The Strange Case of the Disappearing Debt

Submitted by William Bonner, Chairman – Bonner & Partners

The Strange Case of the Disappearing Debt

Every day, we think we see more clearly where this is going. And every day, we are staggered by it.

Our mind boggles. Our knees buckle. We hold our breath and reach for a caipirinha: For the first time ever, central banks are printing more money than governments can use.

That’s right. After central bank buying, net government debt sales will be NEGATIVE.

Yes, governments will still run deficits. Yes, they still will borrow trillions of dollars. But after central banks finish buying their debt this year, there will be less government debt on the open market at the end of the year than there was at the beginning.

Government debt will vanish … as miraculously as the central bank funds that appeared to buy it.

Is this a wonderful system or what?


Chic, Confident and Young

Last night, we had dinner at a sidewalk café. The scene resembled Delray Beach, Florida, without the old people. A corner bar spilled its patrons out onto the street. Men and women, in groups of two … three … four … walked down the streets, well dressed, but casual. Occasionally, an automobile revved its engine as it rolled by the restaurant.

As in South Florida, young men and women are very aware of their bodies. Men work out at gyms and wear shirts that reveal their bulging biceps. Women wear tight, formfitting pants to show off their toned legs and sculpted derrieres. Chic. Confident. Young. That is the Itaim Bibi neighborhood of São Paolo.

“Don’t mistake Itaim Bibi for Brazil,” cautioned a colleague. “This area may be like Los Angeles or London. Most of Brazil is much poorer.”

The average income nationwide is about $10,000. That puts it at about one-third to one-quarter of the average US income. (We are suspicious of facts with crisp numbers in them. Once you’ve adjusted for purchasing power, employment levels, inflation, taxes and social charges – the numbers melt.) Continue reading

The Bitcoin Bubble Deflates – But the Currency Continues to Evolve

Submitted by Pater Tenebrarum  –  The Acting Man Blog

A Relentless Downturn

When Chinese investors discovered that Bitcoin might offer an avenue for circumventing China’s exchange controls, the digital currency soared to an incredible $1,250 per unit (on some, but not all Bitcoin exchanges – prices tend to vary a bit between the different exchanges). This was of course not only due to the perception that exchange controls could be evaded with Bitcoin; the Chinese are well known for their love of gambling after all. As real interest rates were in negative territory for long stretches of time in recent years, China’s citizens have sought out all sorts of investments to preserve the purchasing power of their savings – Bitcoin was just one more option, but China’s authorities ultimately cut this option off.


Image credit: fmh

During the relentless, bubble-like advance of Bitcoin, various accompanying news items lent support to the rally as well. A quite prominent one was e.g. the “bail-in” of depositors at two large Cypriot banks, which caused traders and investors in several peripheral euro area countries to join the rush into the digital currency. The total number of Bitcoins that will be in issue once all of them have been “mined” is strictly limited to 21 million units. This limited supply conferred additional appeal to the currency, as did news that a number of well-known personalities such as the Vinkelvoss twins had invested large amounts in Bitcoin.

As the rally progressed, numerous traders and market forecasters made ever more exaggerated claims as to the possible future price Bitcoin would attain. They did so regardless of the fact that the so-called “barriers to entry” in the digital currency business are quite low, as evidenced by numerous competing crypto-currencies springing up in recent years. However, it should be noted that Bitcoin still enjoys the so-called “first mover advantage” – it is simply much better known and more widely accepted than its clones.

Alas, the notion that one would be able to make a fortune by buying Bitcoin anywhere near the peak of the bubble turned out to be misguided. As so often, the many wild forecasts of future riches actually turned out to be a warning sign. As the weekly chart below shows, the crypto-currency plunged to a low of $150 in mid January this year, before recovering somewhat to about $230.

The final plunge in early to mid January was accompanied by a huge expansion in trading volume. In the past, large spikes in volume have almost always been a sign that a short to medium term low was close, so from a trading perspective Bitcoin may actually be a reasonably good buy at levels below $200. Note here that we are certainly not issuing a recommendation, we are merely commenting on Bitcoin as a “trading sardine”.

