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A Survival Guide For 2019

A Survival Guide For 2019

How to safely navigate the ‘Year Of Instability’ 

As the first month of the year concludes, it’s becoming clear that 2019 will be a very different kind of year.

The near-decade of ‘recovery’ following the Great Financial Crisis enjoyed a stability and tranquility that suddenly evaporated at the end of 2018.

Here in 2019, instability reigns.

The world’s central banks are absolutely panicking. After last year’s bursting of the Everything Bubble, their coordinated plans for Quantitative Tightening have been summarily thrown out the window. Suddenly, no chairman can prove himself too dovish.

Jerome Powell, the supposed hardliner among them, completely capitulated in the wake of the recent -15% tantrum in stocks, which, as Sven Henrich colorfully quipped, proved what we suspected all along:

The global tsunami of liquidity (i.e. thin-air money printing) released by the central banking cartel has been the defining trend of the past decade. It has driven, directly or indirectly, more world events than any other factor.

And one of its more notorious legacies is the massive disparity and wealth and income resulting from its favoring of the top 0.1% over everyone else. The mega-rich have seen their assets skyrocket in value, while the masses have been mercilessly squeezed between similarly rising costs of living and stagnant wages.

How have the tone-deaf politicians responded? With tax breaks for their Establishment masters and new taxes imposed on the public. As a result, populist ire is catching fire in an accelerating number of countries, which the authorities are anxious to suppress by all means to prevent it from conflagrating further — most visibly demonstrated right now by the French government’s increasingly jack-booted attempts to quash the Yellow Vest protests:

Meanwhile, two other principal drivers of the past decade’s ‘prosperity’ are also suddenly in jeopardy.

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

How the Euro Enabled Europe’s Debt Bubbles

How the Euro Enabled Europe’s Debt Bubbles

It’s the twentieth anniversary of the euro’s existence, and far from being celebrated, it is being blamed for many — if not all — of the Eurozone’s ills. 

However, the euro cannot be blamed for the monetary and policy failures of the ECB, national central banks and politicians. It is just a fiat currency, like all the others, only with a different provenance. All fiat currencies owe their function as a medium of exchange from the faith its users have in it. But unlike other currencies in their respective jurisdictions, the euro has become a talisman for monetary and economic failures in the European Union.

The Birth of the Euro

To swap a number of existing currencies for a wholly new currency requires the users to accept that the purchasing powers of the old will be transferred to the new. This was not going to be a certainty, and the greatest reservations would come from the people of Germany. Germans saved, and therefore risked the security of their deposits in a new money and monetary system. They were reassured by the presence of the hard-money men in the Bundesbank, who had a mission to protect the mark’s characteristics against the weaknesses that would almost certainly be transferred into the new euro from more inflationary currencies.

These anxieties were assuaged to a degree by establishing the ECB in Frankfurt, close to the watchful eye of the Bundesbank. The other nations were sold the project as bringing greater monetary stability than offered by their individual currencies and the reduction of cross-border transaction costs. Borrowers in formally inflationary currencies also relished the prospect of lower interest rates.

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

Incrementum Inflation Signal Update – A Reversal To “Rising Inflation”

Incrementum Inflation Signal Update – A Reversal To “Rising Inflation”

Introductory Remarks by PT

We have discussed the proprietary Incrementum Inflation Indicator in these pages on previous occasions, but want to quickly summarize its salient features again. It is a purely market-based indicator, this is to say, its calculation is based exclusively on market prices and price ratios derived from market prices.

However, contrary to most measures of inflation expectations, the Incrementum Inflation Signal is not primarily focused on yield differentials, such as is e.g. the case with 5-year breakeven inflation rates.

The 5-year breakeven inflation rate is derived from the differential between 5-year treasury note yields and 5-year TIPS yields. Interestingly, it has recently begun to tick up as well after declining sharply for several months.

The Incrementum Inflation Indicator instead focuses on the prices of traditional inflation beneficiaries (several of them are mentioned below), many of which tend  to lead CPI by a considerable margin.

The indicator has recently switched from “falling” to “rising inflation”, which has important implications for investors. Below follows the official announcement of the shift by our friends Mark J. Valek and Ronald-Peter Stoeferle, the co-managers of the Incrementum fund family.

The Incrementum Inflation Signal Reverses – by Mark J. Valek and Ronald-Peter Stoeferle

Growing Concerns About Economic Growth

As of the beginning of January, our proprietary inflation indicator has switched from “FALLING INFLATION” to a full blown “RISING INFLATION” signal.

