How gold can rescue pensions

The World Economic Forum, in conjunction with Mercers (the actuaries) recently estimated that the combined pension deficit currently stands at $66.9tr for eight countries, rising to $427.8tr in 2050. The eight countries are Australia, Canada, China, India, Japan, Netherlands, UK and US. Of the 2016 figure, $50.5tr is unfunded government and public employee pension promises.
Yes, we are now talking in hundreds of trillions. Other welfare-providing states missing from the list have deficits that are additional to these estimates.i
$66.9tr is roughly 1.5 times the GDP of the eight countries combined, and $427.8tr is nearly ten times. Furthermore, if we take out the non-productive government element, the figures relative to the private sector tax-paying base are closer to twice productive GDP today, and thirteen times greater in 2050. That 2050 deficit assumes a 5% compound annual growth rate. This is a linear projection, but the deterioration in finances for unfunded government pensions may turn out to be exponential, in line with the accelerated increase in the broad money quantity since the great financial crisis.
The problem is mainly in the welfare states, so we know that the welfare states are in big trouble. Governments routinely offer inflation-protected pensions to state employees, funded out of current taxation. The planners in government treasury departments are coming alive to the scale of the problem, though the politicians would rather ignore it. Government finances are already being subverted by both unfunded pension obligations, and by additional rising healthcare costs for aging populations.
Furthermore, people are living longer. Someone born in Japan ten years ago who retires at 60 can expect to live to 107, leaving the state picking up a forty-seven-year welfare and pensions bill. And it’s not much less expensive in other countries, with 50% of North American and European babies born in 2007 expected to live to 103.
The global dependency ratio, those in work relative to those in retirement, is expected to deteriorate from 8:1 to 4:1 by 2050. When most people retire, they stop paying income tax and become a burden on the state welfare system. Therefore, retirement ages must rise. Not only must they rise, but they must rise by enough to pay for those who are otherwise fit but mentally incapacitated by dementia, Alzheimer’s and Parkinson’s, set to spend the last decades of their lives expensively kept.
That is the background to a global problem. But we shall just say ‘poor taxpayers’, and move on. Instead, this article focuses not on the problems of funding state pensions (which is admittedly 75% of the problem), but is an overview on why the current low growth, low interest rate environment is so detrimental to private sector pensions.

This post was published at GoldMoney on JUNE 08, 2017.

UK Election Chaos Sparks Selling Spree In Bonds & Bullion

Because nothing says sell safe-havens like a shocking election result in the nation at the center of European Union chaos…
Exit Polls signal May failure… sell Gold
At least bonds initial reaction made some sense… but since then it’s been Sell the dip in yields and buy stocks… because more QE will paper over any political cracks, we’re sure…
Some have suggested that this is due to the May colatilion implying a ‘softer’ Brexit, implying less global turmoil, implying less need for safety? We remind those ‘thinkers’, like pregnancy, there’s no half-Brexit.

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

Mexican Industrial Production Crashes In April

Delayed blowback from Trump? Mexico’s Industrial Production crashed 4.4% in April – the biggest drop since Oct 2009 – with manufacturing dropping 1.7% after surging 8.5% in March.
This is the 3rd MoM drop in a row (and biggest MoM drop since Nov ’15)…
However, Manufacturing was not the worst of it as Mining plunged 9.6% YoY, Utilities declined 3.0%, and Construction tumbling 6.5%.
Whether it is the recent surge in the peso or fears oif trade wars, this is a somewhat unprecedented and sudden downshift.