1-bitcoin, weeklyBitcoin in USD terms, weekly: the bubble phase has been almost completely retraced as of mid January – click to enlarge. Continue reading

Welcome to World War Three

Submitted by James Howard Kunstler  –

In case anyone didn’t get ISIL’s message from their latest video in which 21 Egyptian Coptic Christians have their heads sawn off, here it is: “We’re executioners, not warriors.” Those gouts of blood spilled on a Libyan beach amount to ISIL’s welcome mat to the mass execution of the Euro-American west. The dignity of a funeral is not even on the program.

What we’ve got now with apocalyptic Jihadism spreading clear across the region from Pakistan to Morocco, and Europe blandly ignoring it across the Mediterranean, is an epochal face-off that will change the world. It comes at an odd moment in history, namely as the massive oil wealth of the Middle East and North Africa enters decline. It was that oil wealth that provoked a population spike in a desolate corner of the planet the past century. Now there is a huge over-supply of young men there with nothing to do but act out their angry psychodrama over having no future. When a whole peoples’ prospects for a decent life on Earth dwindle to zero, is it any wonder that they become preoccupied with end-times visions of feasts and virgins awaiting in an after-life?

Partly what you’re seeing over there is an internal fight to control what’s left of the treasure. That battle has already had the strange consequence of disabling the oil production capacity in places like Iraq and Libya, where there is still a lot of oil, but not enough political stability to allow the complicated business of extraction and transport to take place. What’s more there has also been tremendous damage to the oil infrastructure in these places, some from deliberate sabotage, some from shelling and bombing, and a lot from sheer neglect and deferred maintenance. Oil refineries and transport terminals are very delicate machines that require constant loving care.

It’s self-evident now that ISIL would like to control as much of the remaining oil wealth as possible — though I doubt they have the competence to run it for long even if they appear to control the terrain. The Euro-American west always has the option of completing the destruction with bombs and missiles, but then they would also be destroying their own future oil supplies and hence their modern industrial economies. Continue reading

In NYT Op-Ed, Yanis Varoufakis Says Greece Is Not Bluffing, “Will Not Cross Red Lines It Has Drawn”

Submitted by Tyler Durden  –  ZeroHedge

With only a few short hours until the process of everyone’s cards being revealed in Brussels begins, it is once again Greece’ turn to remind the other players on the table that no matter the quality of cards it has, it is not bluffing. Which is precisely what anyone bluffing would say.

In a just released Op-Ed in the NYT (were there no European newspaper willing to accept the Greek finance minister’s Op-Ed one wonders that he had to go all the way to the bastion of the left… in the United States) the new Greek finance minister says that not only is he not bluffing adding “that I have no right to bluff“, but using recent military jargon says that “the lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff.”

But what if this brings your people much pain? I am asked. Surely you must be bluffing. The problem with this line of argument is that it presumes, along with game theory, that we live in a tyranny of consequences. That there are no circumstances when we must do what is right not as a strategy but simply because it is … right.

Against such cynicism the new Greek government will innovate. We shall desist, whatever the consequences, from deals that are wrong for Greece and wrong for Europe. The “extend and pretend” game that began after Greece’s public debt became unserviceable in 2010 will end. No more loans — not until we have a credible plan for growing the economy in order to repay those loans, help the middle class get back on its feet and address the hideous humanitarian crisis. No more “reform” programs that target poor pensioners and family-owned pharmacies while leaving large-scale corruption untouched.

Varoufakis then proceeds to further steamroll conventional analogies, saying next that what Greece is doing is nothing like game theory:

“If anything, my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game to be won or lost via bluffs and tactical subterfuge. The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set.”

Continue reading

If It Was Just Oil…

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The price of WTI index crude has fallen back below $50 again as inventories rise far more than expected. That has been the theme of late despite the recent retracement in crude. However, looking at WTI via the futures curve, trading habits are increasingly locking in the outer years (especially past 2016) around $65 – $70 per barrel. That is not an especially robust expectation for renewed demand a few years down the road after so much “weak” marginal supply is expected to be forcefully removed by cost structure.

