Central banks — and central bankers — are in uncharted waters. They don’t know how to create economic growth, they don’t know how to fight the great bogeyman of deflation, they don’t know how — or if — they’ll ever be able to return to a time of “normal” monetary policy. Their pretense of knowledge, of being able to effectively control currencies used by billions of people, is coming to an end. But it’s not just an academic issue — all of us are affected by the possibility of negative interest rates, prohibitions on cash, and bank bail-ins. Will you be able to get cash out of your bank or money market account if the economy suffers another crash? Will governments force us into cashless, digital-only payment systems, tracking our every purchase & creating black markets in the process? Will you have to pay your bank, in the form of negative interest rates, for the privilege of holding your money? And will your deposits take a haircut if your bank suffers losses from its bad loans? .. 19 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.

One of the great pillars of financial repression is obfuscation of data .. Over the past decade, we’ve been told that inflation has been tame — actually below the target the Federal Reserve would like to see. But if that’s true, then why does the average household find it harder & harder to get by? .. The ugly reality is that the true annual cost of living is far outpacing the governments reported inflation rate. By nearly 10x in many parts of the country .. This week, we welcome Ed Butowsky, developer of the Chapwood Index, to the program. His index is a ‘real world’ measure of how prices are increasing much faster than the wages of the 99% can afford .. 38 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.

FRA Co-founder Gordon T. Long is joined by Michael Pento in discussing topics from the government debt problem, the current boom in gold and the outlook of the dollar.

Mr. Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients. Mr. Pento is a well-established specialist in the Austrian School of economics and a regular guest on CNBC, Bloomberg, FOX Business News and other national media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Mr. Pento served as a senior economist and vice president of the managed products division of another financial firm. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. Additionally, Mr. Pento has worked for an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career Mr. Pento spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Mr. Pento graduated from Rowan University in 1991.

KEYNESIAN INTEREST RATE MANIPULATION

“You cannot take interest rates down to zero percent and then into the negative territory, constantly increase the amount of something I like to call ‘quantitative counterfeiting’ and ultimately hope for a good ending. It’s just not possible.”

They’re constantly pushing interest rates lower and lower and now to the point where if you’re going to loan money to somebody, you’re going to pay them to do it. The reason their doing this as a method to make their debt serviceable; they need to make ends-meat so they borrow at lower cost. We know there is going to be a collapse because markets have been aggravated and not allowed to function for years.

“30% of all the worlds sovereign debt now has a negative sign in front of it, that’s $7 trillion.”

Here’s the main issue, let’s consider Japan: There is -0.1% for the Japanese 10yr note, an all-time record low. You’re loaning money to Japan, a nation that has 250% debt-GDP and you’re loaning this money going out for 10 years. All for the deal that you’re going to lose money each and every year in nominal terms, and then they have an inflation target and assuming they meet it, Japanese authorities will eventually step in and all of a sudden begin fighting inflation. The only thing this can lead to is an enormous implosion.

“Price discovery is essential, it is the nucleus of capitalism and we haven’t had it in decades.”

 SUSTAINING GOVERNMENT DEBT

“As debt has increased, interest rates have gone lower; it is all that they can do.”

When you base a nation’s growth, not on productivity and the size of the labour force, rather on market bubbles, furthermore when you consider there is 19-20 trillion in the US of outstanding debt; there is just no tax base that can finance this.

Look what Draghi had to do, it was not enough to buy $60 billion euros a month, they went to 80 billion, and why just buy government debt when you can buy corporate debt? These practise make no sense, seemingly there is no rationally thinking individual that enforces decisions.

We are stuck until we are hit with an inevitable implosion. The trigger will be when they reach their inflation targets and then become inflation fighters. There will be a period of time following this where you will see bond yield completely unravel, they will soar, and consequently stock prices and economic growth will plummet.

CENTRAL BANK PATTERNS

Local banks have their excess reserves at the central bank, and now the central banks rather than paying to keep the reserves, they are charging for the reserves. They are doing this so banks can go out looking for someone who cannot pay back in taking out a loan, else they will simply go buy more sovereign debt.

“Have we become such children in this world where grown men and women cannot just come forth and admit they have made a mistake and admit there will be a year or two of a recession or depression followed by prosperity?”

