Month: March 2014

A week ago, when the idea of sanctions against Russia was first officially announced, we made a statement, which was obviously in jest yet which, as so often happens, was so rooted in reality:

U.S. CONSIDERING SANCTIONS ON RUSSIAN BANKS, OFFICIAL SAYS. So short London/NYC real estate you say?

— zerohedge (@zerohedge) March 2, 2014

How is this an indication of reality? Well, for one, as we reported previously, the one country that has the most to lose from Russian sanctions, Germany, and specifically its industrial superlobby has already said “Nein” to any truly crippling trade blockade of Moscow would backfire on Germany’s own economy and bottom line.

But what about London? Here, the NYT explains why, once again, it was all about the money, and why were right even when we were being humorous:

The White House has imposed visa restrictions on some Russian officials, and President Obama has issued an executive order enabling further sanctions. But Britain has already undermined any unified action by putting profit first.

 

It boils down to this: Britain is ready to betray the United States to protect the City of London’s hold on dirty Russian money. And forget about Ukraine.

At this point, in standing with the ideological framework of the host media outlet, the author takes a detour into naive idealism – a world in which it is not money that talks, but a declining global superpower, whose hypocrisy has been exposed time and again, and where extinct words like “mission” and “moral” are used with reckless abandon:

Britain, open for business, no longer has a “mission.” Any moralizing remnant of the British Empire is gone; it has turned back to the pirate England of Sir Walter Raleigh. Britain’s ruling class has decayed to the point where its first priority is protecting its cut of Russian money — even as Russian armored personnel carriers rumble around the streets of Sevastopol. But the establishment understands that, in the 21st century, what matters are banks, not tanks.

 

The Russians also understand this. They know that London is a center of Russian corruption, that their loot plunges into Britain’s empire of tax havens — from Gibraltar to Jersey, from the Cayman Islands to the British Virgin Islands — on which the sun never sets.

 

British residency is up for sale. “Investor visas” can be purchased, starting at £1 million ($1.6 million). London lawyers in the Commercial Court now get 60 percent of their work from Russian and Eastern European clients. More than 50 Russia-based companies swell the trade at London’s Stock Exchange. The planning regulations have been scrapped, and along the Thames, up go spires of steel and glass for the hedge-funding class.

 

Britain’s bright young things now become consultants, art dealers, private banker and hedge funders. Or, to put it another way, the oligarchs’ valets.

 

Russia’s president, Vladimir V. Putin, gets it: you pay them, you own them. Mr. Putin was absolutely certain that Britain’s managers — shuttling through the revolving door between cabinet posts and financial boards — would never give up their fees and commissions from the oligarchs’ billions. He was right.

So, let us get this straight? It is great when the Russian oligrachs “invest” their stolen money in luxury London real estate, the FTSE100, and various other inflating assets which are mistaken for an improvement in the broader “economy”, but when the alarm clock of realpolitick rings, it was all bad?

What we are more stunned by is that while London has at least figured out the quid pro quo, the US, and its leader, so far seem completely incapable of doing so. Perhaps someone should explain to Obama that with the Fed tapering, the only incremental buyer of high end real estate are precisely the oligarchs from Russia, whom he will soon alienate, as well as those from China, which also may decide it is too risky to park “hot money” in New York triplexes, and instead once again, like in 2011, park it all in gold and other precious metals.

But going back to the NYT article, the author does make the following accurate observation: “This is Britain’s growth business today: laundering oligarchs’ dirty billions, laundering their dirty reputations.“

His conclusion, too, is spot on:

The Shard encapsulates the new hierarchy of the city. On the top floors, “ultra high net worth individuals” entertain escorts in luxury apartments. By day, on floors below, investment bankers trade incomprehensible derivatives.

 

Come nightfall, the elevators are full of African cleaners, paid next to nothing and treated as nonexistent. The acres of glass windows are scrubbed by Polish laborers, who sleep four to a room in bedsit slums. And near the Shard are the immigrants from Lithuania and Romania, who broke their backs on construction sites, but are now destitute and whiling away their hours along the banks of the Thames.

