• Tag Archives Financial Crisis
  • Housing Bubble 2.0: Making America More Unstable, Again

    With low inflation and continuing stagnation in median wages another housing bubble is just what the doctor ordered as a cure for the last financial crisis, caused in part by the rampant financial fraud associated with Housing Bubble 1.0.
    And it looks like we have yet another tech stock bubble well underway.
    Meanwhile the public is distracted by the corporate media’s endless coverage of clown car antics and foreign plots to pollute our precious bodily fluids.
    Well done, elites, well done.
    And no one could have seen it coming, again.

    This post was published at Jesses Crossroads Cafe on 26 JULY 2017.


  • Gold A Good Store Of Value – Protect From $217 Trillion Global Debt Bubble

    – ‘Mother of all debt bubbles’ keeps gold in focus
    – Global debt alert: At all time high of astronomical $217 T
    – India imports ‘phenomenal’ 525 tons in first half of 2017
    – Record investment demand – ETPs record $245B in H1, 17
    – Investors, savers should diversify into ‘safe haven’ gold
    – Gold good ‘store of value’ in coming economic contraction
    by Frank Holmes, U. S. Global Investors

    Gold’s medium- to long-term investment case, I believe, looks even brighter. Many unsettling risks loom on the horizon – not least of which is a record amount of global debt – that could potentially spell trouble for the investor who hasn’t adequately prepared with some allocation in a ‘safe haven.’
    According to the highly-respected Institute of International Finance (IIF), global debt levels reached an astronomical $217 trillion in the first quarter of 2017 – that’s 327 percent of world gross domestic product (GDP). Notice that before the financial crisis, global debt was ‘only’ around $150 trillion, meaning we’ve added close to $120 trillion in as little as a decade. Much of the leveraging occurred in emerging markets, specifically China, which is spending big on international infrastructure projects.

    This post was published at Gold Core on July 27, 2017.


  • 26/7/17: Credit booms, busts and the real costs of debt bubbles

    A new BIS Working Paper (No 645) titled ‘Accounting for debt service: the painful legacy of credit booms’ by Mathias Drehmann, Mikael Juselius and Anton Korinek (June 2017 provides a very detailed analysis of the impact of new borrowing by households on future debt service costs and, via the latter, on the economy at large, including the probability of future debt crises.
    According to the top level findings: ‘When taking on new debt, borrowers increase their spending power in the present but commit to a pre-specified future path of debt service, consisting of interest payments and amortizations. In the presence of long-term debt, keeping track of debt service explains why credit-related expansions are systematically followed by downturns several years later.’ In other words, quite naturally, taking on debt today triggers repayments that peak with some time in the future. The growth, peaking and subsequent decline in debt service costs (repayments) triggers a real economic response (reducing future savings, consumption, investment, etc). In other words, with a lag of a few years, current debt take up leads to real economic consequences.
    The authors proceed to describe the ‘lead-lag relationship between new borrowing and debt service’ to establish ’empirically that it provides a systematic transmission channel whereby credit expansions lead to future output losses and higher probability of financial crisis.’

    This post was published at True Economics on Wednesday, July 26, 2017.


  • Five Years Ago Today…

    ime flies when you are printing money.
    As Citi’s FX desk is kind enough to remind us, it was five years ago today that Donald Trump was a businessman and TV personality, and ECB President Mario Draghi vowed that:
    ‘The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’
    He then compared the common currency to an insect:
    ‘The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now — and I think people ask ‘how come?’– probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis.’

    This post was published at Zero Hedge on Jul 26, 2017.


  • Beware The Ides Of October…

    – Mark Twain (maybe)
    We have been speaking a lot about how the liquidity in the market today is different than in the past. The chart below reflects this better than anything we have seen.

    The monetary base in the U. S. has exceeded M1, the most narrow definiton of money, since the financial crisis. The monetary base consists of money in circulation and reserves held at the Fed (see definition below).
    The M1 money multiplier is still less than one, which reflects that for every dollar created by the Fed – an increase in the monetary base – results in a less than one dollar increase in the money supply (M1). Credit and deposit creation of commercial banks is thus still impaired, though improving and its repairment may be one reason why the Fed is a bit nervous and in tightening mode.
    A rapid turnaround and improvement in the money multiplier, which may be also be reflected in improving bank net interest margins and growing balance sheets, could act as an early indicator of potential inflationary pressures and a flag that the massive amount of high powered money in the financial system is being converted to credit based money.

