EU Bailout of Portugal Has Failed

This year, 2017, is the beginning of the Sovereign Debt Crisis. While Greece is popping up on the financial radar, the Euro rescue in Portugal has also completely failed to reverse the trend of the country. There has been no effective relief from the debt crisis in Southern Europe. The debt in Portugal is also once again as high as before the crisis of 2010. The 78 billion euros of the European taxpayers money did nothing to reverse the economic trend, but in fact the funds simply went to save the banks.
Politicians really should be criminally prosecuted for trying to manage an economy. They have no experience and their own political careers always come first. As I have stated before, when the Euro was being planned, the commission in charge attended our World Economic Conference in London. I warned them that the Euro would fail unless the plan consolidated all the debts of member states. They said they understood the problem, but that the European people would never vote for that plan and so they wanted to get the currency through first and deal with the debt later.

This post was published at Armstrong Economics on Feb 24, 2017.

Merkel Says There Is A “Problem” With The Euro, Blames Mario Draghi

Two weeks ago, German finance minister Wolfgang Schauble confirmed Donald Trump’s charge that the Euro is far “too low” for Germany, but said he is unable to do anything about it and instead blamed Mario Draghi. ‘The euro exchange rate is, strictly speaking, too low for the German economy’s competitive position,’ he told Tagesspiegel on February 5. ‘When ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany’s export surplus’.’.’.’I promised then not to publicly criticise this [policy] course. But then I don’t want to be criticized for the consequences of this policy.’
Then, on Saturday, his boss German Chancellor Angela Merkel echoed her finance minister, and also admitted that the euro is indeed “too low” for Germany, but once again made clear that Berlin had no power to address this “problem” because monetary policy was set by the independent European Central Bank.
“We have at the moment in the euro zone of course a problem with the
value of the euro,” Merkel said in an unusual foray into foreign
exchange rate policy.
Merkel also confirmed that Germany benefits from not having the Deutsche Mark, whose value would be far higher, and instead piggybacks on the weakness of other European nations, implicitly confirming recurring allegations that Germany benefits from the misery of Europe’s periphery.
“The ECB has a monetary policy that is not geared to Germany, rather it is tailored (to countries) from Portugal to Slovenia or Slovakia. If we still had the (German) D-Mark it would surely have a different value than the euro does at the moment. But this is an independent monetary policy over which I have no influence as German chancellor.”

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

Top Five Monetary Policy Issues To Watch In 2017

With a new year come new opportunities as well as new issues to take into consideration. Here are the five most important issues to keep an eye on in 2017.
1. Trump Presidency The most important issue facing monetary policy, at least in the United States, will be the incoming Trump Administration. The Federal Reserve Board of Governors is currently operating with two vacancies and has been for quite a while. With majorities in both the House and Senate, it is highly likely that President Trump will be able to successfully nominate two candidates to the Board. Depending on who he picks, that could put additional pressure on Chairman Janet Yellen to continue to raise the federal funds target rate throughout 2017.
2. Ongoing Weakness in Europe The PIIGS are returning. The Greek debt crisis is still unresolved, the Italian banking sector is weakening with Monte dei Paschi likely facing a bailout this year, and Portugal is showing signs of a weakening banking sector. Add to that the difficulties continuing to face Deutsche Bank and 2017 could be a perfect storm facing the Eurozone banking sector. The big question then would be to what extent bank failures and bailouts in Europe would cause spillover effects in the United States and worldwide.

This post was published at Ludwig von Mises Institute on January 10, 2017.

Market Talk – December 30th, 2016

In true year end fashion the markets declared yet another one behind us and the game plays on. The Nikkei happily clears the 19k level, the JPY returns weaker after a brief bout of book-squaring, the Hang Seng remains heavy after the autumn highs, Shanghai struggled to hold the November close whilst the Yuan off-shore continues the weaker trend. China will double to amount of currencies it sets the Yuan against from January lessening the impact on the ever appreciating USD strength. As we move into 2017 this is going to produce some excitement particularly centred around FX, with many already questioning pegs! The major trends appear already set so that just leaves us looking for timing to add to positions or start to off-load soon.
The UK’s FTSE closes the year early and at record highs (7142.83) a 0.32% return on the day and a YTD performance of 16%. The DAX, CAC and IBEX also closed small higher on the day with YTD returns of 7%, 8.8% and 2.5% respectively. On the year Italy’s banking sector was major component for registering a 6.5% decline but it was Portugal declining 9% that supports the bulk.

