05/09/2016 - Jim Bianco: Gold Is A “High Yield” Asset In A Negative Rate World
“The amount of debt yielding negative is now $8.1 trillion…65% of which is in Japan and pretty much the rest of it is in Europe right now. 20% of world sovereign bond markets are now at negative interest rates. If you exclude the U.S., it’s about 50%… My friend Jim Grant likes to say that the problem with the barbarous relic is for 5,000 years…it’s always yielded zero; it had no yield, and that’s always been the argument against owning it: ‘Why would you want to put your money in something that doesn’t yield you anything?’ Well, guess what? Today, a zero yield as gold has is a high-yield alternative when compared to $8 trillion dollars’ worth of investment options in sovereign bonds. So we are really in an alternative universe where the high yield is now zero.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/05/2016 - Larry Lindsey: The End Game Consequences Of Financial Repression
“Our training and bias have always been toward policy activism — that tweaking this or changing the dial on that can always make things better. But critics of activism, often lumped into the ‘Austrian School,’ argue that this will inevitably end badly .. Tweaking and dialing are addictive, both to the policymaker and to the governing class. Inevitably, this will lead to an unsustainable amount of tweaking and dialing and an endgame in which policymakers become powerless as the state’s monetary and fiscal dials are no longer functional and the state is, in effect, bankrupt. But as states never go bankrupt, they then must seize the assets under their dominion through either inflation, taxation and confiscation .. The Roman Empire tried all three. The medieval popes had their Jubilee Years in which all debts, particularly their own and those of other sovereigns, were forgiven. Debasement, grinding taxation, and confiscation from disfavored groups (often the Jews) were all part of the process .. The growth of societies trying these schemes diminishes. Long-term capital moves from growth-enhancing productive investment, which dries up as it increasingly gets channeled into the hands of the state.” – Larry Lindsey
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
“These so-called ‘free trade agreements’ are not trade agreements. The purpose of the ‘partnerships,’ which were drafted by global corporations, is to make corporations immune to the laws of sovereign countries in which they do business. Any country’s sovereign law whether social, environmental, food safety, labor protections—any law or regulation—that impacts a corporation’s profits is labeled a ‘restraint on trade.’ The ‘partnerships’ permit corporations to file a suit that overturns the law or regulation and also awards the corporation damages paid by the government of the country that tried to protect its environment or the safety of its food and workers. The lawsuit is not heard in the courts of the country or in any court. It is heard in a corporate tribunal in which corporations serve as judge, jury, and prosecutor .. In other words, the ‘partnerships’ give global corporations the power to overturn democratic outcomes All of the blather about free trade and tariff reduction is mere cover for the only purpose of TTIP, which is to establish American economic imperialism over the peoples whose governments sold them out for money.” – Dr. Paul Craig Roberts, Former Assistant Secretary to the U.S. Treasury
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/05/2016 - GREENPEACE LEAK: Exposes Corporate “Regulatory Ring Fencing” Through TTIP
The secret documents represent roughly two-thirds of the latest negotiating text, and in several cases expose for the first time the position of the U.S.
Confirming that the TransAtlantic Trade and Investment Partnership (TTIP) amounts to “a huge transfer of power from people to big business,” Greenpeace Netherlands on Monday leaked 248 secret pages of the controversial trade deal between the U.S. and EU, exposing how
Environmental regulations,
Climate protections, and
Consumer rights
are being “bartered away behind closed doors.”
The documents represent roughly two-thirds of the latest negotiating text, according to Greenpeace, and on some topics offer for the first time the position of the United States.
“Total secrecy was the only way the European Commission could keep the European people from learning the truth about these appalling negotiations, and now the cat is out of the bag.” —John Hilary, War on Want
Before Monday, elected representatives were only able to view such documents under guard, in a secure room, without access to expert consultation, while being forbidden from discussing the content with anyone else. This secrecy runs “counter to the democratic principles of both the EU and the U.S.,” the website ttip-leaks.org declares.
And in the absence of transparency, “hard won environmental progress is being bartered away behind closed doors,” said Faiza Oulahsen, campaigner for Greenpeace Netherlands.
“Whether you care about:
Environmental issues,
Animal welfare,
Llabor rights or
Internet privacy,
you should be concerned about what is in these leaked documents,” Oulahsen said. “They underline the strong objections civil society and millions of people around the world have voiced:
TTIP is about a huge transfer of democratic power from people to big business.
Greenpeace Netherlands zeroes in on four aspects of serious concern in the obtained texts, including:
The apparent omission of the so-called “General Exceptions rule,” which allows nations to regulate trade “to protect human, animal and plant life or health” or for “the conservation of exhaustible natural resources;”
The absence of language about climate protection, plus provisions that would “stimulate imports and exports of fossil fuels—like shale gas from fracking or oil from tar sands—while clean energy production for local communities and associations would be considered unfair competition and a barrier to trade.”
A clear threat to the “precautionary principle,” which requires regulatory caution where there is scientific doubt, shifting the burden of proof on whether a product is safe to public authorities, not on those who seek to sell it;
The heretofore shrouded “high degree” of corporate influence over the talks.
According to the Guardian, which saw the original documents (retyped by Greenpeace and available here):
U.S. proposals include an obligation on the EU to inform its industries of any planned regulations in advance, and to allow them the same input into EU regulatory processes as European firms.
American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees.
“These leaks confirm what millions of people across Europe have suspected all along—that this toxic trade deal is essentially an enormous corporate power grab,” said Global Justice Now trade campaigner Guy Taylor on Monday.
“It’s no secret that the negotiations have been on increasingly shaky ground,” Taylor continued, citing petitions signed by millions of Europeans and ongoing public protests. “These leaks should be seen as another nail in the coffin of a toxic trade deal that corporate power is unsuccessfully trying to impose on ordinary people and our democracies.”
