- Why Did The Pentagon Falsify Reports About Military Successes In Fight Against ISIS?
December 11, 2015 Republicans from the House of representatives of the U.S. Congress announced the creation of a special task team that will investigate the facts of distortion of data about the operations of the coalition in Iraq and Syria. The group will be to identify falsification in the reports, as well as figure out whether the problem is systemic in nature. The decision to create special group was adopted in November after more than fifty analysts of CENTCOM complained that their reports on the results of operations of the coalition against ISIS have been reduced in order to present the situation more positively.
Despite the fact that the preliminary results of the investigation must b? submitted only in January, Rep Jackie Speier has confirmed that the falsifications which underestimate combat capabilities of ISIS took place indeed. As one of such examples is the May statement of General Thomas Weidle, which said ISIS “loses and remains in the defense”. However, immediately after his speech, terrorists has captured the Central quarter of Ramadi, the administrative center of Anbar province. If American leadership possessed a clear picture of what is happening, it could take emergency measures and even prevent the ingress of arms, military equipment and ammunition to the hands of militants. The value of US arms and military equipment captured by jihadists equals hundreds of million dollars.
Indeed questions about whether we can trust the CENTCOM generals had to appear in October last year when ISIS captured supplies which US Air Force were supposed to delivered to Kurdish militia in besieged Kobani. According to the military press-release, in order to avoid capturing one of the caches which was blown by the wind from the place of destination, the military container was destroyed by the air strike. The rest of caches were successfully delivered. However, Pentagon spokesman Steve Warren reported that the two containers were lost on the route and only one cache was destroyed.
Moreover the military representatives thwart one another talking about the diversion of weapons into the hands of terrorists, they are confused about the total number of dropped containers for Kobani defenders (Warren reported about 28 containers, whereas previously said only 6).
In addition, the soothing assurances that the container captured by ISIS won’t give any advantage to the enemy are not convincing. Pentagon reported that only 80% of water and food which were transported by air for religious minorities in northern Iraq were successfully delivered. And as we see the Kobani example shows that even the use of GPS-guided parachutes can’t be insured. So, how many weapon American taxpayers gave to jihadists?
“Carefully selected” participants of the CIA program on training “moderate” opposition who easily join the jihadists tell us about the lack of awareness or even falsity of the American military leadership. Thus in September 2015 almost immediately after arriving from training camps to Syria “Division 30” has transferred all their equipment, arms and ammunition to Jabhat al Nusra. Unfortunately that was not the first time. Once again the unit commander told about the shortage of instructors and the lack of supply during the preparation of the CIA program. But it was allocated about $500 million for these purposes! What the money was spent on? To buy weapons for terrorists!
During the discussion of 2016 budget, almost every article in the mainstream media avoided the issue connected with the effectiveness and practicability of training “moderate” opposition in order to fight ISIS to the issue of what are the results of this opposition efforts against Assad. Are these things of equal value?
We hope that the special group of the House of Representatives will identify not only the scale of the fraud reports about the results of the coalition activity against terrorism, but also those persons who are responsible for these misconducts, as well as their motives. The international community wants to know who exactly Pentagon supplies with weapons and what installations it bombs.
- Something Went Wrong In Baltimore
It has been a bloody year in Baltimore, that much everyone knows, but as The Economist shows, something changed dramatically after Freddie Gray's death in April…
On November 14th the police department reported the city’s 300th homicide in 2015, a total not seen since 1999.
The surge in killings in the majority-black city of roughly 623,000 began after the death on April 19th of Freddie Gray, a 25-year-old black man who was fatally injured while in police custody. Since Mr Gray’s death the city has recorded 244 homicides, a 78% increase over the same period in 2014, representing more than 100 additional deaths.
Criminologists and city officials disagree as to the causes:
- Some say police have deliberately pulled back from poor, black neighbourhoods, a theory that the police disputes.
- Others blame an influx of drugs from pharmacies looted during the April riots.
- A third theory is that a decline in trust between the police and the policed has had deadly consequences: fewer residents talk to the police, which leads to fewer murders being solved, which – by lowering the odds of being caught – results in more murders.
Whatever the reason, the killing continues. Just hours after the 300th murder, police reported a shooting in the city’s Westport neighbourhood, the fourth homicide of the day. The total for the year now stands at 305.
- Carmen Reinhart Warns "Serious Sovereign Debt Defaults" Are Looming
Authored by Carmen Reinhart, originally posted at Project Syndicate,
When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default,” according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”).
If history is a guide, such conversations may be happening a lot in 2016.
Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults.
The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors.
Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts. But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions.
And, indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises. As my recent work with Vincent Reinhart and Christoph Trebesch reveals, peaks and troughs in the international capital-flow cycle are especially dangerous, with defaults proliferating at the end of a capital-inflow bonanza.
As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.
For some sovereigns, the main problem stems from internal debt dynamics. Ukraine’s situation is certainly precarious, though, given its unique drivers, it is probably best not to draw broader conclusions from its trajectory.
Greece’s situation, by contrast, is all too familiar. The government continued to accumulate debt until the burden was no longer sustainable. When the evidence of these excesses became overwhelming, new credit stopped flowing, making it impossible to service existing debts. Last July, in highly charged negotiations with its official creditors – the European Commission, the European Central Bank, and the International Monetary Fund – Greece defaulted on its obligations to the IMF. That makes Greece the first – and, so far, the only – advanced economy ever to do so.
But, as is so often the case, what happened was not a complete default so much as a step toward a new deal. Greece’s European partners eventually agreed to provide additional financial support, in exchange for a pledge from Greek Prime Minister Alexis Tsipras’s government to implement difficult structural reforms and deep budget cuts. Unfortunately, it seems that these measures did not so much resolve the Greek debt crisis as delay it.
Another economy in serious danger is the Commonwealth of Puerto Rico, which urgently needs a comprehensive restructuring of its $73 billion in sovereign debt. Recent agreements to restructure some debt are just the beginning; in fact, they are not even adequate to rule out an outright default.
It should be noted, however, that while such a “credit event” would obviously be a big problem, creditors may be overstating its potential external impacts. They like to warn that although Puerto Rico is a commonwealth, not a state, its failure to service its debts would set a bad precedent for US states and municipalities.
But that precedent was set a long time ago. In the 1840s, nine US states stopped servicing their debts. Some eventually settled at full value; others did so at a discount; and several more repudiated a portion of their debt altogether. In the 1870s, another round of defaults engulfed 11 states. West Virginia’s bout of default and restructuring lasted until 1919.
Some of the biggest risks lie in the emerging economies, which are suffering primarily from a sea change in the global economic environment. During China’s infrastructure boom, it was importing huge volumes of commodities, pushing up their prices and, in turn, growth in the world’s commodity exporters, including large emerging economies like Brazil. Add to that increased lending from China and huge capital inflows propelled by low US interest rates, and the emerging economies were thriving. The global economic crisis of 2008-2009 disrupted, but did not derail, this rapid growth, and emerging economies enjoyed an unusually crisis-free decade until early 2013.
But the US Federal Reserve’s move to increase interest rates, together with slowing growth (and, in turn, investment) in China and collapsing oil and commodity prices, has brought the capital inflow bonanza to a halt. Lately, many emerging-market currencies have slid sharply, increasing the cost of servicing external dollar debts. Export and public-sector revenues have declined, giving way to widening current-account and fiscal deficits. Growth and investment have slowed almost across the board.
From a historical perspective, the emerging economies seem to be headed toward a major crisis. Of course, they may prove more resilient than their predecessors. But we shouldn’t count on it.
- Keynesian vs. Austrian Economics – The Infographic
There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).
In order to get a full understanding of the two schools of economic thought, we offer the following via The Austrian Insider…
And some responses to popular criticisms:
– “Animal Spirits is misrepresented” – I just personally thought explaining that further would be too much text. If anyone would like to get a full explination of what Keynes meant by this term, read this Wikipedia article on Animal Spirits
– “This is biased towards the Austrian School” – Well I am obviously an Austrian economist, so there is only so much I can argue with that point. That said, I HONESTLY tried to represent Keynes properly and would love to hear from any Keynesians what can be changed to help represent them properly.
– “Malthus was not an economist” – He may be more of a philosopher, but many consider him an influence of Keynes.
– “Ron Paul is not an economist” – Just because he is a doctor and politician by profession does not mean he is not a well known Austrian Economist. He has many books on the subject, is a senior fellow of the Mises Institute, and has personally got many individuals to research Austrianism further
– “It should not be total utils, but marginal utility on that graph” – It is supposed to represent the marginal utility graph, I just didn’t label it. The graph should show total utility marginally decreases with each dollar increase. The printable version has the entire chart labeled.
– “Praxeology is not the right term to describe the whole organizational pattern of the social order. It refers only to the logical implications of human action that can be known through deduction.” – Well put. Just hard to figure out how to graphically represent that…
- "Not Transitory" – The Year In Junk Bonds
Submitted by Jeffrey Snider via Alhambra Investment Partners,
The most important outbreak or story of 2015 had to have been the junk bond reversal. It combined all the major elements of what investors and economic agents are both fearing and, at one point in the past anyway, hoping. It is the confluence of finance, “dollars”, liquidity and economics with or without recovery and the best scenario. The FOMC raising rates is supposed to confirm the brightest outlook, which would only lead to more extension in the credit cycle, and yet junk bonds traded as if the worst were only just around the corner. It isn’t so much the selloff, though that is obviously important, but rather how increasingly the selloff is being treated as permanent.
It is the expression of an obvious and apparently durable shift in risk perceptions, and I think it the most significant development. You can see it clearly in the changes this year to last. After the selloffs in October and December 2014, junk was bid in clear bargain hunting patterns of behavior. The rebound after last December lasted months and was quite significant even if it didn’t quite bring prices and yields quite back to the full comfort of prior complacency.
This year, each discrete selloff was met instead by listlessness and palpable uninterest, including the past week or so after what was undoubtedly the most intense selloff yet. That leaves the waves of selling only pushing the idea of the continuation in the credit cycle further and further remote; bringing instead the sense of doom closer and closer. This alteration in outlook and perception really could not be more unmistakable:
It is not your typical market behavior; not at all the “wall of worry” that represents healthy skepticism and functional fundamental discounting but rather a “get the hell out of Dodge” and stay out.
Not transitory at all, then, rather a paradigm shift that isn’t yet even close to a new steady state. Welcome to 2016.
- On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges
On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring – perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai.
What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.
However, while the broad framework of Turkey’s exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold “trading” company of Gold.A.E. – is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.
The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company’s “new” management team admitted that after many months of “inquiries”, it had discovered that not only had the “old” management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money – and gold – held at Gold.A.E. which once again was primarily a “trading” front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.
Here, for those who missed it the first time, is the letter that Gold.A.E.’s stunned clients received in late December:
Dear Client
A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.
Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.
Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.
In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.
DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC’s rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.
We trust the forgoing is of assistance.
Sincerely,
On behalf of GOLD AE MANAGEMENT
Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park‘s infamous episode: “aaaannd it’s gone. The gold is all gone.“
In a follow up article, “The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens“, we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner – one of the most important people in the United Arab Amirates – and “washing” their hands of any accountability.
Recall, “the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”
“We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”
But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.
When Arabian Business emailed the public inquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.
Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.
In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money – and gold – of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.
* * *
So while we continue to dig into the mystery of Dubai’s stolen gold, one which has received absolutely no mention in the western press – in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year’s Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.
I’m a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM’s. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.
I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM’s were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].
The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my ‘source’ who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!
And here is the punchline from our source’s letter:
My source has told me that he now understands that the company knew something was terribly wrong in the March – May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I’ve been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.
Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings – a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf – waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.
Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai’s gold.
According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, “A new integrated Gold and silver investment vehicle”, one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.
This is what the October 2014 presentation boasted about Gold Holding’s ambitions – nothing short of global gold commerce dominance:
- To be a premier precious metals investment vehicle, physical.
- To provide shareholders with high quality, long-term exposure to precious metals.
- To offer mine owners an attractive alternative to debt or equity.
- To be a significant and Reliable trader of Gold and Silver
Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.
The company’s Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in… Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing…
Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk – that of corporate fraud and embezzlement – was at the Trading level, where the risk was supposed to be the lowest. Oops.
The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of… Gold Holding?
Wait, wasn’t Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:
“We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”
“We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”
It appears “your” knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company’s own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the “old management team”, the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed “substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”
In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.
Which brings us to our conclusion from a week ago:
So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.
And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by… the United States!
Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important – and richest – people in the country, if not the entire middle eastern region.
But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.
As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something “out of place”, in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE… which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.
* * *
And finally, while not directly related to the topic of Gold AE’s massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.
… and not only that, but it was here where we found what may be the most fascinating detail of today’s article, namely Gold Holding’s (aka Dubai’s) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan…. as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!
Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.
Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?
Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing… and all with Dubai’s blessings?
- Caption Contest: "And Then I Said Obamacare Would Lower Insurance Costs"
“Comedians” in cars…
or driving Miss ‘Crazy’?
- Mapping China's Hilarious European Stereotypes
To many in the Western world, China is still something of a mystery.
Even as Xi works to liberalize the country’s capital markets, promote the yuan in international trade and investment, and generally open the country’s doors to the world, it’s still a strange, foreboding place in the eyes of the Western public.
Tales of censorship, “disappearing” journalists, and endemic corruption don’t help, and neither does the ambiguity inherent in attempting to run a communist state with a semi-capitalistic economy.
Of course this is a two-way street. That is, the West is something of an enigma for many Chinese as well.
For those wondering what comes to mind for the average Chinese web surfer with regard to nations in Europe, we present the following map from Foreign Policy who “plotted the most common Chinese-language Baidu query for each European nation.” Highlights include “likes to fight” for Russia, “why doesn’t it annex Portugal” for Spain, and “beautiful women” for Ukraine.
From Foreign Policy:
This provides a glimpse into how Chinese netizens view the peoples and countries of Europe — a continent whose industrialization once both humiliated China and inspired its admiration, and that has loomed large in the country’s imagination ever since.
The ghosts of the past haunt Chinese queries for many countries. Chinese netizens ask why France and Poland can’t beat Germany — though vague phrasing and the Chinese language’s lack of verb tenses admittedly mean these might just be soccer questions, which also appear frequently in search results about World War II. (Those Belgian red devils? That has been thecolloquial name for Belgian soccer players since 1906.) There is no ambiguity about Italy: Netizens ask why that nation was not subjected to the same postwar criticism as Japan and Germany. Britain’s role in the Opium Wars, the successive 19th-century conflicts that forced China to grant territorial concessions to European nations, comes up. And for Germany, references to killing and hating Jews topped the search suggestions, though another top query, “Why do Germans still hate Hitler?” indicates a modicum of balance.
Quirks of European political divisions and territorial boundaries also arouse Chinese curiosity. There is considerable confusion about who does and does not belong to institutions like the European Union and the eurozone. The political status of parts of the British Isles is an object of intense interest to China’s online community, which asks about the independence (or the lack thereof) of Ireland, Northern Ireland, Scotland, and Wales. Netizens also ask why German-speaking Austria does not unite with Germany, and why Italy and Spain do not respectively annex the Vatican City and Portugal.
- Will 2016 Be The End Of The Current Skyscraper Boom?
Submitted by Mark Thornton via The Mises Institute,
With more financing in place, the world’s tallest skyscraper is moving forward.
Recent media reports indicate that the final segment of financing has been obtained for the $1.2 billion Jeddah Tower project in Saudi Arabia. This is the financing that would be necessary to bring the project to record heights. Media reports also show that the structure has risen to more than seventy-five meters (246 feet) and construction is proceeding at an uninterrupted pace.
Above ground construction on the long delayed Jeddah Tower started in September 2014, but there was considerable doubt that the financing of the one kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.
But the Jeddah Tower is only the latest phase in an enormous boom that began setting new records in 2014. As I reported nearly a year ago:
Super tall buildings, or skyscrapers, are being built at an astonishing rate. Ninety-seven buildings that exceed 200 meters (656 feet) high were constructed in 2014, setting a new record. The previous record was eighty-one buildings completed in 2011. The total number of skyscrapers in existence now is 935, a whopping 350 percent increase since the year 2000.
If completed as planned, the Jeddah Tower will be the tallest in the world. The International Business Times reports:
Saudi Arabia’s Kingdom Tower in Jeddah is slated to become the world’s highest skyscraper when it is erected in 2020, knocking Dubai’s Burj Khalifa tower from its perch as tallest building at 2,716 feet. The new tower will claim the title if it reaches its planned height of 3,280 feet. …The 200-floor Kingdom Tower will be part of a reported $8.4 billion project to construct Jeddah City. Construction of the skyscraper will entail 5.7 million square feet of concrete and 80,000 tons of steel …
Time for a Skyscraper Alert?
In other words, the Tower is just part of an even more massive project, and it’s time for a new skyscraper alert.
A skyscraper alert is a market indicator suggesting a significant economic crisis in the near future. This alert could have been issued earlier because the alert is based on the ground breaking ceremonies of a world record setting skyscraper, not the initial announcement of the project which occurred in August of 2011.
The completion of record-setting skyscrapers has long seemed to indicate the beginning of economic crises.
The Singer Building (September 1906) and Metropolitan Life Insurance Building (1907) began construction before the Panic of 1907 and were later completed in 1908 and 1909, respectively.
Construction began on 40 Wall Street (now the Trump Building), Chrysler Building, and the Empire State Building all prior to the crash on Wall Street which began in the fall of 1929 only to have the record-setting buildings open in the beginning of the Great Depression in 1929, 1930, and 1931, respectively.
Construction of the World Trade Center towers began in August 1968 and January 1969 and opened in December 1970 and January 1972, respectively. The economy was then in a bad recession and the Bretton Woods Crisis at hand. The Sears Tower (now the Willis Tower) began construction in April of 1971 and opened in May of 1973 during the 1973–1974 stock market crash and the 1973 oil crisis.
Such alerts indicate looming danger in the economy of significance. However, the danger is not necessarily imminent. The next pivotal date is when the construction project reaches a point where it has broken the record. That date is difficult to estimate given the whims of construction. Media reports indicate that the Jeddah project will possibly be completed in 2020 without indicating whether that date is the record setting date, the completion date, or the opening ceremonies.
It is significant that the record being broken by the Jeddah Tower is the record set by the Burj Khalifa in Dubai. In some ways, the Burj Khalifa has become something of a symbol of the excesses of the last bubble.
Set to become the tallest building in the world, the Burj Khalifa in 2009 began to experience financial trouble and had to delay payment on its debt to finance construction. When the Burj Khalifa officially opened in January of 2010, the sovereign fund of the United Arab Emirates, which built the skyscraper, was broke and had to be bailed out by the sheikh of Abu Dhabi for $10 billion.
So, will this latest frenzy of new construction tip us off to the next bust? The skyscraper index is silent on the issue of timing so the dating of when the skyscraper curse is apparent is just guess work. It seems that the boom-bust cycle reaches its peak around the time the new record is set and is called a Skyscraper Signal, if imminent economic danger is looming. In most episodes, record breaking skyscrapers have their opening ceremonies when the economic crisis is readily apparent.
The important thing to remember is that skyscrapers do not cause economic crises. Rather they are just a very noticeable example of the distortions taking place throughout the economy when interest rates are keep artificially low by the central bank.
In addition to record breaking skyscrapers, there are many less perceptible changes taking place. Entrepreneurs are building bigger, longer term projects and production processes. Relative prices, i.e., interest, land, capital, and labor prices, are being distorted. Technology, nearly everywhere, is on the fast track. The economy is booming.
If the Skyscraper Curse is at work, then these distorted economic activities will soon be revealed to be malinvestments.
- Obama To Unveil "Multiple Gun Control" Executive Actions Next Week
A month ago, after the mass San Bernardino shooting, we predicted that “the US will see increasingly more escalating “attacks” until ultimately Obama’s crackdown on gun sales and possession hits its breaking point and the president’s gun confiscation mandate is finally executed.”
Without a Democratic majority in Congress, and faced with a GOP that is firmly against any form of gun control measures, Obama has repeatedly warned that he would act on his own. Next week he will do just that, and his “gun confiscation” mandate will get a substantial boost on Monday, when according to the WSJ Obama will meet with US Attorney General Loretta Lynch “to consider measures aimed at reducing gun violence, a conversation that comes as he prepares to announce new executive actions in the coming days.”
The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”
Once he has Lynch’s “blessing”, the WSJ adds that Obama “could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.“
White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.
Why act now?
“I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Obama said in the address, which was released Friday morning.
Something tells Obama gets even more letters from supporters of the Second amendment, although their contents may be just slighly more “colorful.”
“We know that we can’t stop every act of violence. But what if we tried to stop even one?” Obama added. “What if Congress did something—anything—to protect our kids from gun violence?”
“The president has made clear he’s not satisfied with where we are and expects that work to be completed soon,” the White House spokesman added. In other words, it’s time for the president to micromanage yet another aspect of daily US lives, because Obamacare turned out so well.
One executive action that will almost certainly be unveiled is the “tightening” of rules for firearms sellers by requiring more of them to be licensed and, as a result, to conduct background checks on buyers.
Anything Obama does unveil will be met with stiff resistance.
Many gun-rights groups already have signaled opposition to new rules for private sellers and an expansion of background checks. And they have questioned whether Mr. Obama has the legal authority to act unilaterally.
Research by the National Rifle Association showed that dating back to the 2007 mass murder at Virginia Tech, none of the high-profile mass shootings has been conducted600 with a firearm bought from a private seller. Adam Lanza is believed to have stolen his mother’s gun after killing her then using it in the Sandy Hook Elementary School massacre.