This post was published at Armstrong Economics on Dec 30, 2016.

Flation And The Surge Of Silver

‘Flation’ is guaranteed in the next few years. We will see in-flation, stag-flation, hyperinflation and de-flation. Many of these flations will happen simultaneously. Currently we have major monetary inflation combined with asset inflation. Credit growth and money printing have in recent years benefited the ailing banking system but have not yet reached consumer prices and therefore there is no ordinary price inflation.
This is why Italy, Greece, Spain, Portugal and many more EU countries are totally bankrupt. These countries have been forced to use a currency which has made them completely uncompetitive and unable to export or function. At the same time, Germany has benefited from a weak Euro which has made their export industries very successful.
Velocity of money will accelerate in 2017
In 2017, velocity of money is likely to increase, leading to stagflation which is higher prices without growth. But as the problems in the financial system deteriorate, hyperinflation in most major economies is virtually a certainty. The build-up of debt and derivatives in the last quarter of a century guarantees that desperate governments will print unlimited amounts of money in a frantic attempt to save the financial system. What has happened to the banking system in Italy in recent years makes the Medicis look like saints. Mismanagement and corruption has driven Italian banks to insolvency. The problem is the same in Greece, Spain, Portugal, France, Germany etc as I discussed in last week’s article.
Hyperinflation will be fast and furious
But these problems are not limited to Europe. Banks in Japan and China will have the same pressures and so will the financial system in the US and emerging markets. The last financial crisis started in 2006. Since then global debt has gone from $140 trillion to around $240 trillion. Those extra $100 trillion should have led to massive hyperinflation already. Instead all central banks are complaining about deflation and are doing all they can to create inflation. There is a misconception that inflation is good for the economy. Inflation is a disease that leads to the destruction of money and of savings. Lost central bankers have no other solution for a failing financial system. But to solve a problem with the same methods that created it in the first place is the road to ruin.

This post was published at GoldSwitzerland on December 16, 2016.

The Soon To Erupt Euro Experiment

THE EURO EXPERIMENT
It was always blatantly clear that an EU monetary union would inevitably require a political union to centralize decisions about tax and public spending. Without this occurring it was a misconceived and terrible blunder (that some of us argued it was when it was initially constructed) but it is turning out to be even worse than we originally perceived because of its underpinning Euro currency.
We are now witnessing that the EU experiment has become so damaging and divisive that public opinion will now never tolerate a political union. So not only was the cart put before the horse, but the horse will not now contemplate even following the cart at a distance!
One of the reasons is that it has made countries, like Italy, Spain, Portugal and Greece, poorer while others got richer. Forcing many countries to have the same interest rates and exchange rate was foreseeable always going to be a problem, as it would lead to some countries having booms followed by big busts, as has happened in Ireland, Portugal and Spain.
It has lead to per capita income of Italians for example being lower now than in 2000, which is why they are – not surprisingly – getting increasingly restive, while in the meantime, the German economy has kept on growing, and the average German is about 20 per cent better off over the same period. The euro is a cheaper currency than the Germany Mark would have been if it still had the deutschmark, while it is more expensive than Italy would have if it still used the Lira. Germans therefore keep exporting easily and running up a surplus, while the Italians struggle and go deeper in to debt.
Furthermore, the freedom of movement of capital in Europe probably makes this worse – why would you put your euros in an Italian bank when you can invest them in Germany? Membership of the euro has thus put the Italians (and what we once politically incorrectly referred to as the PIGS) on a permanent path to being poorer.
Simply stated, the euro zone doesn’t have the fiscal or banking unions it needs to make monetary union work, and it’s not close to changing that. In the meantime, the euro’s continuing flaws continue to suck countries into crisis. And their politics get radicalized out of misunderstood populist frustrations.

