Is Saudi Arabia’s Oil Strategy Working?

The IMF estimated that Saudi Arabia will need oil prices to trade at about $70 per barrel in 2018 for its budget to breakeven, a dramatic improvement from the $96.60 per barrel it needed just last year. Saudi’s improvement is the most dramatic out of all the Middle Eastern oil producers, and it also suggests the combination of austerity, cuts to wasteful subsidies, new taxes and economic reforms are starting to bear fruit.
The improvement is all the more important because Saudi Arabia and its fellow OPEC members are restraining output as a way to boost oil prices. Selling fewer barrels means less revenue, although that is offset by the coordinated production cuts through the OPEC deal, which has helped raise prices.
Nevertheless, there is something glaring about Saudi Arabia’s breakeven price: It is still far higher than the current oil price, which means Riyadh is still feeling the economic and fiscal pressure from low crude prices. ‘The reality of lower oil prices has made it more urgent for oil exporters to move away from a focus on redistributing oil receipts through public sector spending and energy subsidies,’ the IMF said in its report. Saudi Arabia and other Middle East oil producers ‘have outlined ambitious diversification strategies, but medium-term growth prospects remain below historical averages amid ongoing fiscal consolidation,’ the IMF added. In other words, austerity might help narrow the budget deficit to some degree, but it can also be self-defeating if it slows growth.

This post was published at Zero Hedge on Nov 2, 2017.

Second Crash Warning From The IMF – This Time It’s About Vol

Another week, another warning regarding financial crash scenarios from those keen minds at the IMF.
In ‘Here Is The IMF’s Global Financial Crash Scenario’ last week, we highlighted the institution’s surprisingly candid discussion hidden away in its latest Financial Stability Report ‘Rising Medium-Term Vulnerabilities Could Derail the Global Recovery”…or as we paraphrased the IMF’s ‘politically correct way of saying the financial system is on the verge of crashing’.
As we noted previously, in the section also called “Global Financial Dislocation Scenario” because “crash” sounds just a little too pedestrian, the IMF uses a DSGE model to project the current global financial situation, and ominously admits that “concerns about a continuing buildup in debt loads and overstretched asset valuations could have global economic repercussions” and – in modeling out the next crash, pardon “dislocation” – the IMF conducts a “scenario analysis” to illustrate how a repricing of risks could “lead to a rise in credit spreads and a fall in capital market and housing prices, derailing the economic recovery and undermining financial stability.”
This week the IMF has gone a step further, courting the mainstream financial media to publicise its warning about the dangers of historically low volatility and related short volatility strategies.
As The FT reports, The International Monetary Fund has warned that the increasing use of exotic financial products tied to equity volatility by investors such as pension funds is creating unknown risks that could result in a severe shock to financial markets. In an interview with the Financial Times Tobias Adrian, director of the Monetary and Capital Markets Department of the IMF, said an increasing appetite for yield was driving investors to look for ways to boost income through complex instruments.
‘The combination of low yields and low volatility facilitates the use of leverage by investors to increase returns, and we have seen rapid growth in some types of products that do this,’ he said. It explains some of the short vol strategies that we’ve been expressing concern about for several years. To wit.

This post was published at Zero Hedge on Oct 31, 2017.

The 4 Possible Channels For A Chinese Financial Crisis

That China is a widely accepted global outlier in the context of credit, debt and leverage, look no further than the latest Financial Stability Report from the IMF, which in no uncertain terms lays out where China can be “found” relative to its G-20 peers in the following chart:

Yet according to the IMF, China’s bleak picture is based on a relatively rosy estimate of the country’s non-financial debt to GDP at approximately “only” 242%.
The reality, however, is that China’s true leverage picture is far worse, and while there are far more aggressive and pessimistic estimates in the public domain, we have chosen the latest number calculated by Victor Shih from the Mercator Institute for China Studies, who in a just released report calculates that total non-financial credit in China stood around 254 trillion RMB as of May 2017, equivalent to 328% of 2016 nominal GDP, or nearly 100% higher than the official IMF estimate. This is also 34% increase as a share of GDP compared with the end of 2015.

This post was published at Zero Hedge on Oct 23, 2017.

SWOT Analysis: How Will Gold Move Into 2018?