“I don’t think the president has the authority to redefine what a dealer is because that is defined in existing federal statute,” said Dave Workman, senior editor of the Second Amendment Foundation’s The Gun Mag. “He can’t snap his fingers and suddenly say to someone who sells a gun at a gun show is now a dealer. That would take congressional action.”
Meanwhile, while the US wait to see what executive orders Obama will implement, at the state level numerous gun-related laws just kicked in starting in the new year.
In Texas, beginning today, adults with the proper permits no longer need to hide the handguns they carry in their shoulder or belt holsters. Proponents of the new open carry law say making guns more visible will deter mass shootings.The bill became law after a spirited debate. A majority of the state’s police chiefs opposed it.
“The question is: Does it make sense and is it good judgment to have a bunch of people running around with guns visible? And I think the answer is: Absolutely not,” said Chief Art Acevedo of Austin.
While Texas is easing gun regulations, starting Friday in California it will be illegal for holders of concealed carry permits to bring handguns to school campuses. Meanwhile, the city of Albany, New York, will now require owners of firearms to store their guns in a secure container or install trigger locks. Repeat violators could face up to a one-year jail term.
Ironically, instead of implementing executive orders, what Obama should do instead if he wants to make an immediate change, is focus on his home state. According to the Chicago Tribune, Chicago’s first homicide of 2016 occurred barely 2 hours into the new year.
Two people were shot in the 4600 block of South St. Lawrence Avenue at about 2 a.m., police said. One of them, a 24-year-old man, reportedly had been arguing with someone who pulled out a gun and shot him in the chest. He was declared dead on the scene.
In the latest homicide, a 36-year-old man was shot in the chest and died at a hospital, said Nicole Trainor, a spokeswoman for the Chicago Police Department. The shooting happened at 6:40 a.m. in the 1900 block of West Garfield Boulevard in the city’s Back of the Yards neighborhood, said Trainor. The victim was driving a sport-utility vehicle westbound on Garfield when he heard shots and realized he’d been wounded, said Officer Janel Sedevic, a spokeswoman for the Chicago Police. The 36-year-old was driven to the Artesian Avenue and 55th Street where an ambulance was called and he was taken to Stroger Hospital where he died, Trainor said.
In short, eradicating gun violence in Chicago (and D.C.) would likely do miracles for the average gun homicide rate across all of the US. Which is why it will never happen.
Meanwhile, if Obama wants to truly curb gun ownership at the national level, the solution there is also simple, as the following chart from the NYT reveals:
He should resign.
- A Year Of Living Technically: Charting The Markets Of 2015
As we wrap up 2015, we again pause to reflect on the noteworthy events that took place across the financial markets this year.
It is a fairly extensive list which really serves as a recap of the entire year. These charts aren’t necessarily our most popular ones (see The 5 Most Viewed Charts Of 2015 for those). Consider these our “editor’s picks”. The charts range from those that had the most impact on the markets in 2015 to those that may have the most impact on 2016 to those whose impact is totally unknown to us. They don’t necessarily include after-shots of the big movers of the year. However, you will see “before” shots of many of the big movers. After all, we are money managers and the objective behind these charts is to identify potentially profitable moves before they happen. Like last year, there are bullish charts but more bearish charts. Finally, there is our chart of the year for 2015.
2015 Charts Of The Year
(in chronological order – click on the titles to visit the respective posts):
Speculators Hold Massive Record Long Position in the U.S. Dollar – January 12
At the beginning of the year, Speculators held a record net long position in U.S. Dollar futures. While the currency had been on a tear, we surmised that given the position of the Speculators, who are typically on the wrong side of markets at major turning points, the U.S. Dollar rally could be in danger at some point soon thereafter. While the Dollar was able to continue its advance for another 2 months, and extend the Speculators record long position, it has stalled over the past 9 months. During this time, the Speculators’ net long position has dropped considerably, perhaps allowing for another advance to come in the Dollar? This one will obviously be an important development to track going forward.
Bearish Fund Bets Hit All-Time Low – January 15
While there has been a structural trend away from inverse mutual funds and toward inverse ETF’s, January still marked a milestone all-time low in the amount of assets in Rydex bear funds. This was an indication that investors were ill-equipped to withstand a significant decline and dispelled the still-perpetuated notion of “the most-hated bull market in history”. And while the stock market would not suffer a significant decline for another 7 months, it was unable to make any upside progress either.
Swiss Market Index Goes From 52-Wk High To 52-Wk Low In Same Week! – January 16
What kinds of things tend to happen when your central bank is heavily involved in currency intervention? How about your stock market going from a 52-week high on Tuesday to a 52-week low on Friday. That happened to the Swiss stock market following the Swiss National Bank’s decision to remove the Swiss Franc’s cap versus the Euro.
European Stocks Set To Blast Higher? – January 20
One lesson that is reinforced on a daily basis across the globe is that a stock market is not necessarily representative of the economy at any given time. So it was across Europe in January as the broad Dow Jones STOXX 600 broke out of a bullish inverse head-&-shoulder pattern. Based on the pattern, a successful breakout suggested potential upside targets of 9%-18% higher. The breakout was indeed successful and European equities were the stars of the 1st quarter. By April, the 18% rally target was achieved – and the rally hit a brick wall. Stopped by a combination of a 100% extension of the inverse head-&-shoulder pattern as well as the 2000 and 2007 highs, the STOXX 600 has trended downward since.
How Ominous Is The S&P 500 Monthly MACD Sell Signal? – February 2
One popular tool in technical analysis for gauging momentum (and change in momentum) is the MACD. Used on a monthly time frame, MACD sell signals have often, though not perfectly, signaled cyclical peaks and downturns. The signals have been especially helpful when the S&P 500 is both overvalued (via CAPE) and extended versus its long-term price trend. This was the case upon the January sell signal in the indicator. So, while the technical signal has not been perfect historically (what has?), the loss of momentum signaled by the MACD, in conjunction with other concerns, was another unwelcomed development for a market as stretched as it was.
Unemployment Hits 6-Year Low; Bad News For Stocks? – March 6
No, we do not bemoan the vast improvement in the U3 Unemployment Rate in recent years (though, we have serious doubts as to whether it’s the best measure of the strength of the labor market). This chart provides lessons regarding market cycle proximity as well as psychology. Historically, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. That message is driven home here by the fact that since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.
Volatility Has Not Expanded With Recent Euro Plunge – March 13
Typically, when the price of (most) assets drops, their expected volatility, as expressed by a volatility index, rises. This has generally been the case with the Euro as well. Interestingly, however, despite the Euro plunge to new lows in March, its volatility index (EVZ) did not make a higher high above its January peak. This non-confirmation was seen at other significant lows in the currency over the past 7 years. Indeed again, March 13 proved to be the low for the year in the Euro.
Signs of Froth in the Biotech Sector – March 23
The hottest sector over the past few years has been biotech. And while there is a debate about whether it is or is not a bubble, there have certainly been signs of froth related to the sector’s recent extraordinary gains. For example, while total assets in Rydex’ “bullish”-oriented index funds have been essentially flat since 2007, the Rydex Biotechnology Fund is a different story. In 8 years as of March 20, assets in the fund increased from around $58 million to $567 million, a nearly ten-fold jump in assets. That struck us as a little bit bubbly. As it happens, March 20 marked the top in the biotech sector for the year, outside of a 2-week span in July.
One-Way Market Due For A U-Turn? – April 28
If there is one thing that characterized the stock market’s run from 2012 to 2015, it is the lack of volatility. As it turns out, this period was truly historic in that regard. Since 1950, this was just the 5th time that the S&P 500 had gone 3 years without a single 10% reversal in prices. Well, that streak ended in August. And despite the bounce back thus far in prices, if the current market tracks previous such streak-enders, the market may not be out of the woods just yet.
May Has Become The “Toppiest” Month – April 30
As we laid out in this April post, the month of May has recently become the toppiest month for stocks in the short-term, i.e., 3 months. Perhaps it corresponds with the “Sell in May and Go Away” phenomenon. Whatever the reason, since 1996, there had been twice as many 3-month tops in the Dow Jones Industrial Average (DJIA) in May as any other month. Well, you can now add one more to the tally as the DJIA still has not surpassed its peak from this past May.
Despite Historic Compression, Stocks Remain Range-Bound – May 6
May was a busy month in terms of important stock market developments and, as such, produced many noteworthy charts. The DJIA entered the month stuck in a month-long trading range. Eventually, the DJIA would last 40 days without making a 1-month high or low, its longest such streak in more than 100 years.
Final Pillar Of Bull Market Showing Cracks? – May 8
One of the major themes in 2015 was the extensive deterioration in the market’s underlying internals. It was a trend that started in mid-2014 and really accelerated during this past spring. While that was occurring, however, the prices of the major averages continued to score new highs. One of the first signs of an actual price breakdown occurred in the Value Line Geometric Composite (VLGC). As we’ve mentioned many times, since the VLGC is an unweighted index of some 1700 stocks, it is a favorite of ours as a measure of overall market health. That’s why we considered it a warning sign in early May when the VLGC was unable to sustain its breakout above its tri-decadal triple top.
Stock Indicator Suggests Big Move (Lower?) Coming – May 12
Another indication of the stock market’s spring range-bound trade came from the ADX, or Average Directional Index. The ADX is essentially an indicator of the strength (or lack of strength) of the prevailing trend over a specified period, regardless of the trend’s direction. In May, the ADX of the S&P 500 recorded one of the lowest readings of the last 65 years, indicating an extremely “trendless” market. Specifically, on several days in early May, the ADX hit a level of 9, a reading reached on just 42 total days – or ¼ of 1% – since 1950. As periods of compression are followed by periods of expansion, an out-sized move emanating from this condition was expected. And our bet, based on the aforementioned one-way market was that it would be lower.
The Grand-Daddy Of All Divergences Strikes – May 21
As the aforementioned breakdown in the market’s internals accelerated, more divergences began to crop up. That is, while the S&P 500 continued to score new highs, other key averages or metrics failed to make concurrent new highs as well. That was the case in mid-May with what we refer to as the “grand-daddy of divergences”. While many divergences can occur and persist without much damage, a failure to confirm new highs by the NYSE Advance-Decline Line is of the utmost gravity in our view. A glance at the chart reveals that a divergence by the NYSE A-D Line has preceded every cyclical market top of the past 50 years. This was one of the most consequential stock market developments in 2015.
Bull Market Dealt Significant Blow?: NYSE A-D Line Breaks Post-2009 Uptrend – May 27
As you can see, the breakdown in the market’s internals began to unfold fast and furiously in May. Following the divergence in the NYSE Advance-Decline Line, another red flag was raised when the A-D Line broke its post-2009 Up trendline. One might want to argue that trendlines on indicators are meaningless, but we disagree. Look on the chart at the last two occasions that the A-D Line broke its uptrend line. Each marked the end of cyclical bull markets for stocks.
