Tag: news

Kim Dotcom Warns Of Economic Collapse – Says “Buy Gold And Bitcoin”

Kim Dotcom (Kim Schmitz), a controversial internet pirate and cryptocurrency advocate, recently urged all 736k followers to immediately buy gold and Bitcoin because President Trump is sleepwalking into a tremendous fiscal collision.

“1 TRILLION DOLLARS in additional US Govt debt PER YEAR!” warned Dotcom.

“US spending is funded by lenders who will never get paid. US Empire will collapse followed by a worldwide economic collapse. http://usdebtclock.org,” he added.

“Shift your USD into Gold & Bitcoin asap before USD becomes toilet paper.”

Dotcom began the warnings last week, which he said: “Trump was handed an Empire on life support,” and that “Top economists around the world agree that US debt is unsustainable. There is no sugar coating this. US Empire is broke. Prepare for collapse.”

On Sunday, Dotcom cited Russian Finance Minister Anton Siluanov in a recent interview who said the US Dollar is becoming an unreliable tool for payments in international trade. The minister did not rule out the possibility of using national currencies instead of the US Dollar in the oil trade.

About an hour later on Sunday morning, Dotcom tweeted again at his followers telling them about a simple hedging strategy (buy gold and bitcoin) against a potential economic crisis, which he believes could make the greenback worthless and result into a very “big crash” for markets.

While he did not reveal the reason(s) behind the economic collapse, his tweets are perhaps not out of line, given the fact that the federal government ran a monthly budget deficit of $77 billion in July, up 79 percent from prior year. For the first ten months of 2018, the shortfall totals $684 billion, according to the Treasury Department. That is about an increase of 21 percent compared to the same period in 2017.

The exploding deficit has been primarily driven by Trump’s tax cuts, record military spending, and numerous other spending bills. Trump told the American people that tax cuts would lead to stronger economic growth, boost wages, deliver more tax revenue and reduce the deficit.

While some of Trump’s statements could be true, real wage growth is being wiped out by inflation, and new evidence suggests that companies spent a majority of tax cuts on stock buybacks.

The deficit is projected to hit $793 billion at the end of the year and approach $1 trillion in 2019. According to the latest Monthly Treasury Statement, interest payments to service the debt have hit a new high and are forecasted to become the fastest rising yearly expenditure.

And lastly, we leave you with an excerpt from a recent note via Charles Gave of why the next economic crisis could already be here: 

“So, if I take the US monetary base, and add to it the reserves deposited by foreign central banks at the Fed, I get my figure for the World Monetary Base. From this aggregate, I can get a rough idea of the pace of base money creation around the world, either through direct intervention by the Fed in the US banking system, or indirectly through US dollar accumulation by foreign central banks. When the WMB is growing, I can be relatively confident about the future nominal growth of the global economy. And when it’s contracting, it makes very good sense to worry about a recession.”

As the chart above shows, the Monetary Base is now contracting. So based, on Gave’s four decades of experience in financial markets, it seems to him the world could be entering its “seventh international dollar liquidity crisis since 1973.” We took Gave’s research just one step further — and highlighted that the next crisis could have already started with Turkey’s Lira collapse.

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UN Gives Unconditional ‘Green Light’ For Shifting “The Rescued” To Europe

Via GEFIRA,

The global establishment goes out of its way to increase the number of immigrants in Europe. If the governments of particular states such as Hungary, Poland or now Italy oppose these activities, they are internationally marginalized. And if an action goes counter to the plans of international organizations, they are trying to come up with new legal interpretations that will be binding on the parties concerned. All of which is only possible because the EU member countries have relinquished their sovereignty and transferred it to international institutions.

The Italian authorities, which are increasingly strongly opposed to the pressure from the UN and non-governmental organizations, are effectively counteracting the stream of African immigrants. Thus Italy ceases to be the main migratory route to Europe, which is not accepted by the NGOs or international institutions. Still, events from the end of July related to the Italian ship Asseo Ventotto, as described below, make migration from Europe legal and even desirable.

In recent years it was Italy that has accepted most of the refugees. The new government has decided to take more decisive steps to stop this process. The first measure was the gradual closure of ports to non-governmental organizations transporting “refugees”. The second is to send undocumented immigrants back to Africa.