Strengths
The best performing precious metal for the week was palladium, off 1.44 percent for the week. Citigroup favors palladium in the short term, in response to pollution control, but says substitution risks prevent the bank from taking a more bullish view long term as the price of palladium is now higher than the price of platinum. After the Indian government eased rules on gold purchases, the country’s demand for gold jewelry and branded coins appears to be better than the last quarter, according to P. R. Somasundaram, MD for India at the World Gold Council. The ensuing wedding season is the key for quarterly demand performance, Bloomberg reports, and with a good monsoon season, stable gold prices should encourage consumers. In the month of September, Swiss gold exports doubled month-over-month to 148.4 metric tons, reports Bloomberg. In August, exports were only 72 tons, according to the Swiss Federal Customs Administration. Specifically, Swiss exports to China rose 21 percent and to Hong Kong rose 92 percent. Weaknesses
The worst performing precious metal for the week was platinum, off 2.41 percent as palladium seems to be the more crowded trade. September makes 11 months straight of China officially reporting a zero increase in the level of its gold reserves, writes Lawrie Williams. The only time in recent years that the Asian nation has published any month-by-month gold reserve accumulations was in the 16 months ahead of the yuan being accepted as an integral part of the International Monetary Fund’s (IMF) Special Drawing Rights basket of currencies, Williams continues. ‘We don’t think it coincidence that such month-by-month reporting effectively ceased once the yuan became part of the SDR, thus paving its way for acceptance as a reserve currency,’ the article reads.

This post was published at GoldSeek on 23 October 2017.

Here Is The IMF’s Global Financial Crash Scenario

Hidden almost all the way in the end of the first chapter of the IMF’s latest Financial Stability Report, is a surprisingly candid discussion on the topic of whether “Rising Medium-Term Vulnerabilities Could Derail the Global Recovery”, which is a politically correct way of saying is the financial system on the verge of crashing.
In the section also called “Global Financial Dislocation Scenario” because “crash” sounds just a little too pedestrian, the IMF uses a DSGE model to project the current global financial sitution, and ominously admits that “concerns about a continuing buildup in debt loads and overstretched asset valuations could have global economic repercussions” and – in modeling out the next crash, pardon “dislocation” – the IMF conducts a “scenario analysis” to illustrate how a repricing of risks could “lead to a rise in credit spreads and a fall in capital market and housing prices, derailing the economic recovery and undermining financial stability.”
* * *
From the IMF’s Financial Statbility Report:
“Could Rising Medium-Term Vulnerabilities Derail the Global Recovery?”
This section illustrates how shocks to individual credit and financial markets well within historical norms can propagate and lead to larger global impacts because of knock-on effects, a dearth of policy buffers, and extreme starting points in debt levels and asset valuations. A sudden uncoiling of compressed risk premiums, declines in asset prices, and rises in volatility would lead to a global financial downturn. With monetary policy in several advanced economies at or close to the effective lower bound, the economic consequences would be magnified by the limited scope for monetary stimulus. Indeed, monetary policy normalization would be stalled in its tracks and reversed in some cases.

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

Outgoing German Finance Minister Warns Global Policies Are Causing Bubbles

We live in a world full of bubbles. We’ve reported extensively on the stock market bubble, the student loan bubble, and the auto bubble. We even told you about a shoe bubble. Last summer, US Global Investors CEO Frank Holmes called global debt ‘the mother of all bubbles.’
So what happens when these bubbles start to burst?
In a recent interview, outgoing German Finance Minister Wolfgang Schuble warned about bubbles and said global debt could set off the next financial crisis.
The IMF and others agree with us that we are in danger of encouraging new bubbles to form. We have no idea where the next crisis will happen but economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity, and the growth of public and private debt.’

This post was published at Schiffgold on OCTOBER 12, 2017.

White House Lashes Out At IMF’s Tax Reform Skepticism

White House budget director Mike Mulvaney has come out swinging at The IMF, after the establishment-sponsored organization threw shade at Trump’s tax reform plan’s growth expectations, accusing them of wanting the reforms to fail.
The angry response came after Vitor Gaspar, The IMF’s head of fiscal affairs, told the Financial Times:
‘The idea that one would produce additional revenue by lowering tax rates is something that, being a conceptual possibility, is rarely documented empirically.’
Asked about the IMF’s scepticism, The FT reports that Mr Mulvaney, previously a deficit hawk, said:
‘Yes, they are heavily invested in it not working out.’ He drew a parallel with critics who challenge the growth-enhancing properties of Mr Trump’s deregulatory agenda.