 

The Shard is London, a symbol of a city where oligarchs are celebrated and migrants are exploited but that pretends to be a multicultural utopia. Here, in their capital city, the English are no longer calling the shots. They are hirelings.

Still think Putin is ready to “blink”?

via Zero Hedge http://ift.tt/1irlAJR Tyler Durden

Submitted by Jeff Clark via Casey Research,

Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last – and start looking at how high they’ll go and when they’ll get there.

When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%… then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat.

Given that we just completed a major bust cycle – and not just any bust cycle, but one of the harshest on record, according to many veteran insiders – the setup for a major rally in gold stocks is right in front of us.

This may sound sensationalistic, but based on past historical patterns and where we think gold prices are headed, the odds are high that, on average, gold producers will trade in the $200 per share range before the next cycle is over. With most of them currently trading between $20 and $40, the returns could be stupendous. And the percentage returns of the typical junior will be greater by an order of magnitude, providing life-changing gains to smart investors.

What you’re about to see are historical returns of both producers and juniors during three separate boom cycles. These are factual returns; they are not hypothetical. And if you accept the fact that this market moves in cycles, you know it’s about to happen again.

Gold had a spectacular climb in 1979-1980, and gold stocks in general gave a staggering performance at that time—many of them becoming 10-baggers (1,000% gains and more). While this is a well-known fact, few researchers have bothered to identify exact returns from specific companies during this era.

Digging up hard data from before the mid-1980s, especially for the junior explorers, is difficult because the information wasn’t computerized at the time. So I sent my nephew Grant to the library to view the Wall Street Journal on microfiche. We also include information we’ve had from Scott Hunter of Haywood Securities; Larry Page, then-president of the Manex Resource Group; and the dusty archives at the Northern Miner.

Note: This means our tables, while accurate, are not at all comprehensive.

Let’s get started…

The Quintessential Bull Market: 1979-1980

The granddaddy of gold bull cycles occurred during the 1970s, culminating in an unabashed mania in 1979 and 1980. Gold peaked at $850 an ounce on January 21, 1980, a rise of 276% from the beginning of 1979. (Yes, the price of gold on the last trading day of 1978 was a mere $226 an ounce.)

Here’s a sampling of gold producer stock prices from this era. What you’ll notice in addition to the amazing returns is that gold stocks didn’t peak until nine months after gold did.

 

Today, GDX is selling for $26.05 (as of February 26, 2014); if it mimicked the average 289.5% return, the price would reach $101.46.

 

Keep in mind, though, that our data measures the exact top of each company’s price. Most investors, of course, don’t sell at the very peak. If we were to able to grab, say, 80% of the climb, that’s still a return of 231.6%.

Here’s a sampling of how some successful junior gold stocks performed in the same period, along with the month each of them peaked.

 

If you had bought a reasonably diversified portfolio of top-performing gold juniors prior to 1979, your initial investment could have grown 23 times in just two years. If you had managed to grab 80% of that move, your gains would still have been over 1,850%.

 

This means a junior priced at $0.50 today that captured the average gain from this boom would sell for $12 at the top, or $9.75 at 80%. If you own ten juniors, imagine just one of them matching Copper Lake’s better than 100-bagger performance.

Here’s what returns of this magnitude could mean to you. Let’s say your portfolio includes $10,000 in gold juniors that yield spectacular gains such as the above. If the next boom cycle matches the 1979-1980 pattern, your portfolio could be worth $241,370 at its peak… or about $195,000 if you exit at 80% of the top prices.

Note that this does require that you sell to realize your profits. If you don’t take the money and run at some point, you may end up with little more than tears to fill an empty beer mug. In the subsequent bust cycle, many junior gold stocks, including some in the above list, dried up and blew away. Investors who held on to the bitter end not only saw all their gains evaporate, but lost their entire investments.

You have to play the cycle.