The resolve of the Italian authorities have triggered attacks by non-governmental organizations that have hailed the government’s representatives as fascists, simply because they want to pursue the will of voters and restrict immigration. 3)both the UN and the EU question the legality of Rome’s actions. The Italian-Libyan cooperation is also under international pressure because it aims to redirect the refugees heading for Italy to Libya. The European Court of Human Rights has submitted the procedures for the prevention of migration in the Mediterranean to scrutiny.

The event from last month provides a precedent. On 30th of July, the Asso Ventotto, a ship owned by Augusta Offshore, the Italian oil and gas production company, picked up, only 6.4 km from Libyan territorial waters, a dinghy with more than a hundred immigrants, which was required by the maritime law. Acting on the advice of the Libyan Coast Guard, the Asso Ventotto crew transported the rescued to the nearest port, i.e. to Tripoli. It was like throwing down the gauntlet to non-governmental organizations such as Amnesty International, Sea-Watch or activists of Proactiva Open Arms, which suggested that the safest place for survivors would be Europe.

UN diplomats couldn’t agree more. The United Nations High Commissioner for Refugees, Filippo Grandi, stated on Twitter that the transfer of survivors to countries where human rights might be violated may constitute a violation of international standards. Thus, according to Grandi, immigrants which were picked up near Libyan territorial waters should be transported to countries where they will find a safe haven, to Italy, Greece or Spain, rather than to Libya, which is recognized by both the UN and the EU as a country dangerous for the survivors.

The government in Rome, however, indicates that Italy is not responsible for the fate of fleeing Africans who are not in Italian territorial waters. Such an attitude, however, does not appeal to world diplomats. Considering the fact that the UN and the EU single-handedly define a list of dangerous states, the above situation opens the ground for a new interpretation of international law. In the light of it, the UN agenda may give the green light to non-governmental organizations to pick up “refugees” from international waters and transport them to Europe as well as impose an obligation on all ships, including private ones, to transport immigrants not to the nearest but to the safest ports, never mind the cost of the shipment or the interrupted works. Closing ports to ships carrying immigrants will also be banned.

The Gefira Foundation has already proven that international institutions are seeking to manage the migration flow and they maintain that this movement of people is “unavoidable, desirable and necessary”. We expect the Italian government to continue to oppose the recommendations of global organizations, which will probably entail its isolation on the European political stage. The steps taken by the authorities in Rome will cause African smugglers to move from Libya to Morocco. The short distance from the Black Continent and the moral support from the UN and the EU will turn Spain into an ideal destination instead of Italy. Thus, the Iberian Peninsula will become the largest window for immigrants who want to get to Europe.

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China Steps Up Live-Fire Naval Exercises On “Enemy” Targets

China has been stepping up its maritime combat readiness, according to analysts responding to official reports that the People’s Liberation Army (PLA) had staged at least three naval drills over the past week. 

On Monday, the Southern Theatre Command acknowledged over social media that a frigate fleet had recently performed drills – including simulated anti-submarine attacks and live-fire exercises, aimed at putting PLA forces through increasingly complex and realistic training scenarios. 

The command, which is one of five such units established by President Xi Jinping to represent China’s five strategic locations, did not disclose the locations of the exercises, but its area of responsibility encompasses the disputed South China Sea.

The images published online appeared to show at least five frigates and two helicopters taking part in the drills. –SCMP

Xinhua news reported on Saturday that over 10 warships from three theatre commands participated in a large-scale missile and air defense exercise in the East China Sea. Anti-air attack missiles were fired from two corvettes – the Meizhou and the Tongren, to intercept simulated “enemy” targets, while serving under the command of guided missile frigate Jingzhou – which observed and gathered data. 

The third drill took place in the Yellow Sea between Friday and Monday, according to China’s Maritime Safety Administration – which did not release any more data than the location. 

Some observers have speculated that the exercise may have included China’s first domestically produced aircraft carrier – the Type 001A, due to the drill’s proximity to Quingdao – the ship’s home port in the eastern China province of Shandong. 

The exercises come amid a growing trade war between Washington and Beijing – as well as China’s turbulent relations with Taiwan. On Sunday, Taiwan President Stai Ing-wen embarked on a nine-day trip to Belize and Paraguay – two of just 18 nations which still maintain diplomatic ties with the island nation. 