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

Bank Failures Hither and Yon

Grant’s Almost Daily reports that despite the seemingly calm economic winds, ‘Banco Popular has managed to run the ship aground. In order to shore up their sickly balance sheet, the acquiring [Banco] Santander will issue a 7 billion rights offering to shareholders. Banco Popular’s equity and junior debt are wiped out, to the tune of 3.3 billion.’
While America breathlessly waited for former FBI Director Comey to boast daytime TV ratings, the ‘announcement that Banco Popular Espanol SA will be absorbed by the sounder Banco Santander under the auspices of the European Central Bank for considerations of 1 harkens back to March 2008, Bear Stearns and J. P. Morgan,’ writes Philip Grant.
Have the world’s financial dominoes started falling on that side of the pond?
Here in the good old USofA. the DJIA rocks while Tesla and Amazon shares roll, but ‘Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.’
Wolf Richter points out that bankruptcies are seasonal. Fewer of the hopelessly indebted normally throw in the towel in May. However, this year, ‘Total US bankruptcy filings by consumers and businesses in May rose 5.3% year-over-year to 69,668, the highest May since May 2014.’
Credit card debt is now a trillion dollars, auto debt is $1.12 trillion and student loan debt now totals $1.44 trillion. A trillion here, a trillion there. It starts to add up. And all of this doesn’t include the big driver of consumer bankruptcies, medical costs.

This post was published at GoldSeek on 9 June 2017.

Ted Butler Quote of the Day 06-09-17

I’m convinced that because the ink was still relatively wet on the agreement between JPMorgan and the U.S. government when Gensler came on board — and because he was unaware of that until he was way down the road to instituting position limits and overall reform, all his efforts were for naught. Anything that would have inconvenienced JP Morgan at that time was not going to fly; neither the Treasury Department nor the Federal Reserve would allow it. As Gensler slowly came to this realization, he recognized his efforts would not come to fruition and he beat a retreat.

But that was then — and this is now. The secret and illegal agreement between JP Morgan and the Fed and Treasury is now nine years old — and long of tooth. None of the original U.S. Government arrangers appear to be in office and JP Morgan’s manipulative actions over this time are starting to ripen and smell. For cripes sake, JP Morgan hasn’t taken a single loss when shorting COMEX silver over the past nine years and has amassed 600 million ounces of physical silver at artificially depressed prices over the past six years. No way, no how was that ever intended by the U.S. Government at the outset (JPM’s intentions excluded).

Now JP Morgan’s actions appear inexcusable and not to be tolerated for much longer. Enter the appointment of an apparently honest man to a position that matters at the CFTC and the whole dynamic appears to have changed. Who at the Fed or Treasury will demand that JP Morgan continue to be treated with kid gloves in silver because of a secret agreement made under duress nine years ago, particularly with more

than ever openly recognizing the scummy and duplicitous actions of the country’s most important bank?

A small excerpt from Ted Butler’s subscription letter on 07 June 2017.

  More precious metals news & information available at
Ed Steer’s Gold & Silver Digest.

Morgan Stanley Warns Of “Unprecedented Buyer’s Strike” In Autos; Slashes Car Sales Forecast

Morgan Stanley’s auto team, led by analyst Adam Jonas, seems to be convinced that the auto trade is officially over prompting him to slash over 11 million units from his North American SAAR forecast over the next 4 years. Jonas attributes his controversial call to the fact that OEMs have been so aggressive in implementing policies designed to pull forward sales (e.g. longer loan terms, higher loan mix to subprime borrowers, etc.) that they’ve actually started to pressure used car prices to the point that they’re cannibalizing new sales.
We had held to a ‘higher-for-longer’ thesis on the assumption that the OEMs could keep pulling forward demand from the future… For several years, we have expressed our concern over the sustainability of used car values and powerful forces that could drive a multiyear cyclical decline, impairing the ability for consumers to transact and the willingness of financial institutions to lend as aggressively as in the past. Up to this point, we had believed that competitive forces, particularly the ability of the captive finance subs to find new ways to lower the monthly payment and put ‘money on the hood’, would help extend the US auto volume cycle a few more years to new heights.
8 years into the biggest auto cycle on record, we appear to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second hand market, leading to adverse conditions for selling new vehicles…
As such, for the first time this cycle, we are directly incorporating our views of used car value erosion into our US light vehicle sales forecasts, resulting in substantial SAAR reductions of several million units per annum through 2020.

