started. But the connection is appropriate, a nod to the enigmatic genius who wrote anthems for freedom, against power and coercion, and, most relevantly, on change—irrepressible, revolutionary, and sometimes catastrophic change.

Change is the defining feature of our modern age, from science to business to politics, both in its extraordinary speed and magnitude. But you would never know it when surveying today’s financial market landscape. We are also living in the age of government-mandated financial repression—which has created a forced, false financial stability. These exist like two contradictory, parallel universes.

Thanks to almost a decade of unprecedented market interventions by global central banks (which have collectively acquired assets totaling over $20 trillion), everywhere you look there is repression of yields, repression of market volatility, and their side effects of exploding asset valuations (to heights not seen since shortly before past historic crashes), financial-engineered debt, leverage, stock-buybacks, cryptocurrency-insanity, “short volatility” and all manner of reckless yield-chasing investment schemes. This is an age of massive artificial economic imbalances and systemic risks.

Such powerful interventions hurt the weakest and benefit the strongest (the holders of assets) as they create unsustainable, destructive distortions that ultimately lead to catastrophe. This is a universal historical theme, perhaps nowhere better chronicled than by Bob Dylan starting back in the early 1960s. And underlying Dylan’s theme has been a prophetic message, one that speaks uncannily to today’s incoherently changeless and riskless market climate: Change is irrepressible, whether we accept it or (especially) even if we do not; “the times they are a-changin’.”

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

Europe Proposes Confiscating Gold In Crackdown On “Terrorist Financing”

December 27, 2016

Europe Proposes Confiscating Gold In Crackdown On “Terrorist Financing”

Hot on the heels of China gold import restrictions, and India’s demonetization and gold confiscations, The European Commission proposed tightening controls on cash and precious metals transfers from outside the EU under theguise of shutting down one route for funding of militant attacks on the continent, following the Berlin Christmas attack.

China has already begun de facto gold import restrictions, and as Jayant Bhandari detailed previously, India is experiencing a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the economy and civilization. There are clear signs that in a very convoluted way, possession of gold for investment purposes will be made illegal. Expect capital controls to follow.

And now, as Reuters reports, it appears last Monday’s attack on a Christmas market in Berlin, where 12 people were killed as a truck ploughed into a crowd, has given The European Commission just the excuse to tighten capital controls – specifically cash and precious metals – into and out of Europe.

It is part of an EU “action plan against terrorist financing” unveiled after the bombings and shootings in Paris in November 2015.

Under the new proposals, customs officials in European Union states can step up checks on cash and prepaid payment cards sent by post or in freight shipments.

Authorities will also be able to seize cash or precious metals carried by suspect individuals entering the EU.

People carrying more than 10,000 euros (8,413.56 pounds) in cash already have to declare this at customs when entering the EU. The new rules would allow authorities to seize money below that threshold “where there are suspicions of criminal activity,” the EU executive commission said in a note.

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

India Confiscates Gold, Even Jewelry, in Raids on Hidden Money

December 7, 2016

India Confiscates Gold, Even Jewelry, in Raids on Hidden Money

Global financial repression picks up steam, led by India. After declaring large denomination notes illegal, India now targets gold.

It’s not just gold bars or bullion. The government has raided houses, no questions asked, confiscating jewelry.

For background to this article, please see my November 27 article Cash Chaos in India, 86% of Money in Circulation Withdrawn; Cash Still King in Japan.

Large denomination means 500-rupee ($7.30) and 1,000-rupee notes ($14.60), which account for more than 85 percent of the money supply. They are no longer legal tender, effective immediately.

As one might imagine, chaos ensued. And it continues.

India Confiscates Gold

Picking up where we left off, please consider Message to Modi: Do No More Harm by Mihir Sharma.

The chaos accompanying “demonetization” hasn’t eased up noticeably. It seems likely the disruption to the economy, especially in cash-centric rural India, will hit growth sharply for at least a few quarters. It’s tough to say for how long and by how much; we are in uncharted territory here and guesses have varied widely. But many analysts agree with former Prime Minister Manmohan Singh, who’s predicting the new policy will knock 2 percentage points off that world-beating GDP growth rate.

Demonetization was originally sold as a “surgical strike on black money” — the illicit piles of cash many rich Indians have accumulated out of sight of the taxman. It’s now clear the policy has been anything but surgical. Worse, uncomfortable questions are being asked about whether the complicated rules and exemptions that have accompanied demonetization have allowed black-money holders to launder most of their cash. Of late, Modi’s chosen to focus instead on demonetization as means of advancing a cashless economy.

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

Dan Amerman: Financial Repression & The New Interest Rate Hike

December 21, 2015

Dan Amerman: Financial Repression & The New Interest Rate Hike

You have to understand one to make sense of the other

Financial repression authority Daniel Amerman returns this week to discuss the ramifications of the Federal Reserve’s first interest rate hike in nearly a decade:

The key to understand the situation here is that this is not normalizing, and we don’t have a precedent. We really don’t. We’re kind of all being soothed and reassured by the Wall Street Journal and Bloomberg and the financial authorities that we’ve been down this path before, we’ve been down it many times, more often than not we’ve had rising markets as a result and, really, there’s nothing to worry about. The issue with that is there are many things this time that are entirely different, and what is presented as ‘normalizing’, for instance, is going back to say a projected interest rate cycle like we saw in the 2000’s or the 1990’s. What’s completely different, among many other things, is that we’ve never had rates forced so low before, and they’ve never been so low for so long. So, if you look, say at a long-term graph since 1954, what’s been going on with the Fed funds rates, we’ve had plenty of reversals in interest rate direction, but they’ve been these brief little dips that look nothing whatsoever like this.

