Home » Posts tagged 'john rubino'

Tag Archives: john rubino

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Civil Unrest Is The New Normal Out There

Civil Unrest Is The New Normal Out There

This is getting ridiculous. Every few days another country blows up, as their citizens take to the streets with little warning and no apparent interest in a quick settlement. Here’s the first part of the “War…Civil Unrest” section of today’s DollarCollapse.com links list. As you can see the peasants have grabbed their pitchforks and besieged their betters on four continents over a wide range of issues, which implies that the stated cause in each case is just an excuse. 

DollarCollapse.com links list civil unrest

The real grievance is the sense that an unresponsive elite are sucking up all the available wealth, leaving the vast majority with (at best) zero upward mobility and at worst a return to the servitude their parents only recently escaped. To test the truth of this, watch what happens when a chastened government caves on the initial issue — and instead of heading back home the protesters ramp it up. 

Who even remembers what pulled France’s Yellow Vests into the streets? The Macron government has spent months apologizing and offering big new spending programs aimed at the protesters’ stated concerns. Yet today’s headline is about water cannons and flipped cars. Hong Kong repealed the law that ignited its riots back in June, yet today the story is protesters shooting police with arrows (!) and Chinese soldiers deploying to help “clean up the streets.” Uh huh. 

Why is this happening now? Because artificially easy money enriches the people who own the stocks, bonds and real estate that rise in value when interest rates go down. This expands the already painfully wide gap between rich and poor and turns the already high level of background resentment into a powder keg. Then it’s just a matter of a provocation. And there’s always another provocation coming.

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

Fed Fears Next Crash Fatal – John Rubino

Fed Fears Next Crash Fatal – John Rubino

Financial writer and book author John Rubino says he can see the end of the economic expansion fueled by massive debt creation. Rubino explains, “Every sector of the U.S. economy is so over indebted I don’t see how we go on much longer. The Fed is desperately trying to prolong this thing. We are running trillion dollar deficits now, and what that is for is to keep the system from falling apart. We are 11 years into an expansion, a record. This is the longest bull market in history, and this is the longest economic expansion in history. . . . These guys don’t know exactly what’s going to happen in the next recession, but they are afraid that the system is so highly leveraged that even a garden variety three quarters of a percent of negative growth and a garden variety of 20 % drop in stock prices might be fatal. The system might not be able to handle that because it would cause so much damage and there are so many different places that can blow up that the system would spin out of control. We would get 2008-2009 again but on steroids because the numbers are so much bigger this time around. So, they want to avoid that at all costs.”

Rubino points out, “Fear is the enemy in a fiat currency system. Everything is based on our assumption that the guys in charge know what they are doing and that the confidence in them is good. You take that away, and they let us see them sweat, and it’s over. There is no real bottom for the dollar, euro or the yen. Their intrinsic value is zero.

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

The Fed’s “Insurance” Rate Cuts Didn’t Work. Now For The Emergency Cuts

The Fed’s “Insurance” Rate Cuts Didn’t Work. Now For The Emergency Cuts

Pity the guys now running the Fed. They’ve inherited an economy that requires ever-bigger infusions of new credit and ever-lower interest rates to avoid financial cardiac arrest. But with interest rates already perilously close to zero the usual leeway is no longer there.

Making the best of a bad hand, Fed chair Jerome Powell has been cutting the Fed Funds rate but managing expectations for future cuts by calling the current ones “recalibration” and “insurance.” In other words, “don’t expect a quick excursion into steeply-negative territory. In fact this latest cut might be all there is.”

But the economy, like any addict, is profoundly uncomfortable with not knowing where the next fix is coming from and is behaving accordingly. From just the past couple of days’ headlines:

US manufacturing survey contracts to worst level in a decade US gross national debt jumps by $1.2 trillion, to $22.7 trillion Growth hits the wall Student loan debt soars, totaling $1.6 trillion in 2019 There is good reason to fear the repo Midwest’s faltering economies will spread pain nationwide Treasury yields sink after U.S. manufacturing weakness raises recession fears 

VC veterans host emergency meeting of unicorns as IPO ‘bubble’ implodes 

Now equities are picking up the anxious vibe. See Global stocks plunge for a second day to start Q4.