    This post was published at Zero Hedge on Jul 26, 2017.


  • Hyundai-Kia Brutally Crushed in China, Mauled in the US

    Its largest & second largest markets. In how much trouble is it?
    Hyundai Motor Group is getting brutally crushed in its largest market, China, where it is, or rather was, the third largest automaker behind GM and Volkswagen. And it is getting mauled in its second largest market, the US, where it is the seventh largest automaker behind the Big Three US automakers and the Big Three Japanese automakers.
    Hyundai Motor Group came about in 1998 after the Asian Financial Crisis, when it obtained a controlling stake in Kia after Kia went bankrupt. The Korean conglomerate, in addition to automakers Hyundai and Kia, has other affiliates, including Hyundai Steel, logistics company Hyundai Glovis, and auto components supplier Hyundai Mobis, all of which are listed separately on the Korean stock exchange.
    These entities support and supply the automakers Hyundai and Kia and are dependent on what the automakers sell. And both automakers are in the same boat in China, where things were already hard before the 2017 collapse began.

    This post was published at Wolf Street on Jul 25, 2017.


  • A Mystery Investor Has Made A 262 Million Dollar Bet That The Stock Market Will Crash By October

    One mystery trader has made an extremely large bet that the stock market is going to crash by October, and if he is right he could potentially make up to 262 million dollars on the deal. Fortunes were made and lost during the great financial crisis of 2008, and the same thing will happen again the next time we see a major stock market crash. But will that stock market crash take place before 2017 is over? Without a doubt, we are in the midst of one of the largest stock market bubbles in U. S. history, and many prominent investors are loudly warning of an imminent stock market collapse. It doesn’t take a genius to see that this stock market bubble is going to end very badly just like all of the other stock market bubbles throughout history have, but if you could know the precise timing that it will end you could set yourself up financially for the rest of your life.
    I want to be very clear about the fact that I do not know what will or will not happen by the end of October. But one mystery investor is extremely convinced that market volatility is going to increase over the next few months, and if he is correct he will make an astounding amount of money. According to Business Insider, the following is how the trade was set up…

    This post was published at The Economic Collapse Blog on July 23rd, 2017.


  • Small Town Suburbia Faces Dire Financial Crisis As Companies, Millennials Flee To Big Cities

    College graduates and other young Americans are increasingly clustering in urban centers like New York City, Chicago and Boston. And now, American companies are starting to follow them. Companies looking to appeal to, and be near, young professionals versed in the world of e-commerce, software analytics, digital engineering, marketing and finance are flocking to cities. But in many cases, they’re leaving their former suburban homes to face significant financial difficulties, according to the Washington Post.
    Earlier this summer, health-insurer Aetna said it would move its executives, plus most of technology-focused employees to New York City from Hartford, Conn., the city where the company was founded, and where it prospered for more than 150 years. GE said last year it would leave its Fairfield, Conn., campus for a new global headquarters in Boston. Marriott International is moving from an emptying Maryland office park into the center of Bethesda.

    This post was published at Zero Hedge on Jul 22, 2017.


  • What To Do With Your Cash?

    Have you moved a material percentage of your financial portfolio to cash? Have you become so concerned about the meteoric ramp upwards in asset prices that you find it wiser instead to move to the sidelines, build “dry powder”, and wait to re-enter the markets at saner valuations?
    If so, you have my sympathies.
    The past 5+ years have been brutal for savers pursuing this strategy. I know this well, as I’m one of those folks, too.
    The Mother Of All Financial Bubbles As we’ve chronicled for years here at PeakProsperity.com, the global central banking cartel started flooding the world with liquidity (aka, money printed from thin air) in response to the arrival of the Great Financial Crisis in late 2008. And they never stopped.

    This post was published at PeakProsperity on Saturday, July 22, 2017.