Household Stock Investment Hits 2007 Levels – June 11
While folks still try to foment the “most hated bull market” rhetoric, the data unanimously disputes the notion. Sure, short-term sentiment can shift with the wind, but longer-term “real money” measures like the Fed’s “Equities as a % of Household Financial Assets” paint the true picture. And while some of these types of measures have not reached the 2000 levels, why should they? That period marked the most froth-laden point in U.S. stock market history. Therefore, it should not serve as a reasonable or attainable barometer of investment level. The facts that A) Household investment never got truly “oversold” following that top, and B) in the 1st quarter, it matched the 2nd highest level ever attained, in 2007, are the most pertinent conclusions from the data series, in our view. If you’re interested in reading more on the topic, we took a very balanced approach in the June 11 link above.
Dow Divergences Reaching Historic Levels – June 18
On the topic of divergences, one of the oft-mentioned examples refers to the “Dow Theory” whereby the DJIA and the Dow Jones Transportation Average (DJT) diverge from each other. While people too often blindly follow such market platitudes, we prefer to test their veracity. In doing so, we actually found less relevance to DJIA divergences with Transports than we did with Dow Jones Utilities (DJU). And when the DJT and the DJU diverged from the DJIA by as much as they did in June, it has often spelled trouble for the stock market. As shown by the blue markers in the chart, outside of a false alarm in the mid-90’s, such divergences have strictly occurred near cyclical market tops over the past 60 years.
July 20: The Thinnest New High In Stock Market History – July 21
The divergence between deteriorating market internals and the resilient stock averages hit a crescendo on July 20. The Nasdaq Composite hit a new all-time high on the date while the S&P 500 came within 2 points of its all-time high. However, those feats were accomplished amid the worst breadth, the worst volume and worst new high-new low differentials of any such day in our recorded history. The 2 charts above are examples of the “thin” nature of the high. And while we did not know for sure if the day would turn out to be the high for the rest of the year (it was), there was no escaping the historically inadequate breadth statistics as we reported in real-time.
Even The Stronger Areas Of The Market Are Starting To Weaken – July 22
Another area where we monitored the deteriorating breadth situation over the spring-summer months was in the “equal-weight” averages. Cap-weighted averages weight the largest stocks the most heavily and, thus, a few strong-performing larger stocks can mask softness among the larger group. Conversely, equal-weight averages weight each component equally so you get a truer sense of the health of the entire sector or market. As the chart shows, at the July highs, even the stronger areas of the market like the Nasdaq 100 were beginning to show weakness among their broader ranks.
Add Junk Bonds To The Growing Pile Of Concerns – July 23
In addition to the deteriorating breadth situation, other concerns began to pop up as well during the summer. Chief among them was the substantial weakness in the high yield bond market, despite the stock market being near its highs. This combination has historically occurred near stock market tops of some significance, as the chart shows. And as we know now, it was merely the beginning of the carnage that would befall the junk bond market.
The Summation Of All Fears – July 30
With more than 170,000 hits, this was the most viewed post on our blog in 2015. It is fitting because, as much as any chart, this one portrays the historically weak state of the breadth and new high-new low situation this summer, even as the S&P 500 remained near its high. Ominously, as the chart indicates, similar conditions have been present on just 58 days since 1970. Each of those days was in close proximity to a cyclical top and each of them showed negative returns over the subsequent 1 and 2 years.
Pfff…The Post-2009 Commodity Gains Are Gone – August 3
One theme from 2014 that continued into 2015 is deflation. This year brought multi-year or all-time lows in the 5-Year Breakeven Rate, the Baltic Dry Index, and commodities across the board. Evidence of the latter is seen in this August chart showing that the broad basket of commodities represented by the CRB Index actually wiped out its entire post-2009 gains. Incidentally, the deflation trend has not stopped as the CRB has continued to drop into year-end.
The Junkie Market – Too Many Highs & Lows – August 7
Another manifestation of the developing concern over the market’s internals was seen in the proliferation of New Highs AND New Lows with the market near its highs. As the chart demonstrates, this variation of the “Hindenburg Omen” has historically occurred near tops of intermediate-term or cyclical importance, thus the -20% median 2-year return. One did not have to wait too long following this post before a substantial decline unfolded.
“Smart Money” Ready To Bet On Gold? – August 7
Given the events of the past 4 years, perhaps the most downtrodden investors right now are the “gold bugs”. With the metal working on its 3rd straight losing year, not to mention gold stocks near all-time lows, the pessimism is understandable. However, that is a good thing. Considering gold rallied for the 12 years prior, there was way too much bullishness built up. That has finally waned, as evidenced by the “smart money” Commercial Hedgers’ largest net long position in gold futures since the beginning of gold’s bull market in 2001. The metal was able to bounce for 3 months following this signal in August before dropping to new lows again. So, it might not quite be time for gold to shine again, but it’s getting there.
Was The Most Important Line In The Equity Market Just Broken? – August 21
Following the significant deterioration in the market’s internals that we documented extensively, price eventually began to follow suit. This included a break of what we labeled as the “most important line in the equity market”: the post-2009 Up trendline on the Value Line Geometric Composite. As we’ve indicated, we view the VLG as the most important index as it essentially reflects the median stock across the broad market. Thus, the break below its bull market uptrend in August was a serious development.
August 24 – A True Market Washout – August 25
Following a systematic breakdown of key levels on the various indices in July-August, the market’s decline devolved into a near crash-like cascade in late August. The decline culminated on August 24 in what we referred to as a true “wash-out”, or capitulation. While the July 20 top raised numerous alarm bells based on its internal structure, August 24 did the same in the opposite manner. Various metrics related to trading on that day, including this chart showing 40% of all NYSE stocks closing at new 52-week lows, hit levels seen (almost) unanimously at major market lows. These circumstances suggested that a bounce of some magnitude was likely imminent.
Volatility Of Volatility Flies Off The Charts – August 27
As testimony to the wild action in the stock market towards the end of August, the VVIX soared well into record territory. This indicator that we have just recently begun to track is literally the Volatility Index OF the S&P 500 Volatility Index, or VIX. As the chart shows, since the inception of the VVIX, it has generally registered its extreme high readings following substantial market declines. However, it has also occurred following lesser weakness that came on the heels of an extremely calm market. This appears to reflect the recent circumstances and does not guarantee that a longer-term bottom has been put in.
What Happens After A Crash? – September 4
While the term “crash” is subjective, the circumstances surrounding the August plunge in stocks have been seen on only a limited number of occasions (9) since 1950. We looked at the 9 precedents for guidance on what we might expect in the way of a potential bottoming process in the aftermath of the crash. While each incident was unique, they did follow a similar template along the lines of A) a dead-cat bounce for a few weeks, followed by B) a re-test of the original crash low after roughly a month, followed by C) a more substantial rally. This was a template we monitored as September trading unfolded.
Global Equity Index Hanging On Precipice – September 8
Besides the Value Line Geometric Composite, another key index garnering our focus in 2015 was the Global Dow. Despite the fact that not much money is directly tied to the index, it has been very instructive because it tracks 150 of the largest stocks in the world on an equal-weight basis and it has conformed very closely to technical chart analyses. For example, its break of its well-defined post-2012 Up trendline in June preceded the July-August global equity selloff. As it happens, the selloff took the Global Dow down to its post-2009 Up trendline, along with some key Fibonacci Retracement levels. After a brief false breakdown in late September, this level held and prompted a months-long rally. Just recently, the index tested the trendline again, so this will be a situation to monitor into 2016.
Even Biotech Bulls Should Be Watching This Level – September 17
While the post-crash bounce progressed, we remained mindful of the strong possibility of a re-test. Thus, were watchful for areas of potential resistance in the various indices and sectors. On September 17, a day which included a Fed meeting, we identified many market segments as reaching such resistance levels. One example was in the highly watched biotech sector. We identified on the Biotech Index (BTK) chart several layers of potential resistance in close proximity to where the index was trading. Sure enough, the BTK topped that very day and proceeded to drop some 20% over the next 8 days. They don’t all work out this well, but the evidence was certainly compelling.
U.S. Stocks Facing Their Biggest Test In 8 Years? – September 29
As I said, our “calls” and analysis don’t always work out perfectly, but this post was another one that, looking back, was right on the screws. During the late-September stock market re-test, the Value Line Geometric Composite dropped down to an area of critical consequence, in our mind. As the VLG was hitting the major Fibonacci Retracement lines of the post-2009 bull market era, we labeled this a “pass-fail” test for stocks. It was perhaps as simple as pass=post-2009 bull market could continue and fail=bull market was likely done. Well, stocks did pass this test as they put in a bottom for the year on that very day, launching a strong 4th quarter rally.
Can The 4th Quarter Save 140-Year “Year 5″ Streak In Stocks? – September 30
At the beginning of the year, we noted that years ending in “5” have not had a losing year in the stock market since 1875. And while these kinds of statistics are more trivia than useful to us, 140 years is a long time. So at the end of September, with the S&P 500 down over 7%, the streak looked to be in serious jeopardy. On plus side, looking back to 1905, it would merely take an average “year 5” 4th quarter to get the S&P 500 back into positive territory. That’s because all 11 “year 5’s” since 1905 have had positive returns during the 4th quarter, at an average of +10%. As of this writing, the S&P 500 is up 8% for the quarter and back into the green for 2015. So, trivial or not, this is another trend that has continued to play out according to precedent.
Stock Market Reaches Key Post-Crash Milestone – October 2
As an update to the post-crash post from September 4, we looked at how the market had traded since the late-August lows in comparison to the similar historical post-crash events. We chose October 2 to update it as it marked the average time (27 days) that it took the previous crashes to complete their re-test. As it turns out, while the re-test had already completed its process 3 days earlier, the basic pattern from the August crash to the late-September re-test held fairly close to historical form. Thus, this study was a useful one in guiding our expectations during the volatile aftermath of the August decline.
Bearish Fund Assets Hit 3-Year High…AFTER Big Rally – October 7
Following a 6-day rally off of the late-September lows that took the S&P 500 up over 100 points, or 6%, we took measure of the “quality” of the rally, as we always do. We always want to attempt to discern whether a rally is merely another dead-cat bounce or if it has legs. One clue that more upside was likely came from the behavior of traders in Rydex mutual funds. Interestingly, assets in Rydex’ bearish funds jumped to a 3- year high after the 100-point S&P 500 rally. This was one suggestion that there was considerable skepticism about the rally, a condition that, per contrarian thinking, argued for further extension of the rally.
