Another Estimate of ‘Dollar’ Destruction

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

December was one of the worst months on record for foreign dealing with the “dollar.” The latest TIC update further confirms why January was under such persistent and heavy liquidation pressure in almost every corner. There was a record monthly amount of “selling UST’s” in foreign channels, a dearth of private “dollar” activity and, perhaps most important of all, bank liabilities for the last quarter of 2015 shrinking again at a troubling rate.

Just starting with the monthly overall total, the funding disorder is plainly evident in comparison to some of the worst financial months.

ABOOK Dec 2015 TIC Overall

The huge “selling” pressure (and it should be pointed out again that “selling” UST’s and dollar-denominated assets in this context might be something other than liquidation; it could very well be an accounting transfer across jurisdictions, such as repo or derivative collateral flows, which leave market prices undisturbed but have enormous funding ramifications) was coming from the “official” sector, meaning foreign central banks and/or governments. As noted above, the one-month decline was by far the largest on record.

ABOOK Feb 2016 TIC OfficialABOOK Feb 2016 TIC Official 6m

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Gold Gets a Paulson Boost

Submitted by Pater Tenebrarum  –  The Acting Man Blog

This is too Funny…

We have nothing against hedge fund manager John Paulson…after all, we don’t know the man. In fact, he is inter alia known for his philanthropy, having gifted $400 million of his not inconsiderable fortune to Harvard’s School of Engineering and Applied Sciences. But ever since hitting the big time by shorting assorted MBS prior to the 2008 crisis, he has frequently served as an excellent contrary indicator.

John-PaulsonJohn Paulson looking at a recent chart of gold …

Photo credit: Bloomberg

First he bought bank stocks in 2010, announcing that he was betting on a rebound in growth that would ignite the sector. Not long thereafter, bank stocks began to decline sharply, as the euro area debt crisis went into overdrive. Paulson finally admitted that his strategy was a failure and sold the bulk of his exposure to banks in the fall of 2011 – literally within days of the sector taking off sharply.

1-BKXBank stocks and John Paulson – click to enlarge.

Gold investors should have realized that this represented a warning sign. Paulson had decided to jinx them in 2010 – 2011 as well. He announced his thesis on investing in gold and gold stocks in 2010 and eventually launched a dedicated fund for the purpose. He even offered a version of it that was denominated in gold, which we thought was actually a great feature. Continue reading

Empathy for the Devil

Submitted by Danielle DiMartino Booth – DB Money Strong

Empathy for the Devil,

Mick Jagger has credited Charles Pierre Baudelaire for inspiring him to write “Sympathy for the Devil”.The French poet wove gorgeous verses around darker subjects that refuted mankind’s inherent kindness; his advocacy of the diabolical was pure allegation. As for the Rolling Stones, the song is a platform from which to present mankind’s atrocities from the devil’s point of view – to allow the devil himself to play devil’s advocate on history’s annals of tragedy. The controversial but undeniably timeless hit bridges from the trial and death of Jesus Christ to the Russian Revolution and World War II. The intense lyrics peak with Jagger demanding to know, “Who killed the Kennedys?”

A recent enlightening listen to this classic among rock classics reminded yours truly of the dangers of confirmation bias, the quest to validate one’s views by rejecting others’. After nearly a decade inside the Federal Reserve, one could only conclude that this contrarian-minded thinker would have been damagingly brainwashed to not bask in the clean light of skepticism.

Nevertheless, the dangers of deriving incomplete conclusions necessitates you play devil’s advocate to yourself from time to time. Caveat lector: this is purely an exercise in introspection. The writer’s full loss of faculties is not the conclusion you should draw at the end of this piece. So, now that we’ve set the stage, knowing said writer’s tongue is firmly in cheek, let’s channel our inner devil’s advocate. Shall we?

Our advocacy may as well start with the stalwart U.S. consumer, who we’ve all learned might take a body blow from time to time, but is never knocked out. The January release of retail sales was all it took to send those who’d temporarily jumped on the bearish bandwagon scurrying for their caves. Forget 2015’s Polar Vortex that made for easy comparables; the 3.4-percent gain over last year was still the best in a year. And December was revised up to boot. Isn’t it plain to see that the $140 billion de factor tax cut at the gas pump (which apparently kicks in with a long lag) and buoyant wages are finding their way into the real economy?

