- Central Planning Goes Global As UN Unveils Major Sustainable Development Agenda "For The Good Of The Planet"
Submitted by Michael Snyder via The Economic Collapse blog,
The UN plans to launch a brand new plan for managing the entire globe at the Sustainable Development Summit that it will be hosting from September 25th to September 27th. Some of the biggest names on the planet, including Pope Francis, will be speaking at this summit. This new sustainable agenda focuses on climate change of course, but it also specifically addresses topics such as economics, agriculture, education and gender equality. For those wishing to expand the scope of “global governance”, sustainable development is the perfect umbrella because just about all human activity affects the environment in some way. The phrase “for the good of the planet” can be used as an excuse to micromanage virtually every aspect of our lives.
So for those that are concerned about the growing power of the United Nations, this summit in September is something to keep an eye on. Never before have I seen such an effort to promote a UN summit on the environment, and this new sustainable development agenda is literally a framework for managing the entire globe.
If you are not familiar with this new sustainable development agenda, the following is what the official United Nations website says about it…
The United Nations is now in the process of defining Sustainable Development Goals as part a new sustainable development agenda that must finish the job and leave no one behind. This agenda, to be launched at the Sustainable Development Summit in September 2015, is currently being discussed at the UN General Assembly, where Member States and civil society are making contributions to the agenda.
The process of arriving at the post 2015 development agenda is Member State-led with broad participation from Major Groups and other civil society stakeholders. There have been numerous inputs to the agenda, notably a set of Sustainable Development Goals proposed by an open working group of the General Assembly, the report of an intergovernmental committee of experts on sustainable development financing, General Assembly dialogues on technology facilitation and many others.
Posted below are the 17 sustainable development goals that are being proposed so far. Some of them seem quite reasonable. After all, who wouldn’t want to “end poverty”. But as you go down this list, you soon come to realize that just about everything is involved in some way. In other words, this truly is a template for radically expanded “global governance”. Once again, this was taken directly from the official UN website…
1. End poverty in all its forms everywhere
2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture
3. Ensure healthy lives and promote wellbeing for all at all ages
4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
5. Achieve gender equality and empower all women and girls
6. Ensure availability and sustainable management of water and sanitation for all
7. Ensure access to affordable, reliable, sustainable and modern energy for all
8. Promote sustained, inclusive and sustainable economic growth, full and productive employment, and decent work for all
9. Build resilient infrastructure, promote inclusive and sustainable industrialisation, and foster innovation
10. Reduce inequality within and among countries
11. Make cities and human settlements inclusive, safe, resilient and sustainable
12. Ensure sustainable consumption and production patterns
13. Take urgent action to combat climate change and its impacts (taking note of agreements made by the UNFCCC forum)
14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development
15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification and halt and reverse land degradation, and halt biodiversity loss
16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
17. Strengthen the means of implementation and revitalise the global partnership for sustainable development
As you can see, this list goes far beyond “saving the environment” or “fighting climate change”.
It truly covers just about every realm of human activity.
Another thing that makes this new sustainable development agenda different is the unprecedented support that it is getting from the Vatican and from Pope Francis himself.
In fact, Pope Francis is actually going to travel to the UN and give an address to kick off the Sustainable Development Summit on September 25th…
His Holiness Pope Francis will visit the UN on 25 September 2015, and give an address to the UN General Assembly immediately ahead of the official opening of the UN Summit for the adoption of the post-2015 development agenda.
This Pope has been very open about his belief that climate change is one of the greatest dangers currently facing our world. Just a couple of weeks ago, he actually brought UN Secretary General Ban Ki-moon to the Vatican to speak about climate change and sustainable development. Here is a summary of what happened…
On 28 April, the Secretary-General met with His Holiness Pope Francis at the Vatican and later addressed senior religious leaders, along with the Presidents of Italy and Ecuador, Nobel laureates and leading scientists on climate change and sustainable development.
Amidst an unusually heavy rainstorm in Rome, participants at the historic meeting gathered within the ancient Vatican compound to discuss what the Secretary-General has called the “defining challenge of our time.”
The mere fact that a meeting took place between the religious and scientific communities on climate change was itself newsworthy. That it took place at the Vatican, was hosted by the Pontifical Academy of Sciences, and featured the Secretary-General as the keynote speaker was all the more striking.
In addition, Pope Francis is scheduled to release a major encyclical this summer which will be primarily focused on the environment and climate change. The following comes from the New York Times…
The much-anticipated environmental encyclical that Pope Francis plans to issue this summer is already being translated into the world’s major languages from the Latin final draft, so there’s no more tweaking to be done, several people close to the process have told me in recent weeks.
I think that we can get a good idea of the kind of language that we will see in this encyclical from another Vatican document which was recently released. It is entitled “Climate Change and The Common Good”, and it was produced by the Pontifical Academy of Sciences and the Pontifical Academy of Social Sciences. The following is a brief excerpt…
Unsustainable consumption coupled with a record human population and the uses of inappropriate technologies are causally linked with the destruction of the world’s sustainability and resilience. Widening inequalities of wealth and income, the world-wide disruption of the physical climate system and the loss of millions of species that sustain life are the grossest manifestations of unsustainability. The continued extraction of coal, oil and gas following the “business-as-usual mode” will soon create grave existential risks for the poorest three billion, and for generations yet unborn. Climate change resulting largely from unsustainable consumption by about 15% of the world’s population has become a dominant moral and ethical issue for society. There is still time to mitigate unmanageable climate changes and repair ecosystem damages, provided we reorient our attitude toward nature and, thereby, toward ourselves. Climate change is a global problem whose solution will depend on our stepping beyond national affiliations and coming together for the common good. Such transformational changes in attitudes would help foster the necessary institutional reforms and technological innovations for providing the energy sources that have negligible effect on global climate, atmospheric pollution and eco-systems, thus protecting generations yet to be born. Religious institutions can and should take the lead in bringing about that change in attitude towards Creation.
The Catholic Church, working with the leadership of other religions, can now take a decisive role by mobilizing public opinion and public funds to meet the energy needs of the poorest 3 billion people, thus allowing them to prepare for the challenges of unavoidable climate and eco-system changes. Such a bold and humanitarian action by the world’s religions acting in unison is certain to catalyze a public debate over how we can integrate societal choices, as prioritized under UN’s sustainable development goals, into sustainable economic development pathways for the 21st century, with projected population of 10 billion or more.
Under this Pope, the Vatican has become much more political than it was before, and sustainable development has become the Vatican’s number one political issue.
And did you notice the language about “the world’s religions acting in unison”? Clearly, the Vatican believes that it has the power to mobilize religious leaders all over the planet and have them work together to achieve the “UN’s sustainable development goals”.
I can never remember a time when the United Nations and the largest religious institution on the planet, the Catholic Church, have worked together so closely.
So what will the end result of all this be?
Should we be concerned about this new sustainable development agenda?
- How Japan Became The Benchmark For America's Fraudulent "Jobs Recovery"
It was one month ago when we showed how, thanks to a lot of statistical sleight of hand, Japan had completely “revised” one year of increasing nominal base wages to declining or flat at best, confirming that all the much-touted wage “improvements” heading into the Japanese election of late 2014 in which Abe was reelected by a wide margin had been purposefully fabricated to give the impression that Abenomics is working, when in reality it was… well, see the pre- and post-revision data for yourselves:
If that had been the full extent of Japan’s labor data fabrication we would speak no more of it, however the rabbit hole goes much, much deeper.
As a reminder, in Japan where the Nikkei has been soaring ever since the Bank of Japan decided to crush the Japanese Yen the one missing component from the promised Abenomics recovery has been wage growth, because without rising wages there can be no sustained benign inflation of the kind that the Keynesian brains behind Abenomics require to proclaim success.
This is how Goldman summarized what the virtuous feedback loop of rising wages should look like:
The BOJ’s ultimate goal is to realize the following positive cycle: Increase in actual prices -> rise in inflation expectations -> wage hikes -> boost to consumer spending / improvement in corporate earnings -> inflation -> rise in inflation expectations -> sustained wage hikes in the corporate sector. The underlying notion is that the pursuit of both high wage growth and high inflation expectation ensures stable inflation
That’s the theory. The reality is far different because some two years after the start of Abenomics and the launch of Japan’s QE, nominal wages are about where they were when Abenomics started, while indexed real wages have never been lower!
The paradox of Japan’s lack of wage increases become particularly glaring when one considers that just like in the US, Japan recently reported a post-Lehman low unemployment rate of just 3.4%, in fact in Japan this was the lowest print since 1997. As the following employment indicators suggest, the Japanese labor market should be tighter than at any point in the 21st century, suggesting wage inflation should be rampant:
In the US the most recent unemployment rate was 5.4%, about as close to full employment as possible, and yet neither in Japan nor in the US has there been any wage improvement.
So how does one explain the paradox of a labor market that at least quantitatively has no further slack and yet where real wage growth has never been lower. Simple, and incidentally the explanation is one which Zero Hedge provided all the way back in 2010 when we charted “America’s Transformation To A Part-Time Worker Society.”