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

Gold in Pounds Surges 1.5% To 1,001/oz – UK Political Turmoil Likely

– Gold in pounds rises 1.5% from 986/oz to 1,001/oz after shock UK election result
– Gold reaches 7 week high and surges 6% in the last 30 days from 942/oz to 1,001/oz
– Very robust gold sales experienced by gold brokers, including GoldCore, in the UK this week and today
– May’s ruling Conservative party loses overall majority and prospect of hung U. K. parliament
– PM May vulnerable from within Tory Party and Corbyn has called for her to resign
– Corbyn and Labour party on the rise which may pose risks to vulnerable London property market and UK economy as investor sentiment towards UK sours further
– Vote set to boost political turmoil in UK, complicate Brexit talks with EU whose hand is strengthened
As reported by Bloomberg News this morning:
Gold priced in sterling surged to the highest level in more than seven weeks as Prime Minister Theresa May failed to win an overall majority in the U. K. election, signaling further political turmoil less than a year after Britain voted to leave the European Union.

This post was published at Gold Core on June 9, 2017.

Debt Has No Consequences? Color Me Skeptical

The entire status quo is based on the delusion that rapidly rising debt will never generate any negative consequences. Here’s a chart of America’s national debt, extended a mere dozen years into the future: the current $20 trillion in debt will double to $40 trillion, and that assumes 1) trillions of dollars in private and local government pensions don’t implode and have to be bailed out by the federal government, a bail-out that will have to be paid by borrowing more money, 2) a recession doesn’t slash federal tax revenues, 3) Universal Basic Income (UBI) doesn’t become policy, adding $1+ trillion in additional borrowing annually–and so on. Color me skeptical that doubling the debt in 12 years won’t have any negative consequences. Let’s start by noting that federal debt is only the tip of America’s total debt load, which is rising fast in all sectors: federal, state/county/city, corporate and household. Total government, corporate and household debt soared from $15.5 trillion in 2000 to $41.1 trillion in 2016. (see chart below, courtesy of 720Global). If we extend this expansion another 12 years, we will have a total debt load in the neighborhood of $100 trillion by 2030. And that’s if the “recovery” news is all good.

This post was published at Charles Hugh Smith on THURSDAY, JUNE 08, 2017.

After Laying off Thousands, Boeing CEO Says Offshoring Work to China Won’t ‘Directly Harm’ US Jobs

‘We know as we’re investing there, we’re also creating a competitor.’
Boeing, the largest US exporter by dollar value, faces a tough environment for commercial jetliners. In 2016, net orders dropped 13% from 2015 and 53% from 2014, to just 668 planes, the lowest level since 2010! Through June 6, 2017, Boeing has just 208 net orders.
The company is under pressure to cut costs. So there has been wave after wave of job cuts through voluntary buyouts and involuntary layoffs last year and this year. Its payroll has shriveled by about 30,000 workers over the past five years. At the end of May it was down to 145,000.
So Boeing is moving some work to China and other locations overseas, CEO Dennis Muilenburg explained to the Wall Street Journal in an interview. He has been calling the business climate in the US ‘uncompetitive,’ according to the Journal. Boeing is building some plants overseas. One of them is near Shanghai that will complete aircraft made in the US. Workers will paint the planes and install the interiors, such as seats and other fittings. That’s the first step.
It has a Chinese partner, which is required in China to do business in China. There will be technology transfers, which is also required. The Chinese partner is state-owned Comac, which is leading China’s efforts to become an aerospace giant to compete with Boeing and Airbus. Comac already supplies Boeing with parts for its aircraft. Comac’s own jetliner, the C919, which is the size of Boeing’s 737, completed its maiden flight a month ago.

This post was published at Wolf Street on Jun 8, 2017.

Chinese gold demand falling, not rising — Lawrie Williams

One measure of Chinese gold demand which we follow is the level of gold withdrawals from the Shanghai Gold Exchange. With the publication today of the figure for May of 138.08 tonnes it appears that withdrawals to date this year are marginally down on those of a year ago – and substantially below the record seen in 2015. This is contrary to some other reports which suggest Chinese gold demand is stronger this year than last and may again be approaching record level.
Even though SGE gold withdrawals may be down on 2016 and 2015, though, they do remain substantial by world levels, being equivalent to around 60% plus of all global new mined gold, and with Indian demand as represented by imports making a strong recovery this year (some reckon the annual Indian total may reach 1,000 tonnes again), these two nations alone will account for around 90% of all new mined gold – and gold flows into Asia as a whole, particularly if one adds in smuggled gold into India which some estimates put at over 200 tonnes, look like exceeding the global new mined total alone.
With the major gold ETFs adding to their gold tonnage totals so far this year, and taking into account gold consumption throughout the rest of the world – notably in Europe – then we could be heading for a substantial undersupply of new physical gold which, logically, should drive the gold price higher. Scrap supply will probably make up much of this balance, but the major analytical consultancies see this as continuing to drop which should be a positive for gold’s fundamentals.