As for the strongest component of retail sales, it’s not only subprime loans that are behind the 6.9-percent growth in car sales over 2015. Super prime auto loan borrowers’ share of the pie is now on par with that of subprime borrowers – each now accounts for a fifth of car loan originations. What’s that, you say? Can’t afford that new set of wheels? Not to worry. Just lease. You’ll be in ample company — some 28 percent of last year’s car sales were made courtesy of leases, an all-time high. For bigger ticket items, anecdotal evidence suggests that while Gulf Stream sales have hit the skids, financing for yachts can still be had for two percent, a song in and of itself. So why not live a little?

And while you’re at it – turn up the heat! Not only are lower heating and gasoline prices paying off in spades for all households, Ford 150 and Ferrari drivers alike. But the other side of the story, that of the damage inflicted by crashing energy prices on all those displaced highly-compensated oil patch workers, is set to finally abate. All we need is for the always-accommodating countries of Iran and Iraq to both agree to play nice in the diplomatic sand box for the greater good of the world economy. Russia has held out an olive branch. Why shouldn’t they as well? Continue reading

Why Keynesian Market Wreckers Are Now Coming For Even Your Ben Franklins

Larry Summers is a pretentious Keynesian fool, but I refer to him as the Great Thinker’s Vicar on Earth for a reason. To wit, every time the latest experiment in Keynesian intervention fails——as 84 months of ZIRP and massive QE clearly have—–he can be counted on to trot out a new angle on why still another interventionist experiment or state sponsored financial fraud is just the ticket.

Right now he is leading the charge for the greatest stroke of foolishness yet conceived. Namely, negative interest rates based on the rubbish theory that the “natural” money market rate of interest is at an extraordinarily low point. Accordingly, the central bank should drive the “policy rate” to sub-zero levels in order to achieve the appropriate level of “accommodation” in an economy that refuses to attain “escape velocity”.

 As can’t be pointed out often enough, however, there is no such economic ether as “accommodation”. It’s just a blanket cover story for what Keynesian central bankers believe they are accomplishing by pegging interest rates below market clearing levels and by bending and mangling the yield curve to cause more investment.

But after 86 months it is evident that all of this putative monetary “accommodation” has failed. Falsifying the cost of money and capital can only work if it causes households and businesses to borrow more than they would otherwise; and to then lay credit based spending for consumption and investment goods on top of what can be funded out of current production and income. Another name for that is leveraging private balance sheets and thereby stealing production and income from the future.

With $62 trillion of public and private debt outstanding the US economy has hit a economic barrier called Peak Debt. For all practical purposes, it can be measured as the macroeconomy’s aggregate leverage ratio at 3.5X national income. That represents fully two turns of extra debt on the economy relative to the stable 1.50X ratio that prevailed during periods of war and peace and boom and bust during the century before 1970. Continue reading

Never A Good Sign When Central Banks Feel the Need

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

You can’t blame the PBOC for trying, as if they were even going to do it, Monday was the day. With the US closed and after the turmoil all over the “dollar” up to last Thursday, the Chinese central bank was left with practically no choice. With Hong Kong shaping up to the mess in the eurodollar, there wasn’t any surprise over the weekend. As I wrote Friday in anticipation (subscription required):

With volume in Hong Kong heavy and losses severe in many places, there isn’t a lot to suggest a durable turnaround in stocks, banking or currencies. The mess of imbalance survives in Hong Kong, meaning that it will likely continue to afflict the mainland only further eroding sentiment all the way around. It will be interesting how the PBOC reacts, as surely they will and must.

And they did, fixing the CNY all the way up to 6.50. It was unusually welcome news to a mainstream view that is more often predicated on “devaluation” as some sort of miracle solution. In other words, even the mainstream is starting to notice the correlation between the CNY’s regular and serious downdrafts and the liquidations that suddenly appear everywhere else in tandem. Even if you have no idea how or why that might be, just blind observation suggests the relationship.

The problem of “how” becomes the issue going forward, and maybe even not too far into the future. While it was somewhat gutsy the size of the move on Monday, today open business across the eurodollar left the CNY fix already pushed lower to 6.518 (middle rate) with a selling rate as low as 6.531 (according China Merchant’s Bank). In short, the one-day window to rush to 6.50 seemingly worked in instilling enough confidence for a short-term rebound (perhaps just aiding the rebound that had started Friday), but already the conditions for its end are apparent across a wide selection of indications – starting with both China and the US internals (subscription required) beyond just the stubborn economic decay.