It turns out that in Japan the answer is the same, only when one peeks beyond the merely quantitative and into the qualitative, it is worse. Much, much worse. As the following chart shows, virtually all the job growth in Japan since the great financial crisis has been thanks to part-time jobs!
This is Goldman’s explanation which comes 5 years after our own:
As Exhibit 4 demonstrates, growth in the number of full-time permanent workers has more or less leveled off since the 2008 Global Financial Crisis, whereas the number of part-time workers in Japan has risen consistently over the last decade. Having accounted for 20.3% of Japan’s workforce in 2005, part-timers made up 25.1% of the labor market in 2014 (this substantial increase contrasts with far weaker growth in the ratio of nonpermanent full-time workers such as contingent and temporary staff, to 11.5% from 10.3%).
Japan’s part-time worker ratio now exceeds that of the US and the EU average; nevertheless, the Japanese labor market had been characterized by the high fraction of permanent workers in the past. What this essentially means is that growth in part-time workers has persistently depressed Japan’s average wage over the last decade. Exhibit 5 … illustrates that the decline in average wages due to the shift to part-time labor began in the mid-1990s at the latest and continues to this day. We calculate that growth in part-time labor depresses the average wage by 0.5pp a year.
As a reminder, in the most recent BLS report, part-time jobs in the US once again surged, and have been the only source of incremental job growth since the start of the last recession in December 2007. As we showed, full-time jobs have yet to recover their prior cycle peak, which is the glarinly obvious answer for anyone still surprised why there is no wage gains in the US.
But if you thought the US was bad, in Japan things are – as one would expect of any economy approaching a state of terminal, demographically-facilitated collapse – far, far worse. Back to Goldman:
If companies have been hiring more part-timer workers simply to cut labor costs in line with a slowing economy, then the ratio of part-time workers should in theory fall as the economy recovers, lifting overall wages. In the US, the part-time worker ratio correlates closely with the macro economy (Exhibit 6). In Japan, however, the ratio of part-time workers has risen more or less consistently, suggesting that besides the economic cycle, structural factors are also playing a part.
At this point Goldman’s economists do the usual thing and spend days of research investigating an answer that is so simple a five year old can figure it out after a few seconds of contemplation. And sure enough, the primary reason why companies prefer to hire part-time workers over full-timers is, drumroll, they are cheaper.
Finally, recall another persistent theme which sadly only Zero Hedge appears to be focusing on: namely that all the hiring since the Financial Crisis has been for workers 55 and older.
The apologists consistently, and erroneously, explain this with “demographics”, even though the participation rate of young workers has collapsed, suggesting it is the younger who simply no longer have a motive or a desire to remain in the work force, while that of old workers has remained largely flat since 2007 as more and more old Americans realize they will never be able to retire under ZIRP and as a result will have to work until their death.
Well, now we have confirmation that the surge in hiring of older, part-time workers has little to do with demographic transitions and everything to do with the simplest possible explanation: they are cheap!
Enter the case of Japan, where Goldman finally has a long, long overdue epiphany:
What drew our attention in Exhibit 8 are two responses that rose between the 2006 and 2011 surveys: The re-employment of retirees, and the re-employment of full-time staff who left for family reasons, most likely getting married or having children (the number of businesses that cited labor cost savings as a reason for hiring part-timers has declined considerably).
This suggests to us a change in the structure of part-time employment in recent years. Employers generally recruited part-time staff in the past as a means of reining in labor costs. However, Exhibit 8 reveals that more recently, part-time hiring is increasingly being used as a means of employing senior citizens or re-employing housewives. In Exhibit 9, we see that the increase in part-time hiring over the last decade has been largely driven by senior citizens and housewives entering the labor market.
Here is Goldman’s admission that Zero Hedge was correct about what lay in store for America some 5 years ago, by looking at the labor dynamics in Japan:
We attribute this trend to three factors. First is a shift to part-time labor among the elderly generation as Japan’s population ages. Baby boomers – the generation of Japanese born in 1947-1949 – began to turn 60 in 2007 and started retiring around the same period, raising concerns about the so-called “2007 problem” namely a labor shortage in the corporate sector. In the event, major turmoil in the labor market was averted as companies extended employment beyond 60. Five years later, however, the “2012 problem” arose as the same baby boomers turned 65.
Having raised the pensionable age, Japan passed an amended Act on Stabilization of Employment of Elderly Persons in April 2013 that requires companies to offer employment through to 65 for those seeking to work beyond 60. When extending the period of employment, however, companies are under no obligation to offer the same terms that existed before. With the agreement of the employee and employer, companies can switch to a non-permanent arrangement in the form of short-time, contract, or part-time employment (most companies re-employ retirees on non-permanent contracts to reduce their wage bill).
Second – and also linked to the aging population – is that both elderly men and women are remaining in the labor market to supplement a decline in income due to cuts in pension payments. Japan began raising the pensionable age in the early 2000s, meaning that the current generation of people in their 60s faces fewer pension payments. Pension cuts have gained further traction since April 20134, and the labor participation rate among people in their 60s has accordingly risen at a faster rate over the past two years. For senior citizens aged 65-69, the labor participation rate has reached 42% (FY2014 average, versus a FY2000 average of 37%). How this generation is employed has also changed notably over the past 15 years: whereas in 2000 around 50% of people aged 65-69 were self-employed/family workers, by 2014 the ratio of employees had reached almost 75%.
Third, female labor participation rates are rising in all age groups except women under 25, as Womenomics manifests itself. Exhibit 9 shows a marked increase in part-time female workers in their 40s and 60s. A key factor is the impact of a rise in the labor participation rate within this more populous generation (of baby boomers and junior baby boomers).
To summarize the Japanese economic recovery under Abenomics (and before): all the labor growth has been thanks to senior citizens and housewives. And this comprises the bulk of the surge in part-time jobs, which as shown above, is the only component of Japan’s employed workers that has grown. As a result, Japan’s real wages are the lowest in history.
And now to summarize the US labor picture as well: more part-time workers, and more old workers.
In other words, Japanification is truly coming to the US, and unfortunately in the one place where it hurts the most: the labor market. And not just any labor market, but one which is touted by the press as improving which while perhaps true quantitatively, is absolutely false qualitatively: in fact, if one extends the Japanese comparison to its logical conclusion, real wages in the US are due to tumble in the coming months and years as the Japanese economic and demographic reality is unrolled in the US.
Precisely as we warned in 2010.
But the biggest problem is not that the underlying economics is devastating when one looks behind the populist headlines. It is that both in Japan and in the US, the mainstream economists – who we can only hope are not all idiots, and can figure out what even Goldman now sees – are engaging in open fraud when spinning disastrous labor trends into what the mainstream press touts is a “labor recovery.”
But at least we know the reason: recall that for Janet Yellen the only “data-dependent” economic indicator which holds back a rate hike is the lack of wage growth. And as long as there are no rate hikes, the Fed and other central banks will continue flooding the global markets with trillions in liquidity while keeping rates at 0% or negative, pushing global stock markets and asset prices to ever recorder highs.
Who benefits from this fraud? Why the 1% of course, because while the hope for 99% of the population – and the lie – remains that wage growth is just around the corner – a story repeated in 2010, 2011, 2012, 2013, 2014 and 2015… and which will be repeated in the coming years without a doubt – who benefits from this fraudulent status quo here and now? Those who could care less if the average wages for everyone continue crashing, does care very much that the S&P 500 hits another record high tomorrow and the day after.
And as long as the fraud behind wage growth, and the lack thereof, remains, they will get precisely what they want, with the blessings of every central bank in the world.
- Not ISIS? Saudi Arabia To Execute & Display Beheaded Body Of Political Activist In Public "Crucifixion"
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
One of the ways that the U.S. government most clearly expresses its deep dedication to global human rights, democracy and decency across the globe is via its unwavering support for the feudal, inhumane tyrannical monarchy of Saudi Arabia. A monarchy that also increasingly seems to have played a key role in the attacks of September 11, 2001.
The Saudis have received a lot of bad press as of late due to it consistently breaking its own records for beheadings, but sometimes a simple beheading isn’t sufficient. In a punishment known as “crucifixion,” the executed person’s beheaded body is placed on public display for three days. Currently facing this fate are three political activists, including two children. We learn from Reprieve.org that:
Saudi Arabia has been urged to spare the lives of two juveniles and an ageing political activist, after plans emerged to execute at least one of them this Thursday (14th).
Sheikh Nimr Baqir Al Nimr, a 53-year old critic of the Saudi regime, and two juveniles, Ali Mohammed al-Nimr and Dawoud Hussain al-Marhoon, were arrested during a 2012 crackdown on anti-government protests in the Shiite province of Qatif. After a trial marred by irregularities, Mr Al Nimr was sentenced to death by crucifixion on charges including ‘insulting the King’ and delivering religious sermons that ‘disrupt national unity’. This week, it emerged that the authorities plan to execute him on Thursday, despite protests from the UN and Saudi human rights organizations.
The planned execution of Mr Al Nimr has prompted fears for the safety of the two juveniles, who were both 17 when they were arrested and eventually sentenced to death on similar charges. Both teenagers were tortured and denied access to lawyers, and faced trials that failed to meet international standards. All three prisoners, including Mr Al Nimr, have not yet exhausted their legal appeals.