This post was published at GoldSeek on 9 December 2016.

Debt & Deficit Outlooks for France, Italy, Spain, & Portugal

Is ‘ugly’ the right word? After dragging Greece kicking and screaming through a never-ending vicious cycle of fiscal adjustment and output decline, the European Commission seems to be softening in its attitude towards other struggling Eurozone economies.
France, Italy, Portugal and Spain, among others, have all repeatedly been given extensions to reduce their debt and deficit levels after recurrent breaches of EU targets have gone unpunished, and the trend looks set to continue as our forecasts show that those economies will underperform again this year and next.
Does this mark a shift in mindset within the Commission as to whether the Growth and Stability Pact is fit for purpose? Or rather just tactical maneuvering – or indeed resigned acceptance – in tough political times, as the EU faces unprecedented challenges to its legitimacy and survival?
Under the EU’s Growth and Stability Pact, all Eurozone countries are required to bring their deficits below 3% of GDP and to work towards reducing debt down to 60% of GDP, and any country failing to do so is subject to strict deficit reduction targets under the corrective arm of the Excessive Deficit Procedure. Certainly, widespread acknowledgement of the self-defeating Catch-22 whereby austerity lowers growth and thereby weighs further on public finances has encouraged the EU authorities to allow leniency in a number of instances, but this is only part of the explanation.

This post was published at Wolf Street on November 30, 2016.

Sixteen European States Led By Germany Want Arms Control Agreement With Russia

Fifteen European states have supported Germany’s initiative to launch discussions with Russia on a new arms control agreement.
Europe’s security is in danger, German Foreign Minister Frank-Walter Steinmeier told Die Welt newspaper in an interview published on November 25. As difficult as ties to Russia may currently be, we need more dialogue, not less.
Steinmeier, a Social Democrat nominated to become German president next year, first called for a new arms control deal with Russia in August to avoid an escalation of tensions in Europe.
Fifteen other members of the Organization for Security and Cooperation in Europe (OSCE) – have since joined Steinmeier’s initiative: France, Italy, Austria, Belgium, Switzerland, the Czech Republic, Spain, Finland, the Netherlands, Norway, Romania, Sweden, Slovakia, Bulgaria and Portugal.

This post was published at Zero Hedge on Nov 29, 2016.

Portugal Bond Yields Hover Near Brexit Highs As Bank Bosses Quit Ahead Of Bailout

Portuguese bank bonds (Novo Banco and Caixa Geral de Depositos) are sliding today with sovereign yields hovering near Brexit highs as AP reports that the new president of the country’s biggest bank (and six board members) have quit less than three months after starting work.
Back in the summer we warned that with all eyes on Italy (and rightly so), Portugal could be the next show to drop, and yields have risen notably since then
And now, as AP reports, the troubles at Portugal’s biggest bank by assets, state-owned Caixa Geral de Depositos, are deepening as its new president and six board members have quit less than three months after starting work.

This post was published at Zero Hedge on Nov 28, 2016.

World’s Biggest Real Estate Frenzy Is Coming to a City Near You?

If they were anywhere else in Beijing, the five young women in cowboy hats and matching red, white, and blue costumes would look wildly out of place.
But here at the city’s biggest international property fair — a frenetic gathering of brokers, developers and other real estate professionals all jockeying for the attention of Chinese buyers — the quintet of wannabe Texans fits right in. As they promote Houston townhouses (‘Yours for as little as $350,000!’), a Portugal contingent touts its Golden Visa program and the Australian delegation lures passersby with stuffed kangaroos.
Welcome to ground zero for the world’s largest cross-border residential property boom. Motivated by a weakening yuan, surging domestic housing costs and the desire to secure offshore footholds, Chinese citizens are snapping up overseas homes at an accelerating pace. They’re also venturing further afield than ever before, spreading beyond the likes of Sydney and Vancouver to lower-priced markets including Houston, Thailand’s Pattaya Beach and Malaysia’s Johor Bahru.
The buying spree has defied Chinese government efforts to restrict capital outflows and shows little sign of slowing after an estimated $15 billion of overseas real estate purchases in the first half. For cities in the cross-hairs, the challenge is to balance the economic benefits of Chinese demand against the risk that rising home prices spur a public backlash.