The other big issue, and this goes back to our prior conversation on financial repression, is that I don’t think you can take any interest rate increases from the 2000’s, 1990’s, 1980’s, 1970’s as being comparable. Because, we have the greatest degree of national debt outstanding that we’ve had since the 1940’s and the 1950’s. So, you have to go much further back in time to see how a rate increase works when you have a country that’s just absolutely massively in debt. And, it’s a very different process than these recent historicals they’re talking about.

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

Eating The Seed Corn—–The Fed’s Horrid Corruption Of Corporate Finance

April 9, 2015

Eating The Seed Corn—–The Fed’s Horrid Corruption Of Corporate Finance

Central bank financial repression results in the systematic and severe mispricing of financial assets. And that has sweeping consequences far beyond the munificent windfalls it bestows on the thin slice of mankind that frequents the casinos of Wall Street, London, Tokyo and Shanghai.

The fact is, the prices of money, debt, equity, traded commodities and all their derivatives comprise a vast and instantaneous signaling system that cascades through every nook and cranny of the real economy. When these signals are systematically falsified by a few dozen central bankers they cause hundreds of millions ordinary businessmen, workers, investors and entrepreneurs to alter their economic calculus.

And not in a good way. False signals lead to mistakes, excesses, losses and waste. They ultimately reduce economic efficiency and productivity and lower the rate of economic growth and real wealth gains.

Since the Greenspan age of financial repression incepted in the late 1980s, for example, the returns to savings have been obliterated while the rewards for speculation have soared. That’s important because only savings from current production and income generate additional primary capital that can foster future wealth. By contrast, leveraged speculation merely causes existing financial assets to be re-priced and a temporary redistribution of paper wealth from the cautious to the exuberant.

In an honest free market, in fact, there is no excess return to leveraged speculation at all. Natural market makers arbitrage out the spread between the costs of carry and the returns to carried assets such as long-dated futures contracts, term debt and various and sundry forms of equity and other risk assets.

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

Did An Obscure IMF Document Start A Global Bail-In Revolution? by Daniel Amerman

October 19, 2014

Did An Obscure IMF Document Start A Global Bail-In Revolution? by Daniel Amerman.

When revolutions start, it’s not uncommon for almost nobody to notice. It may take years or even decades before historians can look back, point a finger and say “that’s where it really began.”

An obscure International Monetary Fund “Staff Discussion Note” may have already started a “Bail-In” financial revolution that could transform the global investment world.

In this quite remarkable document, the staff discusses a world where risks to the global financial system have not gone away – but are worse than ever. As candidly discussed, the “SIFI” (systemically important financial institution) problem has not been improving, but instead has been getting worse than ever – and there doesn’t appear to be any solution under existing contract law and bankruptcy law.

More risk than ever is concentrated in fewer financial institutions, while there is no way under existing law to unwind a failure of one of these institutions without risking triggering global financial chaos. Moreover, there is a deadly feedback loop between these “too-big-to-fail” institutions and sovereign governments. That is, as the IMF staff discusses, the bailing out of these massive institutions can bankrupt sovereign governments, and sovereign governments going bankrupt can wipe out the “too-big-to-fail” institutions.

So the IMF staff has come up with an audacious plan for how the globe can emerge from this seemingly impossible situation. The key word is “insurance”.

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

Dan Amerman: Will Our Private Savings Be Sacrificed To Pay Down The Public Debt? | Peak Prosperity

October 19, 2014

Dan Amerman: Will Our Private Savings Be Sacrificed To Pay Down The Public Debt? | Peak Prosperity.

Recently, an article by Daniel Amerman caught our attention. Titled Is There A “Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings?, it details the process known as financial repression, where sovereign debts are slowly paid off by syphoning private savings from an unaware populace.

In this week’s podcast, Chris discusses the mechanics of the process, as well as its probability, with Dan:

To understand financial repression, we have to understand that we’ve been there before. Many nations have gone through periods in the past where they’ve had very high levels of government debt. And there are four traditional ways of dealing with that.

One of them is austerity. Everyone understands that. You raise the tax rates. You lower the government spending. This is a painful choice. It can last for decades. And what do you think the voters think about that?

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

China’s Vicious Growth Circle by Keyu Jin – Project Syndicate

October 19, 2014

China’s Vicious Growth Circle by Keyu Jin – Project Syndicate.

LONDON – Most economists have a reason to be worried about China’s economy – whether it be low consumption and large external surpluses, industrial overcapacity, environmental degradation, or government interventions like capital controls or financial repression. What many fail to recognize is that these are merely the symptoms of a single underlying problem: China’s skewed growth model.

That model is, to some extent, a policy-induced construct, the result of a deep-rooted bias toward construction and manufacturing as the leading drivers of economic development. This predilection harkens back to the Great Leap Forward of the 1950s, when scrap metal was melted to meet wildly optimistic steel-production targets, thereby advancing Mao’s dream of rapid industrialization.

Today, China’s proclivity for industrial production is manifested in large-scale manufacturing and infrastructure projects, encouraged by direct and indirect government subsidies. By boosting investment and generating tax revenue for local governments, this approach has a more immediate positive impact on GDP than efforts to develop the service sector.

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

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