This post was published at Zero Hedge on Oct 11, 2017.

China Riding the Global Economic Recovery

The global economic recovery is strengthening and becoming more synchronized, according to updated projections for 2017 and 2018 by both the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF). China, the world’s second largest economy, is an important part of this improved outlook, and its equity markets have been outperforming.
Last year’s global growth was 3.1%. The OECD is forecasting a 3.5% advance this year and even stronger, 3.7% growth in 2018. China’s economic growth rate is projected at 6.8% this year, compared with 6.7% in 2016. The OECD anticipates moderate slowing to a 6.6% pace in 2018, in response to some easing of stimulus measures and efforts to stabilize the corporate debt and further balance the economy.
The IMF sees the present acceleration of the global economy as the broadest in the past 10 years. Their economists project a 3.6% advance this year, slightly faster than the OECD estimate, and 3.7% growth in 2018. China’s economy is projected to grow 6.8% this year, a 0.2 percentage point increase over the IMF’s April forecast. Similarly, their forecast for 2018 has been increased by 0.3 percentage points to 6.5%, based on the expectation that expansionary policies will be sufficient to maintain such an advance and external demand will remain strong

This post was published at FinancialSense on 10/11/2017.

IMF Says Venezuela’s Inflation Rate May Rise Beyond 2,300% in 2018

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
(Bloomberg) Venezuela’s triple-digit annual inflation rate is set to jump to more than 2,300 percent in 2018, the highest estimate for any country tracked by the International Monetary Fund.
An intensifying political crisis that’s spiraled since 2014 has weighed heavily on economic activity. Gross domestic product is expected to contract 6 percent next year, after shrinking an estimated 12 percent in 2017, the IMF said in its latest World Economic Outlook report published Tuesday.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ October 10, 2017.

This Is What The Death Of A Nation Looks Like: Venezuela Prepares For 2,300% Hyperinflation

Back in January 2016, we showed what the collapse of Venezuela looks like, when in addition to charting Venezuela’s imploding currency (which back then was trading at a positive expensive 941 bolivars to the dollar), we presented what at the time was the IMF’s latest Venezuela inflation forecast, which stunned us as it surged from 275% in the just concluded 2015 to a whopping 720% at the end of 2016.
Fast forward nearly two years until today, when the IMF released its latest estimate of what it believes will happen to Venezuela’s economy in the coming year and a half. What is striking, besides the fact that Venezuela has somehow still managed to avoid bankruptcy, is that the IMF now expects Venezuela’s hyperinflation to reach a staggering 2,349% in 2018, after rising by “only” 626% this year, the highest estimate for any country tracked by the IMF. While the South American country stopped reporting economic data in 2015, the IMF estimates that last year inflation clocked in around 254%, a number which is set to soar in the coming years for obvious reasons.

This post was published at Zero Hedge on Oct 10, 2017.

Dutch Central Bank Warns Of Market Calm Before The Storm:

With one foot out of the door of Germany’s finance ministry, the former head of the German economy, Wolfgang Schuble, 75, delivered a fire and brimstone warning over the weekend, telling the FT in an interview that there was a danger of “new bubbles” forming due to the trillions of dollars that central banks have pumped into markets. Schuble also warned of risks to stability in the eurozone, particularly those posed by bank balance sheets burdened by the post-crisis legacy of non-performing loans, something we warned about since 2012, and an issue which remains largely unresolved.
Taking a broad swipe at the current financial regime – which he helped design – Schauble warned that the world was in danger of ‘encouraging new bubbles to form’.
“Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too,” he said echoing the concern voiced just one day earlier by IMF head Christine Lagarde, who said the world was enjoying its best growth spurt since the start of the decade, but warned of ‘threats on the horizon’ from ‘high levels of debt in many countries to rapid credit expansion in China, to excessive risk-taking in financial markets’.
And while Schauble’s dramatic warning was not surprising – prominent economists have a habit of telling the truth once their tenure is over, and once they start selling books warning about all the consequences of policies they helped adopt – one day later a more surprising, and just as urgent warning was delivered by the Dutch central bank, DNB, which on Monday said that ultra-loose monetary policy in the euro zone has run its course, and excessive risks seem to be building up in financial markets making the financial sector vulnerable to a sudden correction.