Military experts said that the PLA drills were intended as a show of strength to both the United States and pro-independence forces in Taiwan, which Beijing regards as a breakaway province. –SCMP

“The anti-air and anti-missile exercises in the East China Sea are intended to ensure a safe environment for China’s aircraft carriers, which means an aircraft combat group is preparing to go further out to sea,” said military observer Song Zhongping, who added “It sends a very clear signal to Taiwan’s independence forces and deters any intervention into Taiwan affairs by the US or Japan.”

Meanwhile, military commenter Li Jie said that in the event off armed conflict between Beijing and Taipei, the East China Sea would be a primary battleground. Jie said that Beijing would not sit idly if it thought it was being provoked in the region. 

“Although Sino-Japanese relations have warmed recently, China is still very suspicious of Japan’s military development and needs to prepare,” he said.

Japan’s defence ministry is reported to have requested US$160 million to pay for new long-range missiles in response to the growing military threat in East Asia. –SCMP

Beijing military expert Zhou Chenming added that the three drills were designed to test China’s naval capabilities following a sweeping program of military restructuring and modernization. 

“Through the drills that replicate war scenarios, military authorities can better understand whether the navy needs more equipment, and also test the compatibility of its old and new weapons,” he said, adding “Most importantly, it can see whether the [navy’s] combat capability has been strengthened or not.”

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Washington’s Rebuff Of Russia’s Cooperation Request In Syria Shows Its Cynicism

Authored by Andrew Korybko via Oriental Review,

The head of the Russian Armed Forces General Staff Valery Gerasimov asked his closest American counterpart Joseph Dunford to assist his country in jointly stabilizing Syria.

Gen. Joe Dunford (left) and Gen. Valery Gerasimov (right), Helsinki, Finland, June 8, 2018

Reuters reported that the proposal to cooperate on the repatriation of refugees and reconstruction projects in the Arab Republic was met with an “icy reception” by US decision makers, though this could have been expected considering that Washington had previously said that any assistance that it might provide to the government-controlled areas of Syria would be tied to the implementation of UNSC 2254’s constitutional reform and new elections.

Furthermore, President Assad declared in late June that his government wouldn’t accept reconstruction funds from the same countries that contributed to destroying his own, though if the leaked details of Gerasimov’s message to Dunford are to be believed, then Russia’s assessment is that Damascus “lacks the equipment, fuel, other material, and funding needed to rebuild the country in order to accept refugee returns”, hence the reason for reaching out to the US.

While there were high hopes that Presidents Putin and Trump might have reached an understanding on Syria during last month’s Helsinki Summit, it appears as though expectations might be dashed after this latest setback.

The US veritably has an interest in focusing its reconstruction efforts and post-war development projects on the Kurdish-controlled proxy state in the northeastern agriculturally and energy-rich corner of the country that it’s already deployed roughly two thousand troops to, so there’s a certain logic to rebuffing the latest Russian offer. Even though the Kurds and Damascus have reportedly entered into talks with one another, this is unlikely to lead to the dissolution of the US’ protectorate and will probably find a way to “formalize” it through mutually acceptable “compromises” that figure into the ongoing constitutional reform process.

Although the leaking of Gerasimov’s proposal to Dunford was probably done by Trump’s “deep state” enemies in a desperate attempt to undermine what they may have feared was the President’s “secret deal” with Putin, it inadvertently harms the US’ soft power standing because it confirms that America doesn’t really care about the welfare of the Syrian people or the return of refugees from the region and beyond in spite of its repeated statements to the contrary over the years.

Making humanitarian and developmental assistance conditional on political factors is Machiavellian to the core but unsurprising to those who have a solid understanding of the cynicism behind American strategic planning. It’s also proof that the US is indirectly weaponizing refugees and developmental assistance in order to advance its objectives, something that its supporters have always denied but which is now undebatable.

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Robot Powered By Raspberry Pi Finds Waldo In 4.5 Seconds

When the history books are written after the robot uprising, should we survive, a sad chapter will be devoted to the day humans were bested at yet another simple feat by one of our silicon overlords; finding Waldo.

According to The Verge, creative agency Redpepper has created There’s Waldo – robotic metal arm made by Ufactory with a Vision Camera Kit and a floppy prosthetic hand attached to it, all powered by a tiny Raspberry Pi computer.