The curve behavior, then, tends to waggle on various considerations of more likely demand than supply (which has proven resilient to this point). I find no coincidence in the recent rise in oil above $50, however relatively brief, timed the same as minor credit “relief” about the state of the world in early February (and especially that the Greek election didn’t bring everything crashing down).

ABOOK Feb 2015 Commodities WTI Curve

So it is odd, slightly, that the entire contango calculation out to the end of 2016 is almost entirely dependent on the front month or spot price. Again, to me, that suggests a high degree of uncertainty about right now and the rest of 2015.

ABOOK Feb 2015 Commodities WTI Contango

I think a great deal of that uncertainty is that this “supply problem” looks less and less like one, and more and more one of varying demand. In fact, actual supply, especially from US sources, keeps coming in very much in line with expectations – it is inventories that have been so far out of forecast ranges. Continue reading

International Hacking Group Steals $300 Million – Global Digital Banking System Not Secure

Submitted by Mark O’Byrne  –  GoldCore

– Sophisticated “Ocean’s 11″ style heist is one of the largest in history

– Hackers remotely accessed bank computers to manipulate accounts and A.T.M.s.

– Banking groups make no comment

– Details expose incredible systemic vulnerability

An international group of cyber criminals have stolen at least $300,000,000 from over 100 banking and financial institutions in 30 different countries across the world – in a heist that has been described as “much more ‘Ocean’s 11′” than “Bonnie and Clyde” by the company investigating the theft.

Banks in Switzerland, the US, Japan, the Netherlands and particularly Russia were targeted in the past two years.

Sergey Golovanov of Kaspersky Lab (New York Times)

An investigation into the attacks – which was conducted by Kaspersky Lab, a Russian cyber-security company – began following an incident in Kiev where an A.T.M. started issuing cash spontaneously in 2013.

Kaspersky Lab found the bank’s security system to be drastically compromised when employees opened e-mails purporting to come from their colleagues. The New York Times reports,

“The bank’s internal computers, used by employees who process daily transfers and conduct bookkeeping, had been penetrated by malware that allowed cybercriminals to record their every move.” Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

The USA – All Systems Go? (Steve Keen)
‘China Must Guarantee Minimum 6.5% Annual GDP Growth In 5 Year Plan’ (Reuters)
Greece And Ukraine Are The Hot Spots Of A New War For Supremacy (Salon)
The Great War of the American Empire or Great War II (Michael S. Rozeff)
Greece Sticks To No-Austerity Pledge (Reuters)
Austerity Is ‘Complete Horsesh*t’ (Alternet)
Greek Postwar Alliances Show Europe Has More to Lose Than Money (Bloomberg)
Greeks Show Support for Tsipras on Eve of Brussels Talks (Bloomberg)
Greece, Creditors Extend Talks on Eve of Eurogroup Meeting (Bloomberg)
Greece May Win Compromise Offer From EU Bailout Fund (WSJ)
Syriza Leader Confident Ahead Of Eurozone Crunch Talks In Brussels (Guardian)
Greek Euro Exit Risk Signals Inadequate ECB QE Safeguards (Bloomberg)
US And Greece Helping To Save The Euro (CNBC)
Shoot Bank Of America Now – The Case For Super Glass-Steagall (David Stockman)
Low-Pay Britain, Where Working Families Have To Rent A Fridge (Guardian)
How Kids Company Feeds Britain’s Hungry Children (Observer)
Rolls-Royce Accused In Petrobras Scandal (FT)
Famous Soviet Football Champ Refuses To Fight For Kiev In East Ukraine (RT)
Why I’m Not Breaking Up with America This Valentine’s Day (John Whitehead)
Online Bank Robbers Steal as Much as $1 Billion (Bloomberg)
Spy Agencies Fund Climate Research In Hunt For Weather Weapon (Guardian)
12 Likely Causes Of The Apocalypse, As Seen By Scientists (RT)