The Integrated Non-USD Platforms

The many new integrated non-USD platforms devised and constructed by China finally have critical mass. They threaten the King Dollar as global currency reserve. Clearly, the USDollar cannot be displaced in trade and banking without a viable replacement for widespread daily usage. Two years ago, critics could not point to a viable integrated system outside the USD realm. Now they can. The integration of commercial, construction, financial, transaction, investment, and even security systems can finally be described as having critical mass in displacing the USDollar. The King Dollar faces competition of a very real nature. The Jackass has promoted a major theme in the last several months, that of the Dual Universe. At first the USGovt will admit that it cannot fight the non-USD movement globally. To do so with forceful means would involve sanctions against multiple nations, and a war with both Russia & China. Their value together is formidable in halting the financial battles from becoming a global war. The United States prefers to invade and destroy indefensible nations like Libya, Iraq, Ukraine, Syria, and by proxy Yemen. The USMilitary appears formidable against undeveloped nations, seeking to destroy their infra-structure and their entire economies, in pursuit of the common Langley theme of destabilization. In the process, the USMilitary since the Korean War has killed 25 million civilians, a figure receiving increased publicity. The Eastern nations and the opponents to US financial hegemony will not tolerate the abuse any longer. They have been organizing on a massive scale in the last several years. Ironically, the absent stability can be seen in the United States after coming full circle. The deep division of good versus evil, of honest versus corrupt, of renewed development versus endless war, has come to light front and center within numerous important USGovt offices and agencies.
The shape of the US nation will change with the loss of the USDollar’s status as global currency reserve. The starting point for the global resistance against the King Dollar was 9/11 and the onset of the War on Terror. It has been more aptly described as a war of terror waged by the USGovt as a smokescreen for global narcotics monopoly and tighter control of USD movements. Then later, following the Lehman failure (killjob by JPMorgan and Goldman Sachs) and the installation of the Zero Interest Rate Policy and Quantitative Easing as fixed monetary policies, the community of nations has been objecting fiercely. The zero bound on rates greatly distorted all asset valuations and financial markets. The hyper monetary inflation works to destroy capital in recognized steps. These (ZIRP & QE) are last ditch desperation policies designed to enable much larger liquidity for the insolvent banking structures. Without them, the big US banks would suffer failure. They also provide cover for the amplified relief efforts directed at the multi-$trillion derivative mountain. In no way, can the global tolerate unbridled monetary inflation which undermines the global banking reserves.

This post was published at GoldSeek on 26 December 2017.

Bill Blain: “I Have Never Seen So Many Extraordinary Events In One Year, And I’ve Been In Markets Since 1985!

We don’t think 2018 is going to be the End of the World. There will be opportunities and mistakes. Winners and grinners, and more than a few losers. Sure, we’re looking forward to the new MiFID regime – isn’t everyone? (US Readers…..)
Our broad brush picture is a continuation and acceleration of the Global Macro Alignment theme – a stronger global economy, cautious normalisation, continued upside for risk assets (stocks and alternatives), but a negative outlook for the bond markets with rates set to rise as Central Banks pull back from distortion. They will remain nervous about financial market instability.
If things wobble, them my personal view is the High Yield market is where we will see the most dramatic losses start in bonds. We still see a strong chance of equity market correction – and will buy into it because the global economy is expanding. Our big Macro Threat for the coming year is resurgent inflation – how quickly will it mount and will it take out market sentiment.
The devil is in the detail. We’re positive across all the developed economies and expect to see growth expectations raise. Although the US, UK and Europe will be moving into Normalisation with tightening, while inflation remains sub 2% Japan will continue its ZIRP (zero interest rate policy) which is massive yen negative and therefore stock positive – my Japan-watching macro man Martin Malone is calling for further massive gains in Japan Stocks.

This post was published at Zero Hedge on Dec 15, 2017.