Similarly, War on Want executive director John Hilary declared: “Today marks the end of TTIP.
Total secrecy was the only way the European Commission could keep the European people from learning the truth about these appalling negotiations, and now the cat is out of the bag.”
“We have long warned that TTIP is a danger to democracy, food safety, jobs and public services,” Hilary continued. “Now we see it is even worse than we feared. Today’s leak shows the European Commission preparing to sell us down the river, doing deals behind closed doors that will change the face of European society for ever.
It is simply unacceptable that a group of unelected officials should be allowed to contemplate such a thing without any public scrutiny.”
The 13th round of TTIP talks took place last week in New York. U.S. President Barack Obama, who was stumping for the deal last month in Germany, had hoped to wrap up negotiations by the time he left office—a timeline that looks increasingly unrealistic.
Public support on both sides of the Atlantic has plummeted; leading U.S. presidential candidates oppose the deal and others like it; and President François Hollande on Sunday became just the latest French official to express skepticism about the deal.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/03/2016 - ALERT: PIMCO’S Global Economic Advisor, Joachim Fels Suggests QE Should Buy Equities Next
Speaking at a panel in the Milken conference titled “Monetary Policy: Out Of Ammunition” moments ago Pimco’s global economic advisor Joachim Fels, formerly of Morgan Stanley and Goldman Sachs, had a few observations on QE vs NIRP, not surprisingly nudging central banks that explicitly central bank buying, i.e., QE, is far more powerful than the implicit deflationary signal which is NIRP.
FELS: QE IS A MORE POWERFUL TOOL THAN NEGATIVE RATES
He then proceeded to point out the obvious;
FELS: PROBLEM IS INFLATION IS TOO LOW
By which he was of course referring to wages; as we showed recently rent inflation is currently running at a record 8% Y/Y (ignoring the double digit increases in health insurance costs).
He then had some more big picture ideas of how the world can get rid of its excess debt: central banks should just buy it all up and then “cancel it” (of course by doing so they would also cancel the offsetting balance sheet entry which is bank reserves which also happen to prop up global capital markets).
FELS: TO ERASE DEBT, CANCEL IT ON CENTRAL BANK BALANCE SHEET
And finally, he hinted what he, and/or Pimco, would prefer that the Fed should buy next. Stocks.
FELS: QE SHOULD FOCUS ON CREDIT AND POTENTIALLY EQUITY BUYING
What he did not note is that by the time it’s all over, central banks will be buying not just credit and equities, but virtually every asset class, both directly and indirectly through helicopter money. That said, we prefer that “other” proposal by Pimco’s Harley Bassman from two weeks ago, according to which the Fed should monetize gold to a price of about $5,000 to “shock” inflation expectations higher. However, somehow we doubt if given the option of buying gold or stocks (directly as opposed to through Citadel), the Fed will pick the former.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/03/2016 - Better Finance: Financial Repression Destroys Savings – European Savers Bailed In By ECB
At the end of 2013, at the occasion of the publication of its yearly report on the real return of pension savings, Better Finance warned of the risk of a disastrous eradication of European savings across the board. Nearly two and a half years later and the warning goes unheeded, with the European Central Bank intensifying the financial repression of European Savers by further lowering its main interest rate from 0.5 to 0.25 percent. Now this fear is spreading to all actors – savers and retirees, insurers, pension funds, even bankers – threatening the whole edifice of pensions and savings.
Axel Kleinlein, the head of Germany’s Association of Insured Persons (BdV) and member of Better Finance, stresses the fact that lowering interest rates even further effectively crushes all hopes of decent pensions in the future and has started a campaign against the role of the ECB, which was relayed by the media all over Europe.
What is at stake is the entire monetary policy of the European Central Bank. This is the climax of financial repression.
Financial Repression refers to a set of governmental or central bank policies that keep real interest rates artificially low or negative and regulate or manipulate a captive audience into investing in government debt. Central banks started to fund banks at very low interest rates, most often asking for government debt as eligible collateral. Then central banks engaged in quantitative easing campaigns buying up sovereign bonds directly on the market. To complete the picture central banks try to keep inflation alive through quantitative easing policies in an attempt to further reduce the weight of sovereign debt in the EU Member States, but in the process also obliterating the value of all savings.
Indeed, we know that inflation is the weapon of mass destruction of savings and savers. Today, thankfully, the desired inflation has so far failed to materialise. Policymakers believe that low interest rates will encourage consumption but fail to take into account basic human nature: a small saver faced with low or even negative returns, is more likely to brace for hard times, tighten the belt and stow money under the mattress for a rainy day.
As President Jean Berthon says: “It is more than time to oppose by all means this disastrous policy and we call on all Member Associations of Better Finance to actively campaign in their home country to force the central banks to drastically change their policy.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/03/2016 - Kroll Bond Rating Agency: “ECB Doubles Down on Financial Repression”
They preface the report with this interesting comment:
We just posted a comment on the situation in the EU, where financial repression is still increasing. Big concern from my perspective is that negative rates and central bank market intervention seem to be frightening investors and convincing savers to abandon the financial system. Look at the earnings reports from UBS and the other large EU banks. Banks are 80% of the EU balance sheet and virtually all are shrinking. It is hard to envision how this situation does not end in tears for the nations of Europe given the policy mix. Or to put it another way, should we worry about Brexit or Gexit?