SABOOK Feb 2016 Dollar CNY

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ABN AMRO Predict Gold At $1,300 By Year End, Up From $900

Submitted by Mark O’Byrne  –  GoldCore

Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.


Gold in USD -1 Year

Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”

You can read the full article on Bloomberg here.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Negative Interest Rates A ‘Dangerous Experiment’, Warns Morgan Stanley (MW)
Negative Interest Rates Are A ‘Gigantic Fiscal Failure’ (AEP)
Japan’s Exports Drop Most Since 2009 as Sales to China Fall (BBG)
Japan Shelves Plan to Let Pension Fund Directly Invest in Stocks (WSJ)
China’s Banks May Be Getting Creative About Hiding Their Losses (BBG)
China Central Bank Takes Another Step To Guide Interest Rates Lower (BBG)
High Chance of China Hard Landing, Says Adviser to Japan’s Abe (BBG)
Why the Chinese Yuan Will Lose 30% of its Value (CHS)
China’s $600 Billion Subprime Crisis Is Already Here (BBG)
Not Even a Wave of Oil Bankruptcies Will Shrink Crude Production (WSJ)
Less Than 4% Of World Oil Supply In The Red At $35/b (Platts)
Venezuela Lifts Gasoline Price by 6,200% and Devalues Currency by 37% (BBG)
The Real Crisis is for Bank Bonds, Not Banks (WSJ)
Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks (WSJ)
Banking Reform Is More Complex Than It Needs To Be (Chu)
Italy Would Veto Any Cap On Banks’ Government Debt Holding (Reuters)
German Central Bank Chief On Collision Course With Draghi Over QE (T.)
Russia Sues Ukraine in London High Court Over $3 Billion Default (BBG)
WikiLeaks Releases Classified Data On EU Military Op Against Refugee Flows (RT)
European States Deeply Divided On Refugee Crisis Ahead Of Summit (Guardian)

Inflation Doesn’t Come From Seasonally Adjusted Employment

Submitted by Michael Pento – Pento Portfolio Strategies

According to the Bureau of Labor Statistics (BLS), there were 151k, 000 net new jobs created in the month of January, and the unemployment rate fell to 4.9%. The continuing increase in new job creation and removal of slack in the labor market is causing the Phillips-curve-obsessed Fed to maintain a tightening stance on monetary policy.

However, not only is Ms. Yellen and company wrong about the progenitor of inflation, the Fed is also obsessing about job growth that isn’t real. According to that same BLS, in December of 2015 thru January 2016 the economy actually lost 2,999,000 jobs, or 2.08% of the workforce. The Labor Department arrived at a positive employment number because the BLS seasonally adjusts the data—my friend David Stockman had more to say about his in his excellent blog.

On a seasonally adjusted basis the U.S. economy created 413k, 000 jobs during that timeframe. Of course, it makes sense to adjust the jobs data for hiring and firing around the Christmas season. But it makes much more sense to look at the data year over year for a more accurate assessment of the labor market. During December 2014 thru January 2015 the economy shed 2,820,000, or 1.99%.

Therefore, the economy not only lost 179,000 more jobs this year during the post-Holiday layoff season than it did the year prior, but it also suffered a greater percentage of job losses than it did during the comparative time frame. Continue reading

On Trump and Europe -Business Insider

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

Donald Trump, left, and Yanis Varoufakis.

Reuters/Jonathan Ernst/Jean-Paul Pelissier/Business InsiderDonald Trump, left, and former Greek finance minister Yanis Varoufakis.

Outspoken former Greek Finance Minister Yanis Varoufakis compared the popularity of Republican Presidential candidate Donald Trump to the rise of Fascism across Europe in the 1930s.

Varoufakis, who ran Greece’s economy during crucial bailout talks and resigned last year, on Monday spent 90 minutes answering questions on Q&A website Quora, covering topics ranging from Europe’s future to Trump and even how economics is taught in University.

Trump has provoked the left with his comments on Muslims and immigration but become a darling of many right-wing voters in the US.

Here’s what Varoufakis wrote when asked ‘What do you think about Donald Trump’s political success in the US?’:

Anger is prevalent. Common folks follow a good instinct when they want to punish an establishment that has lied to them for decades, that has treated them with contempt, that considers them ‘useful idiots’ to be bought by the highest bidder.