Saudi Arabia has carried out executions at an unprecedented rate since the coming to power of King Salman in 2015. On May 6th 2015, the Kingdom carried out its 79th execution of the year, and it is already close to surpassing its 2014 total of 87 executions. Human rights organization Reprieve has urged the European Union to intervene with Saudi Arabia to prevent the killings.
It isn’t clear whether or not this execution has happened. As Vox notes:
Saudi Arabia is set to behead a man and publicly display his headless body (a practice called “crucifixion” in Saudi law) — for nothing more than speaking his mind. Sheikh Nimr Baqir al-Nimr, an internationally respected Shia cleric, was sentenced to death for “disobeying the ruler,” “inciting sectarian strife,” and “encouraging, leading and participating in demonstrations.” His actual crime: participating in nonviolent protests and calling for the fall of the house of Saud.
It’s not clear when the Saudis plan on executing al-Nimr: the country has a habit of both postponing executions and carrying them out without very much warning. But the case illustrates a basic fact about one of America’s closest allies in the Middle East: its system of capital punishment is one of the cruelest on earth.
Meanwhile, publicly at least, the U.S. government remains as committed to the Saudis as ever. We learn the following from National Journal:
CAMP DAVID, Md.—Of the six Arab leaders invited to the summit, one was too busy, two called in sick, and a fourth skipped it to go to a horse show instead.
The Gulf Cooperation Council conference was nevertheless “the beginning of a new era of cooperation,” President Obama declared Thursday after a daylong series of meetings.
Obama laid out five points of agreement among all the countries, top among them a commitment by the United States to respond to an “external threat” to any of the nations’ territorial integrity, which could include the use of military force, as well as the development of a ballistic-missile defense for the Gulf nations. “And let me underscore, the United States keeps our commitments,” Obama said.
The Saudi highlight reel is a long one.
Here are a few examples:
The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack
New Saudi King Unveils Internal Power Shake-up in Desperate Pivot Toward Increased Authoritarianism
Already 45 Beheadings in 2015 – Saudi Arabia on Pace to Easily Beat 2014’s Decapitation Level
Saudi Arabia Sentences 3 Lawyers to Jail for Tweets
Record Beheadings and the Mass Arrest of Christians – Is it ISIS? No it’s Saudi Arabia
How the NSA is Actively Helping Saudi Arabia to Crackdown on Dissent
Saudi Arabia Passes New Law that Declares Atheists “Terrorists”
- Europe Explained (In 1 Image)
- One Gauge Of Investor Sentiment Just Hit A 6-Year High
There’s no question that the general level of stock investor sentiment is at historically high levels at this time. However, I think it’s probably safe to say that much of this bullishness has accrued gradually due to the cumulative stock market gains over the past 6 years. What has largely been absent, though, despite the elevated sentiment are examples of veritable investor euphoria. We are talking about bursts of frenzied, “get-me-in-at-all-costs” type of buying behavior. We did see traces of it over the past 2 years, especially in early 2013, but nothing consistent. Yesterday, however, we did see a possible example of this type of euphoria from the International Securities Exchange.
We have mentioned the ISE several times over the past year as their options ratios have become favorites of ours in gauging short to intermediate-term investor sentiment. The ISE “Equity” Call/Put Ratio has been especially helpful, at times, in identifying extremes in short-term sentiment. This series has decent volume and behaves in an orderly, “normal” fashion that renders its extremes particularly valid as accurate measures of sentiment. The “Index & ETF” Call/Put Ratio (the ISE uses call volume in its numerator as opposed to the denominator like most sources do) has at times been helpful as well. However, it has mostly been too erratic to be consistently reliable. That said, the reading of this ratio yesterday was so extreme that we thought it was worthy of today’s Chart Of The Day.
Specifically, the ISE Index & ETF Call/Put Ratio registered its highest reading (228) in over 6 years.
At 228, the reading means that call volume at the ISE was more than double put volume. In the last 6 years, that is just the 4th time that has occurred. These are the dates of all of the readings above 180 since 2009, along with the aftermath in the S&P 500.
- July 20, 2011 The S&P 500 hit a high the following day before dropping 16% over 12 days.
- November 28, 2011 The exception as the S&P 500 was jumping off a short-term low and would rally 6% over the next week.
- September 7 & 14, 2012 The S&P 500 hit a high on the 14th and proceeded to drop nearly 8% in the next 2 months.
- January 22, 2015 The S&P 500 hit a high that day before dropping 3.3% over 6 days.
So one can see why yesterday’s reading would make us take notice. It hasn’t been unanimous, but 3 of the 4 other readings above 180 in the past 6 years led to immediate selling pressure, some mild and short-term and some more serious and over the intermediate-term.
Now, there are some obvious asterisks we would place on this study. For one, the November 2011 event led to more buying instead of selling. Secondly, as we mentioned, this series has been very erratic throughout the years and thus, hard to depend on. And third, consider the last time this indicator flashed readings this high: March 9 & 11, 2009. Of course, that was THE exact cyclical market low. So what gives? We’re not sure. The ETF’s that received the highest volume on those days were essentially the same as those from yesterday. Perhaps this particular exchange was used by unique market participants or for alternate options strategies at the time that reflected non-contrarian sentiment extremes instead.
Whatever the reason, over the past 4 years, the ISE Index & ETF Call/Put Ratio has typically been a contrarian indicator, when at extremes. Thus, yesterday’s most bullish reading in 6 years is likely not a welcomed sign for stock market bulls. It could be an example of the euphoric type of investor behavior that has been mostly missing from the general bullish sentiment picture. A few more of these examples and we would really be concerned about stocks in the immediate-term.
- What Goldman Is Telling Its Clients: Sell In May And Don't Come Back For One Year
While Goldman gives the following explicit warning in all of its public research pieces: “Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research”, the reality is that in recent months Goldman’s chief equity strategist David Kostin has been getting increasingly “toppish” if not outright bearish on stocks. In his latest report he now openly warns that “the market will rise to 2150 by mid-year but fade after the Fed raises interest rates in September for the first time in nine years.” As a result Goldman’s “year-end forecast is 2100 and its 12-month target equals 2125.”
Which is where the S&P 500 closed on Friday. In other words, sell in May and come back until next May.
Here is what else Goldman is telling its buyside clients:
During the last 50 years, dividends accounted for nearly 80% of the total return generated by US equities. The proportion fell to 45% during the past 25 years and 35% for the past decade. However, since the 2009 financial crisis lows, price return has accounted for more than 80% of the total return of the S&P 500 as the P/E multiple soared from 10.1x to 17.3x. Looking ahead, the market implies 46% of the total return for stocks during the next decade will be generated by dividends, in-line with the past quarter-century.
The median S&P 500 stock trades at a P/E of 18.2x, the 99th percentile of historical valuation, and has limited scope for further upward expansion. Investors are looking to enhance performance by buying stocks returning cash to shareholders. We forecast S&P 500 firms will return $1 trillion to investors during 2015 via dividends and buybacks. Cash dividends will total $400 billion, a 7% increase from 2014, while buybacks will climb by 18% to $600 billion. The median S&P 500 stock trades with a 1.9% annualized dividend yield, slightly below the ten-year US Treasury note yield of 2.2%.
In addition to high dividend yields, investors are also looking to boost returns by finding stocks growing dividends at a rapid pace. The median S&P 500 stock is expected to grow its dividend by 8% annually during the next two years. However, with record levels of cash on corporate balance sheets, many firms are increasing dividends at a much faster clip.
The dividend swap market foreshadowed by more than six months the underperformance of shares in our dividend growth basket. The rebound in the dividend swap market at the start of 2015 presaged by two months the recent rally in our dividend growth basket.
At the sector level, Telecom and Utilities offer the highest dividend yields at 4.8% and 3.7%, respectively. Information Technology and Financials account for the largest proportion of gross S&P 500 dividends paid, each at 15% of the index total. The fastest dividend growth is found in Financials, Health Care, and Consumer Discretionary, each with a 13% pace.
The historical relationship between the cyclically-adjusted P/E multiple (currently 23.4x) and forward equity returns suggest the prospective 10-year annualized total return for the S&P 500 will be 5%. Dividend levels implied by the swap market suggest that 46% of the total return during the next ten years will be derived from dividends, and 54% from price gain.
Which means annualized capital appreciation (i.e., price increases) over the next decade will be just about 2.5%. And that is assuming record central bank intervention. One wonders: what happens if and when the central planners finally pull the plug?
- Chinese Hacker Spies Take Over Penn State Engineering Department, School Says
Late last month we highlighted the US Department of Defense’s new “Cyber Strategy.” In a new directive, the Pentagon outlined the circumstances it says may warrant the deployment of cyberweapons and, taking things a step further, indicated that the use of cyberattacks as offensive weapons wasn’t out of the question. Here’s how the DoD sums up its cyber mission:
As we noted at the time, the countries named as potential cyberadversaries come as no surprise:
Unsurprisingly, the list of cyber adversaries is indistinguishable from what might fairly be called Washington’s “usual suspects.” The villains are: Russia, Iran, China, and North Korea. In fact, Defense Secretary Ashton Carter says the Pentagon was recently the target of a Russian “cyber intrusion” which he claims was quickly detected by a government “crack team.”