The economic policy debate seems comprised of a binary choice. On the one hand, we are offered radical action by global central banks including the forced transfer of value from savers to debtors, and on the other, increased fiscal spending funded via either more debt or higher taxes. We believe that there is a third choice, namely to make public policy pro-growth as well as pro-consumer, with a balanced approach that is constructive rather than punitive. Good luck getting the current cast of characters in the global central banking community to start talking about growth. But if we don’t see a change in policy by the ECB, there could be a German-led political crisis in Europe before end of the year.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/03/2016 - Capital Preservation In The Era Of Financial Repression
Article highlights the views of Saxo Bank in emphasizing gold & silver in your investments to preserve capital in a world beset by negative interest rates .. “What do you do as a trader or investor in this environment? ,. No one knows how this ends, but one thing is for sure now: it’s now more a game of capital preservation .. There is no holy grail, but from a macro perspective, I think you have to look at precious metals.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/03/2016 - Is The Next Trend A Tax On Wealth?
Keynesian Economics Is In The Insanity Zone
It’s Time To Tax Cash?
Financial Repression Is Intensifying
“It is becoming increasingly clear to us that the level of yields at which credit expansion in Europe and Japan will pick up in earnest is probably negative, and substantially so. Therefore, the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes. With this stick would also come a carrot – for example, negative mortgage rates .. Central banks should move more strongly toward penalizing savings, rather than just the institutions that ‘house’ those savings – the banks.”
– Deutsche Bank’s Dominic Konstam
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/01/2016 - Financial Repression Is Resulting In Stagflation
“We are overdue for a U.S. equity bear market and if we get a bear market it will have ripple effects across other asset classes. But the other thing that worries me even more than that is the central banks losing credibility and losing control .. Let’s suppose that headline inflation, already up to 2.3% in the last 6 – 8 months, hits 3% in the next 6 or 8 months. All of a sudden the central bank (the Fed) has lost control. The central bank can’t keep interest rates down at zero when inflation is running around 3%. That winds up being a massive wealth expropriation from anyone with savings. The government is intentionally engaging in wealth destruction for the affluent savers. That’s the essence of negative real interest rates. But if you are trying to carry zero interest rates in a 3% inflation environment, it stimulates all sorts of crazy behavior on behalf of the general public, and it winds up defeating the purpose of low interest rates, which is to stimulate the macroeconomy. So, ironically, you could have the Fed’s efforts to stimulate the economy with low interest rates having the unfortunate effect of stimulating hoarding instead of stimulating inflation in the macroeconomy. And you could have inflation get out of hand anyway so that you wind up with the worst of both worlds — a stagnation in the macroeconomy and outright recession, paired with renewed inflation. It’s called stagflation. We had that in the 1970s and it was brutal. That’s a risk. It’s certainly possible and if the Fed loses control, watch out.” – Rob Arnott
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/01/2016 - Negative Interest Rates Are Destroying The Very Fabric Of Society
“Thanks to negative interest rates destroying pension funds, we have a tempting pot of money government just cannot keep its hands out of. Governments are turning to ‘asset recycling’ – which includes even Canada. The federal government of Canada, for example, is looking at a potential source of cash to reduce the cost of government by shifting Canada’s mounting infrastructure costs to the private sector. They want to sell or lease stakes in major public assets such as highways, rail lines, and ports. In Canada, they sneaked in a line hidden in last month’s federal budget which reveals the Liberals are considering making public assets available to non-government investors, like public pension funds. They will sell the national infrastructure to pension funds .. This latest trick is being called ‘asset recycling,’ which is a system designed to raise money for governments. This idea is surfacing in Europe & the United States (especially among strapped cash States). They are destroying Western Culture because they are simply crazy and people who vote for them blindly are out of their minds. They are destroying the very fabric of society for they cannot see what they are doing nor where this all leads.” – Martin Armstrong link here to the reference
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/01/2016 - Everbank VP: First ZIRP, Then QE .. Will NIRP Be Next In The U.S.?
Everbank’s VP considers the progression of financial repression in the U.S. – from zero interest rate policy to quantitative easing to the increasing potential for negative interest rates .. “In response to disappointing growth, many central banks are testing a new monetary tool: NIRP. The European Central Bank (ECB) was the first major institution of its kind to adopt NIRP. Others have joined the party. Sweden, Denmark, Switzerland and Japan have also adopted sub-zero rates.2 In fact, around a quarter of the world economy by output is now experiencing official rates that are less than zero.3 Will the U.S. be the next country to implement a negative interest rate policy? .. It seems monetary authorities agree that NIRP might be implemented in the U.S. if our economy enters a sharp downturn. This would have important implications for the markets. In fact, the current negative rates in other countries are already having a major impact on certain asset classes, especially on precious metals.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/29/2016 - Anthony Wile: The Emerging Legalized Cannabis Industry and the Rising Latin Star, Colombia.
FRA Co-founder, Gordon T. Long is joined by Anthony Wile, Founding Chairman and CEO of The Wile Group, to discuss the future of the emerging legalized Cannabis Industry on a global scale, along with the war on drugs and the next upcoming star in the global theater, Colombia.
Mr. Anthony Wile, founding Chairman and CEO of The Wile Group Ltd., is an active investor, business strategist and consultant, financial markets commentator, publisher and author. Mr. Wile founded The Daily Bell, where he served as chief editor until February 2016. He now publishes Wile Reports, a free subscription publication with new material from Anthony Wile and occasional introductions to investment opportunities of potential interest that are being supported by The Wile Group. Mr. Wile is the author of High Alert: How the Internet Reformation is causing a financial hurricane – and how to profit from it. Ron Paul has said, “High Alert should be read by everyone who wishes to educate themselves about the dangers fiat money poses to American liberty and prosperity. I wish I could get every member of Congress to read this book.”
WAR ON DRUGS
“I think the entire world is repressed as a service to benefit a very few.”
I believe that people should be able to invest their capital in whatever way they want to. Bottom line is, we should not be trying to organize society in a way that monetarily determines who is and who isn’t capable of making decisions for themselves.