  • Three Black Swans

    ‘The world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects.’
    – Nassim Nicholas Taleb, The Black Swan
    ***
    ‘What do you do?’ is a common question Americans ask people they have just met. Some people outside the US consider this rude – as if our jobs define who we are. Not true, of course, but we still feel obliged to answer the question.
    My work involves so many different things that it isn’t easy to describe. My usual quick answer is that I’m a writer. My readers might say instead: ‘He tells people what could go wrong.’ I like to think of myself as an optimist, and I do often write about my generally optimistic view of the future, but that optimism doesn’t often extend to the performance of governments and central banks. Frankly, we all face economic and financial risks, and we all need to prepare for them. Knowing the risks is the first step toward preparing.
    Exactly 10 years ago we were months way from a world-shaking financial crisis. By late 2006 we had an inverted yield curve steep and persistent enough to be a high-probability indicator of recession 12 months later. So in late 2006 I was writing about the probability that we would have a recession in 2007. I was also writing about the heavy leverage in the banking system, the ridiculous level of high-yield offerings, the terms and potential turmoil in the bond and banking markets, and the crisis brewing in the subprime market. I wish I had had the money then that a few friends did to massively leverage a short position on the subprime market. I estimated at that time that the losses would be $400 billion at a minimum, whereupon a whole lot of readers and fellow analysts told me I was just way too bearish.

    This post was published at Mauldin Economics on JULY 22, 2017.


  • S&P 500’s Biggest Pension Plans Face $382 Billion Funding Gap

    People who rely on their company pension plans to fund their retirement may be in for a shock: Of the 200 biggest defined-benefit plans in the S&P 500 based on assets, 186 aren’t fully funded. Simply put, they don’t have enough money to fund current and future retirees. The situation worsened for more than half of these funds from fiscal 2015 to 2016. A big part of the reason is the poor returns they got from their assets in the super low interest-rate environment that followed the financial crisis. It’s left a hole of $382 billion for the top 200 plans.
    Of course, the percentage of workers covered by traditional defined benefit plans – those that pay a lifetime annuity, often based on years of service and salary – has been declining for decades as companies shift to defined contribution plans such as 401(k)s. But each time a pension plan is terminated, canceled or altered, thousands of workers are affected.
    Last month, the 70,000 participants in the United Parcel Service Inc. pension plan learned they won’t earn increased benefits if they work after 2022. Late last year DuPont Co. announced it would stop making payments into its pension plan for 13,000 active employees, and Yum! Brands Inc. offered some former employees a lump-sum buyout to offload some of its pension liabilities. General Electric Co. has a major problem. The company ended its defined benefit plan for new hires in 2012, but its primary plan, covering about 467,000 people, is one of the largest in the U.S. And at $31 billion, GE’s pension shortfall is the biggest in the S&P 500.

    This post was published at bloomberg


  • How can the Fed possibly unwind QE?

    There are currently two important items on the Fed’s wish list. The first is to restore interest rates to more normal levels, and the second is to unwind the Fed’s balance sheet, which has expanded since the great financial crisis, principally through quantitative easing (QE). Is this not just common sense? Maybe. It is one thing to wish, another to achieve. The Fed has demonstrated only one skill, and that is to ensure the quantity of money continually expands, yet they are now saying they will attempt to achieve the opposite, at least with base money, while increasing interest rates.
    Both these aims appear reasonable if they can be accomplished, but the game is given away by the objective. It is the desire to return the Fed’s interest rate policies and balance sheet towards where they were before the last financial crisis, because the Fed wants to be prepared for the next one. Essentially, the Fed is admitting that its monetary policies are not guaranteed to work, and despite all the PhDs employed in the federal system, central bank policy remains stuck in a blind alley. Fed does not want to institute a normalised balance sheet just for the sake of it.

    This post was published at GoldMoney on July 20, 2017.