Unfortunately, this good instinct often leads fed up conservatives to the wrong leader, camp, campaign. We saw this in the 1930s, we are seeing it today in France (the rise of Le Pen). Our duty as democrats is to offer disaffected voters, including conservatives, a way to indulge their impulsive urge to punish the establishment without becoming hostage to misanthropic narratives, like Trump’s, Le Pen’s etc.

The 1930s saw the rise of right-wing, autocratic, Fascist dictatorships in Italy, Spain, and Germany, while in France Marine Le Pen leads the far-right National Front party, which has recently enjoyed a boost in popularity.

Varoufakis and his party, Syriza, swept to power in Greece on a wave of popular support, but from the left, not the right. Varoufakis says there are “stark similarities” with his success and the current popularity of US Democratic Presidential candidate Bernie Sanders.

Here are the select highlights of Varoufakis’ other answers:

  • On the future of the EU: “I hope not but I fear we may very well be experiencing the EU’s disintegration. The Eurozone has been, for some time now, in an advanced state of deconstruction…. Beyond the Eurozone, Schengen has already been suspended and is under enormous strain as the forces of xenophobia, ultra-nationalism and plain paranoia are taking over. The EU’s inability is come to terms with what is, after all, a mild refugee crisis (as compared, for instance, with that facing Jordan or Lebanon) speaks volumes in this regard.”
  • On Greece’s economy: “Terribly, heartbreakingly badly… Greece was in a free fall before we [the Syriza party] were elected, and remains in one now because our attempts to renegotiate the world’s most failed ‘program’ were crushed by an ironclad troika determined not to ‘lose’ Spain, Portugal, Ireland etc.”
  • On Julian Assange: “Democracy is nothing without the right to free speech. And, as I said at the Volksbuhne Theatre while I wasintroducing Julian to the audience, the right to free speech counts for little without the right to know what our rulers are doing on our behalf.”
  • On his new movement, DiEM 25 (Democratise Europe): “The number one lesson many of us learned during 2015 at the level of European Union, the Eurogroup, etc., is that the old way of doing politics in Europe is obsolete – finished… Instead of starting at level of the nation-state and forging an alliance, which is flimsy and brittle, how about starting a movement throughout Europe on the basis of a very clear manifesto that binds us together? How about a movement with some very simple ideas of what we want to do as Europeans?”
  • On a potential Brexit: “I argued that British voters have every reason to be livid with a deeply anti-democratic, bureaucratic and unappetising EU. But it would be wrong to think that they can just leave the EU behind, sailing off into some other alliance with the US or China.”
  • On Democratic Presidential candidate Bernie Sanders: “The great difference between us is that Bernie is running for the Presidency of a social economy that is far more robust and autonomous than the Eurozone – and infinitely more sustainable than a bankrupt country (Greece) lacking any of the levers of policy making (e.g. monetary & fiscal policy, the right to legislate that was given away last summer with the 3rd Loan Agreement).”

You can read the full Q&A session here.



Convenient Beliefs

Submitted by William Bonner, Chairman – Bonner & Partners

“Massive Deterioration” – Worse Than 2008

BALTMORE – “Stocks still not finding bottom” warned a headline at Investor’s Business Daily. On Thursday, the Dow ended down 255 points – or 1.6%. The index is down by almost 9% since the start of the year.

“These developments, if they prove persistent, could weigh on the outlook for economic activity…” proffered a nervous-looking Janet Yellen in her testimony on Capitol Hill. She was signaling to investors.

Yellen_cartoon_02.27.2015Smoke signals…

“Don’t worry about us,” she may as well have said. “If we can get away with a big U-turn, we’re not going to raise rates anymore.”

On Tuesday, Maersk Group, the world’s largest container shipping company, said it was suffering a “massive deterioration” in its business.

“It is worse than 2008,” its CEO, Nils Andersen, told the Financial Times. But this is not even near the bottom for the world economy. Hedge fund manager Kyle Bass warns that the other shoe is a big one… and it hasn’t dropped yet.