The reversal was triggered by the latest development in the gold/silver-ratio, which has weakened from 87 to currently 83. Moreover, gold mining stocks (HUI) broke out vs. the broad equity market (SPX) and gold itself also switched to a long signal. Only the broad commodity market (BCOM) still shows a somewhat lackluster performance, but seems to be in the process of building a base as well.

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

The CIA, Lost In The Orinoco

The CIA, Lost In The Orinoco

René Magritte The black flag 1937

One thing I am not is an expert on Venezuela. What I know is the country has the world’s largest oil reserves, mainly in the Orinoco Belt, but they come in a form of tar sands that while they are not as hard to exploit as Canada’s (viscosity), they’re far from easy, and buried deep. And I know Venezuela had Hugo Chávez as its president, who, for a socialist, was quite successful at what he did (depending who you ask).

And I know of course that the US yesterday recognized an opposition leader, Juan Guaido, as the ‘real’ president of Venezuela, instead of the elected Nicolas Maduro, whom Chávez picked as his successor. Soon as I read that, I thought: CIA. If Chávez, and Maduro, are hated in one place in the world, look no further than Langley, Virginia. 

So I looked up a few articles I though would be interesting to read. The first comes from a site called Venezuela Analysis, an entity recommended for Venezuela news. They had the article below, but also this enlightening picture:

Note: in 2002, coincident with the attempted coup against Chávez, half the employees at state oil company PDVSA went on strike. They must have felt like clowns, too, 48 hours later. 

The article explains what happened in terms you can find everywhere (but are perhaps good to note), except for the last bit: 

Venezuelan Opposition Leader Guaido Declares Himself President, Recognized by US and Allies 

Opposition leader Juan Guaido swore himself in as “interim president” of Venezuela on Wednesday, a move which was immediately recognized by the United States and regional allies. “As president of the National Assembly, before God and Venezuela, I swear to formally assume the competencies of the national executive as interim president of Venezuela,” he declared before an opposition rally in eastern Caracas.

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

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

hedge against real inflation with gold

Some are under the impression that gold’s performance in the U.S. is not as good as it should be, considering we had a rather uncertain year last year.

In the U.S., even economists who favor the dollar gold price might be blind to an upcoming rise in the financial power of the precious metal.

That, and real inflation may become a better gauge to see just how well this measuring stick is doing. Though revealing it at the federal level may send the market into a panic.

The “Dollar as Yardstick” Problem

According to Ross Norman at Sharps Pixley, using the dollar’s strength to measure net worth in the U.S. could give you the impression that we have a “strong dollar.” But that yardstick shrinks as inflation eats into it. This means using the dollar as a “yardstick” for measurement isn’t consistent.

Using inflation as a gauge for shrinkage can give you a decent picture of how “strong” or “weak” the dollar’s measure is, assuming you’re using an accurate gauge.

As Norman explains (emphasis ours):

Measuring our net worth in local currencies, we might be rather pleased with ourselves – smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.

For those who don’t know some of the terms Norman uses, the CPI is the Consumer Price Index, which is compiled by the Bureau of Labor and Statistics (BLS) and used by agencies like the Fed. The Retail Price Index (RPI) is essentially the same thing, but based in the UK.

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

Will Globalists Sacrifice The Dollar To Get Their ‘New World Order’?

Will Globalists Sacrifice The Dollar To Get Their ‘New World Order’?

Trade is a fundamental element of human survival. No one person can produce every single product or service necessary for a comfortable life, no matter how Spartan their attitude. Unless your goal is to desperately scratch an existence from your local terrain with no chance of progress in the future, you are going to need a network of other producers. For most of the history of human civilization, production was the basis for economy. All other elements were secondary.

At some point, as trade grows and thrives, a society is going to start looking for a store of value; something that represents the man-hours and effort and ingenuity a person put into their day. Something that is universally accepted within barter networks, something highly prized, that is tangible, that can be held in our hands and is impossible to replicate artificially. Enter precious metals.

Thus, the concept of “money” was born, and for the most part it functioned quite well for thousands of years. Unfortunately, there are people in our world that see economy as a tool for control rather than a vital process that should be left alone to develop naturally.

The idea of “fiat money”, money which has no tangibility and that can be created on a whim by a central source or authority, is rather new in the grand scheme of things. It is a bastardization of the original and much more stable money system that existed before that was anchored in hard commodities. While it claims to offer a more “liquid” store of value, the truth is that it is no store of value at all.