The camera takes a photo of the page, which then uses OpenCV to find the possible Waldo faces in the photo. The faces are then sent to be analyzed by Google’s AutoML Vision service, which has been trained on photos of Waldo. If the robot determines a match with 95 percent confidence or higher, it’ll point to all the Waldos it can find on the page. –The Verge

Google’s Cloud AutoML, available since January, allows users to train their own AI tools without prior coding knowledge using a drag-and-drop tool for image recognition purposes. The tool can be trained for a variety of cases, such as categorizing photos. 

Redpepper creative technologist Matt Reed told The Verge via email: “I got all of the Waldo training images from Google Image Search; 62 distinct Waldo heads and 45 Waldo heads plus body. I thought that wouldn’t be enough data to build a strong model but it gives surprisingly good predictions on Waldos that weren’t in the original training set.”

Reed was inspired by Amazon Rekognition’s ability to recognize celebrities, and wanted to experiment on a similar system which supported cartoons. He had no prior experience with AutoML, and it took him about a week to code the robot in Python. –The Verge

 What will robots take the fun out of next? 

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Technocrats Rule: Democracy Is ‘OK’ As Long As The People Rubberstamp Our Leadership

Authored by Charles Hugh Smith via OfTwoMinds blog,

Technocrats rule the world, East and West alike.

We are in a very peculiar ideological and political place in which Democracy (oh sainted Democracy) is a very good thing, unless the voters reject the technocrat class’s leadership. Then the velvet gloves come off. From the perspective of the elites and their technocrat apparatchiks, elections have only one purpose: to rubberstamp their leadership.

As a general rule, this is easily managed by spending hundreds of millions of dollars on advertising and bribes to the cartels and insider fiefdoms who pony up most of the cash.

This is why incumbents win the vast majority of elections. Once in power, they issue the bribes and payoffs needed to guarantee funding next election cycle.

The occasional incumbent who is voted out of office made one of two mistakes:

1. He/she showed a very troubling bit of independence from the technocrat status quo, so a more orthodox candidate is selected to eliminate him/her.

2. The incumbent forgot to put on a charade of “listening to my constituency” etc.

If restive voters can’t be bamboozled into passively supporting the technocrat status quo with the usual propaganda, divide and conquer is the preferred strategy. Only voting for the technocrat class (of any party, it doesn’t really matter) will save us from the evil Other: Deplorables, socialists, commies, fascists, etc.

In extreme cases where the masses confound the status quo by voting against the technocrat class (i.e. against globalization, financialization, Empire), then the elites/technocrats will punish them with austerity or a managed recession.The technocrat’s core ideology boils down to this:

1. The masses are dangerously incapable of making wise decisions about anything, so we have to persuade them to do our bidding. Any dissent will be punished, marginalized, censored or shut down under some pretext of “protecting the public” or violation of some open-ended statute.

2. To insure this happy outcome, we must use all the powers of propaganda, up to and including rigged statistics, bogus “facts” (official fake news can’t be fake news, etc.), divide and conquer, fear-mongering, misdirection and so on.

3. We must relentlessly centralize all power, wealth and authority so the masses have no escape or independence left to threaten us. We must control everything, for their own good of course.

4. Globalization must be presented not as a gargantuan fraud that has stripmined the planet and its inhabitants, but as the sole wellspring of endless, permanent prosperity.

5. If the masses refuse to rubberstamp our leadership, they will be punished and told the source of their punishment is their rejection of globalization, financialization and Empire.

Technocrats rule the world, East and West alike. My two favorite charts of the outcome of technocrats running things to suit their elite masters are:

The state-cartel-crony-capitalist version: the top .1% skim the vast majority of the gains in income and wealth. Globalization, financialization and Empire sure do rack up impressive gains. Too bad they’re concentrated in the top 1.%.

The state-crony-socialist version: the currency is destroyed, impoverishing everyone but the top .1% who transferred their wealth to Miami, London and Zurich long ago. Hmm, do you discern a pattern here in the elite-technocrat regime?

Ideology is just a cover you slip over the machine to mask what’s really going on.

*  *  *

My new book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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“Cashout”: FBI Warns Of Imminent Global ATM Hack

The FBI is warning of an “imminent” global cyberattack on ATM machines that could result in millions of dollars withdrawn from bank accounts far and wide, in a similar “cash-out” attack to one in 2009 which hit ATMs worldwide to the tune of $9 million. 

