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A day after yesterday’s “biggest quake since 2011’s tsunami,” Japan was just struck by a Magnitude 7.1 earthquake…
and officials have issued a tsunami advisory for southern Japan…
Today’s quake is more than 10 times stronger than yesterday’s.
More to come…
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Posted with permission and written by Rory Hall, The Daily Coin (CLICK FOR ORIGINAL)
he past three years we have seen the price of silver get beat down to new lows. We have also witnessed demand for physical silver continually escalate. During this three year run the U.S. Mint has stopped sales of American Silver Eagles, the most popular silver coin in the world, on three different occasions. The last time sales were shut down, in June 2015 and the U.S. Mint has rationed sales since production resumed in July 2015. As of this writing that would be ten months of rationed sales with no end in sight.
Louis Cammarasno and I picked up our bi-monthly silver update to review the latest numbers from both the Perth Mint and U.S. Mint. The interesting part is the Perth Mint. This time last year the Perth Mint was still a very small player and only producing approximately 500,000 silver coins, in total, per month. Since September 2015 that all changed. The Perth Mint is now averaging approximately 1.3 million silver coins per month. They are now a player in the silver market and must be taken into account when reviewing monthly physical silver coin sales. 1.3 million coins per equals 15.6 million coins annually. While that is still a small amount in comparison to the Royal Canadian Mint and U.S. Mint it represents a massive increase in the volume of silver coming to market. Which brings me back to my favorite question for the past three years – where is the silver coming from?
Louis and I take this into consideration when we begin discussing the theory of a sea-change by a small number of investors and investment dollars. Using the labor force, as generated by the U.S. Bureau of Labor of Statistics, Louis arrived 160 million people currently in the labor force as of March 2016. Using 1% of the labor work force would equal 1.6 million people. Is it realistic to believe there are 1.6 million people in the U.S. who either acquire silver on an ongoing basis or who have acquired a small amount of physical silver in recent years? It seems to be a number within the realm of reality to me.
1.6 million is the base number of investors. The current investment dollars this group represents is not important to this exercise. What is important is a small change in their current habits. That change seems to be taking place as The Doc, has confirmed on two different occasions. That change seems to be confirmed as the U.S. Mint has not changed their current sales policy from rationing sales of 200,000 coins per day – 1 million coins per week, which are sold out every day.
This is what it would look like for a very small change in the 1.6 million investors – using $18 per American Silver Eagle as a baseline.
The numbers in the chart above would be in addition to the current sales of physical silver we are already experiencing. Can you imagine the impact this small change would have on the silver market? Even if you distribute the numbers across the “big three” – U.S. Mint, Royal Canadian Mint and now Perth Mint – you still have an enormous amount of strain added to a very strained market to begin with. Where would it come it from? The pie is only so big and we are all demanding a larger slice every day. Each additional “bite” from the pie pushes the market closer to the edge. How many bites are left in the pie? Got physical?
Posted with permission and written by Rory Hall, The Daily Coin (CLICK FOR ORIGINAL)
Rory Hall, Editor-in-Chief of The Daily Coin, has written over 700 articles and produced more than 200 videos about the precious metals market, economic and monetary policies as well as geopolitical events since 1987. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver and Silver Doctors, SGTReport, just to name a few. Rory has contributed daily to SGTReport since 2012. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Visit The Daily Coin website and The Daily Coin YouTube channels to enjoy original and some of the best economic, precious metals, geopolitical and preparedness news from around the world.
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Submitted by Michael Snyder via The Economic Collapse blog,
Those that were hoping for an “economic renaissance” in the United States got some more bad news this week. It turns out that the U.S. economy is in significantly worse shape than the experts were projecting. Retail sales unexpectedly declined in March, total business sales have fallen again, and the inventory to sales ratio has hit the highest level since the last financial crisis. When you add these three classic recession signals to the 19 troubling numbers about the U.S. economy that I wrote about last week, it paints a very disturbing picture. Virtually all of the signs that we would expect to pop up during the early chapters of a major economic crisis have now appeared, and yet most Americans still appear to be clueless about what is happening.