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

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

The Crash Of The “Everything Bubble” Started In 2018 – Here’s What Comes Next In 2019

everything bubble

In 2018, a very significant economic change occurred, which sealed the fate of the U.S. economy as well as some other economies around the globe. This change was the shift of central bank policy. The era of stimulus and artificial support of various markets, including stocks, is beginning to fade away as the Federal Reserve pursues policy tightening, including higher interest rates and larger cuts to its balance sheet.

I warned of this change under new Chairman Jerome Powell at the beginning of 2018 in my article ‘New Fed Chairman Will Trigger Stock Market Crash In 2018’. The crash had a false start in February/March, as stocks were saved by massive corporate buybacks through the 2nd and 3rd quarters. However, as interest rates edged higher and Trump’s tax cut cash ran thin, corporate stock buybacks began to dwindle in the final quarter of the year.

As I predicted in September in my article ‘The Everything Bubble: When Will It Finally Crash?’, the crash accelerated in December, as the Fed raised interest rates to their neutral rate of inflation and increased balance sheet cuts to $50 billion per month.

It is important to note that when we speak of a crash in alternative economic circles, we are not only talking about stock markets. Mainstream economists often claim that stocks are a predictive indicator for the future health of the wider economy. This is incorrect. Stocks are actually a trailing indicator; they crash long after all other fundamentals have started to decline.

Housing markets have been plunging in terms of sales as well as prices. The Fed’s interest rate hikes are translating to much higher mortgage rates in the wake of overly inflated values and weaker consumer wages. .

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

2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque

2019: Fragmented, Unevenly Distributed, Asymmetric, Opaque

Add up Fragmented, Unevenly Distributed, Asymmetric and Opaque and you get a world spinning out of centralized control.

Here are the key dynamics of 2019: fragmented, unevenly distributed, asymmetric, opaque. Want to know what’s happening with inflation, deflation, recession, populism, etc.?

It depends on what you own, when you own it, where you own it and its relative scarcity and stability–assuming you have trustworthy information on its scarcity and stability.

By ownership I mean all forms of capital: cash, tools, skills, social capital, trust in institutions, etc. Whatever forms of capital you own, the returns on that capital and its relative stability depend on the specifics of context and timing.

Will there be deflation or inflation? The right question is: Will there be deflation or inflation in my household?. In a rapidly fragmenting economy and society characterized by opacity, asymmetric information and unevenly distributed results, generalizations are intrinsically misleading / false. The only possible answers arise in a carefully limited context: my household, my neighborhood, my industry, my company, etc.

Here’s an example I’ve mentioned in the past: healthcare costs. If you’re one of the lucky households with heavily subsidized healthcare costs (for example, a government employee with limited deductibles, low per-visit costs and modest co-pays), your healthcare inflation is likely negligible.

But if your household doesn’t qualify for subsidies and has to pay market rates, you’re very likely to suffer double-digit healthcare inflation.

2019 is the year that central banks and states lose control of the narratives, the economy and the social contract, all of which are dynamic complex systems which excel in producing banquets of unintended consequences.

Control of the narrative requires harvesting “the right data” and spinning an interpretation that supports the status quo.

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

Saudi Arabia and China are preparing for war

Saudi Arabia and China are preparing for war

The fact that Saudis want to control Yemen and the Chinese are increasing their presence in Myanmar is a preparation for the conflicts that may soon flare up. It is about securing the flanks.

The war in Yemen is being waged more and more brutally by the Saudis. The weapons of the Saudi army supplied by the USA hit the civilian population more and more often. The central bank moved from Sanaa to Aden by order of the Saudis prints money in heaps, so that the population cannot afford food due to galloping inflation. Why genocide? It is not about ideology, or religious differences between Huthis (Shiites) and the rest of the people of Yemen (Sunnis). One of the reasons can be oil. The reserves of black gold discovered in the northern province of Yemen, Al-Jawf, are said to be larger than the Saudi reserves.1)A bargain for Saudis. But the most important thing for them at the moment is to prepare for the direct conflict with Iran. If war were to break out, Iran would block the oil transit bottleneck in the Strait of Ormuz. Saudi Arabia therefore needs to secure access to the 27 miles wide strait between the Red Sea and the Gulf of Aden and thus its oil exports. The road is called Bab al-mandeb (Gate of Tears) in Arabic. If it is also blocked by enemies of the Saudis, there will certainly be many reasons for Riyadh to cry.

For China, however, it is the Strait of Malacca that is of strategic importance. Since the Chinese are increasingly aggressive on the South China Sea, have artificial islands built and are on a collision course with countries such as Vietnam, the Philippines and the USA, they must be on their guard when it comes to their most important trade and transport routes.