Returns from that era have been written about before, so I can hear some investors saying, “Yeah, but that only happened once.”

Au contraire. Read on…

The Hemlo Rally of 1981-1983

Many investors don’t know that there have been several bull cycles in gold and gold stocks since the 1979-1980 period.

Ironically, gold was flat during the two years of the Hemlo rally. But something else ignited a bull market. Discovery. Here’s how it happened…

Back in the day, most exploration was done by teams from the major producers. But because of lagging gold prices and the resulting need to cut overhead, they began to slash their exploration budgets, unleashing a swarm of experienced geologists armed with the knowledge of high-potential mineral targets they’d explored while working for the majors. Many formed their own companies and went after these targets.

This led to a series of spectacular discoveries, the first of which occurred in mid-1982, when Golden Sceptre and Goliath Gold discovered the Golden Giant deposit in the Hemlo area of eastern Canada. Gold prices rallied that summer, setting off a mini bull market that lasted until the following May. The public got involved, and as you can see, the results were impressive for such a short period of time.

 

Gold producers, on average, returned over 70% on investors’ money during this period. While these aren’t the same spectacular gains from just a few years earlier, keep in mind they occurred over only about 12 months’ time. This would be akin to a $20 gold stock soaring to $34.50 by this time next year, just because it’s located in a significant discovery area.

 

Once again, it was the juniors that brought the dazzling returns.

 

The average return for these junior gold stocks that had a direct interest in the Hemlo area exceeded a whopping 4,000%.

 

This is especially impressive when you realize that it occurred without the gold stock industry as a whole participating. This tells us that a big discovery can lead to enormous gains, even if the industry as a whole is flat.

In other words, we have historical precedence that humongous returns are possible without a mania, by owning stocks with direct exposure to a discovery area. There are numerous examples of this in the past ten years, as any longtime reader of the International Speculator can attest.

By May 1983, roughly a year after it started, gold prices started back down again, spelling the end of that cycle—another reminder that one must sell to realize a profit.

The Roaring ’90s

By the time the ’90s rolled around, many junior exploration companies had acquired the “intellectual capital” they needed from the majors. Another series of gold discoveries in the mid-1990s set off one of the most stunning bull markets in the current generation.

Companies with big discoveries included Diamet, Diamond Fields, and Arequipa. This was also the time of the famous Bre-X scandal, a company that appeared to have made a stupendous discovery, but that was later found to have been “salting” its drill data (cheating).

By the summer of ’96, these discoveries had sparked another bull cycle, and companies with little more than a few drill holes were selling for $20 a share.

The table below, which includes some of the better-known names of the day, is worth the proverbial thousand words. The average producer more than tripled investors’ money during this period. Once again, these gains occurred in a relatively short period of time, in this case inside of two years.

 

Here’s how some of the juniors performed. And if you’re the kind of investor with the courage to buy low and the discipline to sell during a frenzy, it can be worth a million dollars. Hold on to your hat.

 

 

Many analysts refer to the 1970s bull market as the granddaddy of them all—and to a certain extent it was—but you’ll notice that the average return of these stocks during the late ’90s bull exceeds what the juniors did in the 1979-1980 boom.

 

This is akin to that $0.50 junior stock today reaching $19.86… or $16, if you snag 80% of the move. A $10,000 portfolio with similar returns would grow to over $397,000 (or over $319,000 on 80%).

Gold Stocks and Depression

Those of you in the deflation camp may dismiss all this because you’re convinced the Great Deflation is ahead. Fair enough. But you’d be wrong to assume gold stocks can’t do well in that environment.

Take a look at the returns of the two largest producers in the US and Canada, respectively, during the Great Depression of the 1930s, a period that saw significant price deflation.

 

During a period of soup lines, crashing stock markets, and a fixed gold price, large gold producers handed investors five and six times their money in four years. If deflation “wins,” we still think gold equity investors can, too.