What happens next? Almost certainly, a “coordinated” round of aggressive easing by the US Fed, the ECB and BoJ. With some unconventional coercion thrown in by the People’s Bank of China. 

As for the timing, it’s just a question of “the number.” That is, how far does the S&P 500 have to fall before the stampede begins. Since this question will be answered by a bunch of largely clueless men dripping fear sweat and trying to figure out why their models have stopped working (and more poignantly why their life’s work has turned out to be a fraud), the number is unknowable in advance. 

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

The Global Debt Bubble Enters Its Blow-Off Stage

The Global Debt Bubble Enters Its Blow-Off Stage

People have been talking about a “debt bubble” for some years now. They’ve been right, of course, based on the combination of surging borrowing and plunging rates. But the bubble hasn’t stopped inflating, and recently it entered what certainsly looks like a terminal blow-off stage. Some highlights:

Though July, China’s total debt rose by $2 trillion, a year-over-year increase of 26%. And this month the Chinese government cut bank reserve requirements in an attempt to further rev up lending. 

In Japan, the junk bond market is being constrained by banks so desperate for yield that they’re lending directly to companies previously considered too risky. See Japan Junk Bond Market Hopes Crushed by Banks Hungry to Lend.

A recent week of corporate bond issuance was “the biggest weekly volume to hit global markets on record,” according to Dealogic. US investment-grade companies raised $72 billion across 45 deals, equaling the total issued in all of August. 

Numerous companies issued 30-year bonds with yields below 3%, which used to be the province of safe haven governments. Even Apple, which is sitting on an epic pile of cash, borrowed money. 

At the other end of the spectrum, junk bond issuer Restaurant Brands, which owns the Popeyes and Burger King chains, sold 8.5-year bonds with a coupon under 4%, a record low yield for a US junk issuer. 

In Europe sales of new bonds hit $1 trillion earlier than in any previous year. Fully a third of European investment-grade bonds (and some junk bonds) now trade with negative yields. And the ECB is expected to cut rates further at its upcoming meeting. 

Why is all this happening? Three reasons:

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

Europe Gives Up On Sound Money, Prepares To Join The Currency War

Europe Gives Up On Sound Money, Prepares To Join The Currency War

Not so long ago, Europe seemed to have its financial house more-or-less in order. German government spending was actually falling. Industries that had been nationalized in the socialist 70s were being privatized. The European Central Bank – run by sound money advocate Jean-Claude Trichet – was smarter and more cautious than the incoherently rambunctious Bernanke Fed. The euro, for a while, was actually preferred by many over the dollar. 

Then – gradually at first and now very quickly – everything went sideways.

Mario Draghi took over for Trichet at the ECB and promised to do “whatever it takes” to generate at least 2% inflation. Then he proceeded to deliver on that promise with massive asset purchases and negative interest rates. 

Inequality – which, we’re now coming to realize – is fed by low interest rates and easy money, rose to near-US proportions. Immigration was mishandled to the point that it became THE political issue. And populist parties opposed to the existing system attracted enough votes to rattle the mainstream parties. 

The entrenched political/financial class, shocked by the unwashed masses’ effrontery, are now responding exactly as you’d expect, with massive increases in social spending, promises of even easier money (Draghi actually claimed that there was “plenty of headroom” to cut rates from the current -0.4%) and, well, whatever else it takes to stay in power.

Here, for instance, is Germany’s government spending. Note the uptrend now that the Greens are contenders:

German government spending Europe currency war

From today’s Wall Street Journal

To win voters lost to an anti-globalization backlash, Europe’s mainstream parties are going back to the 1970s.

In Germany, the U.K, Denmark, France and Spain, these parties are aiming to reverse decades of pro-market policy and promising greater state control of business and the economy, more welfare benefits, bigger pensions and higher taxes for corporations and the wealthy. Some have discussed nationalizations and expropriations.