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

Japan Gives Up On Inflation, Now Wants Deflation (Sort Of) to Offset Tax Hikes

Today seems straight from the Twilight Zone: First the PPT and now Abenomics in full reverse.

Japan has virtually given up on reaching 2% inflation after nearly six years of trying. An argument gaining ground in Tokyo holds that the inflation goal, once seen as paramount, doesn’t matter so much after all. Inflation excluding volatile fresh food and energy prices was just 0.3% in November, and it has barely budged all year.

Mr. Abe has largely stopped discussing the dangers of deflation, and his government is actually trying to push some prices down ahead of a tax increase set to take effect in October 2019. Mr. Abe’s de facto No. 2, Chief Cabinet Secretary Yoshihide Suga, has called on mobile-phone carriers to lower fees by about 40%—a move that could knock a full percentage point off inflation, according to government estimates.

“There is no change to our stance of seeking the 2% price goal as soon as possible by patiently continuing powerful easing,” Mr. Kuroda said at a November press conference. At the same time, he has started talking more about the potential downsides of aggressive monetary easing,

Still, BOJ officials are hesitant to abandon the target altogether out of fear it could damage expectations and push the country back into deflation, said people familiar with the BOJ’s thinking.

Raising Prices

Torikizoku (Chicken Nobility), raised prices for the first time in 30 years last year, by the equivalent of 16 cents.

“Once prices went up, it wasn’t just the chickens that got skewered. Same-store sales at the chain have fallen more than 5% every month since May and profit fell 76% compared with a year earlier in the most recent quarter.”

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

Is U.S Dollar on the verge of a major currency crisis?

Is U.S Dollar on the verge of a major currency crisis?

Dalio warned recently in an interview through Bloomberg that the US might have to go through a similar type of inflationary debt crisis which is currently being suffered by emerging market economies like Argentina and Turkey.

Triple-digit inflation has taken countries around the world by storm in 2018. Argentina, Iran, Turkey, Sudan, Yemen, and Zimbabwe currently have annualized inflation at the hundred and 111%, 187%, 38%, 127%, 27% and 170% and that’s not even mentioning the total destruction of the Bolivar in Venezuela.

The United States currently has unprecedented debt levels which have been exacerbated thanks to the Federal Reserve artificially propping up the economy through a zero interest rate environment over the past decade. The access to easy credit has allowed consumers to blow up asset bubbles since the financial crisis of 2008.

Ray Dalio’s ideas about the US dollar has come from his recent book “A Template for Understanding Big Debt Crisis” in which he analyzes 48 historical debt crisis in order to show how they took place.

He states that most debt crises are very similar although Dalio distinguishes between those that are “inflationary” and “deflationary”.

“When it is denominated in a foreign currency, like these countries, which have a lot of Dollar-denominated debt, then they can have a problem servicing that debt. When the Dollar goes up they don’t have enough cash and they get into that spiral of printing money which devalues their currency and makes it even harder to meet their debt obligations,” Dalio says.

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

The Central Bank War – Nobody Notices

QUESTION: Mr. Armstrong: I have watched in amazement how you connect all these elements. Everyone I spoke to agreed this was your best WEC ever. You have said the Fed needed to raise rates because of the pension crisis and it would have nothing to do with inflation but it has to normalize rates to help pensions. Then we have the ECB refusing to raise rates. Would you please comment on the Fed’s actions yesterday? Is this a central bank war?

OM

ANSWER: I understand this can get confusing because there are so many people who talk without any real-world experience. The Fed MUST raise rates to help the crisis in Pension funds. It raised the Fed Funds Rate (what banks charge each other) 25 basis points to 2.25-2.5%. While the Fed indicated there would be two more rate hikes in 2019, what has gone over everyone’s head is exactly what I have been warning about. We are witnessing indeed not a Currency War that people claim over trade since I do not see any actual counter-trend manipulation attempts as was the case with the G5 back in 1987.

This is a brand new Central Bank War that nobody seems to get I suppose since I may be the only person who actually speaks to central banks outside the USA. All the various central banks and the IMF have been lobbying the Federal Reserve since 2014 pleading with it NOT to raise rates. I have stated many times that the rate hikes by the Fed have NOTHING to do with economic growth, inflation, or trying to stop a speculative bubble in stocks.

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

Hidden Amongst the Furore: Synchronised Warnings From the BIS and the IMF

Hidden Amongst the Furore: Synchronised Warnings From the BIS and the IMF

It has become a disconcerting trend that as geopolitical events intensify and keep a majority of people engaged in the latest outbreak of political theatre, the words of central bankers fall on increasingly deaf ears.