This post was published at bloomberg

Italy Seen More Likely To Exit Eurozone Than Greece; Italian Bond Yields Surge

In an unexpected reversal of (mis)fortune, this morning Sentix writes that the Eurocrisis creeps back into the heads of the investors in a new way: it is no longer Greece, but Italy which is now the country that is most likely to leave the Eurozone within the year from the perspective of the more than 1,000 investors surveyed. “This development underscores the importance of the referendum to the Constitution in Italy on December, 4th.”
Sentix adds that while it looked as if a “castle peace” had been concluded a few months ago, the euro concerns are gradually rising again among investors. But this time it is not Greece that dominates the agenda. Although for example the pension funds in Hellas are collapsing, the euro exit probability has fallen to 8.48% – the lowest level since 2014.
Italy is now the focus country number 1 in the Eurocrisis! The precarious situation of the Italian banks, the political questions surrounding the Constitutional Treaty at the beginning of December, and the economic turmoil of the past have placed the country south of the Alps at the center of investor interest.
The above graph shows the historical dimension that is inherent in this signal. And it shows that this is not a one-off event, due to an up-to-date message, as we observed in the Netherlands, for example, after the Brexit decision.
Besides Italy, Sentix also measure a disadvantageous trend in Portugal. While the exit probability is not very high here, the EBI value worsens in small but steady steps. Thus, the risk of contagion as measured in the “Contagion Risk Index” also come back to the agenda.

This post was published at Zero Hedge on Nov 1, 2016.

Adoption Of The Euro Has Been ‘Unequivocally Bad’ For Southern European Economies

Some say that the common currency prevents less productive economies from cheating by weakening their national currencies and forces them to become more efficient and competitive. Industrial production data shows that it is not the case. Italy, France, Greece and Portugal have not only stopped producing more; they are producing now less than in 1990! The decay started immediately after the introduction of the euro in 2002!
The OECD industrial production data analysis leads to the following conclusions:
1. since 1990 industrial production (manufacturing and construction included) has been growing in volume at large, even in the most developed countries;
2. the disproportion between industrial output in Germany and two other biggest euro area economies, Italy and France, occurred already just after the 2001-2002 crisis;
3. Southern Europe’s economies have lost their ability to rebound in industrial production alongside the adoption of the euro.

This post was published at Zero Hedge on Oct 26, 2016.

Bond Yields Surge Around The World, Stocks Tumble As “VaR Shock” Goes Global, Correlations Approach 1

It appears that Hillary’s pneumonia has spread to global capital markets.
Last Thursday, with the S&P trading just shy of all time highs, we warned readers to “Brace For VaR Shock“, and explained how the BOJ’s surprising intent to steepen its Japanese yield curve could unleash a global bond market selloff, as a result of record high correlations between bond and stock assets. The very next day, accelerated by further hawkish comments by the Fed’s Rosengren who saw a “reasonable case” for a rate hike, the S&P saw its biggest plunge since Brexit as fears about central bank “inaction”, coupled with the realization of the BOJ-driven VaR shock spread through the market, and topped off with news that the Fed’s Lael Brainard was set to deliver an unscheduled last minute speech in Chicago today around noon, which according to some could hint at a September rate hike by the legacy dove.
While it remains to be seen what Brainard will say, the market today is in a sell first, ask questions later mode, as the Friday bond liquidations that started in Japan and spread to the US, has now slammed Europe. Here are some recent indicative levels courtesy of Tradeweb:
SPAIN’S 10-YEAR BOND YIELD RISES TO 1.13 PERCENT, HIGHEST LEVEL SINCE LATE JULY AND UP 4.5 BPS ON DAY – TRADEWEBWEB PORTUGAL’S 10-YEAR GOVERNMENT BOND YIELD RISES TO TWO-MONTH HIGH OF 3.23 PERCENT , UP 6 BASIS POINTS ON DAY – TRADEWEBEWEB ITALIAN 10-YEAR BOND YIELD RISES TO HIGHEST LEVEL IN OVER TWO MONTHS AT 1.33 PERCENT , UP 5 BPS ON DAY- TRADEWEBWEB

This post was published at Zero Hedge on Sep 12, 2016.