  • The Elephant in the Room: Debt

    It’s the elephant in the room; the guest no one wants to talk to – debt! Total global debt is estimated to be about $217 trillion and some believe it could be as high as $230 trillion. In 2008, when the global financial system almost collapsed global debt stood at roughly $142 trillion. The growth since then has been astounding. Instead of the world de-leveraging, the world has instead leveraged up. While global debt has been growing at about 5% annually, global nominal GDP has been averaging only about 3% annually (all measured in US$). World debt to GDP is estimated at about 325% (that is all debt – governments, corporations, individuals). In some countries such as the United Kingdom, it exceeds 600%. It has taken upwards of $4 in new debt to purchase $1 of GDP since the 2008 financial crisis. Many have studied and reported on the massive growth of debt including McKinsey & Company http://www.mickinsey.com, the International Monetary Fund (IMF) http://www.imf.org, and the World Bank http://www.worldbank.org.
    So how did we get here? The 2008 financial crisis threatened to bring down the entire global financial structure. The authorities (central banks) responded in probably the only way they could. They effectively bailed out the system by lowering interest rates to zero (or lower), flooding the system with money, and bailing out the financial system (with taxpayers’ money).
    It was during this period that saw the monetary base in the US and the Federal Reserve’s balance sheet explode from $800 billion to over $4 trillion in a matter of a few years. They flooded the system with money through a process known as quantitative easing (QE). All central banks especially the Fed, the BOJ and the ECB and the Treasuries of the respective countries did the same. It was the biggest bailout in history. As an example, the US national debt exploded from $10.4 trillion in 2008 to $19.9 trillion today. It wasn’t just the US though as the entire world went on a debt binge, thanks primarily to low interest rates that persist today.

    This post was published at GoldSeek on Friday, 21 July 2017.


  • Wall Street Efforts to Improve Its Image Fail to Sway Americans

    Bad news for financial titans like JPMorgan Chase & Co.’s Jamie Dimon and Goldman Sachs Group Inc.’s Lloyd Blankfein: Most Americans hold unfavorable views of Wall Street banks and corporate executives, and distrust billionaires more than they admire them.
    Despite efforts by Wall Street firms to regain trust since the 2008 financial crisis, fewer than a third of Americans view the industry positively — unchanged from 2009, according to the latest Bloomberg National Poll.
    Dimon, 61, and Blankfein, 62, each chief executive officers for more than a decade, have sought to influence the public policy debate on issues including infrastructure investment, regulation, education, immigration and corporate tax reform. Both were revealed as billionaires in 2015, according to the Bloomberg Billionaires Index.
    Yet the poll shows that Americans are much more likely to distrust billionaires than admire them, 53 percent to 31 percent. And just 31 percent look favorably on corporate executives and Wall Street.
    Big banks ‘are still pushing for deregulation and they are going to get us right back to where we were with the financial crisis,’ said poll participant Chad Boyd, 36, an independent voter and information technology worker who lives in Louisville, Colorado, about 10 miles east of Boulder.

    This post was published at bloomberg


  • Preparing for the End Game

    A Potential Road Map for the End of the Current Bull Market & Economic Expansion
    History books refer to the last economic slowdown we experienced, triggered by the 2007-2008 financial crisis, as the Great Recession. Its impacts were so severe – the worst global recession since the Great Depression of the early 1930s – that central banks across the globe responded with an unprecedented emergency stimulus. But that era is now drawing to a close and, with it, the countdown to the next economic recession and bear market in equities has begun.
    Economic, Market Cycles and Monetary Policy
    Central banks raise interest rates when they feel an economy is overheating and they are more concerned about price stability (inflation) than growth. Central banks cut interest rates when their primary concern is growth. A natural question to ask is, ‘How do central banks know when to stop raising rates?’ When something breaks!
    Those who are the most leveraged with the weakest balance sheets are the first casualties when the Federal Reserve begins to raise interest rates and remove liquidity from the financial system. These are the entities Warren Buffet was referring to when he famously said, ‘It’s only when the tide goes out that you learn who has been swimming naked.’
    As the casualties build and those naked run for cover, eventually the increased financing costs and slower economic activity culminate in a recession (in red).

    This post was published at FinancialSense on 07/18/2017.