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

Will A False Flag Iran War Cause A Financial Crisis?

Will A False Flag Iran War Cause A Financial Crisis?

Just a couple of weeks ago the financial world’s biggest worry was the plunging price of oil. Supply was up, stockpiles were building and speculation was pointing towards $40 a barrel, a price at which the fracking/shale oil “miracle” would evaporate. A trillion dollars of related junk debt would default, taking a big part of the leveraged speculating community along for the ride.

Then it all changed. Someone attacked some ships and oil infrastructure in the Middle East, the US and Saudi Arabia accused Iran, and now the fear is that a major regional war will interrupt the flow of oil, sending its price way up and causing a financial crisis at least as severe as a shale oil debt collapse.

This is a legitimate concern, for two reasons.

First, oil shocks have happened in the past, most notably during the Arab-Israeli war of the 1970s. So we know what they do, and it isn’t pretty. Gas prices jump, workers can’t afford their commute, the economy slows dramatically and pretty much everyone other than domestic energy companies suffers badly.

Second and potentially more serious, the pretext for this war is so blatantly false that it risks destroying what little creditability the US government has left. Think about it: With the US doing everything it can to delegitimize and destabilize Iran while positioning assets for an invasion, Iran’s leaders … start attacking oil tankers in its offshore waters.

Does that make sense? Of course not. Much more likely is that this is yet another false flag – that is, an incident faked to give a pretext for war – and a clumsy one at that.

For readers who aren’t clear on the false flag concept and its ubiquity in geopolitics, here are just a few of the dozens of documented examples:

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

Financial Markets To Federal Reserve: Time To Start Cutting Rates

Financial Markets To Federal Reserve: Time To Start Cutting Rates

In late 2018 the US stock market tanked, in effect holding a gun to its own head and threatening to pull the trigger unless the Fed stopped raising interest rates. The Fed, painfully aware that an equities bull market is an existential threat in today’s hyper-leveraged world, quickly caved, promising no more rate increases if the market would just put down the gun.

This worked for a little while. Stocks jumped to new record highs and unicorn tech IPOs started pouring out of Silicon Valley. Normal, which is to say booming, markets were back. 

But of course it couldn’t last. An overleveraged economy is not just addicted to new credit, but to ever-increasing levels of new credit. So stable interest rates won’t stave off withdrawal. From here on out only steadily (or steeply) falling interest rates will delay the inevitable crisis. 

That’s the signal the financial markets are now sending the Fed, as stocks begin to roll back over …

S&P 500 markets tank Fed caves

… bond yields tank …

10 year Treasury yield markets tank Fed caves

… and demands grow for not just patience but acquiescence. Now the question is not if but when the Fed responds with the required cut. 

At the moment – mostly because the stock market hasn’t fallen very far — there’s still some resistance to lower rates: 

Federal Reserve is reluctant to cut interest rates, latest minutes show

(CBS News) – According to minutes released Wednesday, Fed officials noted that economic prospects for the U.S. and global economy were improving, while inflation had fallen farther below the Fed’s 2% target. 

Some officials “expressed concerns that long-term inflation expectations could be below levels consistent with” the Fed’s target of 2%. However, officials still believed a return of inflation to the Fed’s 2% target was “the most likely outcome,” according to the minutes.

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

Negative Interest Rates Spread To Mortgage Bonds

Negative Interest Rates Spread To Mortgage Bonds

There are trillions of dollars of bonds in the world with negative yields – a fact with which future historians will find baffling.

Until now those negative yields have been limited to the safest types of bonds issued by governments and major corporations. But this week a new category of negative-yielding paper joined the party: mortgage-backed bonds. 

Bankers Stunned as Negative Rates Sweep Across Danish Mortgages

(Investing.com) – At the biggest mortgage bank in the world’s largest covered-bond market, a banker took a few steps away from his desk this week to make sure his eyes weren’t deceiving him.