That “crack team” has apparently not been on the case at Penn State over the past 24 or so months, because as Bloomberg reports, Chinese hackers have apparently been perusing sensitive information stored on computers at Penn State’s College of Engineering for years. Here’s more:
Penn State University, which develops sensitive technology for the U.S. Navy, disclosed Friday that Chinese hackers have been sifting through the computers of its engineering school for more than two years.
One of the country’s largest and most productive research universities, Penn State offers a potential treasure trove of technology that’s already being developed with partners for commercial applications. The breach suggests that foreign spies could be using universities as a backdoor to U.S. commercial and defense secrets.
The hackers are so deeply embedded that the engineering college’s computer network will be taken offline for several days while investigators work to eject the intruders.
The breach, which the school’s president calls “an incredibly serious situation,” was allegedly perpetrated by what Bloomberg calls “state-sponsored hackers” acting as “foreign spies” and was reportedly uncovered by the FBI late last year. After a lengthy investigation (which cost the university millions) school officials are now concerned that information from Penn State’s Applied Research Laboratory (which has worked with the US Navy for the better part of a century) may have been compromised in the operation:
Among Penn State’s specialties is aerospace engineering, which has both commercial and defense applications important to China’s government. The university is also home to Penn State’s Applied Research Laboratory, one of 14 research centers around the country that work mainly for the military.
While the lab is not part of the College of Engineering, Jones said experts there have been alerted to the breach and are investigating whether the hackers could have moved there from those networks.
Bennett said the lab’s computers are separated from the engineering college by “network-based controls,” and its personnel use different passwords. The Applied Research Lab has been doing work for the Navy since 1945 and specializes in undersea propulsion and navigation.
That the hackers were in the network undetected for more than two years raises the possibility that they used connections between computers to move into more highly guarded networks, including defense contractors, government agencies or the Navy, according to the person familiar with the investigation.
If all of that isn’t conspiratorial enough for you, then consider this:
In addition to online activities, the Chinese have sent legions of graduate students to U.S. schools and have tried to recruit students, faculty members and others at both universities and government research facilities, several recent law-enforcement investigations show…
University provost Nicholas Jones said Penn State hopes to use its experience to help other universities that are also likely targets for advanced cyberspies and other intruders, providing information on the hack as well as advanced security measures the university is putting in place.
“We don’t think we’re alone,” Jones said.
If Ashton Carter and the DoD needed an excuse to launch a cyber offensive on the way to “convincing a potential adversary that it will suffer unacceptable costs if it conducts a [cyber] attack on the United States,” we suppose this is it, because apparently, China has not only employed a vast network of sophisticated hacker spies in order to steal the blueprints for unmanned military drones and submarines from the computers of university engineering departments, but has also sent “legions” of operatives posing as graduate students to infiltrate America’s higher education system. This represents a remarkable step up the cyber attack accusation ladder compared to Washington’s attempt to blame North Korea for cyber-sabotaging James Franco and Seth Rogen.
We will let readers determine the extent to which any of the above is grounded in reality, but if indeed China does intend to use students as instruments of espionage, we have the following message for Beijing: given the inexorable rise in US college tuition rates and your $28 trillion debt pile, China may become insolvent on the way to procuring US military secrets.
- The Secret Fed Paper That Advocated a "Carry Tax" on All Physical Cash
Many commentators have noted that mainstream economists are calling to do away with cash entirely.
It would be easy to scoff at these proposals as completely insane if the Fed hadn’t published a paper back in 1999 suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.
The author of this lunacy is a visiting scholar with the ECB, the Fed, the IMF, and the Swiss National Bank. The fact that two of those groups have already imposed negative interest rates (ECB and SNB) should give warning that these sorts of ideas are actually taken very seriously by Central Banks.
The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:
1) A carry tax (meaning tax the value of actual physical cash that is taken out of the system)
2) Buy assets (QE)
3) Money transfers (literally HAND OUT money through various vehicles)
Regarding #1, the idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.
The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.
For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).
It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously. QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.
No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.
Indeed, JP Morgan has already begun implementing a similar scheme by forbidding the storage of cash in its safe deposit boxes.
As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland. The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans. Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes .
In a letter to its customers dated April 1, 2015 pertaining to its "Updated Safe Deposit Box Lease Agreement," one of the highlighted items reads: "You agree not to store any cash or coins other than those found to have a collectible value." Whether or not this pertains to gold and silver coins with no numismatic value is not explained.
https://mises.org/blog/chase-joins-war-cash
Here is the single largest bank in the US, forbidding depositors from storing cash in a storage box or safe deposit box at their bank. And virtually no one even responded in outrage.
Again, the Fed has declared a War on Cash, and a “carry tax” is coming.
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Phoenix Capital Research
- The War On Cash Destroys A Small Entrepreneur
Submitted by Joseph Salerno via Mises Canada,
Lyndon McClellan is a small entrepreneur who owns and operates L & M Convenience Mart in Fairmont, North Carolina.
L & M comprises a gas station, convenience store, and a small restaurant serving hot dogs, hamburgers, and catfish sandwiches. One day last July, more than a dozen federal, state and local law enforcement agents swarmed Mr. McClellan’s business, including agents from the FBI and the North Carolina Alcohol and Law Enforcement agency—and they were “asking” for him. When Mr. McClellan arrived, he was escorted by two federal agents into his stock room for a private chat. The agents showed him paperwork indicating that he had made two cash deposits totaling $11,400 within a 24-hour period in his bank account at the Lumbee Guarantee Bank. They informed him that the papers also indicated that he had a history of “consistent cash deposits” of less than $10,000, which was a violation of the the Federal law against “structuring.” They also informed him that the IRS had seized all of the $107,702.66 in L & M’s bank account.
What Mr McClellan did not know was that it was against the law to make cash deposits of lessthan $10,000. Banks are legally obligated to report any deposit of more than $10,000 to the U.S. Treasury Department. But if an individual makes several cash deposits of less than $10,000 over an unspecified period of time that total more than $10,000, then he is presumed to be a money launderer or drug trafficker who is committing the dastardly crime of structuring, that is, seeking to circumvent the bank’s reporting requirement and maintaining the privacy of his financial affairs Thus banks are also required to file “suspicious activity reports” on cash deposits of less than $10,000. Based on these reports, if one is merely suspected–not convicted–of structuring, his bank account is seized by the IRS under “civil asset forfeiture” laws, which permits seizures of money or other property suspected of being related to a crime.
Government agencies have a financial incentive to invoke civil asset forfeiture laws because the law permits the seizing agency to keep the assets and use them to expand their activities without an appropriation from Congress. In its insatiable hunger for funds, the IRS even “deputizes” state and local law enforcement agencies to go through “suspicious activities reports” in exchange for a cut of the loot subsequently seized by the IRS. This is probably how a small entrepreneur like Mr. McClellan living peacefully in a sleepy hamlet was targeted for destruction in the War on Cash.
Months after the seizure of his bank account, the federal government offered Mr. McClellan 50 percent of his money back if he agreed to a settlement. He heroically refused and intends to pursue the matter in court. Unfortunately, under the oppressive and despotic “civil asset forfeiture” laws, he bears the burden of proving his innocence. But as he puts it:
It’s not fair to the American people who work for a living that one day they can knock on the door, walk in their businesses, and say, ‘We just took your money’ … I always thought your money was safe in the bank, but I wouldn’t say that now.
Neither would I!
- Caught On Tape: Unequal Opportunity Policing In America
Same laws, same gun, same street. What is the difference between these two Americans walking with an AR-15?
- The Economist "Buries" Gold
Submitted by Pater Tenebrarum via Acting-Man.com,
A Proven Contrary Indicator
In early May, the Economist has published an editorial on gold, ominously entitled “Buried”. We wanted to comment on it earlier already, but never seemed to get around to it. It is still worth doing so for a number of reasons.
The Economist is a quintessential establishment publication. It occasionally gives lip service to supporting the free market, but anyone who has ever read it with his eyes open must have noticed that 70% of the content is all about how governments should best centrally plan the economy, while most of the rest is concerned with dispensing advice as to how to expand and preserve Anglo-American imperialism. We are exaggerating a bit for effect here, but in essence we think this describes the magazine well. In other words, its economic stance is essentially indistinguishable from that of the Financial Times or most of the rest of the mainstream financial press.
Keynesian shibboleths about “market failure” and the need to prevent it, as well as the alleged need for governments to provide “public goods” and to steer the economy in directions desired by the ruling elite with a variety of taxation and spending schemes as well as monetary interventionism, are dripping from its pages in generous dollops. It never strays beyond the “acceptable” degree of support for free markets, which is essentially book-ended by Milton Friedman (a supporter of central banking, fiat money and positivism in economic science, who comes from an economic school of thought that was regarded as part of the “leftist fringe” in the 1940s as Hans-Hermann Hoppe has pointed out). Needless to say, the default expectation should therefore be that the magazine will be dissing gold – and indeed, it didn’t disappoint.