“The FBI has obtained unspecified reporting indicating cyber criminals are planning to conduct a global Automated Teller Machine (ATM) cash-out scheme in the coming days, likely associated with an unknown card issuer breach and commonly referred to as an ‘unlimited operation’,” according to an FBI alert to banks that was obtained by noted cybersecurity expert Brian Krebs. 

Krebs describes it as a “highly choreographed, global fraud scheme known as an “ATM cash-out,” in which crooks hack a bank or payment card processor and use cloned cards at cash machines around the world to fraudulently withdraw millions of dollars in just a few hours.” 

“Historic compromises have included small-to-medium size financial institutions, likely due to less robust implementation of cyber security controls, budgets, or third-party vendor vulnerabilities. The FBI expects the ubiquity of this activity to continue or possibly increase in the near future,” the FBI statement reads. 

In other words, financial institutions which haven’t upgraded to the latest and greatest in security measures are vulnerable to attack. And since banks will likely reimburse anyone affected by the breach, the FBI’s warning should particularly interest small-to-mid sized banks using outdated technology. 

In July, two similar “unlimited operation” attacks resulted in losses of $2.4 million from the National Bank of Blacksburg according to Krebs, who broke the story. 

In both cases, the attackers managed to phish someone working at the Blacksburg, Virginia-based small bank. From there, the intruders compromised systems the bank used to manage credits and debits to customer accounts.

The 2016 unlimited operation against National Bank began Saturday, May 28, 2016 and continued through the following Monday. That particular Monday was Memorial Day, a federal holiday in the United States, meaning bank branches were closed for more than two days after the heist began. All told, the attackers managed to siphon almost $570,000 in the 2016 attack.

The Blacksburg bank hackers struck again on Saturday, January 7, and by Monday Jan 9 had succeeded in withdrawing almost $2 million in another unlimited ATM cashout operation. –Krebs On Security

Meanwhile, the FBI is advising banks on best security practices, such as two-factor authentication using physical or digital tokens, as well as beefed up password requirements. 

The FBI issued a similar alert in 2009, after a “wave of thieves fanned out across the globe nearly simultaneously. With cloned or stolen debit cards in hand—and the PINs to go with them—they hit more than 2,100 money machines in at least 280 cities on three continents, in such countries as the U.S., Canada, Italy, Hong Kong, Japan, Estonia, Russia, and the Ukraine.”

When it was all over—incredibly within 12 hours—the thieves walked off with a total of more than $9 million in cash. And that figure would’ve been more had the targeted ATMs not been drained of all their money.

The alleged masterminds of this slick scheme—prosecutors charged earlier this month following an extensive FBI investigation assisted by other federal agencies and our partners around the globe—were three 20-something Eastern Europeans and an unnamed person called simply “Hacker 3.” –FBI (via archive.is)

We’re sure the establishment’s cashless society will fix all these annoying vulnerabilities. 

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Globalization’s Nemesis, Dollar Liquidity, & “The Most Important Chart In The World”

Authored by Neels Heyneke and Mehul Daya via Nedbank,

It’s not just Turkey, the dollar liquidity storm is ahead of us – buckle up.

Bottom line: Should Global $-Liquidity and Global financial conditions fail to improve or even contract further we can expect a deflationary environment to materialise. In this environment we prefer to maintain defensive investment portfolios i.e. Cash over bond over equities.

We cannot stress enough the importance of the 95 level on the US Dollar index. A confirmed break above this level will mark the beginning of the next risk-off phase. More importantly, it is not the value of the US Dollar Index per se that matters, but rather what it represents – i.e. expansion/contraction in the pool of money.

Astonishingly for us, there is a high correlation with causality in our opinion between every financial market cycle (VIX) and with the story count in which the world “DOLLAR LIQUIDITY” appears. This is another example of how the availability of US Dollars has a profound effect on financial markets.

Probably the most defining photo in decades to come…

  • The political consequences of this photo gets a lot of coverage, we however would like the point out the importance of this photo with regards to the current USD-based monetary system that the world so heavily relies upon.

  • Trump and his “bring back my money” home will suck-up all the USD from the rest of the world – the next crisis will be centred around the shortage of USD’s which the world heavily relies on.