Sorry, Krugman: Austerity Is Good for the Economy

Paul Krugman again went after Germany on August 26 in his New York Times column, “Germany’s Drag.” After the German government posted a 1.2 percent of GDP fiscal surplus for the first half of 2016 – way above the IMF forecast of 0.3 percent – it seems as if Krugman couldn’t contain himself anymore. He claimed that “what we’re seeing in elite circles is a very belated but still welcome realization that monetary policy badly needs an assist from fiscal expansion.” However, there are two evil opponents of more government spending: The Republican Party in the US, led by Paul Ryan (the “hard-line, Ayn Rand-loving and progressive-tax-hating conservative”), and Germany.
However, his critique of the German austerity measures seems rather dubious, considering that European countries with budget surpluses or small deficits have clearly done better than countries with high deficits since the economic crisis. One just needs to look to countries such as the United Kingdom, Ireland, or even Spain – the countries that reduced their deficits significantly in recent years – and compare them with Greece or Portugal. One will easily discover which policies worked better. Also, Scandinavian countries, which Krugman is generally very fond of, have consistently posted small deficits or even surpluses in the past, as well. In 2015, Norway reached a surplus of 5.7 percent of GDP and Sweden had a balanced budget. But strangely enough, the great, socialist Nordic countries don’t count here for Krugman. Still, there seems to be a clear correlation between economic growth and low deficits, as can be shown in the following graph.

This post was published at Ludwig von Mises Institute on September 6, 2016.

Goldman Sachs is at it Again

More than 75,000 people have signed their names to a petition protesting against the appointment of former European Union leader Jos Manuel Barroso to the investment bank Goldman Sachs. The outrage demonstrates what I have warned about – the peak in public confidence in government and banks is now in place. Goldman Sachs has gone too far. This move is being called ‘irresponsible’ and ‘morally reprehensible.’ This is all about buying influence. NO former politician is worth their weight in peanuts, no less money. Before he joined the commission, Barroso also served as Portugal’s Prime Minister from 2002-2004.

This post was published at Armstrong Economics on Aug 30, 2016.

AUG 25/GOLD AND SILVER HOLD AS OPTIONS EXPIRE ON THE COMEX TONIGHT/PEER TO PEER LENDING CAPPED IN CHINA: THIS IS A MAJOR SOURCE OF FUNDING FOR CHINESE HOUSING/PORTUGAL MAY LOSE ITS INVESTMENT GRA…

Gold:1320.40 down $4.30
Silver 18.48 down 7 cents
In the access market 5:15 pm
Gold: 1322.00
Silver: 18.55
For the August gold contract month, we had a huge sized 214 notices served upon for 21,400 ounces. The total number of notices filed so far for delivery: 14,100 for 1,410,000 oz or tonnes or 43.866 tonnes. The total amount of gold standing for August is 43.788 tonnes.
In silver we had 11 notices served upon for 55,000 oz. The total number of notices filed so far this month: 501 for 2,505,000 oz.
Options expiry for the gold and silver contracts ends today August 25. Options for the OTC and London’s LBMA contracts expire August 31.
Let us have a look at the data for today.
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In silver, the total open interest FELL BY ONLY 419 contracts DOWN to 205,845. The open interest hardly fell DESPITE THE FACT THAT THE SILVER PRICE WAS DOWN 36 CENTS IN YESTERDAY’S TRADING . In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.029 BILLION TO BE EXACT or 147% of annual global silver production (ex Russia &ex China).
In silver we had 11 notices served upon for 55,000 oz
In gold, the total comex gold fell 7077 contracts as the price of gold FELL BY $16.20 yesterday . The total gold OI stands at 565,896 contracts.
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With respect to our two criminal funds, the GLD and the SLV:
GLD
we had a good sized withdrawal today at the GLD to the tune of 1.78 tonnes
Total gold inventory rest tonight at: 956.59 tonnes of gold
SLV
we had a withdrawal of 1.899 millio oz from the SLV, / THE SLV Inventory rests at: 356.894 million oz.
First, here is an outline of what will be discussed tonight:

This post was published at Harvey Organ Blog on August 25, 2016.