At a seminar of the European Stability Mechanism this month, Bank for International Settlements General Manager Agustin Carstens delivered a speech called, ‘Shelter from the Storm‘.

The speech can be summarised as follows:

  • The IMF may not have enough resources to manage a future financial crisis
  • The post 2008 ‘recovery’ was nurtured by central banks
  • Central bank intervention has coincided with the increased accumulation of debt in both major and emerging economies
  • The challenge for central banks is to meet their inflation target
  • Governments must quickly implement ‘growth-friendly structural reforms’ as monetary policy is ‘normalised’

The latter bullet point refers to Basel III, the regulatory reforms that were devised through the BIS in response to the financial crisis triggered in 2008. The BIS have been pushing the line in recent communications that without these reforms being fully implemented by national administrations, the financial system will remain vulnerable to a renewed downturn. Full adoption of the reforms is not due to occur until 2022.

Discussing the path to ‘normalisation‘ of monetary policy, Carstens states that central banks have ‘implemented normalisation steps very carefully‘:

  • They have been very gradual and highly predictable. Central banks have placed great emphasis on telegraphing their policy steps through extensive use of forward guidance.

Because of the gradual nature of the turn around from monetary accommodation to monetary tightening, central banks have avoided excess scrutiny. When market ructions do occur, as we have witnessed throughout 2018, geopolitical disorder has been held up as the leading cause. Central banks, as Bank of England governor Mark Carney recently put it, are ‘a side show‘.

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

Inflation Targeting Madness: Russia Raises Rates Again

Inflation Targeting Madness: Russia Raises Rates Again

I continue to wonder who Bank of Russia President Elvira Nabuillina works for.  Seriously.  On Friday, in response to solid growth in Russian economic statistics over the past few months, Nabuillina again raised interest rates 0.25%.

She still adheres to idiotic IMF-style ‘inflation targeting’ dogma.

Price inflation in Russia finally got off the roughly 2.5% mat in August steadily rising to 3.8% in November.  This prompted Nabuillina to raise rates again, stifling growth which itself was stifled by her overly-cautious rate cutting earlier in the cycle.

The recovery in Russia after the Ruble crisis of 2014/15 was exasperated by her holding interest rates too high for too long.  The Russian bond market took way to long to normalize because of this lack of liquidity.

In 2017 and early 2018, every time the Bank of Russia cut rates the Ruble would strengthen, that’s how high demand was for them.  The Russian yield curve was approaching normalcy.

And Nabuillina is now, again, undermining it by trying to control price inflation as opposed to letting the market regulate itself.

The short-term Russian bond market is screaming for some relief and the Bank of Russia won’t accomodate.  Remember, inflation in Russia is running just 3.8%, so we’re talking a positive real yield on overnight money of 4%.  This is not making it easy to liquefy a growing economy.  Real yields of 4% on 3 to 5 year money?  Ok.

But overnight?   I’m all for a cautious central bank that does not inflate massive bubbles but I’m also not for a central bank to do the bidding of a country’s adversaries either by undermining growth with needless austerity.

Central Bank Fallacies

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

The Bank of England and the Manipulation of Sterling

The Bank of England and the Manipulation of Sterling

In a recent article where I discussed the Bank of England being at the heart of the Brexit process, I mentioned how the fall in the value of sterling following the 2016 referendum was pigeonholed by the bank as being the sole cause for inflation breaching their 2% target.

After the article was re-posted by Zero Hedge, a reader commented on something I did not make specific mention of, which was that six weeks after the referendum the BOE halved interest rates to 0.25%, prompting the pound to drop further in value. The reader pointed out that cutting interest rates usually results in currencies depreciating, and that the bank’s actions were the cause of a subsequent rise in inflation and not Brexit itself. Essentially, the premise here is that the BOE were responsible for devaluing the pound and creating the conditions to eventually raise interest rates a year later.

A similar comment from another reader in October last year spoke of how the BOE extending quantitative easing by £60 billion, as well as lowering rates, were ‘two sure fire things to lower the value of the pound.’

Whilst I have touched upon this in previous articles, it is a subject that deserves more attention and fresh context.

Let’s start by first going back to December 2007 when the Bank of England cut interest rates from 5.75% to 5.5%. At the time sterling was valued at $1.96. Two more rate cuts followed in February and April 2008, taking rates down to 5%. The pound remained stable around $1.97. So far the bank lowering rates had not prompted a fall in sterling.

Five months later Lehman Brothers collapsed, and so began a violent downward trend in interest rates. The next cut came in October, down to 4.5%. The chaos within financial markets had fed through to sterling – the $1.97 from five months ago was now $1.72.

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

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