Another reason is that the magazine has one of the very best records as a contrary indicator whenever it comments on markets. If a market trend makes the cover page of the Economist, it is almost as good as if it were making the front page of the Mirror or the Daily Mail. If you do the exact opposite of what an Economist cover story prediction indicates you should do, you can actually end up being set for life.
A famous example was the “Drowning in Oil” cover story which was published about two months after a multi-decade low in the oil price had been established, literally within two trading days of the slightly higher retest low. The article predicted that crude oil would soon fall from then slightly over $10/bbl. to a mere $5/bbl. – a not inconsiderable decline of more than 50%. Instead it began to soar within a few days of the article’s publication and essentially didn’t stop until it had risen nearly 15-fold – a gain of almost 1,400%.
One of the most ill-timed cover stories of all time – the Economist’s early March 1999 cover “Drowning in Oil”. In the article it was argued that there was such a huge oversupply of oil on the market, that a 50% price decline to $5 per barrel was highly likely.
From the “what really happened” department: within days of being left for dead by the Economist, oil embarked on a 1,400% rally – click to enlarge.
The Economist’s Disjointed and Irrelevant Musings on Gold
Unfortunately gold hasn’t yet made it to the front page, but the Economist has sacrificed some ink in order to declare it “dead” (or rather, “buried”). We hasten to add than during the recent trading range, every time we have written something mildly positive about gold, it usually felt as though we had jinxed it, often within hours. It is no secret that we are favorably disposed toward gold in the medium to long term, but we do as a rule inject some objectivity by mentioning the potential short to medium term downside risks that could become manifest should important support levels give way. It doesn’t seem very likely to us that this will happen (we believe a lengthy bottoming process is underway), but obviously the probability isn’t zero.
The Economist article is a typical “after the fact” denouncement – we wouldn’t have seen such an article appear in August/September 2011, when gold was still trading near its highs. It is also a disjointed mess, with many irrelevant arguments and non-sequiturs – basically a hit piece. However, since some of these arguments are at times mentioned by both bulls and bears, we thought it worthwhile to discuss their merit (or the lack of same). The article begins:
“Uncertainty is supposed to lift the gold price. But neither upheaval in the Middle East, nor the travails of the euro zone, nor startlingly loose monetary policy in the rich world is brightening the spirits of those who swear by bullion. After a big rally during the financial crisis, the price has sagged to about $1,200 an ounce, a third below its peak in 2011. Little seems likely to turn it round. “We’ve seen everything gold bugs could hope for: endless money printing, 0% interest rates (both short-term and long-term adjusted for inflation), rising debt and debt ratios in the public and private sectors…So where’s the damn hyperinflation?” asks Harry Dent, a newsletter publisher, in a recent blog post.”
(emphasis added)
We would submit that with developed market stock markets at one of their most overvalued levels in history and government bond yields recently trading at absurdly low and even negative yields, there are exactly zero signs of “uncertainty” in the financial markets. The St. Louis Fed’s financial stress index is presently at one of its lowest levels in history. As we have mentioned previously, gold has primarily lost its “euro break-up premium”. The question should actually not be “why is gold down one third from its highs”, but “why is it still up by 400% from its 1999 lows?”
The sentence “little seems likely to turn it around” is, well, golden in a sense. When a market trend changes, is always seems as if nothing could possibly turn the market around. Of course that doesn’t necessarily mean that a market turn in gold is imminent – we merely want to point out that the phrase used by the Economist perfectly describes the conditions found near major market turns. The above discussed “drowning in oil” article from early 1999 is a very good example of just such a situation.
Uncertainty? There is none – the “financial stress index” is near the lowest levels in the history of the data series. The faith of market participants in central banks and their policies is close to an all time high. One should ask why gold is still trading at such high levels, not why it is down from the euro crisis peak – click to enlarge.
The remark by Harry Dent is downright bizarre. Where was the “hyperinflation” when gold rose from $250 to $1,900? There wasn’t even a single mild inflation scare over the entire period. Is this meant to indicate that Dent believes “hyperinflation” is required for the gold price to rise? If so, then he should really refrain from commenting on the gold market. Although the true US money supply has increased by a chunky 265% since the year 2000, it would be ludicrous to expect “hyperinflation” anytime soon. The probability that we will experience hyperinflation over the next several years is so extremely low, it is hardly worth mentioning.
However, the process that historically ends with hyperinflation has always begun in a very similar manner: government debt rises to such an extent, that debt monetization by central banks is initiated. For many years, nothing happens. Occasionally, the pace of debt monetization is slowed down again, only to speed up again a short while later. Eventually, the price effects of the enlarged money supply begin to migrate from capital goods and asset markets to consumer goods (especially if the economy’s structural integrity becomes severely compromised by incessant credit expansion). At this point, it is still possible for the authorities to arrest the inflationary trend by abandoning the inflationary policy. Only when they consistently fail to do so, will the public’s confidence in the currency be suddenly lost. The actual “hyperinflation” process usually plays out in just a few short months – as the final conflagration in a process that takes many years, sometimes even decades, to play out. So we would advise Mr. Dent to be patient. Hyperinflation does not seem likely from today’s perspective, but a time may come when it does become likely. You will almost certainly read about it here if/when that should happen. In the meantime, rest assured that gold can easily rise to much higher prices than today’s, even if “CPI inflation” remains perfectly tame.
Gold vs. the y-y change rate in CPI – the direction of the latter seems to matter empirically (see “In Gold We Trust” by Ronnie Stoeferle and Mark Valek) – falling rates of inflation (“disinflation”) tend to be gold bearish, rising rates as well as “deflation” tend to be bullish. Hyperinflation is not required at all – click to enlarge.
The Economist continues:
“The biggest pressure on the gold price comes from the expectation that interest rates in America will rise later this year. Matthew Turner of Macquarie, a bank, says that low interest rates cut the opportunity cost of owning gold. Higher interest rates, by contrast, raise the cost of holding non-interest-bearing assets. Mr Turner thinks expectations of rising rates are already built into the gold price; if they do not materialize as quickly as expected, there could even be a rally.”
While it is true that the opportunity cost of holding gold is an important factor influencing its price, nominal rates are irrelevant – only real interest rates count. The idea that fear of Fed rate hikes exert the “biggest pressure on gold prices” is largely a myth however (even though Mr. Turner may turn out to be correct that if the Fed fails to hike rates soon, gold could rally for a while). If the Fed were to raise rates by 15 or 25 basis points, they would still be at levels that are among the lowest in history. Moreover, if inflation expectations rise by a similar amount, absolutely nothing would change for gold. If they were to rise at a faster pace than the Fed’s rate hikes, then the real interest rate backdrop would turn increasingly bullish for gold. As Steve Saville has recently pointed out though, if one looks closely at when the gold price has put in lows and reversed upward since 2013, it turns out that whenever an announced tightening of Fed policy (tapering, end of QE3) became reality, the gold price has started to rise instead of falling further.
Why is this so? The explanation is that the gold market is very much a forward-looking market. It senses trouble long before anyone becomes consciously aware of it. If one looks closely at the final phases of stock market bubbles in recent years, the gold price always stopped falling even while the stock market was still rising (at times sharply), but closing in on its peak. Anything that is bad for “risk assets” will be good for gold. Many people buy gold as “insurance” (even Ray Dalio has a sizable percentage of his personal assets in gold, if we can believe what he recently stated in a Q&A at the CFR). These people represent a steady stream of demand, that is usually buttressed by strong reservation demand that tends to surge whenever “bubble talk” with respect to other markets becomes prevalent. In short, because certain percentage of market participants recognizes the danger posed by the bubble, a floor is put under the gold price.
In order to understand the reasoning of gold buyers and gold holders who don’t sell at current prices, we only have to gauge our own demand for bullion, including our reservation demand, and consider what motivates it. Would we sell any bullion here? There isn’t a snowball’s chance in hell of that happening. What is the motive? We regard the monetary experiments performed by central banks in recent years as extremely dangerous. Furthermore, we believe that most of the Western world is suspended in a state of “pretend solvency”.
A giant confidence game is underway, in which a critical mass of people still pretends that governments are fiscally sound and that the banking system is in fine fettle. It seems to us that the reality is a tad more sobering, and while we have a lot of faith in the ability of what remains of the market economy to generate real wealth, we doubt it will suffice to stave off a less than happy outcome. On the day a sufficiently large number of people stops keeping up the pretense, we will have reached a fork in the road: either much of the world will get the “Cyprus treatment”, or we will indeed see hyperinflation emerge. It will be a default either way. Is there any possibility to hedge against such an outcome, or even a slightly less apocalyptic one, that still involves a great deal of financial and economic distress? If anyone has a better idea than gold, we’d love to hear it.
The Economist continues:
“That cannot come soon enough for gold producers. Nikolai Zelenski, the boss of Nordgold, which has mines in Africa and the former Soviet Union, says that half of all producers have negative cashflow. Some are heavily indebted, too. If the price does not rise, production could fall on a scale not seen since the two world wars.”
That is of course irrelevant for the gold price, but we would point out that gold producers somehow survived the bear market from 1980 to 1999 as well, and their production actually surged rather dramatically that time period. What Mr. Zelenski seems to be forgetting is that mining margins are a moving target. They depend not only on the gold price, but also on input costs.