A symbiotic economic relationship grew post the fall of the Berlin wall between the developed and developing economies with the rise of globalization. The US was a major consumer of the world’s production and the consequence was a $11 trillion cumulative trade deficit with the rest of the world – during this period the world’s USD monetary base grew from 4 to 16% of global GDP.

A consequence of globalisation was disinflation which allowed central banks to cut policy rates (discount factors). This helped stimulate economic growth and fuel asset prices. The destructive inflationary episode of the 1970’s meant monetary policy became focused on consumer inflation targeting.

This caused investors to became obsessed with the monetary policy cycle. The market did not appear to pay attention to the extraordinary growth in the USD monetary base instead focussing on measuring the price of money (CPI) and not the quantum. This is still the case today. What resulted was all asset classes out-performed GDP as the rising tide of $-liquidity lifted all ships.

Now that the USD monetary base or ‘tide of liquidity’ has started to recede central banks are starting to play an active role in controlling the quantum (viaQE), and not just the price of the monetary base (via policy rates).

We believe that with this shrinking USD monetary base it becomes as important to understand liquidity, global flows and the role the dollar plays as the reserve currency in order to identify the right investment destination.

The challenge for investment manager will be for investors to identify the optimal asset class (beta) in a receding ‘tide of liquidity environment’.

On top of the ballooning monetary base we mentioned above, the debt creation process went through a major evolutionary process of its own and gearing in the system grew dramatically. The fractional banking system has been around for 600 years and banks traditionally lend out the same money 14 times. Just before the 2008 GFC global banks lent out the same money in excess of 40 times!

The reason being, on top of the regulated banking sector there was the shadow banking sector that regulators failed to monitor. There was also the Eurodollar system – the dollar banking system outside the US, that no regulator monitored. All in all, there was more money and credit in the system than regulators, economists and analysts were aware of because it did not show up in consumer inflation. The important question is where is this excess money/debt. The answer lies in asset inflation and how asset prices managed to out-perform the real economyfor30-years.

It is not just the global real economy that cannot afford a shrinking base of the money pyramid. The indebted balance sheets of the world cannot afford the asset deflation that will go hand in hand with shrinking money supply.

In a volatile world where the growing US dollar monetary base of the last 30-years is changing, we believe investors should pay more attention to the source of money.

Oops – USD debt outside the US is massive and is systemic.

Post WWII global trade took off and the importance of the dollar grew, this accelerated in the late 1980s. Today 60% of the world’s countries are linked to the dollar. The US GDP share of the world economy has however declined from 27 to 18% over the same period – remember the US is the only provider of USD base money.

Should global growth become less synchronized the US deficit will shrink. This will provide less USD into the global financial system resulting in a shortage of dollars. Tighter monetary policy from the Fed, a higher Fed funds rate and shrinking of the Fed’s balance sheet, will further slowdown USD creation.

The shrinking dollar monetary base will slow down the credit creation process because the economy is so highly geared. This shrinking pool of dollars will cause the dollar to rise. The strengthening USD means higher offshore USD funding, this will hurt USD indebted nations/corporations.

In this environment i.e. tighter global financial conditions, the infamous carry-trade will come under pressure and the misallocation of credit will be revealed. EMs will be at the centre of the misallocation of credit.

As the US trade deficit fuelled the global monetary base from 4 to 16% of global GDP, and the process of Financialisation began – the gap between the real economy and financial markets accelerated from the late 1980’s accelerating up out of an 80-year old band.

The tail is wagging the dog. Next crisis will be in the financial markets and not the real economy – as has been the case for many decades now.

A slowdown in debt creation will not bode well for financial assets.

Market view:

  • We conclude the world needs an injection of Global $-Liquidity soon to improve global financial conditions. If the cavalry fails to arrive (QE4, material uptick in global growth) we can expect global financial conditions to contract and the USD to appreciate.  In this scenario, a stronger USD and rising offshore USD funding costs will lead to a risk-off phase. Dollar indebted countries, corporations and the carry-trades will be most impacted.

  • The US Dollar index is going up – because the Eurodollar system is stalling.

The monetary base as percentage of global trade (see above) started to roll over post the 2008 GFC. The dollar started to rally as the total pool of dollars started to shrink driven by the financial system deleveraging.

With global interest rates at historical low levels, covered interest parity – the prominent driver of currencies – also started to break down.

It is a meaningful technical analysis signal that the dollar index failed to break back into the bear trend at 88 that has been in place since the 1985 Plaza Accord.