 

How to Capitalize on This Cycle

History shows that precious metals stocks move in cycles. We’ve now completed a major bust cycle and, we believe, are on the cusp of a tremendous boom. The only way to make the kind of money outlined above is to buy before the boom is in full swing. That’s now. For most readers, this is literally a once-in-a-lifetime opportunity.

As you can see above, there can be great variation among the returns of the companies. That’s why, even if you believe we’re destined for an “all-boats-rise” scenario, you still want to own the better companies.

My colleague Louis James, Casey’s chief metals and mining investment strategist, has identified the nine junior mining stocks that are most likely to become 10-baggers this year in their special report, the 10-Bagger List for 2014. Read more here.

via Zero Hedge http://ift.tt/OaYARl Tyler Durden

In recent months the Fed (and ECB for that matter) has taken up the mythical charm offensive of "forward guidance" as a way to assure markets that punchbowls will remain free and available for as long as it takes. At the same time, the Bank of England has been shown up (and lost credibility) over its threshold-ignorance, the Fed has also now started to hit the wall on any 'quantitative'-based forward-guidance communications policy, proposed Fed vice-Chair Stan Fischer is skeptical: "you can't expect the Fed to spell out what it's going to do… because it doesn't know;" and finally Bob Rubin slammed the Fed, saying "their forecast models don't work.. and forward guidance [has no validity] as it is impossible to know what is going to happen in 6 months." So today's BIS report on the the fallacy of forward guidance and risks to central bank reputation (and the following 4 charts) suggest faith in central banker omnipotence may be fading.

Via BIS,

Central bank reputation

Forward guidance exposes central banks to various reputation risks. If the public fails to fully understand the conditionality of the guidance and the uncertainty surrounding it, the reputation and credibility of the central bank may be at risk if the guidance is revised frequently and substantially. This is particularly relevant in the case of calendar-based forward guidance, in which deviations in the preannounced timetable may be perceived as reneging on a commitment even if conditions change unexpectedly.

And while state-contingent forward guidance helps to address the risk of an appearance of reneging, it raises others. For example, the announcement of unemployment-based thresholds could be seen as signalling a fundamental shift in monetary strategies and goals. And, as history has shown, the perception that central banks have elevated the role of real variables in monetary policy frameworks can adversely affect a central bank’s credibility for price stability. A widespread perception of this could also create policy uncertainty about what central banks are truly aiming at, which would be counterproductive in the current post-crisis environment. Further, central banks may ex post be seen as having seriously misjudged the outlook, especially if such misjudgments are not widely shared with other forecasters.

So here are 4 central banks that have long provided forward guidance and their actual results…

"Nailed it?" or not at all?

Stan Fischer sums it up:"we don’t know what we’ll be doing a year from now. It’s a mistake to try and get too precise," and that "you can’t expect the Fed to spell out what it’s going to do… because it doesn’t know."

So why do so many still "believe"? Take another look at those 4 charts above? Hardly inspires confidence in Central Bankers' ability to know anything, let alone provide "forward guidance" as to their policy action path…

via Zero Hedge http://ift.tt/1oDCmCT Tyler Durden

(Originally published at Slope of Hope)- Well, my fellow Slope-a-Dopes, as you know, I’m not even supposed to be here. Alas, the ominous geopolitical developments unfolding before our very eyes have the idiot insanely infatuated. The Savant must once again sound off, as he simply can’t help himself when his cerebrum is suddenly spinning a spontaneous scene of super sensational surrealism.

Like many on da Slope, as well as those who used to be with us, I clearly have a very hard time reconciling a U.S. stock market making new all-time-highs almost daily, especially in the face of what most economists consider to be a weak domestic economy with negligible growth prospects.  Moreover, when you layover the thoroughly stalled and certainly weaker overall global economic picture, it’s even harder to rationalize.  Finally, throw into the mix the gravity of threatening geopolitical tensions between the U.S. and Russia, the two nations with the largest stockpiles of tactical nuclear weapons on earth, and the market actually welcomes it.  Something majorly does not add up, well, to this Idiot anyways.