  • How to Profit When the $217 Trillion Global Debt Bubble Bursts

    While in London recently at an exchange with British Academy President Lord Nicholas Stern, Federal Reserve Chair Janet Yellen really let the cat out of the bag.
    She told Stern that banks are now ‘very much stronger,’ with another financial crisis like the one in 2008 unlikely to happen anytime soon, and not likely ‘in our lifetime.’
    According to Yellen, the Fed has ‘learned’ from the Great Recession of 2008 and is now more watchful over underlying risks in the financial system. She’s comfortable saying, ‘I think the system is much safer and much sounder.’
    Well, isn’t that reassuring…
    Really, it’s just more of the hubris that got us into the last financial crisis – the one that dragged the global economy to the edge of a precipice and vaporized trillions in wealth. I’m sure you remember it well, even if Yellen seems a little foggy on the details.
    On the one hand, central banks periodically warn us against overpriced assets, interest rates at or near extreme lows, and excessive borrowing.

    This post was published at Wall Street Examiner on July 18, 2017.


  • Stocks and Precious Metals Charts – No One Sees, No One Knows

    “It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident…And yet none of this conduct has been punished in any significant way.”
    Charles Ferguson, Inside Job
    ‘The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true. It really happened. These suspicions are valid.’
    Neil Barofsky
    “The historical evidence is overwhelming. Many societies have done well for a while – until powerful people get out of hand. This is an easy pattern to see at a distance and in other cultures. It is typically much harder to recognize when your own society now has an elite less subject to effective constraints and more able to exert power in an abusive fashion. And given the long history of strong institutions in the United States, it appears particularly difficult for some people to acknowledge that we have serious governance issues that need to be addressed.”
    Simon Johnson

    This post was published at Jesses Crossroads Cafe on 17 JULY 2017.


  • Greatest Fools? The Countries That Trust Their Government Most (And Least)

    Trust in government serves as a vital driving force for a country’s economic development, increases the effectiveness of governmental decisions, as well as leading to greater compliance with regulations and the tax system. As Statista’s Niall McCarthy notes, the level of confidence in a country’s government is generally determined by whether people think their government is reliable, if it can protect its citizens from risk and whether or not it is capable of effectively delivering public services.
    The latest edition of the OECD’s Government at a Glance report has found that confidence in government varies widely between countries.
    ***
    Unsurprisingly, Greece has the lowest level of confidence in its government, unsurprising given the economic pain it has suffered since the onset of the financial crisis. In recent years, Greece has had to deal with multiple elections, bank shutdowns, defaulting, the introduction of capital controls and being on the frontline of the European migration crisis. That has all led to 13 percent of the Greek public having confidence in their government. South Korea also has a low level of confidence at 24 percent, most likely due to President Park Geun-hye’s impeachment scandal.

    This post was published at Zero Hedge on Jul 17, 2017.


  • ‘Bigger Systemic Risk’ Now Than 2008 – Bank of England

    – Bank of England warn that ‘bigger systemic risk’ now than in 2008
    – BOE, Prudential Regulation Authority (PRA) concerns re financial system
    – Banks accused of ‘balance sheet trickery’ -undermining spirit of post-08 rules
    – EU & UK corporate bond markets may be bigger source of instability than ’08
    – Credit card debt and car loan surge could cause another financial crisis
    – PRA warn banks returning to similar practices to those that sparked 08 crisis
    – ‘Conscious that corporate memories can be shed surprisingly fast’ warns PRA Chair
    ***
    Editor Mark O’Byrne
    Stark warnings have been issued by the Bank of England and its regulatory arm, the Prudential Regulation Authority (PRA).
    In less than one week the two bodies issued papers and speeches to warn industry members that many banks are showing signs of making the same mistakes that led to the 2008 financial crisis – the outcomes of which are predicted to be worse than those seen just nine years ago.

    This post was published at Gold Core on July 17, 2017.


  • There Has Been Just One Buyer Of Stocks Since The Financial Crisis

    When discussing Blackrock’s latest quarterly earnings (in which the company missed on both the top and bottom line, reporting Adj. EPS of $5.24, below the $5.40 exp), CEO Larry Fink made an interesting observation: ‘While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform.”
    While the intention behind the statement was obvious: to pitch Blackrock’s juggernaut ETF product platform which continues to steamroll over the active management community, leading to billions in fund flow from active to passive management every week, if not day, he made an interesting point: cash remains on the sidelines even with the S&P at record highs.
    In fact, according to a chart from Credit Suisse, Fink may be more correct than he even knows. As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.”
    What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

    This post was published at Zero Hedge on Jul 17, 2017.