Relatively Few Big Stocks Bearing Weight Of This Rally – October 28
As we continued to take stock of the quality of the post-September stock rally, we began to notice some of the same concerns from earlier in the year related to relatively weak internals and lack of broad participation. Evidence of this was seen in this October chart comparing the relative strength of the Rydex Equal-Weight S&P 500 ETF (RSP) vs. the cap-weighted S&P 500 SPDR (SPY). In late October, as the chart shows, the ratio of the RSP to the SPY actually dropped to a 3-year low. This was an indication that the broad market was lagging badly behind a relatively few mega-cap names. It was also a situation seen only in July 2015 and October 2007.
Corporate Junk-It: When Stocks AND Bonds Sell Off – November 4
This was a retrospective post, looking at the carnage that had taken place in the corporate financial markets over the summer. Specifically, we looked back 100 years at similar examples when corporate bonds AND stocks both suffered significant declines as they did during the 6 months into the late summer lows. The point was to try to discern whether there was possibly a larger, longer-term message being sent by the weakness in the 2 asset classes. As it turns out, it has historically been the case that, at least for stocks, more challenges remained in store in the intermediate to longer-term. Thus, despite the 4th quarter rally, stocks may not be out of the woods.
Short-Term Rates Break Out: Another Rising Rates “Set-Up”? – November 6
For probably 10 years we’ve been hearing about the impending “rising interest rate” environment. Yet, rates have continued to remain low during this time. Of course, ZIRP has had something to do with this. Yet, every time rates threatened to break higher, it has proven to be a fake-out. In November, when the 2-Year Treasury Yield broke out to its highest level in over 5 years, we had to ask “is this another set-up?” In this case, it was probably in anticipation of the Fed’s rate hike in December and it has held its gains thus far (though longer-term rates have remained subdued). Maybe “this time, it’s different?”
Is It Too Late To Sink Your Teeth Into F.A.N.G. Stocks? – November 25
Every year, the stock market provides new themes that a year earlier hadn’t even been considered. This year it was F.A.N.G., an acronym created to extoll the prodigious gains in the stocks of Facebook, Amazon, Netflix and Google (now Alphabet). The F.A.N.G. concept has served to drive home the reality that any gains in the market this year were for the most part concentrated in a limited number of mega-cap stocks – stocks, by the way, that were in position to keep the major large-cap indices near their all-time highs. In this chart, which turned out to be our most popular on Twitter this year, we compared the strikingly similar F.A.N.G. performance of the past 3 years to the performance of Cisco, Intel, Microsoft and Qualcomm (C.I.M.Q.) in the mid-1990’s. While this was not a prediction, the point was to show that, despite the out-sized gains, further upside was possible in F.A.N.G., based on what C.I.M.Q. did in the 2 years following 1998. Of course, then there was the post-2000 period.
A Whole Lot Of New Lows For A “Market” Near Its High – December 9
If there has been one persistent theme this year, it’s been the weak internals for a market so close to its all-time highs, at least as judged by the S&P 500. This trend continued into year-end as we saw on December 8 when the number of NYSE New Lows minus New Highs amounted to over 10% of all issues. This was despite the fact that the S&P 500 was within 3.5% of its all-time high. In the past 45 years, this situation has almost exclusively occurred near major, cyclical market tops.
U.S. Stocks Back At The Pass/Fail Line – December 14
Following a mid-December swoon, the Value Line Geometric Composite found itself back testing the “pass-fail” we pointed out at the end of September. Once again, the VLG was up to the task and passed the test. However, the more times this line gets tested, the greater the odds are that it will eventually fail. That would open up another 10% downside and, as we noted previously, put the post-2009 uptrend in stocks in jeopardy.
“Smart Money” Options Indicator Has Never Been More Bearish – December 21
Most of the sentiment metrics that we monitor are viewed as contrary indicators. That is, once they reach an extreme, investors or traders would be wise to act “contrary” to the extreme. One exception can be found in the traders of S&P 100, or OEX, options. Historically, this group has been on the right side of the market more times than not when their collective options position is at an extreme. And though OEX volume is much lower than it used to be, this market may be something to take note of as OEX traders have never held more put options relative to call options than they do right now.
The 2015 Chart Of The Year:
S&P 500 Higher In 2015 While Most Stocks Suck Wind – December 31
As good an illustration as any this year of the divergence between the major indices and the majority of stocks comes in our final chart of 2015. It shows that, through December 30, the S&P 500 was positive for 2015, albeit barely. Meanwhile, the median stock, as represented by the Value Line Geometric Composite (VLG), was actually down double digits. This is a rare situation over the past 45 years. And, considering the likely location of stocks within the cyclical market cycle, this serious deterioration in the market’s internals is a major warning sign for the stock market.
Here’s to another interesting and prosperous year in 2016!
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More from Dana Lyons, JLFMI and My401kPro.
- 2016
- Poker's 10 Most Valuable Investment Lessons
Submitted by Lance Roberts via RealInvestmentAdvice.com,
“Step right up and try your luck…spin the wheel and watch where she lands…everybody’s a winner” – sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to “step up and try their luck” in a game that in many ways have become rigged against them. During the last three decades, it has been amazing to watch the transformation of Wall Street from a place where individuals actually invested to a “casino” where institutions controlled the outcomes through high-speed automation, algorithms, and liquidity.
But nonetheless, individuals continue to stroll through the doors of the “Casino Wall Street” to try their luck by betting “against the house” for a dream of riches. However, just as anyone who has been to Vegas knows, you do indeed win sometimes; but the “house” wins most of the time.
However, “professional gamblers” can succeed at playing the odds in both Vegas and on Wall Street. Why? Because they understand “risk” in its various forms.
While most amateurs will bet on most hands, take speculative positions where the odds of success are stacked against them or try to bluff their way through a losing hand; professionals play with a cold, calculated and unemotional discipline. The professional gambler understands the odds of success of every play and measures his “bets” accordingly. He knows when to be “all in” and when to “fold and walk away.”
Do they succeed all the time – of course not. However, by understanding how to limit losses they survive long enough to come out a winner over time.
10 Lessons Learned From Poker
1) You need an edge
As Peter Lynch once stated:
“Investing without research is like playing stud poker and never looking at the cards.”
He’s absolutely right. There is a clear parallel between how successful poker players operate and those who are generally less sober, more emotional, and less expert. The financial markets are nothing more than a very large poker table where your job is to take advantage of those who allow emotions to drive their decisions and those who “bet recklessly” based on “hope” and “intuition.”
2) Develop an expertise in more than one area
The difference between winning occasionally and winning consistently in the financial markets is to be able to adapt to the changing market environments. There is no one investment style that is in favor every single year – which is why those that chase last years performing mutual funds are generally the least successful investors over a 10 and 20 year period.
Flexibility is the cornerstone of long-term investing success and investors that are unwilling to adapt and change are doomed to extinction – much like the dinosaur. Having a methodology that adapts to changing market environments will separate you from weak players and allow you to capitalize on their mistakes.
As the great Wayne Gretzky once said:
“I skate where the puck is going to be, not where it has been.”
3) Figure out why people are betting against you.
“We know nothing for certain.” We know what a company’s business is today, maybe even what they are most likely to do in the coming months. We can determine whether the price of its stock is trending higher or lower. But in the grand scheme of things, we don’t know much. In fact, we are closer to knowing nothing than to knowing everything, so let’s just round down and be done with it.
All we really know is what “IS,” and all we can really do is create and implement a plan that will deal with what “IS” and protect us from what “Might Be”.
Managing a portfolio for “what we don’t know” is the hardest part of investing. With stocks, we have to always remember that there is always someone on the other side of the trade. Every time some fund manager on television encourages you to “buy,” someone else has to be willing to sell those shares to you. Why are they selling? What do they know that you don’t?
In poker, you may hold a couple of “aces” in your hand and believe now is the time to be “all in.” However, the player sitting across from you continues to match your bets. In poker, this is called “checking,” in investing it is called “hedging.” Both are simply forms of managing the “risk” of “not knowing what you do not know.”
Don’t assume you are the smartest person at the table. When an investment meets your objectives, be willing to take some profits. When it begins to break down, hedge the risk. When your reasons for buying have changed, be willing call it a day and walk away from the table.
4) When you have the best of it – make the most of it.
In a game of “Texas Hold’em” when the right hand comes along you can be “all in” and bet it all. The risk with this, of course, is that if another player “calls” you and you lose – you’re busted.
In investing when you have the right set of environmental ingredients in your favor such as an extremely oversold market condition, panic and fear from investors, deep discounts in valuations, etc., these are times to invest more heavily into equities as the “risk” of loss is mitigated by the “strong hand” you are holding.
The single biggest mistake that investors repeatedly make is continuing to be “all in” on every hand regardless of market conditions. “Risk” is a function of how much money you will lose “when”, not “if”, you are wrong.
5) It often pays to pass, and 6) Know when to quit and cash in your chips
Kenny Rogers summed this up best:
“If you’re gonna play the game, boy…You gotta learn to play it right – You’ve got to know when to hold ’em. Know when to fold ’em. Know when to walk away. Know when to run. You never count your money when you’re sittin’ at the table. There’ll be time enough for countin’ when the dealin’s done.
Now every gambler knows the secret to survivin’ – Is knowin’ what to throw away and knowin’ what to keep. ‘Cause every hand’s a winner and every hand’s a loser and the best you can hope for is to die in the sleep”.
This is the hardest thing for individuals to do. Your portfolio is your “hand” and there are times that you have to get rid of bad cards (losing positions) and replace them with hopefully better ones. However, even that may not be enough. There are times that things are just working against you in general and it is time to walk away from the table.
Using some measure of risk management in your portfolio is critical to long-term success. Due to emotional biases most investors wind up doing the exact opposite of what they should do:
- They sell when they should buy and vice versa,
- They hold onto losing positions hoping they will come back,
- They double down on losing positions,
- They sell winning positions too soon, and;
- They refuse to admit they are wrong.
These mistakes, and many more, are entirely driven by emotion rather than logic. Emotional players ALWAYS lose in gambling and investing.
The error that most investors make is that they are playing poker without a hand of cards. Since most investors buy investments, because of what they read in a newspaper, saw on television or heard about on the radio, they have effectively “anted” up for the game. They then basically walk away from the table and begin to hope that the hand they were dealt is the winning hand – this is the basis of the “buy & hold” strategy.
All great investors develop a risk management philosophy (a sell discipline) and combining that with a set of tools to implement that strategy. This increases the odds of success by removing the emotional biases that interfere with investment decisions. Just as a professional poker player is disciplined with his craft, a disciplined strategy allows for the successful navigation of a fluid investment landscape. A disciplined strategy no only tells you when you to “make a bet,” but also when to “walk away.”
7) Know your strengths AND your weaknesses & 8) When you can’t focus 100% on the task at hand – take a break.
Two-time World Series of Poker winner Doyle Brunson joked a bit about his book with which he had thrown around two alternative ideas for titles before going with “Super/System“. The first was “How I made over $1,000,000 Playing Poker,” and the second equally accurate idea was, “How I lost over $1,000,000 playing Golf.“
The larger point here is that invariably there will be things in life that you are good at, and there are things you are much better off paying someone else to do.