I know, I know, I know the economy is not the stock market.  What are you some kind of an idiot BDI!  But, let’s be honest with each other, the listed companies on the exchanges that make up the market in aggregate, do in fact represent the country’s economic condition at large. Therefore, if the overall economy has poor growth prospects, it surely stands to reason that the equity values which intrinsically measure the future earnings of those companies, should in point of fact reflect that future weakness. Yet, we continue to achieve new highs almost daily?  Some will tell you that it’s not so much the underlying value of the companies that is driving the market to new highs, but rather the Fed QE policy, printing ever free flowing funds which relentlessly increase financial asset values as the currency is consistently devalued, causing higher and higher prices. Well, if that were truly the case, wouldn’t rabid inflation be upon us in a general way, and thus reflected in all things cash buys?  The debased money still seems to be holding its value against certain other goods?  Not to mention that CPI is only around a 1% (rolls eyes).  Still others will tell you that it’s the astounding technology advances of our times driving the productivity gains which are behind these sensational stock valuations.  This I can buy into somewhat for several market sectors, at least where increased margins are concerned, but not across the board.  Moreover, during the past several quarters overall revenues have slowed, which has clearly been reflected in softer earnings growth for the majority of companies.  Yet remarkably, the market continues making new highs, seeing nothing but clear skies above and continued smooth sailing ahead.  Call me a stubborn Savant, but this idiot remains increasingly skeptical.  I mean really, all time highs with little to no median income growth and nearly 60 million Americans permanently on food stamps.  What gives?

If one dares to make the unfathomable hair-brained assumption that the market is quite possibly not reflecting and perhaps even blatantly misrepresenting economic reality, what can really be going on here? What’s really driving the ballistic buying binge?  I realize that the momos and trendos among us don’t give a damn, as they continue to rake in coin via a market seemingly tailor made to reward their systematic approach to trading, almost as if it were specifically designed to entice and encourage their fabulous feeding frenzy. Who’s-your-daddy, that seems reason enough to satisfy them. The quizzical BDI, on the other hand, requires real rational answers to feel grounded in humanity, otherwise he is driven mad in search of meaning. What is really behind this seemingly illegitimate, and laughably ludicrous levitation?  Well, your suspicious Savant has an entirely spectacular answer for you all, which may well identify what is really operating behind the scenes.  Brace yourselves, if it’s even remotely accurate, it is truly terrifying.

Behold BDI’s bold brash belief or bogus bloviated buffoonery:

Most of us will acknowledge that an International Banking Cabal is in full control of the major Central Banks which orchestrate the current monetary order that the globe’s financial system runs on.  Moreover, you would have been living under a rock to have not noticed that, ever since the financial crisis of 2008, the political authorities leading the developed Nation’s of the world’s are now willfully subservient to their respective central banks which in turn take their marching orders form the TBTF multinational banks which own them.  The cabal’s overriding self serving interests are paramount to us all apparently. Yet, this avaricious international banking cartel has no allegiance other then unto itself.

Astonishingly, even the once revered ideal of national sovereignty itself has seemingly had its wings effectively clipped by this elite banking class.  Perhaps the most obvious example of the abject subjugation, is the European Union, with its ECB imposed EURO hand cuffs firmly casting an iron grip around previously magnificent autonomous nations such as Italy and Spain, rendering them to a sad sorry state of subordinate EU foot stools.  How thoroughly we have permitted the self seeking interests of those privileged few closest to the powerful money levers control our collective destiny.  I dare say, many of you here seem to have acquiesced, and now actually welcome the money pushers. Beware my friends, as the pusher soon owns the junkie!

BDI genuinely believes that there may well exist self appointed elites running the deep state, acting as digital demigod’s directing our deferential dependency and deliberate dollar’s demise, nefariously orchestrating a bold and grand master program to complete the outright capture of our entire monetary existence.  It’s the Savant’s contention, that all of this supposed tumult on the ground in Ukraine, is none other than globalist inspired destabilization of the world’s sovereign Nation states designed to open the door for an IMF backed SDR new world monetary order, with the intent of establishing total financial hegemony over the world and all its natural resources, including those that are human.