The Economist continues:
“Gold bugs are determinedly optimistic. Gold is priced in dollars, so the fact that it stayed stable while America’s currency was rising (making gold more expensive for buyers in foreign currencies) is cause for cheer.”
With closed-end bullion funds trading it discounts of almost 10% to NAV, we have our doubts about the size and importance of this allegedly “determinedly optimistic” group. Anecdotal evidence actually suggests that most “gold bugs” are at best frustrated at this point. It is however true that it is a bullish sign when gold stays strong in the face of a strengthening dollar.
“Chinese consumers are buying more gold, after a sharp decline sparked partly by an anti-corruption campaign. So are Indians, the world’s biggest consumers of gold, after the government removed restrictions on imports last year. Yet the fact remains: gold is in a rut.”
This is one of the points often made by gold bulls: see how much gold China is importing! This is however at best of tangential importance, roughly on a par with the ups and down in mine supply. Gold is not an industrial commodity, it is a monetary commodity (for an explanation of the difference between the two see our previous missive “Misconceptions About Gold”). When gold moves from COMEX warehouses to warehouses in Shanghai, it is not a bullish event, but a completely irrelevant event. Having said all that, we do believe that Chinese investors could play a role in the eventual blow-off move we expect to occur a few years down the road. However, this is just speculation on our part.
The assertion that “gold is in a rut” is clearly a matter of perspective. It is certainly back in a bull market both in euro and yen terms, while going sideways in dollar terms. The chart below illustrates the current situation. Note that both in euro and yen terms, it is impossible to not see that a textbook technical bottoming process has taken place. Of course, the Economist hasn’t exactly lost its magic touch either: Since the article appeared, gold has risen by $45 in USD terms as well.
Whether one thinks that gold remains in a “rut” clearly depends on where one happens to reside. Could it be that all that money printing in the euro area and Japan does have an effect on the gold price after all? Just asking – click to enlarge.
The Economist continues:
“One reason may be that investors have so many more options nowadays. Humble citizens who distrust their own currencies can buy assets ranging from shares to bitcoins. Laurence Fink, the chairman of BlackRock, the world’s biggest asset-management firm, said in March that gold had “lost its lustre”, thanks to the wider availability of property and even contemporary art. “It’s become much more accessible for global families worldwide to store wealth outside their country.”
Obviously, the chairman of Blackrock is at odds with the chairman of Bridgewater, which is another one of those “largest asset management firms” in the world. Judging from what Fink says, we actually doubt that he has any expertise with respect to gold. Shares and Bitcoins? Property and contemporary art? Three of these four asset classes are in egregious bubbles, which clearly depend on confidence being maintained. The fourth is at the moment pretty much a burst bubble (Bitcoin has declined from $1,200 to a little over $200, so if people indeed see it as an “alternative to gold”, it has proved to be a rather poor one). It is in principle true that all these asset classes compete with gold to some extent, but it is a bit misleading to call stocks, property and works of art an “alternative” to gold. Gold is sought after when these assets are not – it is not merely an “alternative” to them, it is their antithesis.
Bitcoin – a bubble that has burst for now (it may well make a comeback though, and as we have previously noted, Bitcoin is likely here to stay) – click to enlarge.
Gold is currently dormant precisely because people are confident enough to pay absolutely ludicrous prices for assorted “risk” assets (recently a Gauguin painting sold for a record $300 million – a sign that some sectors of the economy are indeed displaying almost “hyperinflationary” characteristics by now). At the same time, the fact that these bubbles have grown to such exorbitant heights (there are countless breath-taking property bubbles underway around the world along with those in contemporary art and stocks) is a major reason why it makes sense to hold gold as insurance.
Gold is akin to money – although it is currently not money in the strict sense, as it doesn’t serve as the general medium of exchange, the market “knows” that it would be money if the market were free and treats it accordingly. So Fink’s statement is simply yet another non-sequitur. People were able to buy stocks and art works between 2000 and 2011 as well, and yet gold was the preferred asset in most of that time period, because confidence frequently faltered.
Gauguin’s “Will You Marry Me” – certainly a nice picture, but 300 million smackers? Come on…
Finally, the Economist cannot fail to get one last dig in, by letting us know that only the evil Vladimir Putin and his henchmen in Moscow are buying gold (either they are stupid, or it is a sign that gold is only bought by foaming-at-the-mouth crazies, take your pick!):
“The main exception to the trend is Russia, where the central bank has been a notable buyer of gold, tripling its holdings since 2005. It bought 30 tonnes in March alone, bringing its hoard to 1,238 tonnes. The Kremlin’s growing stockpile does not so much reflect a belief in gold’s prospects, however, as a distaste for the American dollar. Whatever Vladimir Putin’s other qualities, most investors would hesitate to take him on as a financial adviser.”
First of all, neither the Economist nor anyone else can properly judge Putin’s qualities as a “financial advisor”. Russia’s central bank may have very good reasons for buying gold. As Alan Greenspan once remarked, gold it is the only form of payment that will always be accepted. He dissuaded the US treasury from selling its hoard, precisely because extreme situations can arise when gold ownership can prove very useful. We would assume that strategic reasons are the Russian government’s main motive for buying gold as well – we doubt it cares much about where gold trades next week, next month or even next year.
Secondly, just because the Russian central bank is one of the few known big official gold buyers certainly doesn’t mean one has automatically hired Putin as one’s financial advisor when investing in gold. Incidentally, what Russia’s central bank is doing is not directly relevant to the gold price. What it buys in an entire year trades in London and Zurich in a few hours every trading day. It is a pittance compared to the total supply of gold.
Lastly, we still remember how Bloomberg, another viciously statist mainstream financial medium that disses gold at every opportunity, tried to scare less well informed would-be gold buyers by asserting that Russia would be forced to sell its gold reserves! See “Will There be Forced Official Sellers of Gold” for our assessment at the time. We have so far been proved right, but obviously we can’t win, because now Putin is our “financial advisor”!
Meet our evil new financial advisor, Vladimir Putin.
Conclusion
We enjoy picking on the Economist of course, but our main motive for dissecting its editorial on gold was to show that the gold market remains widely misunderstood. Moreover, given the Economist’s record as a contrary indicator, it might prove to be a useful marker, although we don’t want to make too much of this (if it had been a cover story, we’d recommend mortgaging the house and renting a vault). In the meantime, the fundamental backdrop for gold remains largely in neutral, with some factors improving and others not. However, buyers seem to be willing to step in every time gold dips below the $1,200 level. Technically it remains in no-man’s land in dollar terms, but continues to look encouraging in euro and yen terms. Maybe the Economist has managed to ring the bell after all? Stay tuned …
- Stephen King Warns "The Second Great Depression Only Postponed, Not Avoided"
Reading like his name-sake's horror novels, HSBC's Chief Economist Stephen King unleashes a torrent of truthiness about the Titanic-like economic ocean liner that is headed for an iceberg except this fragile ship doesn’t have lifeboats. As ValueWalk's Mark Melin notes, what is different with this economic recovery is that, unlike most, "the recovery phase has not marked a return to economic growth," nor has it ushered in a return to policy "normality." From King’s point of view, the normal recovery “typically allows policymakers to rebuild their stocks of ammunition, providing them with room to fight the next economic battle.” Problem is, under the regime of quantitative easing, the central bank central planners are now out of bullets as the economic recovery and the stock bull market is long in the tooth.
Stephen King: Economy is like Titanic except without lifeboats
In his research piece titled “The world economy’s titanic problem: Coping with the next recession without policy lifeboats,” King notes it has been six years since the last recession. Without specifically saying it, those who follow quantitative market probability note that bullish stock market environments last, on average, 67 months. The current bullish economic environment, depending on where you call the low point, is nearly 72 months old.
What is different with this economic recovery is that, unlike most, “the recovery phase has not been marked a return to economic growth,” nor has it ushered in a return to policy “normality.” In a normal environment interest rates have risen, tax revenues have rebounded, welfare payments shrunk, and government deficits have declined – “and, on some occasions, have even turned into surpluses.”
Stephen King: In QE-driven economic recovery, policymakers are out of ammunition
From King’s point of view, the normal recovery “typically allows policymakers to rebuild their stocks of ammunition, providing them with room to fight the next economic battle.” Problem is, under the regime of quantitative easing, the central bank central planners are now out of bullets as the economic recovery and the stock bull market is long in the tooth.
Quantitative easing has not built a a “real” economic foothold other that instilling a four letter word for investors: hope. “The higher value of financial assets have not translated into decent economic growth,” he said, and then documented what many hedge fund managers and economic analysis points out, that quantitative fairy dust isn’t driving sustainable economic growth:
It may be that QE has merely driven a wedge between financial hope and economic reality. Worse, if the next recession simply provokes more QE, are investors already beginning to believe that, once again, they are to be continuous beneficiaries of what was once affectionately known as the “Greenspan put”? This was the belief – held most strongly during the late-1990s tech bubble – that the Fed would stand ready to offer support in the event of economic weakness, inevitably encouraging even more in the way of risk-loving behavior.