If you have so much debt which you cannot pay back, something has to change; the debt needs to be restructured. Debt is not fixed by artificially taking out interest rates and forcing individuals to take out more debt. We are not adjusting we just keep rolling the debt over and over.

“Capitalist systems do not work unless you have a cleansing at some point of excess debt. It is a healthy and necessary part of growth.”

THE GOLD BOOM

Well now in a time where if you stick your money in a sovereign note in a bank, you either get nothing from it or even charged for doing so, gold is definitely lucrative now more than ever. Additionally the ratio between gold miners and gold has never been lower than it is now. As interest rates go more and more negative across the globe, more and more money will be put into gold because for every ounce of gold you’ll pull out just that, an ounce of gold.

“The only escape is a deflationary depression on a global scale from the likes of which the world has never seen.”

ADVICE FOR INVESTORS

“Gold is going to be a winner no matter what happens, there is no losing scenario for gold.”

 To have 20-25% of my portfolio in mining shares which is high as far as Wall Street is concerned. So have gold, short in the market, and the only place being long is with energy. being long with energy as of late has proven to show great results. Forget base metals and in terms of energy it’s a great hedge in being short in the market.

THE FUTURE OF THE DOLLAR

“As I predicted, I have been on record in December of 2015 in saying the dollar will fall hard and it did.  I knew it was going to happen because I knew the economic data wasn’t supportive of floor rate hikes and this is what the dollar was priced in. It is important to question not what the dollar is going to do against the Yen and Euro, but moreover intrinsically against gold. I believe all the currencies out there are going to lose their value, the reason being that the real money out there and it has been for thousands of years, is none other than gold. “

Abstract written by, Karan Singh  Karan1.singh@ryerson.ca

Video Editor: Min Jung Kim minjung.kim@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.

Wall St For Main St interviews Michael Lebowitz on the Federal Reserve & Janet Yellen announcement this week that they will not try to aggressively raise interest rates & on the potential for going to negative interest rate policy (NIRP) in the U.S. .. Lebowitz thinks the Federal Reserve will likely start reversing interest rate hikes & cut towards 0 & into negative territory this year ..  says central bank policies from the U.S., Japan, China & Europe are driving people into gold along with the threat of NIRP .. 44 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.

Economist Stephen Roach explains how central banks are bringing “terror & mayhem” through negeative interest rates .. “you are changing the relationship between borrowers & lenders” .. the risk is banks make bad loans – this is what Japan did .. it will distort…. 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.

Faber emphasizes the power of free market forces .. says it would have been better to allow the economy & the financial markets to run their course during the financial crisis – it would have prevented an even bigger credit crisis .. on negative interest rates & helicopter money: “The magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well. That, I can tell you. But the sequence of how it will not end well, I’m not so sure. But they still have a lot of ammunition. What they can do is helicopter money. In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire…. will it help the economy? That is the question. It won’t help in the long run. You cannot grow an economy by just throwing money at people.” .. 2 clips

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.

The Daily Bell highlights the increasing trend of central bank-driven economies .. “This New 21st Century Economy features a tripartite stool of emergent monetary policies. The stool is supported by three legs. One is low or negative interest rates. The second is the ‘cashless’ society. The third is the ‘basic income.’ ..  These policies represent a fundamental shift in how economies operate. It changes the way we think about money and use it. We will need to consider it regularly when making plans for generating and retaining wealth .. Between depriving people of circulating money (cash), forcing people to consume via NIRP and providing people with a basic income for their lifestyle needs, central bankers intend to entrench the system so thoroughly that it will never be rooted out.”

LINK HERE to the article

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.

John Ing discusses the political & economic drivers of gold prices this year .. “Gold is a beneficiary of negative interest rates. Confidence in our central banks is fading fast as they attempt another unorthodox maneuver to revive the global economy. The dilemma for central banks is that their creation of money has been unsuccessful to boost spending but instead created bubbles while debt keeps mounting. What ballasts the U.S. monetary system is debt. In today’s volatile world, the metal is back in fashion due in part to the world’s central banks having exhausted the familiar false remedies. That toxic combination is good for gold, as is the coming election in the United States.”

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.