Many investors believe they can manage money effectively on their own – and they are likely right as long as they are in a cyclical bull market. Of course, this idea is equivalent to being the only person seated at a poker table and the dealer deals all the cards face up. You might still lose a hand every now and then, but most likely you are going to win.
I would love to be a graphic artist, but until pie charts and analytical tables come into vogue as contemporary art it is unlikely I will be able to fund my retirement by doing it. However, just because my emotions tell me I want to be an artist doesn’t mean that I will be good at it. So, for the time being, I will leave it to others that have a penchant for paint. (But if you happen to be interested in a pie chart for your living room, let me know…)
Emotion causes us to attach significance to things that have little influence on whether a trade works out or not. Emotions have a nasty habit of overriding logical thought processes that lead ultimately to poor decision making.
Tom Dorsey once wrote;
“Consider this, if someone offered to flip a coin for you and offers you a better payout on heads than tails, the only logical bet would be on heads. So there is only one decision, logically, but emotion may cause you to remember that the last time you took heads was in the 1958 NFL Championship game at Yankee stadium. You were with the Giants and called for heads in the overtime session, losing not only the coin toss, but also the game, eventually, to Johnny Unitas and the Colts.
That decision may be one you will remember for the rest of your life, but it isn’t one that will have any impact on the bet at hand. Nonetheless, we are all human and all susceptible to these types of thoughts, just some more than others.”
That is why there are so few successful poker players in the world but so many people willing to fund the Las Vegas strip. Most people are more than willing to take a risk with their money in the hopes of hitting the jackpot, the dream of being rich has been embedded in us since birth, however, very few investors have any idea of the “possibilities” of success versus the overwhelming “probabilities” of failure. Therefore, as in my case, I can’t paint, therefore, I understand that there is a huge probability that I will not be successful as an artist versus the slim hope (possibility) that people will flock to my door wanting 8 ½ X 11 framed pie charts. (Readily available at this website)
If you are not successful at managing your money over the long term you will wind up losing money, which is why roughly 80% of all investors do. It is better to be honest with yourself and begin an approach to increase your probabilities of success. In a blink of an eye a professional can read the table and make a determination as to whether it’s time to “hold’em” or “fold’em,” can you?
9) Be patient
Patience is hard. Most investors want immediate gratification when they make an investment. However, real investments can take years to produce their real results, sometimes, even decades. More importantly, as with playing poker, you are not going to win every hand and there are going to be times that nothing seems to be “going your way”.
No investment discipline works ALL of the time. However, it is sticking with your discipline and remaining patient, provided it is a sound discipline to start with, that will ultimately lead to long-term success.
I remember in the late 1990’s the media equated investing with Warren Buffet to driving “Dad’s old Pontiac” since Warren didn’t embrace new technology. He didn’t embrace new technology because he didn’t understand and valuations on those companies made no sense to him. He stuck with his discipline even though he was lagging the market. Eventually, his discipline paid off because it was sound and he was patient enough to allow it to work for him over time. Oh, and those that chastised him were crushed in the ensuing “bear market.”
10) Examine your motivation for playing.
Why are you trying to manage your own money? Is it that you love doing it? Is it the “thrill of the chase and the agony of defeat” syndrome? Or, did you just think that is what you are supposed to do?
These are fair questions that you have probably been asked before. However, the real question that you need to ask yourself is “Am I successful at managing the future of my family and my retirement?”
“To a real player, gambling is only a certain part of what happens at casinos or at the track. Gamblers (or average investors) are people who either don’t know what they are doing, or like to bet against the odds.
Good poker players (and good investment advisors), like good horse players, search for value. They leverage advantage. They look for small truths and they hope other people (competitors) don’t notice. They manage risk, and expect rewards for playing well. They like the sport. They like knowing. Call these people craftsmen. Don’t call them gamblers.”
- Gun Sales Surge In Switzerland As Army Chief Warns "Arm Yourselves"
It would appear the people of Switzerland have been listening to their military leaders. Having recently been warned by the Swiss army chief of growing social unrest, SwissInfo reports applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons. But while the army proposes "arm yourselves," Swiss crime prevention officials warn against the false sense of security that guns bring.
Whereas in 2011 numerous people in Switzerland voluntarily gave up their firearms, today more and more people are purchasing guns.
Swiss army chief André Blattmann warned, "The threat of terror is rising, hybrid wars are being fought around the globe; the economic outlook is gloomy and the resulting migration flows of displaced persons and refugees have assumed unforeseen dimensions," adding that "Social unrest can not be ruled out."
He further recalled the situation around the two world wars in the last century and advised the people of Switzerland to arm themselves…
And, as SwissInfo reports, it appears they have…
Applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons by Swiss public television, SRF.
The survey, published on Wednesday, showed that in the 12 (out of 26) cantons surveyed, the Swiss are increasingly interested in purchasing pistols, rifles and other firearms for private use.
The greatest increase – more than 70% – was measured in canton Vaud, with more than 4,200 applications in 2015, compared with 2,427 in 2014.
There is a general climate of uncertainty and an increased fear of intruders, said Pierre-Olivier Gaudard, head of crime prevention for canton Vaud.
But Martin Boess, director of Swiss crime prevention, warned against the false sense of security that guns bring.
“When there are more guns in circulation, there is a greater danger for society,” he said in an interview on the 10 vor 10 news programme. “That’s shown by experience in places like the United States. When there are more guns, there are more accidents with guns.”
In Switzerland, with more than 8 million inhabitants, there are about 2.5 million legal weapons, around half of which are used for Swiss military service.
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And while the Swiss go about their legal business of arming themselves, President Obama is preparing to unleash another weapon – the executive order – to enact gun-control legislation.
Facing stiff resistance to gun-control legislation in Congress, Mr. Obama has signaled that he plans to act on his own. The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”
“I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Mr. Obama said in the address, which was released Friday morning.
Gun-control advocates who are familiar with the White House’s plans say Mr. Obama could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.
White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.
Free-dom indeed.
- The Next Big Short
Submitted by David Stockman via Contra Corner blog,
If you have forgotten your Gulliver’s Travels, recall that Jonathan Swift described the people of Brobdingnag as being as tall as church steeples and having a ten foot stride. Everything else was in proportion – with rats the size of mastiffs and the latter the size of four elephants, while flies were “as big as a Dunstable lark” and wasps were the size of partridges.
Hence the word for this fictional land has come to mean colossal, enormous, gigantic, huge, immense or, as the urban dictionary puts it, “really f*cking big”.
That would also describe the $325 billion bubble which comprises Amazon’s market cap. It is at once brobdangnagian and preposterous – a trick on the casino signifying that the crowd has once again gone stark raving mad.
When you have arrived at a condition of extreme “irrational exuberance” there is probably no insult to ordinary valuation metrics that can shock. But for want of doubt consider that AMZN earned the grand sum of $79 million last quarter and $328 million for the LTM period ending in September.
That’s right. Its conventional PE multiple is 985X!
And, no, its not a biotech start-up in phase 3 FDA trials with a sure fire cancer cure set to be approved any day; its actually been around more than a quarter century, putting it in the oldest quartile of businesses in the US.
But according to the loony posse of sell-side apologists who cover the company——there are 15 buy recommendations—–Amazon is still furiously investing in “growth” after all of these years. So never mind the PE multiple; earnings are being temporarily sacrificed for growth.
Well, yes. On its approximate $100 billion in LTM sales Amazon did generate $32.6 billion of gross profit. But the great builder behind the curtain in Seattle choose to “reinvest” $5 billion in sales and marketing, $14 billion in general and administrative expense and $11.6 billion in R&D.
So there wasn’t much left for the bottom line, and not surprisingly. Amazon’s huge R&D expense alone was actually nearly three times higher than that of pharmaceutical giant Bristol-Myers Squibb. But apparently that’s why Bezos boldly bags the big valuation multiples.
Not so fast, we think. Is there any evidence that all this madcap “investment” in the upper lines of the P&L for all these years is showing signs of momentum in cash generation? After all, sooner or later valuation has to be about free cash flow, even if you set aside GAAP accounting income.
In fact, AMZN generated $9.8 billion in operating cash flow during its most recent LTM period and spent $7.0 billion on CapEx and other investments. So its modest $2.8 billion of free cash flow implies a multiple of 117X.
Needless to say, the sell side chorus insists that one doesn’t matter, either. At the drop of a hat Bezos could purportedly hit the investment “pause” bottom and unleash a surge of free cash flow.
The cynic might say good luck on that, considering the record. But then again, he might also ask why was Bezos’ pause button massively rerated upward just as this bull market was reaching its fevered peak?
That is, we are just completing a year in which the Fabulous Four FANG stocks (Facebook, Amazon, Netflix and Google) gained $500 billion of market cap while the remaining 496 companies in the S&P index went down by more than one-half trillion dollars.
In that context, AMZN’s market cap one year ago was just $145 billion, meaning that it gained a stunning $180 billion or 125 percent during the interim.
By contrast, its free cash flow for the year ended September 2014 was $2.3 billion, meaning not only that it grew by a modest amount, but that a year ago the so-called “market” was valuing AMZN at just 62X free cash flow. And to complete the picture, during the year ended in December 2011 Amazon generated $2.0 billion of free cash flow, meaning that is was then being valued at just 40X.
Can you say bubble mania? Bezos is surely the greatest empire builder since Genghis Kahn, and has never wavered in his determination to spend every dime the company generates in sales. Profits be damned.
But history will surely record that the 48 months since December 2011 comprised the final stages of the most stupendous financial bubble in recorded history. During that period, the casino re-rated Amazon’s meager free cash flow from 40X to 62X to 117X on virtually no improvement in performance.
It was just plain old multiple inflation gone wild with respect to the last momo stocks standing.
We have been here before, and there is no better analogy than Cisco and its fellow shooting stars in early 2000 on the eve of the dotcom crash.
Indeed, Amazon’s $325 billion valuation is just plain irrational exuberance having one more fling. Spasms like this year $180 billion gain (125%) on the AMZN ticker or the $190 billion gain (55%) on the GOOG account are absolutely reminiscent of the final days before the tech wreck exactly 15 years ago.
In a recent post I demonstrated how the 12 Big Cap Techs of 2000—-led by Microsoft, Intel, Dell and Cisco——-saw their combined valuation soar from $900 billion to $3.8 trillion in the 48 months leading up to the March 2000 peak; and that they then plunged to just $875 billion a decade later.
To wit, their bubble era market cap got whacked by $3 trillion in the years ahead, even as their sales and earnings continued to grow. What got purged was irrational exuberance in a casino high on the central bank’s monetary heroin.
In this regard, Cisco was the poster child last time around for this kind of top-of-the-bubble disconnect. During the 48 month run to March 2000, its market cap had exploded from $40 billion to $506 billion or by nearly 13X.