The Process Through Which the First Major Central Bank Goes Bust Has Begun

In the aftermath of the Great Financial Crisis, Central Banks began cornering the sovereign bond market via Zero or even Negative interest rates and Quantitative Easing (QE) programs.
The goal here was to reflate the financial system by pushing the ‘risk free rate’ to extraordinary lows. By doing this, Central Bankers were hoping to:
1) Backstop the financial system (sovereign bonds are the bedrock for all risk).
2) Induce capital to flee cash (ZIRP and NIRP punish those sitting on cash) and move into risk assets, thereby reflating asset bubbles.
In this regard, these policies worked: the crisis was halted and the financial markets began reflating.
However, Central Banks have now set the stage for a crisis many times worse than 2008.
Let me explain…
The 2008 crisis was triggered by large financial firms going bust as the assets they owned (bonds based on mortgages) turned out to be worth much less (if not worthless), than the financial firms had been asserting.
This induced a panic, as a crisis of confidence rippled throughout the global private banking system.
During the next crisis, this same development will unfold (a crisis in confidence induced by the underlying assets being worth much less than anyone believes), only this time it will be CENTRAL banks (not private banks) facing this issue.

This post was published at GoldSeek on 11 December 2017.

The ECB Comes Clean On Rising Rates and the Coming Systemic Reset

Remember how the Fed, ECB and others all claimed ZIRP and QE were about generating economic growth, making mortgages more affordable, and helping consumers?
Well, that was a gigantic lie. The truth is that every major policy employed by Central Banks since 2008 have been about one thing…
Maintaining the bond bubble.
Governments around the world have used the bubble in bonds to finance their bloated budgets. If interest rates were anywhere NEAR normal levels, most countries would lurch towards default in a matter of weeks.
If you think this is conspiracy theory, consider that the European Central Bank openly admitted this in its semi-annual Financial Stability Review this week:
Even so, [the ECB] said that ‘higher interest rates may trigger concerns about sovereigns’ debt-servicing capacity,’ and noted that ‘distrust in mainstream political parties continues to rise, leading to fragmentation of the political landscape away from the established consensus.’

This post was published at GoldSeek on 30 November 2017.

What Happens to the Federal Debt If the Bond Bubble Pops?

Earlier this month, Mint Capital strategist Bill Blain warned that the bond bubble is about to burst.
A crash in the bond market would likely take stocks down with it, but there is another impact that is less obvious. It could have a huge impact on the United States’ ability to finance its massive debt.
As Dan Kurz of DK Analytics points out, the federal government would have a difficult time even paying the interest on the debt in a ‘normalized’ interest rate environment.
Neither US federal debt, nor virtually any OECD government debt, could be easily carried with ‘normalized’ interest rates, which would readily be 2 to 5 percentage points higher than current short-term (ZIRP-dominated) and long-term (based on 10-year OECD government bonds with no or very nominal yields) rates. For the US government, whose cost of funds is currently around 1.4% thanks to both massively lower, QE-enabled long-term rates and to a propensity to fund deficits and refinance debt with more shorter-term funding – which has been extremely cheap thanks to ZIRP or near ZIRP for nearly nine years – every one percentage point higher average cost of funding $20.5 trillion in debt would equate to a $205 billion higher annual interest expense.’

This post was published at Schiffgold on NOVEMBER 29, 2017.

Why Doesn’t Gold Get The Respect It Deserves?

A longstanding curiosity in the investment business has been the disinterest in precious metals among institutional investors. Whether from the handful of consultants now leading the institutional space, or directly from the stewards of our nation’s pension, endowment, and family-office wealth, skepticism over gold’s portfolio relevance remains fairly pervasive. Because investment professionals are generally well informed, competing in an industry in which performance is king, one would assume any asset class deserving of rightful consideration would enjoy a fair hearing.
In this report, we present a collection of empirical evidence we view as compelling support of gold’s productive role as a portfolio-diversifying asset.
Gold Has Generated Consistently Positive Returns in This Millennium
Eight years of zero interest rate policy (ZIRP) have compressed returns across a wide spectrum of institutional investment regimens. Especially in the pension and endowment world, few portfolios are achieving chartered rates of return. In this environment, we find it puzzling that institutional investors still choose to ignore gold’s market-leading returns. As shown in Figure 1, gold has generated positive annual returns in 14 of the past 17 years. What is even more impressive is gold’s performance compared to the S&P 500 Index, the benchmark for broad U. S. equity performance. Gold’s compound annual growth rate (CAGR) for the 16.75 years (2001 to September 30, 2017) stands at 9.68 percent versus 6.01 percent for the S&P 500 Index (dividends reinvested). Indeed, it is fair to say that since the turn of the millennium, any long-term allocation to gold would have improved total returns for the vast majority of pension and endowment portfolios.
What is it about gold’s performance that is so difficult to embrace?