The US dollar index has now reached our first target level at 95 and we expect a consolidation phase over the next few weeks. A sustained break above this level will project a move to above the 2017 high at 103.80.


 

The most important chart for EM / DM asset allocation is centred on changes in USD liquidity.

EM’s are on the verge of another 1998.

Since the 1980’s there has been major cycles of money flow moving in and out of emerging markets. We believe dollar liquidity played a major role in these cycles stemming from commodities being traded in dollars.

It was not just the Fed that bailed out the markets in 2009. The big rally in EMs post the GFC was on the back of the commodity run which was fuelled by the Chinese ‘bail-out’. The rising commodity prices (and petro-dollar balances) added many dollars to the financial system. Commodity prices peaked in 2011 and fell until the end of 2015 and EM’s started to under-perform. The rising liquidity that triggered the risk-on phase of 2016-2017 came from the rising oil price ($28 to 78) and the ECB flooding the system. This however came to an end in February 2018.

This relative chart warned in 1994 already that emerging markets were slowing down although the crisis only materialised in 1997/8. In 1998 EM’s especially SE Asia had fixed exchange rates and their currencies could not buffer them against capital out-flows. Most of these countries now have floating currencies and reserves, but post 2008 they have taken on substantial USD debt putting them in the same situation as in 1998.

Hence our concern, if global liquidity does not improve soon EMs will be very vulnerable to major outflows again.

Lastly – if the pool of USD is going to shrink, then the price of USD must rise – i.e. term–premium higher offshore funding will be dreadful for leveraged carry-traders who will de-risk. It is the funding currency that will be forcing them out and not the fundamentals of where the money was invested – exactly what happened during 1H18.

We often face the question, “but where will the money go?” – The answer is nowhere, because most of the funds was never true savings, it was a loan created against some collateral. When the money returns to the source the loaned gets repaid.

Lastly – Get ready for higher funding costs as the pool USD shrinks, the price of USD money will rise too.

With the Fed continuing with interest rate hikes and shrinking of its balance sheet, the US Treasury issuing more debt, absorbing USD flows, China slowing down (dollar creation via commodity cycle), other central banks slowing down QE (roc matters) and a Trump with his “bring back my dollars, jobs home” – the world and financial markets better be prepared for a dollar shortage.

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Yuan Hits Cycle Lows As China Macro Data Disappoints Across The Board

After a  fifth straight month of contraction in the shadow banking system…

…and the amid the ongoing collapse of its currency, a deluge of major Chinese macro data disappointed notably tonight.

  • Retail Sales missed expectations – rising just 8.8% YoY (against +9.1% exp), slowing from 9.0% in June.

  • Industrial Production also disappointed, rising just 6.0% against expectations of a 6.3% rise.

  • Fixed Assets Investment rose just 5.5% – its lowest on record and well below expectations of a 6.0% rise.

It seems China is going to have get that credit impulse ramping back up again…

Offshore Yuan is fading back towards last week’s cycle lows.

 

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11-Year-Old Girl Busts MSM ‘Russia’ Narrative – Hacking US Elections Is Child’s Play

The myth surrounding “highly sophisticated” ‘Russian’ hackers “meddling” with US elections continues to be pushed by the mainstream media, promulgated by such luminaries of fear as Senator Mark Warner who will seemingly not be satisfied until a) Democrats run it all, and b) all Russians are locked up.

However, as will surprise few, a competition in Las Vegas shows that when it comes to interfering with a US election, even a child can do it.

Hosted by technology non-profit R00tz Asylum, the competition was held on the sidelines of the annual Def Con hacking conference in Las Vegas, where RT reports that children between the ages of 8 and 17 were tasked with hacking into replica election office websites in key “battleground” states where the upcoming US midterm elections in November are expected to be tight.

Of the 39 contestants who entered, 35 were successful in breaking into the sites with the fastest being 11-year old Audrey Jones.

She cracked the site’s code in just 10 minutes.

While R00tz Asylum’s mantra is “hacking for good,” it exposes glaring vulnerabilities to the cyber security of the US election system despite a whopping $380 million approved by Congress to improve cyber-security for elections in 2018 alone.

But blaming Hillary’s loss on an 11-year-old American girl doesn’t have quite the same impact as the nefarious-sounding Russian hacking empire…

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