This post was published at Sharps Pixley

HSBC faces fresh suit alleging forex manipulation

HSBC is facing a fresh legal battle over allegations that its traders manipulated foreign exchange markets for their own profit at the expense of their clients, with the allegations centering on trades from more than a decade ago.
ECU Group, a U.K.-based currency investment firm, has filed an application to London’s commercial court asking for HSBC to be required to hand over records relating to three large foreign exchange orders it executed in 2006.
The court filing — seen by the Financial Times — comes after regulators uncovered systematic rigging of the $5 trillion-a-day foreign exchange market by traders at HSBC and several other global banks, which were fined $4.3 billion three years ago. At the time of ECU’s 2006 forex trades, the firm suspected it was being ripped off by HSBC traders “front running” its forex orders. When it complained, the bank promised a full internal inquiry, only to report back that it had found no wrongdoing.

This post was published at Financial Times

The OECD predicts Britain will crash out of the E.U. without a trade deal

U.K. economic growth will slow sharply next year before Britain leaves the E.U. in 2019 without a trade deal, according to the Organisation for Economic Cooperation and Development.
The influential Paris-based policy group predicts in its latest U.K. forecast that GDP growth will weaken slightly to 1.6% in 2017 then slow dramatically to 1% in 2018.
The gloomy forecast is driven by the OECD’s assumption that Britain will leave the E.U. without a trade deal and fall back onto restrictive World Trade Organisation (WTO) tariffs, classified as a “most-favoured nation.”
Economists have warned that that a “cliff-edge” Brexit scenario whereby the U.K. fails to secure a deal would be economically destructive.

This post was published at Business Insider

Bank Stocks Have a Completely New Risk

Spain’s Banco Santander is paying 1 to take over troubled rival Banco Popular, in a deal that illustrates Europe’s new system to rescue failing banks without burdening taxpayers or stressing markets. This is being cheered around the world because the shareholders lost absolutely everything. The bank which was valued in the collapse at 1.6 billion was bought for 1. Forbes wrote:
‘This is an excellent example of how the resolution of troubled banks should be done. The shareholders who employed the management which caused the problem lose all their money. The depositors, who were and are not responsible for the bank’s troubles, are protected. And we don’t end up with some great smouldering hole in the financial landscape where Popular used to be, we get new capital raised instead. Further, no taxpayer has been harmed in this operation.’

This post was published at Armstrong Economics on Jun 9, 2017.

Trump Impeachment Odds Slide After Comey Testimony

So what is the verdict from Comey’s historic testimony?
It depends on who you ask: turning to CNN, reading the NYT or WaPo, or any source of left-leaning news, and virtually every commentator will be certain that Trump’s political career has been terminally truncated as a result of today’s events. Alternatively, and inversely, the right will claim the opposite: Comey failed to do any damage to the president, the Russian collusion narrative is now over, and that it is Comey’s own actions that should be probed.
Both are to be expected.
But what about the reaction by an impartial arbiter such as the market? Conveiently, that’s what PredictIt is for, and as the chart below shows, Trump’s 2017 impeachment odds dropped by 4 points, from 21% to 17%, following Comey’s testimony.

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

Which Colleges Give You The Best Value For Your Money

You won’t find Evergreen State College on this list.
The Federal government’s decision to throw student loan dollars at any American with a pulse – while simultaneously offering to forgive that debt upon graduation – has driven college enrollment rates to record highs.
But as surging costs have rained the return on invested capital of a liberal arts degree, students who plan on leaving their safe spaces (basements) and venturing out into the working world after graduation might want to prioritize maximizing value.
To that end, Forbes and the Center for College Affordability and Productivity have devised a formula to determine which colleges and universities provide students with the best overall return. And they’ve broken down their findings by state.

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