The MV Maersk Mc-Kinney Moller, the world's biggest container ship, arrives at the harbour of Rotterdam August 16, 2013. The 55,000 tonne ship, named after the son of the founder of the oil and shipping group A.P. Moller-Maersk, has a length of 400 meters and cost $185 million. A.P. Moller-Maersk raised its annual profit forecast for the business on Friday, helped by tighter cost controls and lower fuel prices. Maersk shares jumped 6 percent to their highest in 1-1/2 years as investors welcomed a near-doubling of second-quarter earnings at container arm Maersk Line, which generates nearly half of group revenue and is helping counter weakness in the company's oil business. REUTERS/Michael Kooren (NETHERLANDS - Tags: MARITIME TRANSPORT BUSINESS) - RTX12NIUA Maersk container ship…the line is feeling the pinch – the Baltic Dry Index has collapsed to just 291 points (from approx. 11,800 at the 2008 peak) and container shipping rates have declined sharply as well.

Photo credit: Michael Kooren / Reuters

China’s economy is heavily dependent on capital investment. It puts its money into building factories, highways, offices, apartment blocks, railroads, ports, and airports. What do all these projects require? Rebar!

Concrete is reinforced with steel bars. As the pace of building slows, the price of rebar goes down. In 2008, a ton of rebar cost about 5,500 renminbi ($836). Now, it costs barely 2,000 renminbi ($304) – the lowest price in at least 15 years.

Steel rebar futures, weeklyShanghai steel rebar futures, weekly in RMB – click to enlarge. Continue reading

The Nearing End of ‘Stimulus’

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

As China, Japan is the definition of insanity. GDP fell 1.4% in Q4 2015, marking the fifth contraction out of the past nine quarters and yet the word “stimulus” remains attached to QQE, the Bank of Japan and Abenomics in general. At this point, how much more time and sample size is necessary before calling it a failure? In about six weeks, Kuroda’s massive “stimulus” will mark its third anniversary and the best that can be said of it is that GDP has gone nowhere. Two and three quarters years later, real GDP (SAAR) in the last three months of 2015 was the slightest bit higher than Q2 2013 when everyone was so sure “stimulus” was all so sure.

ABOOK Feb 2016 Japan GDP Real SAAR

The media provides all the evidence necessary as to why everything is so “unexpected.”

The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.
There is no sign of a downward spiral in the economy but with the yen rising to trade at Y113.8 to the dollar in recent weeks, the figures put pressure on the Bank of Japan for even more monetary stimulus to encourage a strong round of wage rises this spring.

Wages, first of all, aren’t rising at all let alone “fast enough.” That occurred while QQE was in full force and the yen in full devaluation – in other words “stimulus.” If wages didn’t act as expected over the first nearly three years of “stimulus”, why would they suddenly going forward? The FT’s second paragraph quoted above ignores everything about the first. The mantra for all commentary now into 2016 is that “monetary policy works even though it never has.”

The overall GDP figures are actually quite charitable to QQE, however, as the effects on the actual Japanese people have been devastating. This is not hyperbole. As noted last week under separate but confirming data, the Bank of Japan expanded total bank “reserves” by an overwhelming 339%, unprecedented in every modern fashion; yet Household Income fell by 7.1% in real terms. The GDP estimates for household spending show that, unsurprisingly, households have only cut back and quite seriously.

ABOOK Feb 2016 Japan GDP Real SAAR HH less Imputed Rent

Continue reading

Gold Stabilises Above $1,200; Asia Markets Run Out Of Steam

Submitted by Mark O’Byrne  –  GoldCore

Global economic turmoil continues to rumble on as major economies seek to come to grips with a changing monetary environment, sagging growth, low inflation, pockets of deflation and uncertainty over the future of Europe post Brexit. Japanese shares sold off after their gains on Monday, falling 1.8% in today’s trading sessions. European shares rising 1.6% this morning on the back of an expectation that volatility in the markets may begin to stabilise, feels more like a dead cat bounce to be honest.

In a wonderful example of poor timing, China is ruffling global security circles by placing advanced ground-to-air missiles in the South China Sea in what many see as an antagonistic move. Russians and Saudis have decided to freeze production of oil, which smacks of desperation as oil output rates are at recent highs and economic demand is lagging so it is likely that such a move will actually suppress prices further.

One statistic we like to follow and we think is indicative of the global post debt binge slowdown is the Chinese Container Freight Export, which is showing a 28% drop since February 2015. For a large industrialised nation like China that is a akin to an economic cardiac arrest. The good news is that the index seems to be stabilising, albeit slowly.

CCFI at 2016_02_17 10_22

Yanis Varoufakis



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