This post was published at Zero Hedge on Oct 9, 2017.

Kyle Bass Sounds Off On “Worthless” Puerto Rican Debt, The Crypto “Gold Rush”, And Guns

With the dollar’s recent post-Fed bout of appreciation providing some much-needed relief for Haymarket Capital’s P&L, its founder Kyle Bass sat for an interview on Friday with Bloomberg’s Erik Schatzker. During the 20 minute discussion, Bass expounded on the importance of holding gold, his cautiously optimistic view on digital currencies, the misguided notion that holders of Puerto Rican debt will someday be made whole – oh, and Bass’s next big call: Long Greece – particularly the stocks and debt of Greek banks.
***
A few weeks ago, Bloomberg view published a Bass-penned editorial in which the hedge fund founder and CIO called on the IMF to stop bullying Greece – publicizing the fact that he is now effectively long Greece. Greek government bonds have performed reasonably well so far this year: They’re up about 16%.

This post was published at Zero Hedge on Oct 7, 2017.

Goldman Shuns JPMorgan’s Dimon – Plans Bitcoin Trading Operation

GOLDMAN SACHS SAID TO WEIGH BITCOIN TRADING OPERATION: WSJ
wait what… pic.twitter.com/WKyrfDIHca
— zerohedge (@zerohedge) October 2, 2017

While JPMorgan CEO Jamie Dimon said he “would fire” any employee found trading Bitcoin, Goldman Sachs’ leadership is embracing reality as WSJ reports the bank is weighing a new trading operation dedicated to bitcoin and other digital currencies.
On the heels of IMF Chief Christine Lagarde’s comments that:
“… the technology itself can replace national monies, conventional financial intermediation, and even puts a question mark on the fractional banking model we know today… So I think it may not be wise to dismiss virtual currencies.”
Bitcoin’s price has continued higher – erasing the losses from China and Jamie Dimon’s comments…

This post was published at Zero Hedge on Oct 2, 2017.

28/7/17: Climbing the Deficit Mountains: Advanced Economies in the Age of Austerity

Just a stat: between 2001-2006 period, cumulative Government deficits across the Advanced Economies rose by SUD 5.135 trillion. Over the subsequent 6 years period (2007-2012) the same deficits clocked up USD 14.299 trillion and over the period 2013-2018 (using IMF forecasts for 2017 and 2018), the cumulated deficits will add up to USD 8.197 trillion. On an average annual basis, deficits across the Advanced Economies run at an annual rate of USD0.86 trillion over 2001-2006, USD 2.375 trillion over 2007-2012 and USD 1.385 trillion over 2013-2017 (excluding forecast year of 2018).

This post was published at True Economics on Thursday, September 28, 2017.

Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis

One year ago, the imminent arrival of helicopter money among endless discussions of pervasive lowflation was all the rage within high-finance policy circles. Then, everything changed as if on a dime, and in recent months the dominant topic has been global coordinated tightening – and in some cases even revisions to central bank mandates and the lowering of inflation targets – perhaps as a result of central banks’ realization that monetizing debt by central banks leads to bad outcomes, not to mention global asset bubbles.
But not everywhere.
On Sunday, Algeria’s prime minister unveiled a plan to plug the country’s budget deficit as the the OPEC member state looks to offset lower oil revenue by directly borrowing from the central bank, while avoiding international debt markets. In other words, direct monetization of debt, which bypasses commercial banks as a monetary intermediate, and is better known as “helicopter money.”
According to Bloomberg, the five-year plan presented by Prime Minister Ahmed Ouyahia aims to balance the budget by 2022, and reverse a deficit that ballooned with the plunge in global crude prices, which also cut foreign reserves by nearly half.
“If we turn to external debt, as the IMF suggests, we will need to borrow $20 billion a year to repay the deficit and within four years we will be unable to repay the debt,” Ouyahia said. ‘This is what made the government look at non-traditional financing.’