Stephen King: We are closer to the next recession with few bullets remaining
King says that “if history is any guide, we are probably now closer to the next one (recession),” as he points out that the QE recovery has not accomplished what previous recoveries have: enabled monetary and fiscal policymakers to replenish their ammunition. In fact, the QE recovery has “been distinguished by a persistent munitions shortage.”
King goes on to outline solutions to a potential forthcoming recession, which is difficult to predict in an environment where debt is literally “out of control” and economic central planners have few bullets available to them.
These include 1) reducing the risk of recession; 2) reverting to quantitative easing; 3) moving away from inflation targeting; 4) using fiscal policy to replace monetary policy; (v) using fiscal and monetary policy together in a bid to introduce so-called “helicopter money”; and 5) pushing interest rates higher through structural reforms designed to lower excess savings, most obviously via increases in retirement age.
“We conclude that only the final option is likely to lead to economic success,” he said. “Politically, however, it seems implausible. As a result, we are faced with a serious shortage of effective policy lifeboats.”
Stephen King: The Second Great Depression Only Postponed, Not Avoided Altogether
Knowing that central banks are potentially hooked on QE for the long term is, at best, likely to lead to the mis-pricing of financial assets. That, in turn, might lead to a deterioration in the quality of investment and, hence, lower productivity growth over the medium term. At worst, it may lead to a repeat of the asset price bubbles that have proved to be so disruptive to economic activity.
In the absence of conventional policy ammunition, an addiction to QE could ultimately mean that the second great depression was only postponed, not avoided altogether.
Source: ValueWalk's Mark Melin
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In his own words…
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- Just Sold For $37,100,000 – Capital Misallocation Perhaps?
The unhinged misallocations of capital engendered by a systematically suppressed interest rate monetary regime are simply astounding.
Until the cows come home……………
Got Gold?
Check out: ABX (Allocated Bullion Exchange)
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- Leading German Keynesian Economist Calls For Cash Ban
It’s official: the world has gone central-planner crazy.
Monetary policy, whether in the form of “conventional” methods such as the micromanagement of policy rates or so-called “unconventional” measures such as QE, has proven utterly ineffective when it comes to both “smoothing out” the business cycle and reigniting economic growth in the wake of severe downturns. If anything, recent history has shown the exact opposite to be true. That is, the Fed helped to engineer the housing bubble and has now succeeded in inflating a similar bubble in stocks and fixed income. Meanwhile, the Japanese experience with QE has plunged the country into what we have affectionately dubbed “The Kuroda Zone”, wherein the BoJ has cornered both the stock and bond markets while failing to promote wage growth or meaningfully raise inflation expectations. In China, the PBoC has taken to cutting policy rates at the first sign of weakness in the stock market, helping to sustain what will perhaps go down in history as the second coming of the tulip bulb mania, while the ECB has taken the insane step of adopting a trillion euro bond buying program while simultaneously demanding fiscal discipline, meaning the central bank’s bond monetization efforts are set against a backdrop of meager supply.
In sum, the collective actions of the world’s most influential central banks have done wonders when it comes to inflating asset bubbles but have done very little to revive robust economic growth. In fact, far from smoothing out the business cycle and resuscitating DM demand, post-crisis monetary policy has actually had the exact opposite effect: it has set the stage for an even more spectacular collapse while simultaneously creating a worldwide deflationary supply glut.
At this stage, a sane person might be tempted to call it a day on the monetary experiments, especially considering that at this point, the limits have been reached. That is, there are literally no more assets to buy and rates have hit the effective lower bound where rational actors will eschew bank deposits in favor of the mattress. But not so fast, say folks like Citi’s Willem Buiter and economist Ken Rogoff: the world could always ban cash because if you eliminate physical currency and force people to use a debit card linked to a government controlled bank account for all transactions, you can effectively centrally plan everything. Consumers not spending? No problem. Just tax their excess account balance. Economy overheating? Again, no problem. Raise the interest paid on account holdings to encourage people to stop spending. So with Citi, Harvard, and Denmark all onboard, we bring you the latest call for a cashless society, this time from German economist and member of the German Council Of Economic Experts Peter Bofinger.
Via Spiegel (Google translated):
Coins and bills are obsolete and only reduce the influence of central banks. This position represents the economy Peter Bofinger. The federal government should stand up for the abolition of cash, he calls in the mirror…
The economy Peter Bofinger campaigns for the abolition of cash. “With today’s technical possibilities coins and notes are in fact an anachronism,” Bofinger told SPIEGEL.
If these away, the markets for undeclared work and drugs could be dried out. In addition, it would have the central banks easier to enforce its monetary policy.The teaching in Würzburg economics professor called on the federal government to promote at the international level for the abolition of cash. “That would certainly be a good topic for the agenda of the G-7 summit in Elmau,” he said. (Click here to read the full interview in the new mirror .)
Even the former US Treasury Secretary Larry Summers and economist pleaded for an end to the already cash . Likewise, the US economist Kenneth Rogoff . He also argued that the interest rates of central banks have less clout when banks or consumer credit rather than hoard cash.
Critics warn, however , such debates would only distract from the real problems of the current monetary policy.
Yes, the “real problems” with current monetary policy. Like the fact that by design it can’t possibly work (but it can and will push stocks to unprecedented highs). Paging Mr. Weidmann, your countrymen are going Keynesian crazy.
- This May Just Be The Start Of The Oil Price War Says IEA
Submitted by Andy Tully via OilPrice.com,
Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world’s most influential oil-producing country, he has enormous influence.
But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC’s strategy of forcing US shale to cut back is succeeding.
The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia’s effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called “light, tight oil” (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.
“In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked,” the IEA reported. “Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating.”
But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.
As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.
But that, evidently, isn’t good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. “Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks,” the report said.
For example, Statoil, Norway’s huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas’ Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.
“There’s a proverb in Norway that says necessity teaches the naked woman how to knit,” Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.
Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it’s been able to reduce drilling time from an average of 21 days to 17.
Against this backdrop, then, it’s not surprising that the IEA isn’t so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. “It would thus be premature to suggest that OPEC has won the battle for market share,” the agency’s report said. “The battle, rather, has just started.”
- Greece Will Default On June 5 Without Deal, IMF Leaks
Another week came and went with no breakthrough in negotiations between Greece and its creditors. The IMF is now fed up and has reportedly refused to be a part of any new bailout program for Greece, after Athens drew down its SDR reserves to makes its latest payment to the Fund. That money will now need to be repaid and in a move that surely marks the new gold standard for absurd circular funding schemes, Greece will likely look to use the next tranche of IMF money to payback its IMF SDR reserve which it tapped to pay the IMF. The country’s public sector employees live in limbo, not knowing from one week to the next whether they will be paid and commuters are now subjected to a 50 second looped highlight reel of the Nazi occupation meant to rally the country behind the government’s quarter trillion euro war reparations claim (they might as well just ask for a ‘gagillion’) on Germany which has now become the symbol of tyranny and debt servitude for many Greek citizens.
Given the situation, one would be inclined to think that Alexis Tsipras would be falling all over himself to cut a deal with creditors because while giving up on campaign promises to voters isn’t ideal, it’s better than going down in history as the PM who sent the country careening into a drachma death spiral, and besides, giving up on campaign promises is something most politicians do all the time (it’s a job requirement for the US presidency). Alas we were back to the now ubiquitous ‘red line’ rhetoric on Friday as Tsipras continued to employ the “tell EU officials one thing behind close doors and tell the public the exact opposite a day later” negotiating technique. Here’s more from Bloomberg:
Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said.
“Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.”
Europe is once again set to take the stalled negotiations down to the wire as it now appears the next serious round of talks will come in Riga (the site of an epic Varoufakis meltdown that saw the FinMin tweeting out melodramatic FDR quotes after he was forced to have dinner by himself while his EU counterparts attended a gala) when Tsipras will try to close a deal by the end of the month.
Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia, according to a Greek government official who asked not to be identified as the diplomacy is not public.
If a deal isn’t struck by the end of May, it is truly game over. Here’s the ECB’s Yves Mersch:
“We are in an end game in Greece where the situation is grave. This situation is not tenable. There has been an accord between Europe and Greece to go through a program. This hasn’t been the case since December last year, because the new government said it doesn’t want to have anything to do with the program. But then they can’t demand money that was attached to that program either. In the meantime, they haven’t managed to bring other measures to the table that could lead to the same goal as foreseen in the first program. Greece is convinced it can play along the line of other rules than” the other 18 euro-area members.”
Despite the obviously dire circumstances, the Syriza government still insists it will somehow scrape together cash to meet its obligations…
“Greece Will Pay Wages, Pensions, Varoufakis Tells Skai TV”
…while EU officials (who one imagines are at this point completely amazed at how obtuse the Greek government has proven to be) are left with no option but to remind Greece that Brussels is still waiting on a list of reforms…
“Dombrovskis Reminds Greece to Submit Reform List, Bild Reports”
….and at the end of the day, here is the reality (via Bloomberg)…
“Greece won’t be able to make IMF repayments, beginning with a June 5 payment, unless an agreement is reached with international partners, U.K.’s Channel 4 reports, citing a leaked IMF memo dated May 14.”