As mortgage-bond refinancing auctions came to a close in Denmark, it was clear that homeowners in the country were about to get negative interest rates on their loans for all maturities through to five years, representing multiple all-time lows for borrowing costs.

“During this week’s auctions, there were three times when I had to stand back a little from the screen and raise my eyebrows somewhat,” said Jeppe Borre, who analyzes the mortgage-bond market from a unit of the Nykredit group that dominates Denmark’s $450 billion home-loan industry.

For one-year adjustable-rate mortgage bonds, Nykredit’s refinancing auctions resulted in a negative rate of 0.23%. The three-year rate was minus 0.28%, while the five-year rate was minus 0.04%.

The record-low mortgage rates, which don’t take into account the fees that homeowners pay their banks, are the latest reflection of the global shift in the monetary environment as central banks delay plans to remove stimulus amid concerns about economic growth.

Denmark has had negative rates longer than any other country. The central bank in Copenhagen first pushed its main rate below zero in the middle of 2012, in an effort to defend the krone’s peg to the euro. The ultra-low rate environment has dragged down the entire Danish yield curve, with households in the country paying as little as 1% to borrow for 30 years. That’s considerably less than the U.S. government.

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

The Terrifying Truth About Negative Interest Rates

The Terrifying Truth About Negative Interest Rates

Pushing interest rates below zero is both an act of desperation and something that in theory should have a huge, immediate impact of the behavior of borrowers and savers. The fact that negative rates have become the new normal in big parts of the world but haven’t caused the expected behavior change should scare the hell out of everyone. 

To understand why this is so, think of the rate of interest as the price of money. It’s what an individual or business has to pay to get credit with which to buy and invest. As with anything else, when the price of money is high, we tend to acquire less of it and when the price is low we acquire more. So making money not just cheap, not just free, but actually profitable to borrow, while making savings unprofitable to hold should, according to conventional Keynesian economics, create a scene in the credit markets reminiscent of those Black Friday Wal-Mart videos where fistfights break out over the last remaining Barbie Doll. Businesses in particular should be borrowing and investing like crazy, igniting an epic capital spending boom. 

But that hasn’t happened. In Europe, for instance, negative rates have been in place for five years …

negative interest rates Europe

… and instead of a rip-roaring post-Great Recession recovery, the result has been the kind of anemic growth that conventional economics would predict for a tight-money environment. Business capital spending, the engine that in theory should be propelling Europe’s economy, looks like the opposite of a boom.

Europe capital spending negative interest rates

This translates into seriously boring GDP growth:

Europe negative interest rates Europe

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

The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy

The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy

So the U.S. puts Republicans (the party of small government) in charge, and gets… trillion dollar deficits as far as the eye can see AND a revival of socialism among Democrats.

Scary as this may seem, the real (and even scarier) lesson is that it’s all inevitable: Beyond a certain level of indebtedness, even pro-business, sound money, small government leaders are powerless to stop the march to insolvency and currency crisis. 

The latest example is Argentina, which a few years ago elected a free-market president, only to see its debt explode and its currency crash. From Friday’s Wall Street Journal:

Argentine President’s Prospects Dim With Those of His Country’s Economy

Argentina’s assets took a beating Thursday amid President Mauricio Macri’s continuing struggle to tame rising prices and revive a shrinking economy, raising prospects that his left-wing predecessor could make a comeback in this year’s presidential election.

The peso lost more than 5% of its value against the dollar in early trading Thursday, before regaining some ground in the afternoon. Argentina is now the world’s second-riskiest borrower after crisis-hit Venezuela as indicated by credit default swaps, which are derivatives that pay holders when a borrower defaults on a debt payment.

Mr. Macri, who was elected in 2015 on promises to undo the interventionist policies of President Cristina Kirchner, announced new price controls last week to try to get Argentina’s inflation under control. Mr. Macri has failed during his administration to contain inflation, which has risen to a 12-month pace of almost 55% in March from 25% at the start of 2018.