These Are The Three Things That Will Break The “China Calm” According To UBS

There has been no shortage of crises in the Western World lately with heightened concerns over Brexit, Italian Banks, Portugal’s sovereign debt rating, Fed decisions, etc, all rattling the nerves of investors. But amid all the chaos in the West, Donna Kwok of UBS recently pointed out that China has been relatively “calm”. That said, UBS sees 3 things that could disrupt the relative “calm” in China by the end of the year. In summary, downside risks remain in China’s continued effort to work through sizable inventory overhangs in their real estate market as well as in the restructuring of State Owned Enterprises (SOEs) which need to undergo substantial capacity reductions and management realignments. Failure of property developers to return to the market with new developments and/or an increase in unemployment related to capacity reductions at SOEs could derail the “China Calm.”
With that, here are the details:
1. Property developers have lagged on investment in new real estate projects despite the rebound in sales of existing properties. Many believe the lack of new investment is a sign that property developers see a slow down in 2H16. Despite the strong double-digit growth prints in YTD sales (26%y/y) and new starts (14%y/y), YTD construction and investment have expanded only by around 5%, with little sign of more pipeline momentum to come. Soft property developer sentiment and caution over the longevity of the sales rebound is partly to blame, as is a still sizeable inventory overhang and sharp land price rally so far this year.

This post was published at Zero Hedge on Aug 25, 2016.

Is Portugal The Next “Shoe To Drop” In Europe?

The fate of Portugal rests in the hands of DBRS, the last remaining credit rating agency assigning an investment grade rating to its sovereign debt (Fitch, Moody’s and S&P have all lowered the country’s debt rating to junk). Due to a requirement that participant countries have an IG rating from at least 1 rating agency, the DBRS rating is literally the only thing allowing Portugal’s bonds to remain eligible for the European Central Bank’s 1.7 trillion euro bond buying program. DBRS is set to update its Portugal rating on October 21 and investors in Portugal sovereign risk are starting to get a little nervous.
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Until last week there seemed to be little worry about a potential downgrade among investors. That changed when the release of 2Q 2016 GDP showed minimal growth. Fergus McCormick, head of sovereign ratings at DBRS, recently noted in an interview with Reuters that although Portugal’s debt carries a “stable” rating that the situation appears to be deteriorating.
“Friday’s Q2 GDP release (which showed growth at just 0.2 percent) raised our concerns about growth prospects, which appear to be slowing into the third quarter,” he told Reuters in an interview.

This post was published at Zero Hedge on Aug 25, 2016.

Picking Up the U.K. Tab — Jeff Thomas

Back in the late ’90s, I began saying, ‘I’ll give the E.U. twenty years.’ At that point, the E.U. seemed to be going great guns, but I believed that it was an ill-conceived concept that wouldn’t stand the test of time.
There were several reasons for my view. First, I didn’t believe that those countries that were entitlement-focused, such as the Greeks, would ever be as fiscally responsible as, say, the Germans, so the Germans (and other countries where there was a responsible work ethic) would end up subsidizing the Greeks (and to a lesser extent, Spain, Portugal, etc.)
In recent years, we’ve watched the E.U. stumble repeatedly. Invariably, Brussels has arrogantly assumed that it can dictate to all E.U. members, and offers few apologies for doing so. The individual countries’ leaders then do their best to explain to their own voters why Brussels should be able to behave like an oligarchy, and the voters understandably have become increasingly angry.
Eventually, the wheels were sure to come off the trolley and, with the UK Brexit vote, we’ve witnessed the first major blow to the survival of the E.U.

This post was published at International Man