This post was published at GoldSeek on NOVEMBER 9, 2017.

700 Years Of Data Suggests The Reversal In Rates Will Be Rapid

Have we been lulled into a false sense of security about the future path of rates by ZIRP/NIRP policies? Central banks’ misguided efforts to engineer inflation have undoubtedly been woefully feeble, so far. As the Federal Reserve ‘valiantly’ raises short rates, markets ignore its dot plot and yield curves continue to flatten. And thanks to Larry Summers, the term ‘secular stagnation’ has entered the lexicon. While it sure doesn’t feel like it, could rates suddenly take off to the upside?
***
A guest post on the Bank of England’s staff blog, ‘Bank Underground’, answers the question with an unequivocal yes. Harvard University’s visiting scholar at the Bank, Paul Schmelzing, normally focuses on 20th century financial history. In his guest post (see here), he analyses real interest rates stretching back a further 600 years to 1311. Schmelzing describes his methodology as follows.

This post was published at Zero Hedge on Nov 8, 2017.

$1 Trillion In Liquidity Is Leaving: “This Will Be The Market’s First Crash-Test In 10 Years”

In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the ‘wealth effect’, which instead became an ‘inequality effect’, exacerbating populism and representing a constant threat to the status quo.
Fasanara discusses how elusive, over-fitting economic narratives are used ex-post to legitimize the “fake markets” – as defined previously by the hedge fund – induced by artificial flows. Meanwhile, as an unintended consequence, such money flows produced a dangerous market structure, dominated by both passive-aggressive investment vehicles and a high-beta long-only momentum community ($8 trn and rising rapidly), oftentimes under the commercial disguise of brands such as behavioral Alternative Risk Premia, factor investing, risk parity funds, low vol / short vol vehicles, trend-chasing algos, machine learning.
However as Filia, and many others before him, writes, only when the tide goes out, will we discover who has been swimming naked, and how big of a momentum/crowding trap was built up in the process. The undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets.

This post was published at Zero Hedge on Oct 18, 2017.

Understanding The Results of Financialization – Part II – “Mationalization”

WHY A NEW FORM OF ‘NATIONALIZATION’ WILL OCCUR
The extended period of Quantitative Easing (QE) and ZIRP have now left the major global central bankers in an untenable position because of the Era of Unlimited Leverage which it has fostered. According to the Bank for International Settlements, central banks’ combined asset holdings in the major advanced economies (the US, the eurozone, and Japan) expanded by $8.3 trillion over the past nine years, from $4.6 trillion in 2008 to $12.9 trillion in early 2017. Yet this massive balance-sheet expansion has had little to show for it. Over the same nine-year period, nominal GDP in these economies increased by only $2.1 trillion.

This post was published at GoldSeek on Sunday, 8 October 2017.

Who Will Be the Next Fed Chair? The 3 Most Likely Candidates

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
Ladies and gentlemen, place your bets. U. S. President Donald Trump announced last week he will name the next Federal Reserve Chair in the next two or three weeks.
And there are three leading candidates for the job, who we’ll detail for you in just a minute…
Since the financial crisis in 2008, the Fed has exercised enormous power over the economy through interest rates and the supply of money available for the economy. Market pundits were left scrambling for legitimacy as ZIRP (zero interest rate policy) and QE (quantitative easing) stomped out the efficacy of traditional forms of investment analysis.

This post was published at Wall Street Examiner by Money Morning Staff Reports ‘ October 4, 2017.

Bond Traders Place Biggest Short in Treasuries Since Fed’s ZIRP and QE Began (Zirp The Surveyor)

(Bloomberg) – After the worst losses for Treasuries in 10 months, investors are ramping up bets that the world’s largest bond market will decline further.
A JPMorgan Chase & Co. survey for the week through Oct. 2 found that clients as a whole soured on Treasuries, with 44 percent holding a short position relative to their benchmark. That’s the most since 2006 and up from 30 percent in the prior period. Among those who actively place bets, such as speculative accounts, a record 70 percent were short.
The shift shows how a confluence of factors is weighing on the minds of bond traders as the fourth quarter begins. The Federal Reserve will start unwinding its balance sheet this month, and Chair Janet Yellen has signaled that stubbornly low inflation won’t deter policy makers from tightening. Meanwhile, in the betting markets, former Fed Governor Kevin Warsh, seen by some traders as having a more hawkish tilt, has the highest odds to succeed Yellen.