Argentina inflation Argentina bankrupt

The move sparked criticism that the president was abandoning market-friendly policies for short-term electoral considerations as Argentines grow increasingly impatient with rising prices. It also underscored the possibility that Mr. Macri could lose October’s election, even if he faces the polarizing Mrs.

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

China’s Fake Numbers And The Risk They Pose For The Rest Of The World

China’s Fake Numbers And The Risk They Pose For The Rest Of The World

Not so long ago, London Telegraph’s Ambrose Evans-Pritchard was one of the handful of must-read financial journalists. He probably still is, but since he disappeared behind the Telegraph’s pay wall his work is invisible to non-subscribers, only emerging when a free outlet runs one of his stories.

That happened this morning when the Sydney Morning Herald carried his analysis of the financial Ponzi scheme that is China. 

After taking on more debt in a single decade than any other country ever — in the process helping to pull the US and Europe out of the Great Recession — China recently shifted into an even higher gear, creating a world record amount of credit in the most recent reporting month. 

And – more important for headline writers and money managers – it reported exactly the right amount of GDP growth.

This brings to mind a long-ago interview in which economist Nouriel Roubini asserted that China just makes its numbers up, frequently reporting GDP immediately after the end of the period being measured, something that even the US can’t do. 

But it’s one thing to for the rest of us to suspect and/or assert that China is just giving the markets what they want to hear, and another thing to understand the implications and explain them coherently. Evans-Pritchard does this in his latest article. 

Maximum vulnerability: China (and the world) are still in big trouble

China’s majestic and elegantly-stable GDP figures are best seen as an instrument of political combat.

Donald Trump says “trade wars are good and easy to win” if your foes depend on your market and you can break them under pressure.

He proclaimed victory when the Shanghai equity index went into a swoon over the winter. This is Trumpian gamesmanship.

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

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

The past decade was a uniquely smooth stretch of financial highway. Pretty much every major asset class – stocks, bonds, real estate, fine art, you name it – did well, making it hard for conventional investors to lose money and easy for them to earn outsized returns. 

So why then are US public sector pensions (which own a ton of the above assets) a looming disaster that could trigger the next great financial crisis? Several reasons, ranging from negligence and criminality. 

Let’s start with the fact that Wall Street preys on the ignorance of pension fund managers to extract huge fees for little or no excess return. Here’s a video in which pension expert and “forensic lawyer” Ted Siedle lays it all out for Peak Prosperity’s Chris Martenson:

An even bigger problem is the tendency – understandable but still despicable – of state and local politicians to underfund pensions and then lie about it, pushing the eventual reckoning onto their successors. 

As baby boomer teachers, police and firefighters retire, the required pension payouts are soaring. Combine this with inadequate contributions, and the liabilities of major U.S. public pensions are up 64% since 2007 while assets are up only 30%.

This math is simple enough for even a politician or fund trustee to grasp, but because there’s no immediate penalty for underfunding a pension system, it has become normal practice in a long list of places. 

Another, related problem is also mathematical, but it’s harder to manage in a boom-and-bust world: When pension plans suffer a big loss, as they tend to do in bear markets, the next few years’ returns have to go towards making up that loss before plan assets can start growing again. The following chart, from a recent Wall Street Journal article, shows pension fund assets falling behind in the past two bear markets and having increasing trouble catching up with steadily-growing liabilities.

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

The Coming Wave Of High-Tech Authoritarianism

The Coming Wave Of High-Tech Authoritarianism

One of history’s hard lessons is that collapsing financial systems beget authoritarian politics. 

Today’s world, alas, is following this script, as rising debts lead to wrenching political changes in nearly every country that holds free elections, while fascism and socialism are once again being taken seriously by people who in normal times would inhabit the political center. 

But there’s one big difference this time around: the advanced state of social control technology. Past governments, when trying to tamp down dissent, were limited to blunt-instrument policies like curfews, phone taps and press shutdowns. Today’s would-be Big Brothers can do vastly more, and in many cases will use the coming financial/political emergency as an excuse to place Orwell’s proverbial boot on their citizens’ necks. 