These depraved puppet masters already have the European nation states right where they want them via their EU/ECB headlock strangle hold. They have rendered China entirely dependent on a debt driven export / low wage economic growth model, as they have done with all the BRICS.  They have destabilized MENA to disembowel OPEC. The next two chess pieces to fall will first be the once mighty Russian queen, followed by the indisputable king USA. The last move is to undermine the United States’ Petro dollar reserve currency supremacy. This final checkmate will be achieved by initiating a disastrous energy war.  They require a raging resource war to destabilize the USD. The current covert NGO manufactured and fomented riots in Kiev’s Maiden square, pitting Ukraine against Russia, is simply another carefully crafted conflict. They tried with Iraq and failed, they tried with Iran and failed, they tried with Libya and failed, they tried with Syria and failed, now they are desperately trying with Ukraine.  The American people could quite possibly fall for this last scheme. The MSM has certainly been working overtime to paint that Putinator prick as a dreadfully dangerous despot intent on world domination. The well publicized and most timely defection of RT network news anchor woman Liz Wahl, surely was induced by deep state operatives so as to sway reluctant U.S. public opinion towards war.   Pay attention America, the international bankers want war, same as it ever was.

The following piece written by Brandon Smith provides provocative historical evidence of the int’l banks’ lust for war:

With the exception of a few revolutions, most wars are instigated and controlled by financial elites, manipulating governments on both sides of the game to produce a preconceived result. The rise of National Socialism in Germany, for instance, was largely funded by corporate entities based in the U.S., including Rockefeller giant Standard Oil, JPMorgan and even IBM, which built the collating machines specifically used to organize Nazi extermination camps, the same machines IBM representatives serviced on site at places like Auschwitz. As a public figure, Adolf Hitler was considered a joke by most people in German society, until, of course, the Nazi Party received incredible levels of corporate investment. This aid was most evident in what came to be known as the Keppler Fund created through the Keppler Circle, a group of interests with contacts largely based in the U.S.

George W. Bush’s grandfather, Prescott Bush, used his position as director of the New York-based Union Banking Corporation to launder money for the Third Reich throughout the war. After being exposed and charged for trading with the enemy, the case against Bush magically disappeared in a puff of smoke, and the Bush family went on to become one of the most powerful political forces in America.

Without the aid of international conglomerates and banks, the Third Reich would have never risen to power.

The rise of communism in Russia through the Bolshevik Revolution was no different. As outlined in Professor Antony Sutton’s book Wall Street And The Bolshevik Revolution with vast detail and irrefutable supporting evidence, it was globalist financiers that created the social petri dish in which the communist takeover flourished.  The same financiers that aided the Nazis…

The two sides, National Socialism and communism, were essentially identical despotic governmental structures conjured by the same group of elites. These two sides, these two fraudulent ideologies, were then pitted against each other in an engineered conflict that we now call World War II, resulting in an estimated 48 million casualties globally and the ultimate formation of the United Nations, a precursor to world government.

Every major international crisis for the past century or more has ended with an even greater consolidation of world power into the hands of the few, and this is no accident.

The same cunning crafty cabal has synthetically pumped the U.S. Stock and Bond markets to precariously unstable new all time highs, under very dubious circumstances.  Could this have been orchestrated to create the most horrific horrendous havoc possible once the plug is pulled on all USD denominated financial assets?  The devastating simultaneous detonation of both the U.S. debt and equity markets ultra bubbles would decimate the USD and what was left of the public’s faith in the U.S. financial markets. This is how the Idiot Savant suspects it will all go down. Once the globalist successfully provoke a major resource war, the oil market will shoot straight through the roof, interest rates will spike, and a US stock market crash of epic proportion will ensue.  After the dreadfully disastrous devastating dollar fall out, the entire world will be on its knees begging and pleading for a NWO with an IMF/BIS/WBG sponsored global SDR currency regime to reset the globe’s malicious monetary mayhem meltdown mess. The Banksters will have us eating out of their filthy hands.  The masterful maniacal mission mercilessly accomplished.