Special Session of the General Assembly UNGASS 2016 – The meeting happened as a results of several factors:
Some sovereign nations have been jumping ahead of international policy and making their own rules and regulations regarding the war on drugs.
Canada is an example of a country that has moved in its own direction to establish a national marketplace for the distribution of medicinal cannabis products.
Canada’s recently elected Prime Minister Trudeau has made it very clear by some time in spring 2017, there will be legislation in place for an adult use recreational cannabis marketplace.
The world is changing in this respect, and rightfully so.
Authorities discuss how to reduce drug use, which surely we can all agree on, is a noble topic to talk about, but more importantly we must ask, how do we reduce the demand? Too much attention is spent on the supply side of the equation. I think it’s important we begin to consider the demand side as well. A major idea is that if you’re going to educate somebody, you need to know who you are talking to. Today the demand side of the industry is unknown other than as a group, an umbrella which you don’t deal with as a whole; rather, you deal with individual people within the system. The regulation of the industry, like it or not, will ensure that the drugs will be maturely distributed, and as a result of that you will get the appropriate data.
“If we open up the system and have a rational understanding that the demand already exists … We are not talking about normalizing drugs; we are talking about creating a highway system that develops the communication ability for those who wish to impart their views on how you should reduce consumption of these products. By doing this you remove the black market from the distribution side, which then cuts off funding to the ‘terrorism’ of the war on drugs.”
If you want to make a change and cease the funding of these illegal organizations throughout the world, then you must simply cut off their funding source. In many cases, these funds are related to the war on drugs. The rest of the world is beginning to realize that the problem can be alleviated through a mature discussion that recognizes human nature being what it is, and that it is individuals who are deciding for themselves to consume these products. We don’t endorse it; we are simply saying that we must get to know who these people are-; profile, understand and get to know people on a personal and real level.
“This is a big boys’ game that will be handled by the big boys when it comes to the determination of what the products are and how they’re distributed.”
Without a doubt there are investment opportunities in this arena, but people should take their time and not rush in. The regulatory environment has not yet shaped itself. That will determine where the profit margin will lie. Big change is coming, for instance, in distribution. Some of the largest associations in Canada have come out saying that they are behind this shift towards a pharmacy distribution model. This immediately puts an “X” over the revenues that would have belonged to the licensed producers in Canada who distribute through the mail. Today they have the whole vertical, but tomorrow they won’t. As a result, those investments are dramatically affected and thus the viability of anybody who invested in those investments.
Areas of negative environmental impact can be alleviated if the focus is on the cultivation in areas that can generate a positive environmental impact. You will see in the coming future that international bodies will be quite focused on the environmental side of this new industry in which the standards can be determined upfront by the private sector with support of agencies that see this is in fact the better way to approach this.
There is a lot of discussion happening at this point in time within the international circles of how best to embrace, monitor, secure and develop international trade in this industry. For investors who want to get involved in this big shift, I suggest to pay attention to the nations that on a production side are leaving a positive environmental footprint, and are producing medicinal-grade products which are standardized at legitimate price points.
COLOMBIA’S ROLE
“In the war on drugs, Colombia has suffered more than any other nation on Earth.”
Colombia desires to rehabilitate its reputation. The aftermath of the war is a way for Colombia to recreate the way they are viewed by the world. The country is far from backwards in regards to their research capabilities. Their universities are top notch. There is more than enough capability and infrastructure for Colombia to establish a new role in the world with respect to their contribution in pharmaceutical products.
The government has paved the way for a legal business to develop in Colombia. Colombia has means to be a world leader in a scientific and technological way for how these products should be standardized, regulated, and distributed and pave the way by example.
BUSINESS OPPORTUNITIES IN COLOMBIA
“I don’t see a country in the world today that offers as much opportunity as Colombia.”
I try to stay away from global stock markets as much as possible. I am more interested in generating real wealth with real businesses that generate positive and sustainable cash flow. We’re focused in private equity and in Colombia. There are so many areas of Colombia which have been sealed off for decades, inaccessible and totally under-explored in terms of natural resources. There is great opportunity for investing – real estate, tourism, a myriad of opportunities exist. I also think the hemp industry in Colombia is going to develop rapidly; we’re conducting due diligence on that now. It is a nation that is about to spring forward in many ways.
ECONOMIC SHIFTS IN SOUTH AMERICA
The Latin American nations surrounding Colombia are unfortunately lagging far behind. They are not learning as much as they should be from the example of Venezuela. After Colombia, the next rising star would be Chile. It is a country that offers reasonable stability, but it is still difficult to compare the opportunities it offers with those of Colombia.
“At the end of the day, the leading nation in Latin America, in terms of growth, opportunity, and economic prosperity, is undoubtedly Colombia.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/28/2016 - Economist Joseph Stiglitz On The Negative Effects Of Financial Repression
Financial Repression Has
Exacerbated “Extreme Inequality”
Economist Joseph Stiglitz discusses the problem of extreme income inequality in the U.S. & the negative economic impact of macroprudential monetary policy .. 4 minutes
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/28/2016 - The Portfolio Effects Of Holding Gold Or Gold Mining Stocks In A Portfolio
Bullion Management Group Inc.:
Gold & Gold Stocks
In A Portfolio
Report by Nick Barisheff of Bullion Management Group Inc. on the effects of holding physical gold or gold mining stocks in a portfolio .. “Mining shares are an investment that can make up a small portion of the overall tactical equity allocation of a sophisticated investor’s portfolio. However, the facts show that gold mining shares are not a prudent long-term strategic investment for most individuals. Physical gold has a long history that spans thousands of years, and it should make up a portion of every person’s assets. The world’s wealthiest people hold bullion to protect their wealth. As Doug Casey, author and institutional investor, says, ‘The hurricane hit in 2008, we have been sitting in the eye of the storm since the last financial crisis and the full breadth of the storm is beginning to hit us once again.’ Globally, the problems we face today are markedly worse than those of the Great Recession. In the coming years, portfolios without physical gold to offset losses in financial assets and currencies will suffer.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/27/2016 - Michael Hudson: “THE WALL STREET ECONOMY HAS TAKEN OVER THE ECONOMY & IS DRAINING IT!”