By contrast, it net income had increased from $1.0 to $2.5 billion or by just 2.5X. Accordingly, its PE multiple was rerated during this classic era of irrational exuberance from 40X to 200X.
Even then, Cisco was not only the provider of all things for the internet, but was actually run by a CEO who had a decent respect for the idea of profits.
Indeed, during the most recent twelve months in the spring of 2000 CISCO had earned a respectable $2.5 billion of net income on $15 billion of sales. Moreover, this most recent net income posting had grown for eight straight years at a spectacular 50% compound rate from $100 million in 1992.
So its earnings track record was far more impressive and reliably rising than Amazon’s recent results. In fact, AMZN’s net income peaked at $1.15 billion way back in 2010 and has not come close to that high water mark since.
Still, Cisco’s problem at the turn of the century was the market’s lunatic valuation at 200X its smartly growing net income.
But here’s the thing. Cisco was already a mature technology company. There was no growth rate in the known universe that would have permitted it to earn into a $500 billion valuation.
Even at a standard 20X market multiple on its existing fulsome net margins (17%), it would have needed $25 billion of net income on $150 billion of sales to make valuation ends meet.
In fact, during the next 15 years Cisco’s performance steadily improved, but one and one-half decades later it is still at only one-third of the levels implied by its dotcom era market cap. That is, revenues have grown from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.
Needless to say, it’s market cap today at $140 billion is just 25% of its dotcom bubble peak!
In short, its market cap was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.
CSCO Market Cap data by YCharts
At the end of the day, AMZN’s current preposterous $325 billion market cap has nothing to do with the business prospects of Amazon or the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters.
It is more in the nature of financial rigor mortis – the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino.
And, yes, notwithstanding all the “good things it brings to life” daily, it is not the present day incarnation of even the mighty General Electric of the 1950s; and for one blindingly obvious reason. It has never made a profit beyond occasional quarterly chump change.
Not only has its net income been falling for five years, but what it has generated in the interim is actually a joke. To wit, during the last 23 quarters its has posted cumulative sales of nearly $380 billion but only $2 billion of net income and half of that was in 2010.
That’s right. The Kool Aid drinkers in the casino are betting $325 billion on a massive e-commerce distributor of books and merchandise that has a steady state profit rate at 0.5% of sales.
Admittedly, in these waning days of the third great central bank enabled bubble of this century, GAAP net income is a decidedly quaint concept. In the casino it’s all about beanstalks which grow to the sky and sell-side gobbledygook.
Here’s how one of Silicon Valley’s most unabashed circus barkers, Piper Jaffray’s Gene Munster, explains it:
Next Steps For AWS… SaaS Applications? We believe AWS has an opportunity to move up the cloud stack to applications and leverage its existing base of AWS IaaS/PaaS 1M + users.
AWS dipped its toes into the SaaS pool earlier this year when it expanded its offerings to include an email management program and we believe it will continue to extend its expertise to other offerings. We do not believe that this optionality is baked into investors’ outlook for AWS.
Got that?
Instead, better try this. As indicated above, AMZN’s operating free cash flow during its most recent LTM period was $2.76 billion compared to $2.26 billion way back in 2009.
So its six year free cash flow growth rate computes to just 3.35% per annum. And on that going nowhere track record, AMZN is being valued at, well, like we said, 117X free cash flow!
The fact is, Amazon is one of the greatest cash burning machines ever invented. Its net revenues of just $8.5 billion in 2005 have since grown by 12X to $101 billion for the LTM period ending in September, meaning that during the last ten and three-fourths years it has booked $455 billion in sales. But its cumulative operating free cash flow over that same period was just $6 billion or 1.3% of its turnover.
So, no, Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino.
In an honest free market, real investors would never give a $325 billion valuation to a business that refuses to make a profit, never pays a dividend and is a one-percenter at best in the free cash flow department—–that is, in the very thing that capitalist enterprises are born to produce.
Indeed, the Wall Street brokers’ explanation for AMZN’s $325 billion of bottled air is actually proof positive that the casino has become unhinged. For more than two decades, Amazon has been promoted as the monster of the E-commerce midway, which it surely is.
But this year’s $180 billion roll of the dice has absolutely nothing to do with its capacity for same day delivery of healthy treats for your pooch. This most recent rip was all about the purportedly “scorching” performance of its AWS division——-that is, Amazon’s totally unrelated business as a vendor of cloud computing services.
Indeed, CNBC recently gave air time to one of the most rabid analyst on the block, and this particular stock peddler from UBS left nothing to the imagination. Never mind whether anything emanating from that serial swindler and confessed criminal organization can be taken seriously, here’s what the man said.
AWS is technology’s second coming and is worth $110 billion. We know that because AMZN has recently been thoughtful enough to break out its financials.
They show AWS had sales of $2.1 billion in the September quarter and revenues of $7 billion on an LTM basis. So that puts its cloud computing business’ value at 16X sales. No sweat!
Moreover, this means that the balance of the company—–that is, its core E-commerce business—– is “only” valued at an apparently much more reasonable $215 billion. And by golly, said the UBS man, that’s just 1.4X sales. So what’s not to like?
Well, hold it right there. Someone forgot to do the math in all the excitement about AWS. Yes, the company’s release did show that AWS posted $1.33 billion of operating income or about 20% of sales in the during the LTM period.
But consolidated operating income during the quarter was only $1.72 billion, meaning that by the lights of subtraction, Jeff Bezos’ great empire of E-commerce earned the microscopic sum of $390 million in operating income during its most recent year.
By the same magic of subtraction we can see that AMZN’s E-commerce business generated $94 billion of sales. This means that its operating margin was exactly 40 basis points.
That’s right—–after 25 years of crushing it on the E-commerce front, Amazon’s core business operating margin is truly a rounding error.
And might we also ask why you would value at $215 billion the profitless sales of an E-commerce monster that just can’t stop spending every dime it takes-in on distribution centers, package handlers, hired delivery trucks and drone prototypes; and now, apparently, same hour delivery service by out-of-work actors and bank tellers who happen to own a Vespa!
Stated differently, AMZN’s $180 billion market cap gain in 2015 was not actually a re-rating; it was a bait-and-switch operation by the high-rollers in the casino.
Amazon is not the inventor and first-mover of E-commerce, after all. Instead, it’s now suddenly held to be the monster of the midway in the totally unrelated business of cloud computing services.
By the lights of the UBS man and Wall Street’s amen chorus, AWS is valued at 16X sales now. But it will surely crush any competitor in the stretch ahead, and thereby grow its way into that outsized valuation.
Except don’t tell Google, Microsoft, Oracle or several others about the beanstalk thing. Indeed, the current nattering about AWS was truly ridiculous. Why would anyone endowed with a modicum of sanity believe that these tech powerhouses are about to cede the cloud to Amazon merely because it comes first in the alphabet?
There is no other real reason for thinking so. Between them, the big three mentioned above have about $220 billion of cash and deep franchises in the world of computing and the internet.
Sure, when technology moved from owned boxes, corporate computer centers and software licenses to a rent-a-server model, Amazon got out of the gate first because it had no installed base of old technology to protect.
But there are no barriers to entry, no killer patents, no material brand equity, no irreproducible sales and service network etc. that will permit Amazon to ring-fence the cloud. So there will be viscous competition and prices will fall at a rate which will make Moore’s law look tepid.
Indeed, Larry Ellison has recently promised to cut prices by 90%, and he has rarely failed to follow through on exactly that kind of competitive rampage.
Likewise, it would appear that the cloud is destined to be the future home of Microsoft’s entire franchise. Surely it is probable that AMZN’s Seattle neighbor can make the transition from selling computer software to renting cloud services.
In short, AMZN has disclosed almost nothing about AWS’s detailed business model, its fixed and variable cost structure or the investment requirements of its rentable clouds and the rates of return on the massive amounts of capital employed.
Only the Wall Street boys, girls and robo-traders betting on red could come up with $110 billion valuation of a nascent business that is positioned in the cross-fire of the Big Tech battlefield.
So Amazon’s total $325 billion valuation is just plain irrational exuberance. It is also surely the short of a lifetime.
- Norwegian Car-B-Q: Tesla Model S Bursts Into Flames, Burns To A Crisp While Charging
The Norwegian owner of a Tesla Model S found an unexpected f(i)ringe benefit during a cold Friday afternoon when shortly after he had parked his luxury electric car at a supercharging station in Gjerstad, and left, he realized the car could serve as a very quick and efficient, if quite toxic, source of heating for the cold Scandinavian country, after the Model S spontaneously burst into flames.
Nobody was injured in the incident in which the Tesla unexpectedly started burning, at which point emergency services were alerted.
By the time firefighters arrived, the car was completely ablaze.
As Norway’s FVN reports, the fire department could not use water to extinguish the electric car fire, so it just let Tesla burn out completely while dousing it with foam and watching the luxury paperweight burn to a crisp.
FVN adds that the only way to extinguish electric car fire is by using water with a copper material. However, it is too costly for the Norwegian fire departments. There were more f(i)ringe benefits: according to firefighter, Steinar Olsen, it is dangerous to breathe the smoke from the fire because it has fluorine gas in it, and when an electric car burns down the toxic gases emitted are far more dangerous than those from a normal car.
As Jalopnik adds, the Model S has been involved in a handful of documented fires in the past few years, as a result of both crashes and charging, although Tesla has disagreed on the latter cause.
Photos from the scene of the incident courtesy of FVN:
On various previous occasions when a Model S burned down under similar circumstances, the stock price of TSLA reacted accordingly, although it always rebounded after Elon Musk soothed the market’s nerves about the “one-time” nature of the Car-B-Q.
However, now that even Consumer Reports yanked its glowing endorsement of the car, the rebound may be delayed especially if the NHTSA finally wakes up and forces Musk to do another recall for a car which unexpectedly combusted just because it was being charged. One thing is certain: a recall “fixing” the battery pack would have a massive price tag attached to it, and it is possible that after years of ignoring the company’s cash burn and liquidity, those two “fundamental” drivers of value will finally come back to haunt the market with a vengeance.
In other news, Chinese corporate fraudsters just came up with a new and improved excuse for misplacing their financial records: “we left it in the Tesla as it was charging and everything burned down.”
- Turkey's Erdogan Praises "Hitler's Germany" As Example Of Effective Government
Back in August, Nationalist opposition leader Devlet Bahceli took to Twitter to call Turkish President Recep Tayyip Erdogan a “locally produced Hitler, Stalin or Qaddafi”:
Yönetim sistemi bir ki?inin eline kald?ysa vay halimize! Bizim yerli üretim Hitler’e, Stalin’e, Kaddafi’ye tahammülümüz olmaz, bu iyi biline
— Devlet Bahçeli (@dbdevletbahceli) August 15, 2015
That comment came as Erdogan was busy undermining the coalition building process on the way to calling for new elections. “Accept it or not, Turkey’s governmental system has become one of an executive presidency,” Erdogan said, the day before the tweet shown above was published. “What should be done now is to finalize the legal framework of this de facto situation with a new constitution,” Erdogan continued.