Got Gold?

The Grateful Dead song Truckin comes to mind. The USA is being set up like a bowling pin.

Sitting and staring out of the hotel window
Got a tip they’re gonna kick the door in again
Like to get some sleep before I travel
But if you got a warrant I guess you’re gonna come in

Busted down on Bourbon Street
Set up like a bowling pin
Knocked down, it gets to wearing thin
They just won’t let you be

BDI from the 47th with electrodes taped to his boobs, wishing he were high as a kite. Although, the last thing this EP needs is a further altered state of mind blowing inspiration.

via Zero Hedge http://ift.tt/NP3Ev1 Tim Knight from Slope of Hope

Excerpted from Prem Watsa’s Fairfax Financial Holdings investor letter,

There is a monstrous real estate and construction bubble in China, which could burst anytime. It almost did in 2011 but China increased its credit growth significantly since then.

In the last few years we have discussed the huge real estate bubble in China. In case you continue to be a skeptic, here are a few observations from Anne Stevenson Yang, an American who has been in China for over 20 years and is the founder of JCapital Research in Beijing:

1. China added 5.9 billion square metres of commercial buildings between 2008 and 2012 – the equivalent of more than 50 Manhattans – in just five years!

 

2. In 2012, China completed about 2 billion square metres of residential floor space – approximately 20 million units. For perspective, the U.S. at its peak built 2 million homes in a year.

 

3. At the end of 2013, China had about 6.6 billion square metres of new residential space under construction, around 60 million units.

 

4. Yinchuan, a city of 1.2 million people including the suburbs, has 30 million square metres of available apartments – roughly 300,000 units that could house 900,000 people. This is in addition to the delivered but unoccupied units. The city of Guiyang, capital of Guizhou Province, has roughly 5.5 million extra units for a city of 5 million.

 

5. In almost every city Anne has visited, pretty much the whole existing housing stock has been replicated and is empty.

 

6. Home ownership rates in China are estimated to be over 100% versus 65% in the U.S. Many cities report ownership over 200%. Tangshan, near Beijing, is one.

 

7. This real estate boom could only be financed through unrestrained credit growth. Since 2009, the Chinese banks have grown by the equivalent of the entire U.S. banking system or 15% of world GDP.

 

8. The real estate bubble has resulted in companies extensively borrowing and investing in real estate or lending on real estate in the shadow banking system. This is exactly what happened in Japan in the late 1980s.

 

9. And one observation of our own: Since 2009, the easing by the Federal Reserve combined with the explosive growth in China, backed by higher interest rates, has resulted in huge inflows (‘‘hot money’’) into China. The near unanimous view that the renminbi would strengthen has resulted in a massive carry trade where speculators have borrowed at low rates across the world and invested in China, almost always backed by real estate. The shadow banking system in China – i.e., assets not on the books of the major Chinese banks – is estimated by Bank of America Merrill Lynch to be approximately $4.7 trillion or 51% of Chinese GDP. Oddly enough, prior to the credit crisis, the U.S. had $4.5 trillion in asset-backed securities outstanding or approximately 31% of U.S. GDP. You know what happened then. When the flows reverse in China, watch out!

These observations remind me again of the following quote from Michael Lewis’ essay in Vanity Fair, “When Irish Eyes are Crying”, which I wrote to you about in our 2010 Annual Report: “Real estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long term investment real estate has become and flee the market, and the market will crash.” Amen!

As they say, it is better to be wrong, wrong, wrong and then right than the other way around!

For those of you who believe a picture is worth a thousand words, please watch the recent BBC documentary “How China Fooled the World”.

Brief clip here

Finally, in our 2007 Annual Report, we quoted Hyman Minsky, the father of the Financial Instability Hypothesis, who said that history shows that ‘‘stability causes instability’’. Prolonged periods of prosperity lead to leveraged financial structures that cause instability. This quote was in relation to the U.S. in 2007. It applies in spades to China in 2013!