FRA Co-founder Gordon T. Long is joined by Professor Michael Hudson in discussing his concept of the FIRE economy and its influence on the production and consumption economy, along with some of his writings.
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Killing the Host (2015), The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971), amongst many others.
ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East. Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.
FIRE ECONOMY
FIRE is an acronym to the Finance, Insurance, and Real Estate sector. Basically that sector is all about assets, not production and consumption. Most people think of the economy as being producers making goods and services and paying labor to produce them, and then labor is going to buy the goods and services. But this production and consumption is rife in the asset economy of who owns assets and who owns other things.
The Finance, Insurance, and Real Estate sector is dominated by finance. For instance, 70-80% of bank loans in North America and Europe are mortgage loans against real estate. The only way of buying a home or commercial real estate is on credit, so the loan to value ratio goes up steadily, banks lend more to the real estate sector, and real estate is worth whatever banks are willing to lend against it.
As banks loosen credit terms, lower interest rates, take lower down payments and basically lower amortization rates, interest only loans, they’re going to lend more hand more against property.
“Property’s bid up on price, but all of this rise in price is debt leverage.”
A financialized economy is a debt leveraged economy, whether it’s real estate or insurance or just living, and debt leveraging means a larger portion of assets are represented by debt, raising debt-equity ratios, but also that more and more of people’s incomes and tax revenue is paid to creditors. So there’s a flow of revenue from the production and consumption economy into the financial sector.
WE’RE STILL IN CAPITALISM, NOT CREDITISM
There’s a huge amount of gross savings, about 18-19% of the US economy, coded in part in debt. The savings that are lent out to borrowers are debt. So you have the 1% lending out their savings to the 99%, but the gross savings are higher.
“Every economy is a credit economy.”
“The IMF has this Austrian theory that pretends money began as barter and capitalism operates on barter, and this is a disinformation campaign. This is a very modern theory that is basically used to say “oh, debt is bad”, an what they really mean is that public debt is bad, the government shouldn’t create money or deficit, and you should leave it all to the banks who should somehow run off debt and in-debt the economy”.
“You can usually ignore just about everything the IMF says, and if you understand money you’re not going to be hired by the IMF.
They impose austerity programs that they call “stabilization programs” that are actually destabilization programs, almost wherever they’re imposed.
“When you have an error repeated year after year, decade after decade, it’s not really insanity doing the same thing thinking it’ll be different. It’s sanity. It’s doing the same thing thinking the result will be the same again and again.”
The result will be austerity programs making the budget deficit even worse. The successful era of monetarism is to force countries to have self-defeating policies that end up having to privatize their natural resources, public domain, public enterprise, their communications and transportation, and sell it off.
Everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that’s all rejected in favor of a rentier class evolving into an oligarchy. Financiers in the 1% are going to pry away the public domain from the government and privatize it so that they get all of the revenue for themselves. It’s all sucked up to the top of the pyramid, impoverishing the 99%.
“As long as you can avoid studying economics, you know what’s happened. Once you take an economics course you step into the brainwashing of an Orwellian world.”
KILLING THE HOST
Finance has taken over the industrial economy. Instead of banks evolving from usurious organizations that leant to governments, finance was going to be industrialized. They were going to mobilize savings and flow it back into financing the means of production, starting with heavy industry. In Germany in the late 19th century, banks worked with government and industry in a kind of triangular process. But that’s not what’s happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form and instead of allying themselves with industry, they allied with real estate and monopolies because they realized they can make more money off real estate.
You had David Ricardo arguing against the landed interest in 1817. Now the banks are all in favor of supporting land rent, knowing that today people can buy and sell property, renters are paying interests, and they’re going to get all of the rent.
“You have the banks merge with real estate against industry, against the economy as a whole, and the result is that they’re a part of the overhead process, not part of the production process.”
THE WALL STREET ECONOMY
“The Wall Street economy has taken over the economy and is draining it.”
Instead of the circular flow between producers and consumers, you have more and more of this flow being diverted to pay interest and insurance and rent. In other words, to pay the FIRE sector, most of which is owned by the 1%. The agency is active politicking by the financial interests and the lobbyists on Wall Street to obtain all of the growth of income and wealth for themselves, and that’s what happened in America and Canada since the late 1970s.
INVESTMENT STRATEGIES FOR TODAY
What all the billionaires and heavy investors do is they’re simply trying to preserve their wealth. They’re not trying to make money, they’re not trying to speculate, and if you’re an investor you’re not going to outsmart the billionaires because the markets are basically fixed. It’s the George Soros principle.
“If you have so much money, billions of dollars, you can break the Bank of England. You don’t follow the market, you don’t anticipate it, you actually make the market and push the market up.”
You have to be able to control the prices and you have the insiders making money but the investors are not going to make money.
The Canadians don’t buy stocks until they’re up at the very top and then they lose all the money, and finally when the market’s all the way at the bottom the Canadians begin selling because they can see a trend, and then they miss the upswing.