Even I was surprised when the government reported that retail sales had actually fallen in March. Consumer spending is a very large part of our economy, and so if consumer spending is slowing down already that certainly does not bode well for the rest of 2016. The following comes from highly respected author Jim Quinn…
The Ivy League educated “expert” economists expected March retail sales to increase by 0.1%. They only missed by $6 billion, as retail sales FELL by 0.3%.
They have fallen for three straight months. At least gasoline sales were strong, as prices have risen 22% since mid-February. That should do wonders for the finances of American households. If you exclude gasoline sales, retail sales fell by 0.4%. As the chart below reveals, the year over year change in retail sales has been at or near recessionary levels for most of 2015, and into 2016.
You can view the chart that he was referring to right here. In addition to a decline in retail sales, total business sales have also been falling, and this is another classic recession signal. The following comes from Wolf Richter…
Total business sales fell again in February, the Commerce Department reported today. They include sales by manufacturers, retailers, and wholesalers of all sizes across the US economy. This measure is far broader than the aggregate sales by publicly traded companies, which too have been falling.
At $1.284 trillion in February, total business sales were down an estimated 0.4% from January, adjusted for seasonal and trading-day differences but not for price changes. And they were down 1.4% from the already beaten-down levels of February last year. They’re back where they’d first been in November 2012!
Yes, the stock market has been on quite a run for the past several weeks, but that temporary rebound is not based on the economic fundamentals.
The truth is that the real economy is definitely starting to slow down substantially. If you want to break it down very simply, less stuff is being bought and sold and shipped around the country, and that tells us far more about what is coming in the months ahead than the temporary ups and downs of stock prices.
Another huge red flag is the fact that the inventory to sales ratio in the U.S. has hit the highest level that we have seen since the last financial crisis…
The crucial inventory-to-sales ratio, which tracks how long unsold inventory sits around in relationship to sales, is now at a mind-bending 1.41. That’s the level the ratio spiked to in November 2008, after the Lehman bankruptcy in September had put the freeze on the economy.
Inventories represent prior sales by suppliers. When companies try to reduce their inventories, they cut their orders. Suppliers see these orders as sales. As their sales slump, suppliers adjust by cutting their own orders, thus causing the sales slump to propagate up the supply chain. They all react by cutting their expenses. And if it lasts, they’ll cut jobs. Inventory corrections have a nasty impact on the overall economy.
Because sales have slowed down, inventories are starting to pile up to alarmingly high levels. And when companies see that business is slowing down, they start to let people go.
In a previous article, I told my readers that Challenger, Gray & Christmas is reporting that job cut announcements at major firms in the United States are up 32 percent during the first quarter of 2016 compared to the first quarter of 2015.
Somehow, most of the talking heads on television don’t seem too alarmed by this.
But ordinary Americans are beginning to become alarmed about what is happening. In fact, the percentage of Americans that believe that the U.S. economy is “getting worse” is now the highest it has been since last August…
One of the more glaring examples of how strong pessimism has become is Gallup’s U.S. Economic Confidence Index. The measure gauges the difference between respondents who say the economy is improving or declining. The most recent results are not good.
Fully 59 percent say the economy is “getting worse” against just 37 percent who say it is “getting better.” That gap of 22 percentage points is the worst since August, according to Gallup, which polled 3,542 adults.
Personally, I thought that we would be a little further down the road by now, but without a doubt a new economic downturn has begun in America.
So far, it is less severe than what most of the rest of the planet is experiencing. Japan’s GDP is officially shrinking, major banks are failing all over Europe, and even CNN admits that what is going on down in Brazil is an “economic collapse”.
The global economic meltdown is steaming along, even if it is moving just a little bit slower than many of us had originally anticipated. We are moving in the exact direction that myself and many others had warned about, and the rest of 2016 is looking quite ominous for the global economy.
So hopefully everyone (including the critics) is using whatever time we have left wisely. Because I definitely wish the very best for everyone during the exceedingly hard times that are coming.
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Following Monday’s decision by a special committee to commence the impeachment process against president Dilma Rousseff, all attention had been focused on the number of Congressional votes that the pro-impeachment movement would have ahead Sunday’s critical vote. As a reminder, impeachment would require two-thirds support, or 342 of the 513 lower-house lawmakers, to send the case to the Senate.
And then, following a failed attempt to stall the impeachment process last night when Brazil’s Supreme Court allowed the impeachment process to proceed despite Rousseff’s protests, moments ago, Brazil’s Folha newspaper reported that this critical 342 threshold had been met.
The result: Brazilian stocks, which had already surged today, and were up 22% YTD not to mention up 44% from January’s lows, extended the rally of what has been this week’s best performing market ahead of this weekend’s impeachment vote.
Citing Ari Santos, a trader at brokerage H.Commcor in Sao Paulo, Bloomberg reports that “the market is anticipating the improvement of the economy with new policies,” said “That’s the main driver for Brazil’s stocks today as it has been in the past weeks.”
However, such an optimistic assessment may be premature: first, not only is Rousseff going to fight the process, which next goes to the Senate, tooth and nail, but a political crisis just 4 months ahead of the Olympics will hardly be beneficial for the Brazilian economy, which as we have been reported for the past year, is now openly in a depression.
“The view that Sunday’s impeachment vote will be some sort of a denouement is wide of the mark,” Nicholas Spiro, a partner at Lauressa Advisory Ltd. and previously a consultant on sovereign-credit risk, said from London. “Irrespective of the outcome, it is bound to raise more questions than answers. Markets are far too confident that Brazilian politics is moving in the right direction as far as political stability and economic reforms are concerned.”
For now, however, as the chart below shows, traders are pushing green first, and asking questions later.
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Nations representing almost 60%of the world’s oil production will gather in Doha on April 17 to discuss "freezing their output at January levels" in an effort to stabilize prices. According to Bloomberg, Russia, Saudi Arabia, Qatar and Venezuela made a preliminary deal in February and are seeking to add more producers and extend the recent price recovery, but, despite the exuberant squeeze early this week, oil prices are fading modestly as D(oha)-Day looms.
While the mainstream narrative is that "everyone is short" oil into this decision, Oil ETF shorts hover near 4-month lows and, as Citi notes, and is now beginning to look likely given that there is only an hour allocated for closed door discussions with a press conference right after, if there is no agreement, then expect a sharp oil market sell-off on Monday.
Bloomberg Q&A:
Who’s going?
In addition to the four signatories to the preliminary deal, Algeria, Angola, Azerbaijan, Colombia, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Kuwait, Mexico, Nigeria, Oman and the United Arab Emirates will attend.
Who’s not attending?
Some of the world’s biggest producers including the U.S., Canada, China, Brazil and Norway won’t be showing up. Among the 13 nations in the Organization of Petroleum Exporting Countries, only Libya — whose output is crippled by conflict — has ruled out going to Doha. The key OPEC member resisting a production freeze is Iran. While it will send a representative to observe the discussions in Doha, Iran has insisted it won’t constrain production before restoring output to pre-sanctions levels.
How likely is an agreement?
Forty traders and analysts surveyed by Bloomberg this week were evenly split on whether there will be a deal. While Russia’s Energy Ministry is “optimistic” and Qatar’s has a “positive feeling,” Saudi Arabia has said it will only cap its output if Iran follows suit — a notion Tehran has dismissed as “ridiculous.”
What impact would a freeze have on oil prices?
Crude has rallied more than 30 percent to above $40 a barrel since the preliminary freeze accord in mid-February prompted a shift in market sentiment. A final accord could lock that gain in place, or even extend it to $50, said Bank of America Corp. Yet a freeze will do little to mop up the glut because Saudi Arabia and Russia — the world’s biggest crude producers — are already pumping near record levels. Morgan Stanley said “our downbeat oil view is unchanged” by the prospects of a freeze.
How much oil supply is at stake?
Producers that have confirmed they will consider joining the freeze produce about 47 million barrels a day of crude. Many of those nations were already pumping flat out in January, with little scope for increasing output. Russia and Saudi Arabia both held production steady this year, even before a final agreement to freeze.
Production from the 11 members of OPEC that are backing the agreement is already almost half a million barrels a day lower than January.
Would the freeze make a difference?
With most Doha participants already expected to keep output steady, much more important for the oil market will be what happens in the U.S. and Iran. Declining shale oil production is expected to make up the lion’s share of the 710,000 barrel-a-day reduction in output from non-OPEC countries this year, according to the IEA. Iran plans to increase production by about 700,000 barrels a day this year from the 3.3 million pumped in March.
What would the accord mean for U.S. producers?
Any deal that pushed up prices would be “self-defeating” because it would allow a revival of drilling by U.S. shale producers, who can return to work at $55 a barrel, according to Goldman Sachs Group Inc. That would only postpone the supply curbs analysts say are needed to re-balance overloaded global markets.
How would the freeze be monitored and enforced?
During previous supply cuts, OPEC monitored members’ compliance using data on their production provided by external sources such as news agencies and tanker-trackers. It has no mechanism to punish countries that flout their limits and members habitually exceeded the group’s quotas, before production targets were effectively abandoned in December.
What happened when OPEC last made a deal with non-members?
OPEC has grounds to doubt the sincerity of its partners. The last time it struck a deal with rival suppliers was in late 2001, when Russia, Mexico, Oman, Angola and Norway promised to cut supply by a combined 500,000 barrels a day.
Yet by the middle of the following year, Russia had actually increased output and the only production declines were in Mexico and Norway.
* * *
What if there’s no deal?
With expectations growing over the past week, oil traders embarked on a buying spree that pushed crude to a four-month high. If ministers fail to reach an accord, prices will see a “severe negative impact,” Citigroup Inc. predicts. OPEC’s refusal to cut output in 2014 prompted calls to write the group’s obituary, and an inability to finalize the freeze might see those epitaphs being carved. The ensuing disappointment could drag prices down to $30 a barrel, said Saxo Bank A/S.
If there is no agreement, then expect a sharp oil market sell-off on Monday. If there is an agreement in name but market participants realize it has no teeth, except a slower sell-off. Main oil-producing countries, but especially Russia, have been stirring the market since late 2015 with talks of a potential agreement and the market has responded frequently, creating periodic froth to prices, only to see prices come off when no agreement has been forthcoming. Money manager net (and gross) length is around record highs on ICE Brent, giving some scope for position liquidation following any ‘disappointing’ headlines and adding to downside risk.
Citi continues…
The main unknown going into Sunday is what Saudi Arabia’s position will be.
The world’s largest petroleum exporter has been silent about whether it attends and what position it stakes out. Saudi officials have made two recent public statements over the past two months. At the February CERA conference in Houston, the Energy Minister stated, in defining a freeze, that the Kingdom would always fulfill its customers’ needs, thereby significantly reducing the force of any verbal agreement. Then two weeks ago, in a widely cited interview, the Deputy Crown Prince stated that the Kingdom would not engage in an agreement unless Iran also participated in some way, and Iran has announced that it won’t be bound by any agreement and won’t attend the Doha event. Citi projects that Iran is likely to put close to 1-m b/d of incremental liquids supply into the market over the course of 2016.
Two critical factors are required for an agreement:
- First, the Saudi government has to be comfortable that it will lose no market share as a result of any accord. With Iran raising output this year, any freeze would translate into a loss of market share and would likely be read by the market as a sign that the Kingdom has run out of capacity to increase production. To quell such thoughts, the Kingdom’s marketers have been indicating possible increases in exports to Europe and Asia.
- Second, the ‘elephant in the room’ – the US – has to be brought in to any real deal, and that’s not feasible.
Counting total hydrocarbon liquids, the US has become the world’s largest supplier as a result of the shale revolution, now producing ~14.8-m b/d versus total liquids from the Kingdom of 11.7-m b/d and Russia at 11.5-m b/d. As oil prices rise in the near term, US production, the decline of which since last year is the only critical factor in markets finally balancing, is likely to come back. But US production cannot be controlled by governments. It’s the result of a competitive market with hundreds of companies and tens of thousands of investors making as many decisions. The problem at Doha is that the market has lost its regulator and no agreement is about to bring one back.
Even if there is a deal on paper, there are reasons to doubt its credibility.
The history of these deals has been disappointing, even if the initial rhetoric coming out of the meeting indeed gives the market a boost. Back in 1998-99, Russia agreed to cut its oil production by 7%; the market promptly cheered and prices rallied. But it turned out that Russian production and exports rose in 1999, probably by ~0.4-m b/d; it was only after the fact that the market realized a sizeable cut did not actually take place. In 2001, there was another attempt at coordinated production cuts, with OPEC agreeing to jointly cut 1.5-m b/d but only if non-OPEC participants cut by 0.5m b/d. Russia was supposed to be responsible for 0.3-m b/d of that, but Russia had other ideas – that is, a much smaller cut was realized. Even if Saudi Arabia were to make a conditional commitment to cut, eventual non-compliance would remain a possibility, while the Kingdom would still stand to benefit from initial market euphoria from a deal, which could raise revenue, albeit in the short term.
Simply put, as Citi concludes, Sunday’s producer meeting is all about nothing no matter what agreement might be forged. At best, the agreement will be, as Russia’s energy minister has stated, a gentlemen’s affair, with no binding commitments, no concrete next steps beyond having a review meeting, and no procedure for moving to production cuts.
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Submitted by Pam Martens and Russ Martens via WallStreetOnParade.com,
Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.
A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.
At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?
It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”
That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street.
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.
The OFR study was authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, who found the following:
“…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.”
The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.) One paragraph in the Resolution Plan Assessment Framework and Firm Determinations (2016) used the word “liquidity” 11 times:
“Firms must be able to reliably estimate and meet their liquidity needs prior to, and in, resolution. In this regard, firms must be able to track and measure their liquidity sources and uses at all material entities under normal and stressed conditions. They must also conduct liquidity stress tests that appropriately capture the effect of stresses and impediments to the movement of funds. Holding liquidity in a manner that allows the firm to quickly respond to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities, is critical to the execution of the plan. Maintaining sufficient and appropriately positioned liquidity also allows the subsidiaries to continue to operate while the firm is being resolved. In assessing the firms’ plans with regard to liquidity, the agencies evaluated whether the companies were able to appropriately forecast the size and location of liquidity needed to execute their resolution plans and whether those forecasts were incorporated into the firms’ day-to-day liquidity decision making processes. The agencies also reviewed the current size and positioning of the firms’ liquidity resources to assess their adequacy relative to the estimated liquidity needed in resolution under the firm’s scenario and strategy. Further, the agencies evaluated whether the firms had linked their process for determining when to file for bankruptcy to the estimate of liquidity needed to execute their preferred resolution strategy.”
Apparently, the Federal regulators believe JPMorgan Chase has a problem with the “location,” “size and positioning” of its liquidity under its current plan. The April 12 letter to JPMorgan Chase addressed that issue as follows:
“JPMC does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution…JPMC’s liquidity profile is vulnerable to adverse actions by third parties.”
The regulators expressed the further view that JPMorgan was placing too much “reliance on funds in foreign entities that may be subject to defensive ring-fencing during a time of financial stress.” The use of the term “ring-fencing” suggests that the regulators fear that foreign jurisdictions might lay claim to the liquidity to protect their own financial counterparty interests or investors.
JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).” The regulators wanted to see the “losses and liquidity required to support the active wind-down” of the derivatives portfolio “incorporated into estimates of the firm’s resolution capital and liquidity execution needs.”
According to the Office of the Comptroller of the Currency’s (OCC) derivatives report as of December 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counterparties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7 President Obama falsely stated at a press conference that when it comes to derivatives “you have clearinghouses that account for the vast majority of trades taking place.”
But the OCC has now released four separate reports for each quarter of 2015 showing just the opposite of what the President told the press and the public on March 7. In its most recent report the OCC, the regulator of national banks, states that “In the fourth quarter of 2015, 36.9 percent of the derivatives market was centrally cleared.”
Equally disturbing, the most dangerous area of derivatives, the credit derivatives that blew up AIG and necessitated a $185 billion taxpayer bailout, remain predominately over the counter. According to the latest OCC report, only 16.8 percent of credit derivatives are being centrally cleared. At JPMorgan Chase, more than 80 percent of its credit derivatives are still over-the-counter.
Wall Street Mega Banks Are Highly Interconnected: Stock Symbols Are as Follows: C=Citigroup; MS=Morgan Stanley; JPM=JPMorgan Chase; GS=Goldman Sachs; BAC=Bank of America; WFC=Wells Fargo.
Three of the five largest U.S. banks (JPMorgan Chase, Bank of America and Wells Fargo) have now had their wind-down plans rejected by the Federal agency insuring bank deposits (FDIC) and the Federal agency (Federal Reserve) that secretly sluiced $13 trillion in rollover loans to the insolvent or teetering banks in the last epic crisis that continues to cripple the country’s economic growth prospects. Maybe it’s time for the major newspapers of this country to start accurately reporting on the scale of today’s banking problem.
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The Fed is “one and done” for rate hikes.
We called this back in mid-2015. The US economy is far too weak for the Fed to engage in anything resembling a series of rate hikes. Corporate leverage, household leverage, even the national debt stand at levels that limit the Fed from hiking rates.
The Central Banking insiders know this. Which is why Former Fed Chair Ben Bernanke admitted in private luncheons with hedge fund managers that rates would not “normalize” in his “lifetime.”
The Fed is not interested in the economy. It is interested in the bond bubble. All of the talk regarding Main Street, employment, etc. is just that “talk.” The Fed will not, under any circumstances permit the bond bubble to burst because doing so would implode its true owners: the private banks.
The Fed is a privately held institution. The US does not own the Fed. And while Fed Chairs might take some marching orders from sitting Presidents (just as Janet Yellen was recently told by Obama to not raise rates again until after the election), the large banks are the TRUE controllers of the Fed.
Bonds, particularly sovereign bonds, are the senior most collateral sitting on the big banks balance sheets.
These bonds are what backstops the $700 trillion derivatives market. $1 in your typical Treasury is likely backstopping over $300 worth of trades in over the counter markets that are completely unregulated.
The vast bulk of these derivatives are based on interest rates or bond yields.
What are the odds the Fed would risk blowing up the derivatives market, thereby imploding the very banks that own the Fed?
Absolutely ZERO.
The Fed is “one and done” for rate hikes. It was a symbolic move brought about by political pressure after seven years of ZIRP. The Fed raised rates a mere 0.25% and the financial markets entered a free fall. That’s the end of that. Anyone who argues otherwise based on “data” or the “state of the economy” is ignoring the facts of how the financial system operates.
So what does this mean?
The bubble will continue to grow until it bursts. The world has added $57 trillion in new debt since 2007. The fastest growing segment of the debt markets has been government debt, which has grown at an annualized rate of over 9%.
This bubble will burst as all bubbles do. Given the ongoing revolt by Japan and Europe against negative interest rates, it’s only a matter of time before it does.
And this time around, unlike in 2008, when the Crisis hits, it will be ENTIRE countries that go bust, NOT just individual banks.
The time to prepare for this is now, BEFORE it hits.
If you’ve yet to prepare for a bear market in stocks we just published a 21-page investment report titled Stock Market Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.
We are giving away just 100 copies for FREE to the public.
To pick up yours, swing by:
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
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The New York Fed’s ‘decidedly-more-optimistic-than-Atlanta-Fed’s-GDPNow-model’ NowCast model for GDP growth just tumbled back to reality after a week of dismal data finally forced its hand. Treasury bond yields are extending their tumble as NYFed slashes Q1 growth to just 0.8% (from 1.5% in Feb) and collapsed Q2 growth to 1.2% from 1.9% last week. This cuts the entire H1 estimate from 1.5% to 1.0%… shamed down to GDPNow’s reality.
Q1 cut…
And Q2 slashed…
And what drove the drastic cut…
This means the US has to grow 3.4% in the second half to hit the Fed’s target!
It appears the shaming of their ‘optimism’ has worked. And the reaction in bonds is clear…
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There has been some confusion in recent weeks about one unexplained aspect of the rising market: just who is buying?
The reason for the confusion is not only the previously documented buyer strike by the smart money (hedge funds, institutions and private clients), which as we reported a few days have sold stocks for 11 consecutive weeks.
Then last night, citing the latest EPFR data, BofA reported that retail equity investors are now also “risk-off” following $6.2 billion in equity outflows from all regions.
So retail is selling, insiders are selling… who is buying?
Here is the answer courtesy of Goldman’s David Kostin:
Corporations purchased $561 billion of US equities during 2015, 40% higher than during 2014 ($401 billion) and the second highest level since at least 1952 ($721 billion in 2007). Managements remained committed to share repurchases (net of issuance) last year amidst modest US GDP growth of 2.4% and extended valuations. Outside of the Great Recession, corporates have been the primary source of US equity demand.
We already know that in a world of declining cash flows, the primary source of funds to facilitated this behavior was debt issuance. In fact, as SocGen showed in a stunning chart last year, the only reason for the increase of net debt in the 21st century has been to fund buybacks.
That explains who bought. But what about who is buying and who will keep on buying? The answer: even more corporate buybacks.
Buybacks will remain the key source of equity inflow in 2016
We expect corporations will purchase $450 billion of US equities in 2016 and will remain the largest source of US equity demand. With the US economy expected to grow at a modest 2% pace and cash balances at high levels, firms are likely to continue to pursue buybacks as a means of generating shareholder value. We forecast S&P 500 EPS will rise by 9% to $110 this year from $100 in 2015 (see US Equity Views, March 14, 2016), which should also benefit allocation to buybacks.
This means that without corporate buybacks, suddenly the S&P has a gaping $225 billion shorfall in net equity flow to fill. Which is also why it is so critical for the Fed to make sure that there are no disruptions to the bond market: should the issuance train slow down, and if corporations can’t raise the much needed half a trillion in debt proceeds which will be used to buyback stock, a big problem emerges.
It also explains why the ECB last month scrambled to backstop investment grade corporate bond issuance for the first time: in effect Draghi gave his blessing to Europe’s companies to raise debt and to use every last EUR of proceeds to buyback their own stock.
We expect something similar to be unviled in the US soon.
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When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China’s phenomenal ability to calculate its GDP just two weeks after the quarter ended – not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of “global” instability for the Fed appears to have been neutralized.
But what was the reason for this seeming halt to China’s incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report.
As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans “to keep policy accomodative to underpin the slowing economy” as Reuters put it. This was up from February’s 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7 percent by month-end on an annual basis, versus expectations of 14.5 percent.
But it wasn’t the total loan tally that is the key figure tracking China’s credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars!
And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China’s economic throat. As shown on the chart below, this was an all time high in dollar terms, and puts to rest any naive suggestion that China may be pursuing “debt reform.” Quite the contrary, China has once again resorted to the old “growth” model where GDP is to be saved at any cost, even if it means flooding the economy with record amount of debt.
And to put it all together, the PBOC also reported that the broad M2 money supply measure grew 13.4% in March from a year earlier, or precisely double the rate of growth of GDP. This means that it took two dollars in new loans to create one dollar of GDP growth.
With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue?
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