This post was published at Wall Street Examiner on October 3, 2017.

BofA: $2 Trillion YTD In Central Bank Liquidity Is Why Stocks Are At Record Highs

One week ago, in his weekly “flow report“, BofA’s Michael Hartnett looked at the “Disconnect Myth” between rising stocks and sliding yields and succinctly said that there is “no disconnect between stocks & bonds.”

Why? The reason for low yields and high stocks was simple: trillions in central bank intervention. The result is an era of lower yields & higher stocks, or as the chart above shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%. Fast forward to today, when in the interim period stocks have continued to rise, hitting new all time highs in both the US and globally, oblivious of any news and fundamental developments – as one would expect from a massive asset price bubble, and in line with what Hartnett has dubbed a Liquidity Supernova.

This post was published at Zero Hedge on Sep 15, 2017.

Central Banks Have Purchased $2 Trillion In Assets In 2017

In his latest “flow report”, BofA’s Michael Hartnett looks at the “Disconnect Myth” between rising stocks and bonds and summarizes succinctly that there is “no disconnect between stocks & bonds.”
Why? The best, and simplest, explanation for low yields & high stocks is simple: so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion. Hartnett concedes that the second best explanation is bonds pricing in low CPI (increasingly a new structurally low level of inflation due to tech disruption of labor force) while equities price in high EPS (with little on horizon to meaningfully reverse trend), although there is no reason why the second can’t flow from the first.
The result is an era of lower yields & higher stocks, or as the chart below shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%.

This post was published at Zero Hedge on Sep 8, 2017.

Did the Economy Just Stumble Off a Cliff?

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth. This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities’ management, etc. Since credit expansion is the lifeblood of the global economy, let’s look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U. S. and a chart of the percentage increase of credit. Notice the difference between credit expansion in 1990 – 2008 and the expansion of 2009 – 2017. Credit expanded by a monumental $40+ trillion in 1990 – 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 – 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This post was published at Charles Hugh Smith on WEDNESDAY, AUGUST 23, 2017.

Fed QT Bearish for Stocks

Ominously for the stock markets, the Federal Reserve is warning that quantitative tightening is coming later this year. The Fed is on the verge of starting to drain its vast seas of new money conjured out of thin air over the past decade or so. The looming end of this radically-unprecedented easy-money era is exceedingly bearish for these lofty stock markets, which have been grossly inflated for years by Fed QE.
Way back in December 2008, the first US stock panic in an entire century left the Fed frantic. Fearful of an extreme negative wealth effect spawning another depression, the Fed quickly forced its benchmark federal-funds rate to zero. Once that zero-interest-rate policy had been implemented, no more rate cuts were practical. ZIRP is terribly disruptive economically, fueling huge distortions. But negative rates are far worse.
So instead of turning ZIRP to NIRP like the European Central Bank in June 2014 and the Bank of Japan in January 2016, the Fed chose a different unconventional-monetary-policy path. Just before it went full ZIRP in late 2008, it had started quantitative easing. Despite this fancy name, QE is nothing more than old-fashioned central-bank money printing. The Fed spun up its printing presses at wildly-unprecedented rates.

This post was published at ZEAL LLC on July 28, 2017.

David Stockman Warns The Market’s “Chuck Prince Moment” Has Arrived… “Only More Dangerous”

On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the ‘speculator’s creed’ for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the’buy’ key good and hard:
‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ he said in an interview with the FT in Japan.
We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.
The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.
Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about ‘stimulus’, ‘accommodation’ and guiding economies toward optimal levels of inflation and full-employment.

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

When “Whatever It Takes” Ends

Via Global Macro Monitor,
On Tuesday, June 27th, Super Mario said this,
‘Deflationary forces have been replaced by reflationary ones.’ – Mario Draghi
And here is how global 10-year bond yields reacted,
The German 10-year Bund yield increased 77 percent – OK, from a low base – and bonds across the world from Canada to Australia to the United States were tattooed.
Change In Fundamentals?
Absolutely not!
Bond yields haven’t been trading on economic fundamentals for several years due to central bank financial represssion via quantitative easing (QE), ZIRP and NIRP. We have been pounding the table on this point,
Lot’s of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
Most of what is happening with the U. S. yield curve is technical. – Global Macro Monitor, June 22, 2017

This post was published at Zero Hedge on Jun 30, 2017.