“J” IS FOR JUNK ECONOMICS
“It begins as a dictionary of terms just so I can provide people with a vocabulary. The vocabulary that is taught to students today, used by the mass media and government spokesmen, is basically a set of euphemisms. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that’s happening. For instance, “business cycles”. Nobody in the 19th century used “business cycle”. They spoke about “crashes”. They know that things go up slowly and then plunge very quickly. It was a crash, not the sine curve you have in Josef Schachter’s business cycle. A cycle is something that is automatic, and if it’s a cycle then you’d think “oh, okay, everything that goes up will come down and everything that goes down will come up, just wait your turn.” And that means you should be passive. That is the opposite of everything that’s said in classical economics in the progressive era, when they realized that economies don’t recover by themselves”.
“You need the government to step in, you need something exogenous, as the economists say. You need something from outside the system to revive it.”
This idea of the business cycle analysis is, somehow you leave out the whole role of government. If you look at neoliberal and Austrian theory, there’s no role of government spending or public investment. And the whole argument of privatization, for instance, is the opposite of what was taught in American business schools in the 19th century.
The first professor of economics at the Wharton School of Business, Simon Patten, said public infrastructure is a fourth factor of production but its role isn’t to make a profit. It’s to lower the cost of public services and basic inputs to lower the cost of living and cost of doing business to make the economy more competitive.
“The privatization of this adds in interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions, and obviously bills all of these financialized charges into the price system and raises the cost of living and doing business.”
MORE ON FIRE ECONOMICS
We’re going into a debt deflation and the key is to look at debt. If the economy has to spend more and more money, then the reason he economy isn’t recovering isn’t simply because this is a normal cycle.
“It’s not because labour is paid too much, it’s because people are diverting more and more of their income to paying their debts, so they can’t afford to buy goods.”
Markets are shrinking, so real estate rents are shrinking, and profits are shrinking. Instead of using earnings to reinvest, hire more labor to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run.
“They’re all setting up to take the money and run, leaving the companies are bankrupt shells, which is pretty much what hedge funds do when they take over companies.”
The financialization of companies is the reverse of everything classical economists were saying. They can get wrap themselves in this cloak of classical economics by dropping history of economic thought from the curriculum. Following the banks and the Austrian school of the banks’ philosophy, that’s the road to serfdom. That’s the road to debt serfdom.
“It lets universities and its government be run by the neoliberals, and they’re a travesty of what real economics is all about.”
Abstract by: Annie Zhou: a2zhou@ryerson.ca
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/24/2016 - Forced Inflation (1 Of The 4 Financial Repression Pillars) Ahead: Rising Commodity Prices
Will Central Banks Bolster
Commodity Markets To Generate Inflation?
Commodity Trader: “The stupid FED and other Central Bankers around the world acting in unison to artificially raise inflation so that they can hopefully get out of the mess they got themselves into with this low/negative rate. Call me crazy, and I am not a ‘conspiracy theorist’ – but what is happening has absolutely no ‘reasonable’ explanation. So I have to think outside the box… The FED and other Central Banks have already destroyed the equity and other macro-financial markets… it is now turn for the commodities markets… How about the fact that the main drag on the inflation figures has been what? What? FOOD & ENERGY… So is it so crazy to think that Central Bankers all got together in early 2016 and came up with the following equation??? ARTIFICIALLY RAISE COMMODITY VALUATIONS = HIGHER ARTIFICIAL INFLATION = CLAMORING FOR RATES TO BE RAISED.” Dr. Albert Friedberg*: “Value considerations have also moved us to establish a long position in a variety of commodities. The value factor here is the proximity of prices to their marginal cost and the concomitant impact on supplies. Slight changes in demand are likely to bring about relatively sustained increases in prices in at least some commodities. Rather than patiently holding on to a group of commodities, a sort of basket approach, we have asked Covenant to select them on the basis of momentum and have given them authority to raise exposure to about 20% of assets. We are quite confident that their time-tested technical abilities will make an excellent contribution if and when our value proposition plays out.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/24/2016 - Jeff Gundlach: “Negative Interest Rates Are The Dumbest Idea Ever”
In an interview on Swiss Finanz und Wirthschaft, fund manager Jeff Gundlach unleashes his frustration on central banks .. “What you see is that the same pattern has been in place since 2012: Hope for growth in the new year that ends up being revised downwards, over and over and over again. But now we have reached the point at which no one bothers anymore about the comedy of predicting 3% real GDP growth. Even nominal GDP growth isn’t probably going to be at 3% this year. Actually, nominal GDP is at a level that has historically been a recessionary level. It isn’t this time because the inflation rate is close to zero. But no one bothers anymore and the Federal Reserve has basically given up.” .. Gundlach thinks the U.S. stock market is overvalued versus other stock markets .. Gundlach likes gold – “Gold is doing fine. It’s preserving capital in the U.S., it’s been making money over the last couple of years for European investors. That’s why I own gold. Because in a negative return environment anything that holds its value or makes a little is good.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/21/2016 - Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?”
FRA Co-founder Gordon T. Long is joined by Mish Shedlock in discussing the rigging of gold and silver by Deutsche Bank and the reliability of so called “casino banks” and the state of global banking institutions.
Mike Shedlock / Mish is a registered investment advisor representative forSitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.
POST G20 MEETING
Christine Lagarde is worried about public finance and declared the need to get public finance in order. At the same time, she wants countries to spend more.
She said the “strong” countries need to spend more and used the US as an example, but the US deficit projections don’t look very good. In fact, we can’t find anybody anyplace that does look good.
“It is just a bunch of hooey attempting to show concern while giving countries another reason to go deeper in debt.”
There’s all these emergency meetings happening and causing a lot of rumors.
French President François Hollande had a public meeting recently. He said, “I think things are getting better”, and was interrupted by a journalist who said “Excuse me, Mr. President, is that a joke?”
“That’s just what we need journalists in the US to do; ‘Excuse me Mr. President, is that a joke?'”
All the big Italian banks were gathered and told to chip in to bail out these other banks that were in trouble. What they came up with was a plan to increase the capital on these small banks by €5B Euros. Supposedly this would fix €360B in non-performing loans. There’s also roughly another €180B in bad loans.
“They’re supposed to fix this huge problem with the Italian banking system with €5B. That doesn’t work.”
DEUTSCHE BANK RIGGING GOLD & SILVER
Everyone suspected that they were cheating on gold trading, and they admitted manipulating the gold and silver market in a court of law. It’s like someone commits $100B worth of fraud and get fined $50B and promises to never do it again. That’s not even like paying the full price.
“My position all along was, yes, they’ve been cheating, but where isn’t there cheating… I’m quite positive it’s in both directions.”
Has there been this overall price suppression on gold and silver? Gold got up to €1900/ounce, and silver got to €44-46/ounce, and is now sitting at €15-16. Was there pressure applied by all the banks? Is gold really down or was there manipulation because the banks were generally on the other side of the trade?
“Is gold about where it would be without this manipulation? I don’t know, and nor does anyone else.”
“CASINO BANKS”
What we saw was Deutsche Bank had €500B+ in derivative profits and roughly €480B in current losses, so roughly €20B ahead. On another page they outline all their derivatives positions and it amounted to €21T. That’s a profit of €20B from €21T in notional values. These are values way out of the money and some of it is genuinely off.
“When you’ve got a €21T casino on your balance sheet, it just goes to show you how much banks aren’t banks.”
This has nothing to do with core bank policies and procedures and lending. It’s a derivatives casino and it’s rigged. They admitted rigging gold and silver, they admitted rigging LIBOR, they admitted rigging Euribor.
For all the rigging, they got caught on gold and silver. Their commodities portfolio of derivatives was only a tiny piece of that €21T, compared to €15T in interest rates derivatives or €5T in currency derivatives. Something is clearly wrong with all these casino banks.
The international swaps marketplace is approximately $600T, compared to the US economy of $25 GPD a year. Most of the magnitude is more than the entire global economy. The risk is way greater than everyone thinks, especially with these credit default swaps.
ATLANTA VS NEW YORK FED GDP REPORT
The Atlanta Fed projected 0.1% growth and revised it up to 0.3% but NY Fed says it’s more like 1%. Originally it used to be 1.1% vs 0.1% and now it’s 1% vs 0.3%, and we don’t know which one is right. However, the New York Fed model has all kinds of nebulous things in it that can’t be explained.
Inflation is probably a lot higher in a lot of places than the CPI admits.
When 24% of the CPI is Owner’s Equivalent Rent, that doesn’t make sense. Rents in Cleveland and Illinois have nothing to do with rents in Seattle, or places where the economy is doing a lot better. They average it out and supposedly this is some sort of aggregate number that tells you it only goes up by 1.7%. I don’t believe these prices can aggregated because there is no basket that we can define as suitable for everyone, but this is what the Fed does and everyone hinges on these numbers.
“We’ve got too much inflation, too much wealth concentrated in the hands of all the people making the money, while the average guy is losing out.”
RETAIL CHARTS AND AUTO INVENTORIES
A lot of these charts peaked around November 2014, then there was a little rise back that didn’t recover all of it, and another plunge. Factory sales are down 13 out of the last 16 months, and there’s more things participating now. For instance, auto sales are down 3-4 months in a row. Inventories are at an all-time high. Everyone’s traded in their car; used car inventories are at an all-time high.
35% of all autos sold are on lease, and the residual value of used cars are plummeting. Someone has to take a massive write down since they’re all traded as ABS in the shadow banking system. The US government are the biggest owner of used car assets with $1.1T since they buy all the collateralized loan obligations etc. that go through the government.
LIKLIHOOD OF A RECESSION
“I am still sticking with my forecast that says the recession started in December 2015. I see no reason to revise that.”
We might not know for a year, especially if it’s a small recession. The official harbinger is the NBER, and they get to call when we get it, but we’ve had a recession that ended before they called it. They’re always late. Nothing is coming out of these reports that indicate the call was wrong.
“We’re certainly not in a very strong economy, and there’s no reason to believe it’s going to get any stronger.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
04/21/2016 - Harry Dent: Stocks Set to Fall 70% By Late 2017 – Gold $400-$800
FRA Co-founder, Gordon T. Long is joined by Harry Dent to have a detailed discussion about the state of the global economy and how investors can be prepare themselves for the turmoils to come.
Harry S. Dent, Jr. is the Founder of Dent Research, an economic forecasting firm specializing in demographic trends. His mission is “Helping People Understand Change”. Using exciting new research developed from years of hands-on business experience, Mr. Dent offers unprecedented and refreshingly understandable tools for seeing the key economic trends that will affect your life, your business, and your investments over the rest of your lifetime.
Mr. Dent is also a best-selling author. In his book The Great Boom Ahead, published in 1992, Mr. Dent stood virtually alone in accurately forecasting the unanticipated boom of the 1990s and the continued expansion into 2007. In his new book, The Demographic Cliff, he continues to educate audiences about his predictions for the next great depression, especially between 2014 and 2019 that he has been forecasting now for 20 years. Mr. Dent is the editor of the Economy & Markets newsletter and has created the HS Dent Financial Advisors Network.
Mr. Dent received his MBA from Harvard Business School, where he was a Baker Scholar and was elected to the Century Club for leadership excellence. At Bain and Company he was a strategy consultant for Fortune 100 companies. He has also been the CEO of several entrepreneurial growth companies and a new venture investor. Since 1988 he has been speaking to executives and investors around the world. He has appeared on “Good Morning America”, PBS, CNBC, CNN, FOX, Bloomberg, and has been featured in USA Today, Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, US News and World Report, Business Week, The Wall Street Journal, American Demographics, Gentlemen’s Quarterly and Omni.
WHAT IS FINANCIAL REPRESSION?
“Financial repression is how the central banks hijack the free market.”
Other than from the aftermath of WWII, this is the first time that governments around the world have just begun frantically printing money to offset the downturns. The most important thing to understand is that central banks do not just set short term rates; they print money and buy their own bonds to set long term rates to zero.
“When you are a baby boomer approaching retirement, due to financial repression you will get zero adjust for inflation returns. Baby boomers are being forced to go into the stock market on higher yield assets and get crucified.”
Pushing long term rates so low forces people to go into stocks and other financial assets as well as allows firms on Wall Street to leverage up. When this happens you get massive misallocation of investment, and have companies borrowing money to buy back their own stocks to engineer mergers that wouldn’t be possible without such low rates. This bubble we are in, which is greater than any we have been in before, is going to burst and when it does it will wipe out all the excess gains. This financial repression is just going to destroy wealth faster than it artificially built up. It comes down to central banks admitting that they created a bubble, but they won’t because nobody wants to take blame for it while they’re in office.
It is a lifetime consumer spending cycle. Most people do not enter the workforce until they’re 20 then they go on a huge spending cycle which eventually slows down at the age of 39 because people buy their largest home well before they peak in spending. We peak at age 46 and continue the trend because of automobile purchasing and especially with QE; the affluent people go to school longer which is followed by their kids and so on. Therefore peak spending for these people happens 6 years later, and it has been magnified due to QE since these are the same people who of the entire population are the ones who tend to own financial assets.
“The combination of financial repression, QE, and extreme income inequality has seriously butchered the middle class in America.”
It is a graph of the birth index adjusted for immigration, and then projected forward 46 years for the peak spending of the average person. This is why since 2008 governments have been doing endless QE and stimulus just to keep the bubble going enough so that the affluent people can at least continue spending. This demographic trend will continue to point down until 2022 which is when the next generation comes along. Authorities have been able to hold off the burst as long as they wealthy continue to spend, but they are not anymore.
“We are in a bad yield geopolitical cycle, and it is clearly getting worse and it will hit bottom at around 2020.”
The productivity that was created in the 1900s from inventions like the automobile and so on is not present today. Today our economic progression is being backed by Facebook and watching the new viral videos. The point is that these 4 cycles have turned down only twice in the last century before this. It was in the early 1930s, the great depression, and the next major stock crash in the mid 70’s. Governments are fighting the impending crash tooth and nail and have resorted to emergency measures such as zero interest rates and in some cases even negative interest rates.
“This is going to be the final bubble. It’s going to be like the great depression, like the 1974-1975 crash, and without a doubt it will be the worst stock market crash you will see in your lifetime and it is going to happen by roughly end of 2017.”
“This chart is for people who intend to sit in the market, hoping to get another 5-10%. From it we can see that since November 2014, we have gone nowhere and we are right now at the bottom of the rounder top and I am confident it will not go up from here.”
Europe going to be in deep trouble. Banks are failing in Italy like no tomorrow, and I predict by end of the year Italy will be the next Greece, effectively marking the end of the Euro Zone. They already have immigration problems, debt problems, and slowing growth despite endless stimulus.
China on the other hand, has the biggest stock market in the world and it crashed by 45% in 2 months, and I predict it is going to crash again by the end of this year. So what can the Fed and central banks in Europe do about that? Once that happens it is going to send a shockwave in commodities and especially real estate, since it is the Chinese after all who are buying all the cutting edge real estate throughout the world.
“The next US President might as well walk into office and openly admit that this is a bubble and talk about actions to deal with it, rather than being like his predecessors and claim job creation and economic growth; there is just no chance.”
HOW CAN INVESTORS PROTECT THEMSELVES?
“Right now you have to get out and do not listen to your stock broker. This is not the time to be taking risk; it is the time to be prudent.”
The idea is to realize that this is a once in a lifetime reset and you have to simply get out of the way. Everything is a bubble that’s ready to pop, just simple get out of risk assets as much as you can. You can either gamble and get 5%-10% return or lose 60%-70% by end of 2017. Bubbles build on denial because everyone benefits, even the average person has a lower mortgage than car payments because of the bubble and zero interest rates. It is because of the fact that everyone benefits that everyone goes in denial.
PRECIOUS METALS AND THE US DOLLAR
“This is a deflationary crisis, and it is the one time that gold will not do well.”
Gold is a bubble as well. Gold went up 8x in 10 years, there are not many bubbles bigger than the gold bubble and now it is bursting. It is bursting because a lot of the gold bubble happened after 2008 as a result of the crisis, and gold went up the most when people thought the massive money printing would lead to inflation but it didn’t. It didn’t because deflation is a trend; when debt bubbles deleverage, money that was created out of thin air disappears. Most of the time in cycles, we either have moderate or extreme inflation, but this is the one time we have deflation and therefore I do not want to be in gold or in commodities.
“The USD has been the best currency; it goes up versus other currencies as it did in 2008. We are still the best house in a bad neighborhood.”
China is going to be the biggest urban disaster in modern history. They have 250 million people that are not even registered citizens working low paying jobs that are primarily focused on building infrastructure for nobody. And when this crash comes, those people are done for.
When stocks crash, price earnings ratios collapse, and risk premiums go up on everything. So if I was in stocks, I would rather be in pharmaceuticals, health and wellness etc. These are the stocks to buy when the Dow goes down to 5500.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
05/09/2016 - Jim Bianco: Gold Is A “High Yield” Asset In A Negative Rate World