Any credit event in China will have very significant ramifications for the world economy, as China is the world’s second largest economy and consumes 40% to 50% of most commodities from iron ore to copper.

via Zero Hedge http://ift.tt/1llKYhv Tyler Durden

What does the typical Westerner think of when asked about Ukraine?

 

 

Source: Russian Esquire

via Zero Hedge http://ift.tt/1nxF26l Tyler Durden

Submitted by Nick Cunningham via OilPrice.com,

The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy.

 

Russia has a track record of using its natural gas supplies as a political weapon. The latest incursion into Ukraine has no doubt revived worries among European policymakers that saw what happened back in 2009. Thankfully, Vladimir Putin eased tensions on March 4, indicating that he wasn’t seeking a military conflict. This allowed natural gas prices to fall back a bit after spiking by 10% the day before.

But how vulnerable is Europe to the political machinations of the Kremlin? It appears that this time around the EU is in better shape. A mild winter and stagnant demand have left Europe with higher levels of inventory than in past years. According to a spokeswoman at the European Commission, the EU has 40 billion cubic meters of natural gas on hand in storage, which accounts for 10% of annual demand for the entire European Union.  Those figures vary by country (Czech Republic and Slovakia have 90 days of supplies; Hungary two months; Austria six months), but as a bloc, the EU has 20% greater supplies at its disposal than it did last year.

And it’s not just seasonal patterns that have put the EU in a better spot. Europe has been reducing its reliance on Russian gas for a while now – in 2003 the EU imported 45% of its natural gas from Russia. It’s now down to around one-third.

Europe has been the beneficiary of the shale gas boom in the United States, even though the U.S. hasn’t even really begun to export LNG. The surge in domestic production allowed LNG from other parts of the world – Qatar, for example – to be rerouted to Europe. (Several U.S. members of Congress have tried to exploit the Ukrainian crisis, arguing for the Obama administration to issue a blanket approval for LNG exports in order to isolate Russia. Over the short-term, that is nonsense – it will take years to build the terminals, so issuing licenses for exports won’t do anything to help out Europe. Over the longer-term, that may be a different story). Europe has also undergone a big effort at implementing greater energy efficiency and renewable energy. Moreover, the U.S. has exported more coal to the EU in recent years, which competes with high priced natural gas there.

Thus Europe is more secure than many believe. Moreover, the EU and Russia are so interdependent that it is unlikely Russia will proactively cut off gas supplies to Europe. In fact, Russia is arguably more dependent on the EU than the other way around. Europe has other options. Russia, on the other hand, is heavily dependent on oil and gas, which account for half of the country’s total budget revenues. For Putin, cutting off gas exports to Europe would be akin to him cutting off his nose to spite his face.

“It would be highly counterproductive for Russian interests at a time when Europe is considering how to respond to Russian actions in Crimea, to take steps that would have a major and negative direct impact on Europe,” said Laurent Ruseckas, a senior associate at IHS CERA, as reported by Politico.

The economic damage of energy supply disruptions cuts both ways. Putin likes to play the role of bully, but Russia is not exactly in a strong position in terms of using energy as a political weapon. Whether or not the Ukraine crisis deepens, it is unlikely that Moscow would intentionally turn off the taps for any prolonged period of time.

via Zero Hedge http://ift.tt/1iqZEyt Tyler Durden

The only thing that is unclear about the following clip released by the Ukraine’s Border Guard supposedly capturing Russians “digging in” on a key route linking Crimea to the rest of the Ukraine, is what is funnier: that the Russian soldier is “painting” the drone with a laser flashlight, or that according to the Ukrainians said action was evidence the drone was being “shot at” by Russian soldiers.

 

As a follow up, here is another video made by a Ukrainian drone showing the distribution of Russian forces on the peninsula.

via Zero Hedge http://ift.tt/1dFSl1J Tyler Durden