Some examples from a recent Wall Street Journal article titled The Autocrat’s New Tool Kit:

• Chinese authorities are now using the tools of big data to detect departures from “normal” behavior among Muslims in the country’s Xinjiang region—and then to identify each supposed deviant for further state attention. 

• The Egyptian government plans to relocate from Cairo later this year to a still-unnamed new capital that will have, as the project’s spokesman put it, “cameras and sensors everywhere,” with “a command center to control the entire city.” 

• Moscow already has some 5,000 cameras installed with facial-recognition technology, and it can match faces of interest to photos from passport databases, police files and social media.

But scary as these things sound, they’re crude compared to what’s coming. From the same WSJ article:

“Microtargeting” enables governments to build personality assessments of citizens and tailor propaganda for targets’ psychological weak spots. Russia’s Internet Research Agency reportedly harvested data from Facebook to craft specific messages for individual voters during the 2016 US presidential race. Private firms are developing artificial intelligence that can automate this customization for whole populations.

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

Central Banks Cave, Usher In The Crack-Up Boom

Central Banks Cave, Usher In The Crack-Up Boom

This was going to be the year when the other big central banks joined the Fed in “normalizing” interest rates and reversing the past decade’s QE experiment. Instead, the other central banks blinked and went back to aggressive ease, and the Fed is following them. This is a very big deal. 

Let’s consider some before-and-after stories: 

In September 2018, the European Central Bank began tightening: 

European Central Bank to take next step in tapering stimulus

(AP) – The European Central Bank is expected to ratchet back its stimulus efforts again on Thursday as it gingerly phases out extraordinary support for the economy left over from the Great Recession and the euro currency union’s debt crisis.

The bank’s 25-member governing council is expected to cut its monthly bond-purchase stimulus to 15 billion euros ($17.4 billion) a month from 30 billion a month, on the way to ending the purchases at the end of the year.

Reinhard Cluse, chief European economist for UBS, said that after the June meeting “the ECB is now essentially on autopilot.” Cluse said that the ECB can phase out the bond purchases and then decide the exact timing of next year’s first rate increase in the summer or fall.

But before any actual tightening took place, the EU economy slowed and turmoil flared in Italy and France. This week: 

European Central Bank announces major policy reversal

(WSWS) – The European Central Bank has reversed its policy of slight monetary tightening and announced a new stimulus package in the face of data which show a sharp downturn in growth in the euro zone. The unanimous decision was taken at the meeting of the ECB’s governing council held in Frankfurt yesterday.

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

Poetic Justice For The Aristocracy

Poetic Justice For The Aristocracy

Two points about today’s political economy – and then a prediction involving Illinois:

Point One: What’s coming is poetic justice for the aristocracy. The wave of populism/socialism/proto-fascism that’s sweeping the US and Europe is a direct result of the breathtaking hubris of a ruling class that didn’t know when to quit stealing. 

While it is possible for societies dominated by a small group of rich/connected people to endure and even thrive, they can do so only if the 99% enjoys a rising standard of living and a certain amount of upward mobility. In other words, people will accept the existence of an entrenched elite as long as everyone else does a little better each year. 

Today that’s not the case. The current crop of aristocrats (Google “Davos World Economic Forum images” for faces to go with the concept) are now simply harvesting the wealth of their subjects without much thought for their own vulnerability. 

For an easy-to-grasp example of how this works, look at interest rates. Over the past couple of decades, the world’s central banks have been pushing rates lower in each cycle, impoverishing small savers and retirees who depend on income from bonds and bank accounts while enriching the already rich by raising the prices of stocks and real estate. The following two charts (from Charles Hugh Smith’s recent Who Killed The Middle Class?) illustrate the widening gap between the pay and assets of the haves and the used-to-haves. To put this in economist-speak, capital is gobbling up labor. 

wage gap poetic justice
wage to GDP poetic justice

So the coming political tsunami is bit of French Revolution-style poetic justice, since most of the resulting policy changes will be aimed – either explicitly or accidentally – at the 1%.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase