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

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Finally, China’s Alan Greenspan speaks out

Finally, China’s Alan Greenspan, Mr. Zhou Xiaochuan speaks out in an interview with Caixin Magzine.  The market has been waiting for his comment on Yuan since the RMB exchange rate reform in Aug 2015.  However, he has been hiding and did not “give a clear message” as asked by IMF chief Lagarde.  Just before the lunar new year holiday, even the Chinese local media started to ask him to show up, which is really unusual in China.  And last Friday, Caixin published its 12000 words interview with Mr. Zhou Xiaochuan.  This is the most important interview for China’s economy and Yuan in 2016.  I translate the key Q&A points as below and add my comment in blue:

• How do you see China’s GDP slowing and hard landing potential?

1. In 2009 and 2010, China contributes more than 50% of global GDP growth while its GDP only accounts for less than 10% of global GDP. We must realize that’s unusual situation in an unusual period of time.  Now China still contributes around 25% of global GDP growth, so it’s unfair to say China is hard landing;
2. A country’s currency has no strong relationship with the GDP or GDP growth. Actually current account is the most important factor, and China still has high current account surplus in 2015 (goods trades surplus stands at record high $600B).  In addition, China’s CPI is only 1.4%, which is good for stable exchange rate

• Which international factors are important to RMB exchange rate?

1. Yuan has been following US dollar to appreciate with other currencies (such as Euro and Yen) in the last two years. The market believes Yuan has to “catch up with other currencies” to depreciate.

On surface it’s a USD appreciation story, but the reality is ECB and BOJ’s “currency war”.  The downside potential for Yuan would be much lower in USD terms if DXY starts to depreciate, as the Fed may have to cut the rate and even pushes for QE4.  That’s one of the reasons why I don’t buy in the “big collapse of Yuan” argument.  Yuan will depreciate over time but not act like a collapse.

2.The change of US Fed’s policy in 2013 and 2014 has made huge impact to other EM countries but not too much impact to China. However, the Fed’s interest raise in Dec 2015 is a huge shock to China.

Since Bernanke announced the end of QE3, USD’s negative impact to RMB already started.  PBOC underestimated the power of USD’s appreciation (or how “easy” are ECB and BOJ).  But now, PBOC implies that Fed’s raise is “policy error” and it would not tolerate a further appreciation of USD.

3. There are a lot of speculative funds shorting China recently. As the central bank of China, we have confidence of China’s economy, but we also need patience as we have to wait for the data speaking for themselves continuously.  However, for those speculative funds who already made the bet, they are trying to make profit as soon as possible, and that’s why they spread out rumors and create noises in the market.

Yes, that’s how the “$200B decline of foreign reserve in Jan 2016” rumor begins.  PBOC has come out an approach to fight with those speculative funds: increase the volatility of CNH and CNY to increase short sellers’ cost. 

4. Since 2008, global central banks have adopted easing monetary policies which have boost asset bubbles around the world. The asset price need to adjust, and the process is painful.  Everyone tries to find someone to blame for, and they pick China as the unlucky one.

Chinese government and PBOC are already sick of being accused because everyone points China as the major reason of global sluggish growth.    

5. In general, when people analyze the depreciation of RMB to USD, they should consider the appreciation of USD to other currencies and short term market sentiment. People may worry that China will join the “currency war” to improve export.  However, as the net export already contribute a significant part to GDP, we don’t need to depreciate RMB to boost export.  In addition, China imports more commodity in terms of volume (although the value drops because of lower prices), so it’s unfair to say the commodity bear market is driven by lower China demand.

PBOC tries to avoid using the word “currency war”.  However, as the world’s NO.2 economy, it’s inevitable that RMB will have impact to other countries’ economy.  PBOC should consider Yuan’s future with a global view as the value of currency is the power balance between countries.

• Does PBOC has estimation of the size of “hot money”

1. There’s no clear definition of “hot money”. The speculative money (aka hot money) is not the major force to impact the balance of payment.  The major speculative money plays their games in the offshore market, but their behavior will have negative influence on the onshore market sentiment;
2. Export companies are influenced by this kind of depreciation expectation, and thus adjust their FX strategy and operation (such as buying foreign currencies in advance). However, as they eventually need to pay the expense and cost through Yuan, this kind of adjustment will end pretty soon.
3. Local Chinese companies may adjust their foreign debt with the depreciation expectation. Their foreign debt balance is around USD 800B at the end of 2014.  Right now it’s easy for them to get cheap RMB debt to replace the foreign debt, and it’s their own decision to make it or not.  This kind of adjustment will see a bottom soon.

There are three reasons behind the capital outflow since 2014:  a. domestic corporates and residences increase holding of foreign assets; b. corporates pay down USD debt; c. speculative funds.   The major reason is the first one, so it’s “internal problem”.  PBOC is comfortable to let Chinese residences to keep foreign currencies on their hands, just like China let residences hold gold by themselves.  PBOC seems confident that corporate and individuals will adjust their behavior when the Yuan return to relatively stable stage. 

• Will PBOC reinforce capital control?

1. We hope the process of RMB internationalization will move smoothly. However, it is a back and forth process in reality.  When the speculative funds become a major issue and the FX is volatile, we may hold off the internationalization process and focus our power to handle them.  When the FX markets come back to stable stage, then we will continue to push the internationalization of RMB.

This is PBOC’s bottom line.  To protect the domestic economy, it’s possible to delay the process   of RMB internationalization.   For example, PBOC may delay loosening its capital account.  I believe it’s an appropriate approach after we see the incompetent policies in A share market pushed by China’s financial officials.  It’s hard to believe these officials have ability to control a potential currency chaos after the capital account is opened, especially when China’s economy still would experience restructuring in the next couple year.  The right way is to set up a more comprehensive financial system and resolve China’s own economy problems (such as overcapacity and overleveraged) before PBOC let Yuan become a free circulated currency  

2. We have tightened the control of foreign currency exchange with the aim to ban the illegal fund transfers such as money laundering and fake merchandise trades. For legal and normal request of currency exchange, we always will meet their needs.

PBOC is not stupid.  The biggest power to consume China’s foreign reserve is the domestic corporations and residences.  If PBOC bans their normal needs of foreign currencies, they will have stronger depreciation expectation and accelerate the pace of capital outflow

3. Financial market is different than the real economy, as confidence plays a very important role in the former one. Speculative funds spread rumors to help their trade.  For example, there’s rumor that the foreign companies cannot transfer their earning out of China.  It’s actually a current account item but not a capital account item, so there’s no way SAFE will block this kind of action.  Even for capital account items, companies are able to get foreign exchange as long as they follow the rules.

Honestly, I don’t think any hedge funds in the world has the power to fight with PBOC.  The size difference is so huge, and I think the smart hedgies understand this well.  So they leverage market sentiment to put pressure on Yuan.  Actually, the Yuan is not their main battle field.  The size and liquidity of Yuan is so small, and the hedgies are easily squeezed by PBOC.  The smart hedgies actually target other weaker countries who compete with China in the global export market.  As the expectation of Yuan depreciation rises, those competitors’ currencies will see more pressure, and their central banks have much weaker power than PBOC to defend their currencies.  

4. Capital control does not work in an open economy. In addition, it is more effective to control capital inflow rather than capital outflow.  China is a big open economy and relies on international trades more than other major economies.  Every year, China has around $4trn trade transactions which involve more than one million companies.  China also has around 100 million outbound travelers now.  Therefore, any improper capital will have negative impact on confidence and balance of payment.

• Many people have concerns about the decline of foreign reserve. How PBOC views and handles the speculative funds?

1. It’s difficult to differentiate between speculative funds and normal risk management transactions. China has the biggest foreign reserve in the world, and we would not let speculative funds lead the market sentiment.  As long as China’s fundamentals have no big issues, foreign reserve will not be a problem even the balance will vary from time to time.
2. Although we will not let speculative funds lead the market sentiment, it does not mean we will fight with them face to face. We have to consider how to use our reserve more effectively and find a lowest cost approach.  The RMB exchange reform enables us to handle the speculative funds with more flexibility as we do not focus on USD only anymore.

• What will be the direction and pace of RMB exchange rate regime reform going forward?

1. We will continue the RMB exchange rate regime reform in the next five years. The direction is to build an effective floating exchange rate mechanism which is based on market’s supply/demand and refers to a basket of currencies (not only focus on USD).

A reasonable expectation for internationalization of RMB is at least five years.

2.We emphasize the importance of market’s supply and demand of RMB. Although there are some speculative funds participating the FX market, we still need to respect the market.  We don’t have a model to come out a perfect exchange rate for RMB.  We like to keep the RMB in a relatively stable stage which is close to reasonable balanced level

3. Referring to a basket of currencies is an inevitable process to RMB as China has so many trade partners. We did not do a good job before as RMB focus too much on USD.  In the future we will rely more on reference to a basket of currencies. The result of this direction is that RMB will be relatively stable to a basket of currencies but become more volatile to USD.

The market was used to a stable appreciation path of RMB to USD.  PBOC tries to break this kind of expectation and push the volatility higher.  It’s a normal case for major currencies in the world, so I don’t think the market should panic about this.  Higher volatility also means higher cost for short sellers.

• How PBOC can improve its communication with the market?

1. The current financial market has many uncertain factors and participants hope the central banks will come out to comfort them. However, central banks are not God.  Therefore sometimes we have to say: ”wait a minute, we need more data”
2. For forward guidance, we have to consider couple issues: Whether central banks have better information than the market? Whether central banks have a better forecast model than the market?  If central banks themselves cannot align opinions internally, whether the forward guidance really can relive the markets’ concerns?
3. Central banks should have different communication strategies to various market participants. We would not told our action plan to the speculative funds, but we will deliver reasonable expectation to the organizations (such as merchandise traders) which need to use foreign currencies in their normal business transactions.

PBOC should improve its communication to the market. Central bank should work as a manual of economy, and the market can read through the manual to make their own judgement.  The manual should be designed as simple, clear and easy to read, otherwise the market has to guess and may misunderstand central banks.   

 

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

Last week, in “Welcome To Obama’s Recovery: Carrier Moving 1400 Jobs To Mexico,” we showed what happens the moment hundreds of American manufacturing workers learn that their services will no longer be needed thanks to cheap labor south of the border.

Carrier – a unit of United Technologies – is closing two Indiana plants and moving them to Mexico, a move that will ultimately leave more than 2,000 people jobless. The announcement that the Carrier facility on Indianapolis’ west side will be closed was met with angry jeers from a crowd gathered to hear the news and was greeted with profound dismay by city officials.

Today’s surprise announcement was without warning and incredibly disappointing,” mayor Joe Hogsett said. “While I am obviously concerned about the economic impact, my top priority is the well-being of the hardworking families affected by this decision.”

Economists called the move “highly unusual.”

Actually, we said, it’s not “unusual” at all. Here’s why (from The Indianapolis Star): “Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime.”

Something tells us labor costs will be “slightly” lower south of the border.

On Monday we learn that US companies aren’t just sending jobs to Mexico. They’re sending them to Cuba, where, thanks to the Obama administration’s move to restore diplomatic relations with Raul Castro, US businesses can now operate factories.

Entrepreneurs Horace Clemmons and Saul Berenthal were notified last week by the Treasury Department that they will be allowed build tractors on the island at a $5-$10 million facility.

“Cuban officials already have publicly and enthusiastically endorsed the project,” AP reports, adding that “letting an American tractor company operate inside a Cuban government facility would have been unimaginable before Presidents Barack Obama and Raul Castro declared on Dec. 17, 2014, that they would restore diplomatic relations and move to normalize trade, travel and other aspects of the long-broken bilateral relationship.”

Clemmons and Saul Berenthal plan to commence production by the first quarter of 2017 with 30 Cuban employees, a number they hope will grow to 300 within five years.

“Everybody wants to go to Cuba to sell something and that’s not what we’re trying to do. We’re looking at the problem and how do we help Cuba solve the problems that they consider are the most important problems for them to solve,” Clemmons said. “It’s our belief that in the long run we both win if we do things that are beneficial to both countries.” Here’s a bit more from AP:

The Oggun tractor plant, named after a god in Cuba’s syncretic Santeria religion, will assemble commercially available components into a durable and easy-to-maintain 25-horsepower tractor selling for less than $10,000, Clemmons and Berenthal said. The men believe they can sell hundreds of the tractors a year to Cuban farmers with financing from relatives outside the country and to non-government organizations seeking to help improve Cuban agriculture, which suffers from low productivity due mostly to excessive control of both basic supplies and prices by an inefficient, centrally planned state bureaucracy.

 

Berenthal said they are optimistic that they will also be able to export Oggun tractors to other Latin American countries, which have low or no tariffs on Cuba products, making them competitive on price. The men expect a 10-20 percent profit on each tractor.

 

For the project’s first three years, Clemmons and Berenthal say they will export components from the United States for assembly in Cuba.

 

Clemmons and Berenthal will publish all the schematics of their tractors online in order to allow Cubans and other clients to more easily repair their equipment and come up with designs for other heavy equipment based on the same frame and motor that Cleber can then produce at their Mariel factory.

Berenthal is Cuban-born, so to a certain extent, this is a story about an entrepreneur that wants to give back to his birthplace and that’s certainly understandable. That said, Clemmons is from Alabama and you can bet the headline “Alabama Man To Build Tractor Plant In Cuba Thanks To Obama-Castro Reconciliation” won’t go over well with Donald Trump voters.

The next question is this: how long before John Deere decides that making tractors in Cuba or Mexico might be a whole lot cheaper than building them in America’s heartland? 

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

Submitted by Jeff Thomas via InternationalMan.com,

No one is very concerned about inflation right now and that’s understandable.

Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.

Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.

Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.

To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation.

People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.

The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement.

Through the creation of tremendous debt, the US, EU, and many other countries have created a condition that will result in deflation – the very condition that they most dread. There can be no question that they will do whatever it takes to reverse this trend and return to inflation. Indeed, this is their stated policy. Former Fed Chairman Ben Bernanke is famous for his 2002 speech in which he said he would dump currency from helicopters if necessary when deflation occurred. Since that date, he has reconfirmed his commitment nearly every year, as has his successor, so there can be little doubt as to what the Fed will do to address deflation.

Add to this the fact that the stock and bond markets are in bubbles of historic proportions, assuring the inevitability of crashes in the near future – events that will contribute greatly to deflation.

But, given the choice, wouldn’t we all prefer a bit of inflation to deflation? Yes, in this we would agree with the Fed and the ECB, but worse than either of these possibilities is that green-eyed monster – hyperinflation. At present, we feel we’re so far away from this possibility that, for most people, it’s not even a question. Trouble is, hyperinflation, when it comes, comes very fast and is uncontrollable.

So, how does it happen?

Hyperinflation never occurs spontaneously. It always happens in essentially the same way when governments attempt to artificially manipulate currency. It has occurred on more than twenty occasions around the world in the last hundred years. The most recent occurrence is currently underway in Venezuela.

But a textbook example was the Weimar hyperinflation of 1922–1923. In that instance, the government, along with the central bank of Germany, was facing a collapsing economy, so they did the worst thing possible – they expanded the creation of currency in the belief that if people had more of the stuff, they would spend more and the economy would boom. Unfortunately, the money creation only resulted in rising prices, not greater wealth (True wealth is only created through the creation of more goods and services). So, they printed more. Then more again, and again, and again. With each printing, the problem worsened and the bankers and political leaders reasoned that if they could only print enough, the problem would be solved. It’s important to note that at no time did anyone (not the government, nor the banks, nor private industry, nor the unions) suggest that the printing itself was the problem.

Eventually, inflation became so dramatic that the German people realised that they were better off dumping reichsmarks in favour of goods. As soon as workers were paid, they’d buy anything – food, clothing, anything that wasn’t going up in price as rapidly as the reichsmark was going down.

It is at this point that inflation becomes hyperinflation. It’s never intended by anyone (least of all, governments) to occur but, once the population begins to think of money as something to get rid of instead of something to possess, the monster is born and it happens so quickly that a hamburger that costs $5 today may cost $50 three months later, $500 after a further month, and $5,000 the following week. Soon, a hamburger costs (quite literally) millions.

As hard as this is to imagine, this is what occurs in every case. And in every case, it culminates in a collapse of the monetary system. It’s generally accompanied by a collapse in commerce, riots, food shortages, and famine.

And so, of course, we hope that this time around the leaders of the US, EU, et al, will do the right thing and avoid this eventuality at all costs. Surely, the highly educated folks at the Fed and the ECB will learn from the mistakes of past leaders and not repeat the disastrous mistakes. Hopefully, this time it will be different.

And actually, this time it will be different, but not in the way we would hope. Rather than wait for the crashes and subsequent significant deflation to occur, the Fed and the ECB have already announced a plan to introduce negative interest rates. They describe this plan as being intended to discourage saving and force people to buy goods, causing the economy to boom…just as in Weimar Germany almost one hundred years ago.

But, as discussed above, this is never the outcome. Once a population discovers that dumping currency is preferable to holding it, the green-eyed monster comes knocking.

So, are we around the corner from hyperinflation? No, I believe we have a little breathing time before that, but we’ll be spending that time dealing with the market crashes and deflation that generally come first (unless the leaders decide to pre-empt them by introducing negative interest rates very soon, which they may well do).

Well then, if hyperinflation is not yet a certainty, nor is it necessarily right around the corner, why bother thinking about it?

The reason is that the triggering mechanism of hyperinflation is to be presented to us on a platter in the relatively near future. Its likelihood is now great enough that if we don’t prepare our lives for its eventuality, we’ll be amongst the casualties.

If the German people could have known in 1922 what was coming in 1923, many could have saved their skins. Today, those who choose to internationalise their wealth (however large or small) and even themselves in anticipation of events will have the greatest insulation against the effects of hyperinflation. They have the greatest likelihood to not only survive, but thrive, as the world changes.

Editor’s Note: Negative interest rates are an obvious sign of desperation.

Central bankers are playing with fire and inviting a currency catastrophe, just like they have done so many times in the past.

The sad truth is most people have no idea what really happens when a currency collapses, let alone how to prepare…

How will you protect your savings in the event of a currency crisis? Doug Casey just-released video that will show you exactly how. Click here to watch it now.

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

How quickly the official narrative changes.

Just several months ago, in October, we reported that the now-rattled largest European bank, Deutsche Bank, boosted its forecast for German GDP to 1.9% in 2016 compared with 1.7% previously, saying that “although the external and the financial environment have deteriorated we have lifted our 2016 GDP call… drivers are stronger real consumption growth due to lower oil prices/stronger EUR and the surge in immigration,” analysts wrote, adding they expected the boost in consumption to be evenly split between private and public.

Little did DB know that crashing oil and commodity prices, would lead to existential concerns about its own viability manifesting in a record blow out in its subordinated DB CDS, a record plunge in its stock price and ever louder comparisons between Deutsche Bank and Lehman Brothers. As for the boost to German GDP from the influx of refugees, maybe DB had in mind the soaring pepper spray sales following the infamous Cologne New Year’s “celebration” events.

But even prior to that, on September 18, in an editorial piece the NYT wrote that “Europe Should See Refugees as a Boon, Not a Burden” and goalseeked its liberal conclusion as follows:

Many European leaders have described the refugees who are risking their lives to get to the Continent as a burden. But there is good reason to believe that these immigrants will contribute more to Europe economically than they will take from it.

 

Numerous studies have found that immigrants bolster growth by increasing the labor force and consumer demand. Rather than being a drain, immigrants generally pay more in taxes than they claim in government benefits. Even a large influx of immigrants does not mean fewer jobs for the existing population, since economies do not have a finite number of jobs. Immigrants often bring skills with them, and some start new businesses, creating jobs for others. The less skilled often take jobs that are hard to fill, like in child care, for example, which allows more parents to work.

The left-wing push for sympathy even prompted US Secretary of State to announced just two days later that the United States would significantly increase the number of worldwide migrants it takes in over the next two years. 

The U.S. will accept 85,000 refugees from around the world next year, up from 70,000, and that total would rise to 100,000 in 2017, Kerry said at news conference with German Foreign Minister Frank-Walter Steinmeier after they discussed the mass migration of Syrians fleeing their civil war.

This followed a prior commitment from the White House to accept 10,000 Syrian refugees over the coming year.

Well, those plans may be dead and buried now, following the latest U-turn in U.S. policy, which brings us to evens from this weekend, when the same John Kerry, Speaking at  the Munich Security Conference, praised German Chancellor Angela Merkel for showing “great courage in helping so many who need so much” and European communities who are taking in those fleeing the violence and “rejecting intolerance and racism” within their societies.

However it was here, that for the first time Kerry uttered a warning which until recently would have been branded as borderline xenophobic by the same NYT noted above, when Kerry warned that the mass influx of refugees and other migrants into Europe spells a “near existential threat” to the continent.

“We are facing the gravest humanitarian crisis in Europe since World War II,” he said at the conference, which has been dominated by the Syrian conflict. 

“The United States understands the near existential nature of this threat to the politics and fabric of life in Europe,” he told the meeting as reported by The Local.

The core problem is well-known: Europe has been deeply split by how to handle the mass influx of people fleeing war-torn Syria, Iraq, Afghanistan and other countries. Germany has taken over 1.1 million refugees last year, while Italy and Greece have been overwhelmed as the main arrival points from the Middle East and Africa. The result is a collapse in Merkel’s until recently unshakable popularity and loud whispers that Merkel political career may not last too long if the refugee problem is not promptly addressed.

Sweden and Austria have also taken in large numbers, but many EU members, especially in the east, have been deeply reluctant to open their doors.

So what does Kerry believe now? Kerry said about the refugee influx: “We are not saying, ‘This is your problem, not ours’. This is our problem. And that is why we are joining now and enforcing a NATO mission to close off a key access route,” he said of an alliance naval surveillance mission off Turkey and Greece.”And we will join you in other ways to stem this tide because of the potential of its damage to the fabric of a united Europe,” he added.

Which is not to say he is incorrect: after all none other than the architect of Europe’s “open society” George Soros, now openly warns about the collapse of the EU if the refugee influx, something he himself has been advocating, is not fixed. Here is a brief excerpt of an interview between George Soros and Gregor Peter Schmitz of the German magazine WirtschaftsWoche.

Schmitz: You have been so involved in promoting the principles of open society and supporting democratic change in Eastern Europe. Why is there so much opposition and resentment toward refugees there?

 

Soros: Because the principles of an open society don’t have strong roots in that part of the world. Hungarian Prime Minister Viktor Orbán is promoting the principles of Hungarian and Christian identity. Combining national identity with religion is a powerful mix. And Orbán is not alone. The leader of the newly elected ruling party in Poland, Jaros?aw Kaczy?ski, is taking a similar approach. He is not as intelligent as Orbán, but he is a canny politician and he chose migration as the central issue of his campaign. Poland is one of the most ethnically and religiously homogeneous countries in Europe. A Muslim immigrant in Catholic Poland is the embodiment of the Other. Kaczy?ski was successful in painting him as the devil.

Soros’ solution? Money, of course. “My foundations do not engage only in advocacy; they seek to make a positive contribution on the ground. We established a foundation in Greece, Solidarity Now, in 2013. We could clearly foresee that Greece in its impoverished state would have difficulty taking care of the large number of refugees that are stuck there.”

Schmitz: Where would the money for your plan come from?

 

Soros: It would be impossible for the EU to finance this expenditure out of its current budget. It could, however, raise these funds by issuing long-term bonds using its largely untapped AAA borrowing capacity. The burden of servicing the bonds could be equitably distributed between member states that accept refugees and those that refuse to do so or impose special restrictions. Needless to say, that is where I remain at odds with Chancellor Merkel.

In other words, Soros advocates adding cultural diversity injury to even more debt in an already insolvent European continent – debt which hedge funds could trade and profit from when the time for yet another bailout comes – to fix a problem that would not have been there had Merkel not listened to the likes of Soros, and the NYT editorial board, whose only advocacy of liberal ideals was merely a placeholder to promote their own selfish agendas.

As for Kerry, we find it ironic that the person now warning about refugees posing “a near existential threat” to an entire continent, was just five months ago so very eager to welcome 100,000 Syrian refugees to the US. We wonder if his policy on accepting those same refugees with open arms has changed as of this moment… and who gets to profit this time?

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

ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until this month that things truly became completely and utterly broken.

The Friday before last, the Bank of Japan cut interest rates to NIRP for the first time in its history. And for the first time since 2008, a major Central Bank’s policy didn’t have a single positive outcome.

Every Central Bank action since 2008 has had a negative consequence whether it be a higher cost of living, publishing savers and those relying on interest income, moral hazard, and the like.

However, up until the week before last, every time a Central Bank launched a new policy, there was always the a positive consequence, namely stocks moving higher.

Not this time.

The Bank of japan launched NIRP and stocks immediately nose-dived.

Please let this sink in: a Central bank, indeed, one of the largest, most important Central Banks, has officially "lost control."

This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

Smart investors are preparing now.

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 1,000 copies for FREE to the public.

To pick up yours, swing by:

http://ift.tt/1HW1LSz

 

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

via Zero Hedge http://ift.tt/1U48B16 Phoenix Capital Research

Submitted by Jim Quinn via The Burning Platform blog,

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

• 637 rate cuts since Bear Stearns
• $12.3 trillion of asset purchases by global central banks in the past 8 years
• $8.3 trillion of global government debt currently yielding 0% or less
• 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
• -0.92%, the most negative yield in the world (2-year Swiss government bond)

Massive levels of debt and negative interest rates have done nothing to revive U.S., European or Asian economies. The natives are growing restless, as the early electoral success of political outsiders like Trump and Sanders substantiates. Far right parties in Europe are gaining traction as hordes of Muslim refugees overwhelm their countries. Central bankers, who formerly graced the covers of Time Magazine as saviors and heroes, are now being revealed as nothing more than glorified money printers with PhDs and no plan B.

The trillions in low grade junk bonds are beginning to go bad. The bond market is the canary in the coalmine. A tsunami of defaults is approaching the shoreline, investors are running for the hills, and deranged central bankers are telling people to come a see the colorful shells in the surf. As John Hussman points out, following their advice will be fatal.

Despite short-term interest rates being only a whisper above zero, we increasingly hear assertions that “financial conditions have tightened.” Now, understand that the reason they’ve “tightened” is that low-grade borrowers were able to issue a mountain of sketchy debt to yield-seeking speculators in recent years, encouraged by the Federal Reserve’s deranged program of quantitative easing, and that debt is beginning to be recognized as such. As default risk emerges and investors become more risk-averse, low-grade credit has weakened markedly. The correct conclusion to draw is that the consequences of misguided policies are predictably coming home to roost. But in the labyrinth of theoretically appealing but factually baseless notions that fill the minds of contemporary central bankers, the immediate temptation is to consider a return to the same misguided policies that got us here in the first place, just more aggressively.

Based on the CDS market, fear is rising rapidly and European bank stocks are collapsing faster than they did in 2008. The Too Big To Trust Wall Street banks have seen their stocks fall 25% thus far. Bank debt has fallen even faster. The lying and denials by bank CEOs sounds exactly like the summer of 2008. The most smoke is coming from Deutsche Bank, and where there’s smoke there’s fire. The papering over of billions in bad debt with more bad debt is reaching its logical and expected disastrous conclusion. John Hussman notes when credit default swaps soar, the massive level of defaults are only a quarter or two away, despite the propaganda and lies perpetuated by Wall Street to cover their asses as they scramble to escape again.

Credit default swaps continued to soar last week, particularly among European banks. Given that risks surrounding China and the energy sector are widely discussed, European banks continue to have my vote for “most likely crisis from left field.”

In the fixed income market, we wouldn’t touch low-grade credit at present. Once credit spreads widen sharply, the default cycle tends to kick in several quarters later. The present situation is much like what we observed in early 2008, when we argued that it was impossible for financial companies to simply “come clean” about bad debts, because then as now, the bulk of the defaults were still to come.

The mainstream corporate media has been assuring the masses the recent 10% to 20% plunge in stock market indexes is just a temporary hiccup and isn’t anything like the 2008 worldwide financial collapse. They’re right. The situation today is far more dire and widespread than it was in 2008. Global debt is 50% higher, rates are at zero or below, the global economy is already in recession, with war and civil chaos spreading around the globe.

There are no more rabbits for central bankers to pull out of their hats. U.S. annual deficits are headed to $1 trillion without Keynesian shovel ready stimulus packages. The Fed increased their balance sheet fivefold while creating speculative bubbles in stocks, bonds and real estate simultaneously. As John Hussman points out, the bubbles are bursting again and economic collapse is baked in the cake.

The Fed’s real policy error, as it was during the housing bubble, was to hold interest rates so low for so long in the first place, encouraging years of yield-seeking speculation and malinvestment by doing so. Put simply, the Federal Reserve has created the third speculative bubble in 15 years in return for real economic improvements that amount to literally a fraction of 1% from where we would otherwise have been.

The entire global economy seems condemned to repeatedly suffer from deranged central bankers that wholly disregard the weak effect size of monetary policy on policy targets like employment and inflation, and equally disregard their responsibility for the disruptive economic collapses that have followed on the heels of Fed-induced yield-seeking speculation.

This stock market crash in progress is following the exact pattern exhibited in prior crash periods. The market has gone nowhere since QE3 ceased and had fallen by 14% since November. The tremendous rally on Friday is nothing but the beginning of a 5% to 8% retracement of the initial loss. Once this head fake lures in more muppets, the bottom will drop out. As Hussman discusses below this crash is following the 2000 and 2007 pattern. When the 1,800 level is breached a vertical drop to the 1,500’s will happen in the blink of an eye. That will get the attention of a few 401k holders.

With regard to the stock market, I suspect that the first event in the completion of the current market cycle may be a vertical loss that would put the S&P 500 in the mid-1500’s in short order. I’ve often noted the historical signature of market crashes: a sustained period of overvalued, overbought, overbullish conditions that is then coupled with a clear deterioration in market internals and hostile yield trends, particularly in the form of widening credit spreads. See my comments from the 2000 and 2007 market peaks about the identical syndrome at those points. Historically, what we know as “crashes” have followed only after a compressed, initial market loss on the order of about 14%, a recovery that retraces 1/3 to 2/3 of the initial decline; and finally a break below that initial low. That threshold is currently best delineated by the 1800-1820 level on the S&P 500.

Not only have deranged central bankers created the conditions for a catastrophic collapse, but they have encouraged crazed sociopathic mega-corp CEOs to borrow billions to buy back their own stocks at all-time high prices. These Ivy League educated MBA lemmings have done this to boost their compensation because they are too incompetent to grow their businesses through true investment. These rocket scientists have managed to lose $126 billion on their highly leveraged stock purchases in the past three years. Some of the top losers include:

• IBM – $9.8 billion of losses
• American Express – $4.1 billion of losses
• Chevron – $2.8 billion of losses
• Macy’s – $1.5 billion of losses
• Ford – $500 million of losses
• Starwood Resorts – $500 million of losses

The CEOs of these companies should be fired for their idiocy, greed and ineptitude. Instead they will receive multi-million dollar bonuses. Ben Bernanke, Janet Yellen and their cohorts at the Federal Reserve have already destroyed the lives of millions of senior citizens and savers with their deranged zero interest rate policy while contributing to the wage stagnation of the middle class with their QE policy.

Janet Yellen looked like a deer in headlights last week while testifying before Congress. She realizes, along with the other central bankers around the world, their Keynesian lunacy is about to create a crisis that will make 2008 seem like a walk in the park. The coming destruction of trillions in wealth ($1.2 trillion already), along with the accelerating currency wars, and the further impoverishment of billions will ultimately lead to global war.

In short, what we should fear is not the slight impact of recent policy normalizations, but the violent, delayed, yet inevitable consequences of years of speculative distortions that are already fully baked in the cake. What we should fear are the Fed’s repeated and deranged attempts to achieve weak effects on the real economy, at the cost of speculative distortions that exact ten times the damage when they unwind. What we should fear is more of the same Fed recklessness that encouraged a yield-seeking bubble in mortgage debt, enabling a housing bubble that collapsed to create the worst economic crisis since the Great Depression. What we should fear is Fed policy that has encouraged a yield-seeking bubble in equities, debt-financed stock repurchases, and covenant-lite junk debt; that has carried capitalization-weighted valuations to the second greatest extreme in history other than the 2000 peak, and median equity valuations to the highest level ever recorded. That’s exactly what the Fed has done in recent years, and the cost of that unwinding is still ahead.

The fiat currency system, fractional reserve banking fraud, insane Keynesian fiscal policies, and consumer debt based consumption economy are mathematically unsustainable, so they won’t be sustained. The world is about to sit down to a banquet of consequences, served by deranged central bankers.

“Sooner or later we all sit down to a banquet of consequences” – Robert Louis Stevenson

 

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

By EconMatters

Whether you are Warren Buffet, Carl Icahn or Bill Ackman cutting losses is the hardest thing to do in Financial Markets these days.

via Zero Hedge http://ift.tt/245LxDJ EconMatters

Back in October, we asked the following: “Did Obama Just Set Off A Global Nuclear Arms Race By Signing The Iran Deal?”

On the surface that seems like an oxymoronic headline. After all, the nuclear accord is supposed to be about curbing nuclear proliferation, not setting off an arms race.

Unfortunately, one of the frightening ironies of the deal is that it’s causing some states to reconsider commitments they made to the US with regard to nuclear weapons development. “In barely noticed testimony last month, Rep. Ed Royce, R-Calif., chairman of the House Foreign Affairs Committee, said the UAE’s ambassador in Washington, Yousef al-Otaiba, had informed him in a telephone call that the country no longer felt bound by its previous nuclear agreement with the United States,” AP reported last autumn.

“He told me, ‘Your worst enemy has achieved this right to enrich. It’s a right to enrich now that your friends are going to want, too, and we won’t be the only country,'” Royce said in a phone interview.

In so-called 123 agreements, the US agrees to share materials, technology, and equipment for producing nuclear energy in exchange for a pledge from the receiving country not to enrich uranium or reprocess spent fuel to extract plutonium.

As you can see, the US has quite a few 123 agreements with a whole host of countries.

• Argentina
• Australia
• Brazil
• Canada
• China
• Colombia
• Egypt
• India
• Indonesia
• Japan
• Kazakhstan
• Korea, Republic of (ROK)
• Morocco
• Norway
• Russia
• South Africa
• Switzerland
• Taiwan
• Thailand
• Turkey
• Ukraine
• United Arab Emirates

Broadly speaking, some countries are concerned that Iran will go back on its obligations under to nuclear accord as the revenue starts to roll in and the country’s economy begins to expand (Rouhani is aiming for 8% growth).

Critics of the deal also point to the recent test-firing of a next generation, surface-to-surface missile as proof positive of Iran’s intent to skirt the spirit of the accord if not the letter.

On Sunday, in the latest sign that the crowning achievement of Obama’s presidency is about to backfire in dramatic fashion, Israeli defense minister Moshe Ya’alon claimed Sunni Arab nations are moving ahead with plans to aquire nuclear weapons. “We see signs that countries in the Arab world are preparing to acquire nuclear weapons, that they are not willing to sit quietly with Iran on brink of a nuclear or atomic bomb,” he said, after meeting with Jordan’s King Abdullah.

And he didn’t stop there. “If at a certain stage they feel confident, particularly economically, they are liable to make a break for the bomb,” Ya’alon claimed, referencing Iran’s windfall crude profits. “15 years is just around the corner,” he warned, a reminder to the world that the deal to limit Iran’s nuclear enrichment has an expiration date.

“He did not specify which Arab nations were making nuclear preparations but Saudi Arabia, the leader of the Sunni states, is considered the most likely candidate [as] its vast oil wealth could help fund a nuclear programme while its ties with Pakistan, a nuclear power, could provide technical expertise,” The Telegraph adds. “The United Arab Emirates (UAE) also has oil money and is already building a civilian nuclear power programme, though there is no evidence it is moving to develop weapons.”

Ya’alon went on to say that although relations between Israel and the Sunni world are frosty thanks to Israel’s approach to the West Bank and Gaza, there are always back channels. “I speak about the Gulf states and North African states too. Unfortunately they are not here to listen. For them, Iran and the Muslim Brotherhood are the enemy. Iran is the bad guy for us and for the Sunni regimes. They are not shaking hands [with Israelis] in public, but we meet in closed rooms.”

What exactly it is that the Israelis and the the Gulf states are discussing in these “closed rooms” is an open question but what we do know is that both Israel and Saudi Arabia felt a deep sense of betrayal when Obama signed on the dotted line and shook hands with Iran.

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