Central Banker’s Real Legacy: Pension Funds Panic ‘Reach’ For Yield

Ben Bernanke’s creativity inspired a generation of economists and central bankers. QE, ZIRP and NIRP established a new class of economics that is mathematically sound but practically disastrous. Billions of dollars were transferred from savers to investors to boost the economy, but the wizards of quant forgot that something has to give. In this case, it was the formation of a pension crisis that threatens the golden years of millions of retirees across the world. None of the econometrics models provide a solution for the growing gap in pension funding, other than unsustainable debt accumulation.
Creativity cascaded to the less sophisticated pension fund managers. In a desperate reach for yields they increased exposure to project finance.
Perceived higher returns, long-term investment horizon and inflation protection made it the perfect match for pension funds. However, like their central banker peers, pension fund managers were completely mistaken. Actual risks were largely underestimated. The binary nature of cashflow risks makes conventional risk measures meaningless.
This is best illustrated by looking at the cumulative default rates of project finance (1991-2011) in North America, which exceeded the default rate of the non-investment grade Ba bonds in the first 6 years and is more than triple that of investment grade default rates.

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

A Bad Recipe: Failing Growth Amidst Sustained Global QE, Debt & Bubble Valuations

Economic growth came in at a tepid 0.7% in the first quarter of 2017. Nevertheless, officials at the Federal Reserve continue to insist the economy is strong. They held interest rates steady in April, but insisted hikes were still on the table. In fact, the Atlanta Fed forecast Q2 growth to come in at over 4%.
Peter Schiff called the Atlanta Fed’s prediction ‘crazy,’ nothing that they are starting out with a much higher estimate for Q2 than they had in Q1, despite having all of this information about how weak the economy was in Q1 that they didn’t have a few months ago.
And that’s the crux of the matter. The actual economic data doesn’t support the economic optimism, nor the Fed’s monetary policy. In this in-depth analysis of the current economic and policy climate, Dan Kruz makes a strong case against the policymakers’ optimism.
Introduction (‘It’s the economy, stupid!’)
US real GDP growth for Q1:17 was 0.7% with downward revisions likely given increasing weakness throughout the first quarter in retail sales and in auto sales. Yet the Fed remains upbeat on growth while it maintains that further increases in the Fed Funds rate are all but a given. The fly in the ointment: the faltering US economy, which will increasingly stress banking system solvency; money center bank solvency is the privately-owned Fed’s true mandate. In the meantime, the rest of the world keeps ‘printing.’ How long until the Fed rejoins the overt QE party? Is the Fed raising the Fed Funds rate to a miniscule level so that it can offer a few rate decreases prior to revisiting its ZIRP?

This post was published at Schiffgold on MAY 17, 2017.

It’s Turning Into A Very Interesting Week

Authored by Mark St. Cyr,
Back in days of yore (circa January 2017) I dared make the assertion that all that was ‘unicorn infatuation’ in the Valley was much more akin to ‘the old gray mare ain’t what it used to be.’
In the article ‘Is 2017 The Year Silicon Valley Experiences The Dark Side Of ‘It’s Different This Time?’’ I posed the following. To wit:
‘Here’s the equation I believe will not only send shock waves, but will bring down many a valuation edifice within ‘The Valley’ in 2017. And here it is: ‘First: The Fed. And Second: Rate hikes.
Two very short sentences containing nothing more than two words each but their implications could have exponentially explosive results. For what they portend is that ‘It’s different this time’ may indeed be exactly that.
What I hoped you may have noticed during this discussion is the one thing myself and very few others pointed out would happen if the hypothesis we’ve been articulating over the last few years was correct. That hypothesis has always been ‘Without the Fed. pumping in unlimited funds via the QE programs, and a ‘death-grip’ to the zero bound (aka ZIRP) the first ones to show how much of a facade these ‘markets’ where would be seen directly in the ‘tech’ space.’

This post was published at Zero Hedge on May 4, 2017.