* * *
As a reminder, here is the IMF procedure for a default and a matrix which outlines what a missed IMF payment would mean in terms of accelerated payment rights for Greece’s other creditors:
- Inside China's Insane IPO Market: Full Frontal
We’ve said it before and we’ll say it again: China’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders.
While there are some signs that the bubble in Chinese stocks may be set to peak — such as brokers looking to curb margin trading — rest assured that the PBoC is on the case, cutting policy rates twice in a month in an effort to ensure the country’s stock market miracle continues to overshadow a bursting real estate bubble and a decelerating economy in the minds of Chinese investors.
One area that’s been particularly hot this year is the Chinese IPO market, which has spawned companies like the now famous Beijing Baoefung Technology which, until Thursday, had traded limit-up every single day since its March IPO. Here to shed some light on just how ridiculous the IPO market in China has become is Morgan Stanley:
Since January 1, 2014, a total of 225 companies have IPO’d in China’s A share markets. The mean performance since IPO is 418%, with trailing P/E currently at 92x and EV/EBIT at 105x. Mean yoy EPS growth in the year prior to IPO was 4%. Total market cap is now over US$500bn.
We have used an ‘interstellar’ metaphor before to discuss China’s A share markets. In this context the IPO markets are Blue-White, the hottest stars in the A-share universe…
In every industry group except the two IPOs in Energy, performance on the IPO date was between 43% and 44%. What this means is that for the vast majority of the other 223 of 225 IPOs, the stock rose limit up (20%) at the open and then by the additional limit restriction to a 20% gain during the day.
To put it mildly, this suggests a market that has not been discriminating in relation to pricing, at least early on.
It also explains the huge subscription volumes for IPOs and the surge in new account openings since China allowed individuals to open more than one account in mid-April. Investors have come to see IPOs as a sure-fire way of making high returns over a short period of time.
Performance over longer time horizons has been more variable. The average return has been 418%, since the date of IPO (itself an eye-opening number). However, energy IPOs have lagged, returning “only” 160%. Media (773%), and Software and Services (1125%) are way out in front.
The mean trailing P/E is 92x trailing, with no sector trading below 50x trailing. The most expensive industry groups are Software (311x), Media (140x) and Retailing (134x); the cheapest are Diversified Financials (53x) and Semiconductors (53x).
We also provide in the Exhibit historical EPS growth for 2014 yoy vs 2013. The mean EPS growth for the stocks that have IPO’d is just 4%. The only industry groups with double-digit historical EPS growth at the time of IPO are Food & Staples Retailing and Diversified Financials (securities firms helped by strong stock market volumes). In seven sectors, the mean EPS growth was negative in the year prior to IPO.
* * *
In sum: since the beginning of 2014, the 225 companies that have gone public in China have returned an average of 418% on their way to an average P/E of nearly 100X while growing earnings by an average of just 4%. Most absurd of all, software IPOs have returned 1,124%, have an average P/E of 311X on earnings growth of -5%.
But remember, HSBC’s Head of China Equity Strategy Steven Sun “wouldn’t call [Chinese stocks] a bubble.”
- Sovereign Debt: You Cannot Go Unprepared into This
By Chris at www.CapitalistExploits.at
A recent conversation I had with an exasperated parent of a teenager showed me how horribly things can turn out if parents have no discipline when raising kids. If parents have been spoiling poor little “Johnny Snotbrat” for most of his life and let him get away with murder at some point he may actually do just that.
This teenager is now causing serious harm to family, acquaintances and the police. I’ve seen this happen before.
The parents – in their desire to keep the calm – let “Johnny” get away with bad behavior. This is somewhat manageable when Johnny is still small. But quite quickly Johnny grows in size and brattiness, and becomes a truly unruly brute who threatens to do serious damage. Every scuffle has always resulted in letting Johnny have his way, appeasing and keeping the calm.
Now, fast forward a few years later and Johnny is 6 ft 5, has hair on his chest and is out of control!
I’ll do my best to keep out of the way of Johnny Snotbrat but there is another event brewing and this one is going to have a vastly greater impact on us all.
Central bankers, the proud parents of the largest debt bubble this world has ever seen, have tried to spoil and appease the markets when they deserved to be disciplined. Instead of allowing the markets to correct themselves and showing discipline, central bankers flooded the world with liquidity and soaked up many problems.
In doing so they’ve created a truly wild monster both in the sovereign debt markets directly, and indirectly in the corporate debt markets as market participants seeking some sort of yield (heck, any sort of yield) have been driven down the risk curve. I detailed this recently in a post discussing the terrible misconception that many people have about a so-called global deleveraging post 2008. It never happened!
Central bankers have created this bastard of a neighbour punching, head-butting, sister shagging teenager which requires continuous feeding. But feeding him more just makes him more dangerous. The last few weeks have seen this wild creature flexing his muscles and when he truly gets out of control he’s going to start tearing people’s heads off.
Above you’ll see the last 10 years in the respective bond markets of the US, Germany and Japan – the most important bond markets in the world today.
Let’s now take a look at the above chart showing the same bonds since the beginning of this year.
Bond yields are rising sharply on the long end of the curve (long duration bonds) in favour of the short end. This is a rational move. Liquidity is crashing on all the long dated maturities and as you can see yields are breaking out. It makes perfect sense to sell the long end of the yield curve given the fundamentals. What we’re witnessing is that cash flooding into the shorter duration maturities. I’m going to nab a quote which I used last week here, originally from Howard Marks of Oaktree Capital as it’s really critical to assessing risk.
It’s often a mistake to say a particular asset is either liquid or illiquid. Usually an asset isn’t “liquid” or “illiquid” by its nature. Liquidity is ephemeral: it can come and go.
Is this the beginning of the loss of faith in government paper?
We’ve discussed at length how we believe the first move to be a rush to the US dollar. We detailed this in a special US Dollar Bull Market Report on our favourite ways to trade this trend.
Since we first published the report some months back our positions have moved in our favour, though over the past few weeks there has been a pullback – something that is healthy and to be expected.
When I look at the above graphs and the fact that volatility in many of the long dated option positions we recommended has dropped again I believe the market is offering us up another fantastic opportunity to add to these positions.
The bond market is beginning to crack at the periphery (Greece and Italy) and is now showing stress on the long end of the curve.
If there is one thing that I think I’ve learned when it comes to sell offs it’s that you can be an hour early to the party but never a minute late.
There is a crisis coming and we’ll be sitting around watching each of the world’s central bankers attempting to deal with the fallout of their own creation. It promises to be entertaining:
- The Brits, being British, will get all hot and flushed and then splutter and pardon with a few “crikey’s” and “goshes”
- The Europeans will handle this by blaming each other, but mostly the Germans
- The Germans, in turn will flush the sauerkraut with a large beer, don their lederhosen and get on with fixing the problem. This particular problem will be akin to wrestling a man eating tiger in a Japanese nuclear power station: impossible. Not even German technology will fix this!
- The French will set up a committee to investigate how they may be able to tax individuals on losing money rather than making it, never acknowledging their own part in the fiasco.
- The Japanese. Well, they’ll do the honorable thing and fall on their sword. Seppuku!
- And the Americans will search the nation to find the man with the shiniest teeth, put him on Oprah where he’ll open his arms in an apology and reassure everyone that everything will be fine, even though it won’t.
Let’s get ready for the show but for goodness sake make sure you’re prepared for it!
– Chris
“By failing to prepare, you are preparing to fail.” – Benjamin Franklin
- Martin Armstrong Warns Of The Coming Crash Of All Crashes
Submitted by Martin Armstrong via Armstrong Economics,
Why are governments rushing to eliminate cash?
During previous recoveries following the recessionary declines, the central banks were able to build up their credibility and ammunition so to speak by raising interest rates during the recovery. This time, ever since we began moving toward Transactional Banking with the repeal of Glass Steagall in 1999, banks have looked at profits rather than their role within the economic landscape.
They shifted to structuring products and no longer was there any relationship with the client. This reduced capital formation for it has been followed by rising unemployment among the youth and/or their inability to find jobs within their fields of study. The VELOCITY of money peaked with our Economic Confidence Model 1998.55 turning point from which we warned of the pending crash in Russia.
The damage inflicted with the collapse of Russia and the implosion of Long-Term Capital Management in the end of 1998, has demonstrated that the VELOCITY of money has continued to decline.
There has been no long-term recovery. This current mild recovery in the USA has been shallow at best and as the rest of the world declines still from the 2007.15 high with a target low in 2020, the Federal Reserve has been unable to raise interest rates sufficiently to demonstrate any recovery for the spreads at the banks between bid and ask for money is also at historical highs. Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread between bid and ask since the Panic of 1899.
We face a frightening collapse in the VELOCITY of money and all this talk of eliminating cash is in part due to the rising hoarding of cash by households both in the USA and Europe.
This is a major problem for the central banks have also lost control of the ability to stimulate anything.The loss of traditional stimulus ability by the central banks is now threatening the nationalization of banks be it directly, or indirectly.
We face a cliff that government refuses to acknowledge and their solution will be to grab more power – never reform.
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