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

Trump Tower Meeting & Half Truths – Another Untold Story

Bloomberg News is reporting that there is an ongoing criminal investigation into a client of the Russian lawyer, Natalia Veselnitskaya, who meet at Trump Tower with Donald Trump Jr., Jared Kushner, the president’s son-in-law and adviser, and Paul Manafort. The attorney Veselnitskaya also had a client with and undisclosed a U. S. criminal investigation into possible Russian money laundering, which began back in 2013 but went nowhere. The statute of limitations has run out by now, which is 5 years.
TheMoney laundering was that involving Hermitage Capital, which Edmond Safra was the main share holder. That was the company Safra and his Republic National Bank was trying to get me to invest in but I declined.
This involved the attempted takeover of Russia, Yeltsin was shown how to steal $7 billion from the IMF loans and wired the money to Geneva. Republic National Bank steered the wire through Bank of NY and then ran to the Feds to report Bank of NY did a $7 billionMoney laundering. The Feds rushed in and quickly found themselves trapped. I had a meeting with the prosecutors on that whole mess.

This post was published at Armstrong Economics on Sep 16, 2017.

2,000 Years Of Economic History (In One Chart)

Long before the invention of modern day maps or gunpowder, the planet’s major powers were already duking it out for economic and geopolitical supremacy.
Today’s chart tells that story in the simplest terms possible. As Visual Capitalist’s Jeff Desjardins notes, by showing the changing share of the global economy for each country from 1 AD until now, it compares economic productivity over a mind-boggling time period.
Originally published in a research letter by Michael Cembalest of JP Morgan, we’ve updated it based on the most recent data and projections from the IMF. If you like, you can still find the original chart (which goes to 2008) at The Atlantic. It’s also worth noting that the original source for all the data up until 2008 is from the late Angus Maddison, a famous economic historian that published estimates on population, GDP, and other figures going back to Roman times.

This post was published at Zero Hedge on Sep 11, 2017.

“Dear President Trump: America Is In For A Rude Awakening In January”

Dear President Trump,
Over the last couple of years I’ve been all over TV… from Fox News to CNBC, CNN and Bloomberg. I’ve been telling our fellow Americans that the financial global elite was planning to issue their own globalist currency called special drawing rights, or SDRs.
And that those elites would use this new currency to replace the U. S. dollar as the global reserve currency.
I’ve even written about this extensively in my best-selling books The Road to Ruin and The New Case for Gold.
I’m sure some people in the mainstream media thought I was out of line – but the United Nations and the International Monetary Fund (IMF) have both confirmed this plan to replace the U. S. dollar is real. I’ve made this warning many times, but it seems to be falling on deaf ears. That’s why I’m writing directly to you.
Here’s the proof that the U. S. dollar is under attack, right in front of our eyes:
The UN said we need ‘a new global reserve system… that no longer relies on the United States dollar as the single major reserve currency.’
And the IMF admitted they want to make ‘the special drawing right (SDR) the principal reserve asset in the [International Monetary System].’

This post was published at Zero Hedge on Sep 10, 2017.

So When Will China’s Debt Bubble Finally Blow Up?

The upside is fake stability. The downside is too ugly to contemplate.
Corporate debt in China has soared to $18 trillion, or 169% of GDP, the largest pile of corporate debt in the world, according to the worried Bank for International Settlements. The OECD has warned about it earlier this year. The New York Fed warned about this debt boom in February and that it could lead to a ‘financial crisis,’ but that authorities have many tools to control it.
The IMF regularly warns about China’s corporate debt, broken-record-like, and did so again a few days ago, lambasting the authorities for their reluctance to tamp down on the growth of debt. The ‘current trajectory,’ it said, ‘could eventually lead to a sharp adjustment.’
The Chinese authorities – the government and the central bank, supported by the state-owned megabanks – have allowed some bonds to default, rather than bail them out, to make some kind of theoretical point, and they have been working furiously on a balancing act, tamping down on the credit growth that fuels the economy and simultaneously stimulating the economy with more credit to keep the debt bubble from imploding. A misstep could create a global mess.
‘Everyone knows there’s a credit problem in China, but I find that people often forget about the scale; it’s important in global terms,’ Charlene Chu told the Financial Times. Back in 2011, when she was still a China banking analyst at Fitch Ratings, she went out on a limb with her radical estimates that there was much more debt than disclosed by the central bank, particularly in the shadow banking system, that banks were concealing risky loans in off-balance-sheet vehicles, and that this soaring opaque debt could have nasty consequences. Her outlandish views at the time have since then become the consensus.

This post was published at Wolf Street on Aug 17, 2017.