For anyone in need of a refresher, Erdogan’s plans to make Turkey an executive presidency were derailed in June when the pro-Kurdish HDP put on a better show at the ballot box than expected, robbing AKP of its absolute majority in parliament.
The President effectively nullified the election results by calling for a November redo ballot.
“He’s now saying ‘I won’t listen to the laws or constitution.’ This is a very dangerous period,” warned Kemal Kilicdaroglu, leader of the Main Republican People’s Party. “He wants to give a legal foundation to this coup he’s carried out. Those who carry out coups always do this: First they carry out the coup, then they give it a legal foundation.’”
Fast forward four months and we’ve seen Erdogan shoot down a Russian warplane and intensify a crackdown on the Kurds which many thought would dissipate once AKP reinstated its iron grip on politics in November.
Now, as Erdogan pushes to officially transform the Turkish presidency from a figurehead role (obviously Erdogan is anything but a figurehead, but this is about enshrining powers he shouldn’t have into law) into a chief executive position, the President is appealing to history. As it turns out, the opposition aren’t the only ones who compare the strongman to Hitler.
“There are already examples in the world. You can see it when you look at Hitler’s Germany,” Erdogan said on Thursday, when asked whether it was possible to maintain the unitary structure of the state under an executive presidential system. “There are later examples in various other countries,” he added, in an apparent effort to soften the blow.
AKP agreed this week to work with CHP on a new constitution. As Reuters notes, “Opposition parties agree on the need to change the constitution, drawn up after a 1980 coup and still bearing the stamp of its military authors, but do not back the presidential system envisaged by Erdogan, fearing it will consolidate too much power in the hands of an authoritarian leader.”
Of course PM and yes man par excellence Ahmet Davutoglu is on board. “What is right for Turkey is to adopt the presidential system in line with the [democratic] spirit,” he says. “This system will not evolve into dictatorship but if we do not have this spirit, even the parliamentary system can turn into this [dictatorship].” Who knows what that means other than that Erdogan won’t get any argument out of Davutoglu.
“[Erdogan] wants a presidential system in Turkey. He did not change his mind after the last election. I think he will force that, somehow. And I think this is the last exit before the full dictatorship for Turkey,” Ceyda Karan, an opposition journalist at Cumhuriyet newspaper, told RT. “We’re dealing with the situation here that is close to a kind of civil war, and that is really dangerous – it is dangerous for Turkey domestically, and it is also dangerous for the international scene where Turkey, the US, Russia, Syria – all these countries, the Kurds are all involved in the struggle against ISIS in Syria and in Iraq.”
Yes, yes they are – and maybe that’s part of the reason why Erdogan despises them more now than ever.
If it’s Hitler’s Germany that Erdogan plans to model Turkey after once he manages to rewrite the constitution, we shudder to think what that will mean for the Kurds who are already being persecuted in places like Diyarbakir, Cizre, Silopi and Nusaybin.
- George Soros Regrets Supporting Obama, Eagerly Awaits President Hillary
Several weeks ago, we presented a list of CEOs and corporations who have had the highest number of direct visits to the White House and, by implication, president Obama. As we said, these are the corporations (and CEOs) who own the White House, and the US presidency .
One name oddly missing was that of George Soros: the billionaire liberal donor whose fundraising efforts have been critical for the Democratic party in recent years. Which is surprising considering the substantial backing, mostly financial, Soros provided in 2007 and 2008 to a then largely unknown Senator from Illinois.
Or perhaps it is not surprising: a 2012 New Yorker profile of the relationship between the US president and one of the left’s most generous donors reveals stormy clouds:
“although he still supports Obama, Soros has been disappointed by him, both politically and personally. Small slights can loom large with wealthy donors. When Soros wanted to meet with Obama in Washington to discuss global economic problems, Obama’s staff failed to respond. Eventually, they arranged not a White House interview but, rather, a low-profile, private meeting in New York, when the President was in town for other business. Soros found this back-door treatment confounding. “He feels hurt,” a Democratic donor says.”
Fast forward to December 31, when in the pre-New Year’s lull, the State Department released its latest dump of Hillary Clinton emails, amounting to some 5,500 pages, a move Trump promptly slammed.
Do you believe that The State Department, on NEW YEAR’S EVE, just released more of Hillary’s e-mails. They just want it all to end. BAD!
— Donald J. Trump (@realDonaldTrump) December 31, 2015
And while it will take the media a few days to parse through all the emails, one already stands out: one revealing not only the relationship between Soros and Obama, but more importantly, Soros and the person who will likely be America’s next president.
As the following excerpt reveals, the abovementioned George Soros told a close Hillary Clinton ally in 2012 that he regretted supporting Barack Obama over her in the 2008 primaries and praised Clinton for giving him an open door to discuss policy, according to emails released Thursday by the State Department.
As first reported by Politico, in an email to Clinton, Neera Tanden, head of the Center for American Progress, recounted a conversation she had while seated next to Soros at a dinner sponsored by the liberal major donor club called Democracy Alliance.
After Tanden informed Soros that she had worked for Clinton during her bitter 2008 campaign for the Democratic nomination against Obama, Tanden wrote that Soros “said he’s been impressed that he can always call/meet with you on an issue of policy and said he hasn’t met with the President ever (though I thought he had). He then said he regretted his decision in the primary – he likes to admit mistakes when he makes them and that was one of them. He then extolled his work with you from your time as First Lady on.”
The full email below:
Going back to the NY Mag 2012 article, it added that according to a source, although “Soros might have contributed far more money to Obama if the Administration had engaged with him more intently, he said, “Part of me respects Obama for not spending more time with him. This President doesn’t want to spend a lot of time with donors. You have to admire that.””
Actually he does, as the chart up top shows it. However, for some odd reason Obama simply did not want to spend a lot of time with George Soros.
The time of snubbing Soros, however, is at an end, as Hillary is well-known for having no qualms about spending “a lot of time with donors”, especially since virtually every entity on Wall Street is a donor either directly or to the Clinton Foundation.
Which means that as Obama’s time in the White House runs out, and as Hillary prepares to take over the throne (barring some Republican miracle), Soros is about to rectify his mistake from 8 years ago and make sure that the special interest puppet in charge of the U.S., is precisely the one he wanted all along.
Then again, perhaps it is really just Obama’s fault, and behind the charming facade is a pool of unlikability. According to another email released yeserday , this time citing Germany’s foreign minister circa 2009, Germany’s Angela Merkel despised the “Obama phenomenon:”
Sydney Blumenthal sent Clinton a memo on Sept. 30, 2009 with background information on John Kornblum, who was at the time taking over as Germany’s foreign minister. “Kornblum strongly suggests you try to develop your personal relationship with Merkel as you can,” Blumenthal writes.
“He says she dislikes the atmospherics surrounding the Obama phenomenon, that it’s contrary to her whole idea of politics and how to conduct oneself in general. She would welcome a more conversational relationship with you.”
Eight years later, all of America is eager to move on from the “Obama phenomenon.” The problem is that the “Hillary phenomenon” is on deck.
* * *
We conclude with a few lines from Ludwig von Mises who 80 years ago described and previewed this twisted, corrupted and politicized mutant that passes for modern “capitalism” in his essay “The Myth of the Failure Of Capitalism”, which was published shortly before the coming of Adolf Hitler to power:
“In the interventionist state it is no longer of crucial importance for the success of an enterprise that the business should be managed in a way that it satisfies the demands of consumers in the best and least costly manner.
“It is far more important that one has ‘good relationships’ with the political authorities so that the interventions work to the advantage and not the disadvantage of the enterprise. A few marks’ more tariff protection for the products of the enterprise and a few marks’ less tariff for the raw materials used in the manufacturing process can be of far more benefit to the enterprise than the greatest care in managing the business.
“No matter how well an enterprise may be managed, it will fail if it does not know how to protect its interests in the drawing up of the custom rates, in the negotiations before the arbitration boards, and with the cartel authorities. To have ‘connections’ becomes more important that to produce well and cheaply.
“So the leadership positions within the enterprises are no longer achieved by men who understand how to organize companies and to direct production in the way the market situation demands, but by men who are well thought of ‘above’ and ‘below,’ men who understand how to get along well with the press and all the political parties, especially with the radicals, so that they and their company give no offense. It is that class of general directors that negotiate far more often with state functionaries and party leaders than with those from whom they buy or to whom they sell.
“Since it is a question of obtaining political favors for these enterprises, their directors must repay the politicians with favors. In recent years, there have been relatively few large enterprises that have not had to spend very considerable sums for various undertakings in spite of it being clear from the start that they would yield no profit. But in spite of the expected loss it had to be done for political reasons. Let us not even mention contributions for purposes unrelated to business – for campaign funds, public welfare organizations, and the like.
“Forces are becoming more and more generally accepted that aim at making the direction of large banks, industrial concerns, and stock corporations independent of the shareholders . . . The directors of large enterprises nowadays no longer think they need to give consideration to the interests of the shareholders, since they feel themselves thoroughly supported by the state and that they have interventionist public opinion behind them.
“In those countries in which statism has most fully gained control . . . they manage the affairs of their corporations with about as little concern for the firm’s profitability as do the directors of public enterprises. The result is ruin.
- Gold's Timeless Truth
One should not be concerned about the gold price measured by the currently standing monetary regime. The value placed on Gold in terms of fiat paper currency solely backed by the good faith and credit of bankrupt Governments whose Central Banks are counterfeiting money is only viable should those presiding suspect monetary authorities actually maintain their credibility and veritable supremacy over time.
The inevitable collapse of the western world’s monetary system will leave gold as the only trusted store of value still standing after the financial / economic breakdown befalls. The trust between the nations tied to the previous monetary order will have been decimated. Gold then emerges as the essential and only long standing common denominator between nations which no longer trust each others’ previously accepted paper obligations, having been entirely discredited, that hitherto had facilitated the exchange of goods and services between themselves,
The monetary and geopolitical mayhem that invariably ensues, always follows the collapse of the previous global means of trade, in this case the Dollar. This is the moment when Gold takes center stage. As, when the dust finally settles, the only remaining trusted store of value / means of exchange still standing is gold. It always has been for over 4,000 years of civilized monetary history, which is about determinative a probability as they come…….
Finally, a new monetary system which is eventually invariably reestablished between the decimated distrusting parties, forced to the negotiating table in order to resolve the ongoing global financial anarchy, can only be based on a universally trusted and acceptable common denominator between themselves, which is always gold. At the end of the day, it’s quite simply the only store of value still standing and still valued by all concerned parties at that critical perilous juncture in time..It’s really that simple………..the question is, will it always be a Happy New Year for our cocksure monetary mad men?
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