Article highlights the natural response by German bank depositors to negative interest rates in Europe – take your money out of the bank & put it into safety deposit boxes to avoid the negative interest rates .. “The Japanese response to negative interest rates was to buy personal safes. The German response is to pull money out of bank accounts and stick it in safe deposit boxes. Both are perfectly understandable reactions to the prospect of having to pay interest to a bank for holding deposits. It is particularly interesting in Germany, where the Bundesbank a few years ago admitted that the average real rate of return on savings deposits has been negative for nearly the past 40 years. Now that nominal rates have turned negative too, the facade of savings accounts as a safe place to park money to earn a little bit of income has finally been ripped away.” .. the article warns of a dire potential: “All it takes is just one more rate cut, one more move into further negative territory to push enough people off the edge, to get them to withdraw their deposits, which will result in a severe banking panic. Central banks are playing with fire when they institute negative interest rates and we’re all at risk of getting burned.”

LINK HERE to the article

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.

“There are many news stories circulating about the severity of the underfunded public pension funds. It seems that the ultra-low yields on sovereign bonds are preventing pension funds from meeting their funding requirements, especially as equity markets have been roiled by extreme volatility, which has led to diminished returns. Many pension funds have covenants preventing the use of high-risk assets and thus are subjected to the REPRESSIVE YIELDS SET BY CENTRAL BANKS. Fed Chairmen Ben Bernanke and Janet Yellen have told the ‘complainers ‘ to silence themselves about low yields because there have been many benefits to the policy of financial repression: Housing prices are higher; equity markets have risen dramatically; your grandchild or neighbor has a job and so on. But the bottom line is that the burden has fallen on middle class savers as their pensions have been the recipients of the Fed’s financial repression. It is not the wealthy who live off pension fund cash flows. This is a classic case of what Fyodor Dostoyevsky so beautifully detailed in the chapter from the Brothers Karamazov, “The Grand Inquisitor.” The story is the object of authority, miracle, mystery for it is the Fed’s authority that allows it the miracle of levitating the equity markets and its financial repression is but a mystery. After all, the FED has created the ultimate perpetual money machine as it earns profits that are handed over to the U.S. Treasury. So ends another week where we are hypnotized by the government’s ability to take our BREAD with the left hand and return the bread with the right hand and we buy more of the value stretched assets.” – Yra Harris

LINK HERE to the article

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.

The Financial Repression Authority is pleasured to be revisited by Ty Andros, Chief Investment Officer of the Sanctuary Fund. FRA Co-Founder Gordon T. Long has has a stirring conversation with Mr. Andros on a number of current economic developments and consequently, the things to unfold.

Ty began his commodity career in the early 1980’s and became a managed futures specialist beginning in 1985. Mr. Andros duties include marketing, sales, and portfolio selection and monitoring, customer relations and all aspects required in building a successful managed futures and alternative investment brokerage service. Mr. Andros attended the University of San Diego, and the University of Miami, majoring in Marketing, Economics and Business Administration. He began his career as a broker in 1983, and has worked his way to the creation of TraderView of which he is the CEO. Mr. Andros is active in Economic analysis and brings this information and analysis to his clients on a regular basis. Ty prides himself on his personal preparation for the markets as they unfold. Ty is an expert in applying the indirect exchange method as a principle of the Austrian School of Economics in his investing approach.

THE AUSTRIAN SCHOOL OF ECONOMICS

It consists of 3 major components.

1. Sound money and private property
2. Free market capitalism
3. Human behavior

The cycle we are going through now has happened hundreds of times in history and has led to the rise and falls of empires. It’s because of people forgetting the past and repeating the same mistakes. If you don’t have sound money, you really don’t have protection against the government. They can confiscate your money and they have been doing so since Bretton Woods.

“The money that we hold in banks is a worthless junk bond. The government has essentially become the mafia; they are scheming and transferring property to themselves.”

SOUND MONEY

The figure below outlines the specific functions of money:

If it doesn’t have these components then you’re not holding money. Until 1971 it had all those features, and it has been replaced with an I.O.U of fiscally and morally bankrupt politicians and banks. It is worth no more than the paper it is printed on.

“In my opinion, the gold and silver bear market is over so it is a prime time to start accumulating now.”

MARKET CAPITALISM AND WEALTH CREATION

Capitalism is about getting more for less and three groups of people being rewarded for it: The consumer because he is able to give his family a better life, the company which supplied it, and the employees within the company.

Socialism eats everything. Real wealth and income creation are in freefall. There will be no recovering. The confiscation of wealth is also known as runaway regulations, runaway debt creation, more taxes and currency debasement.

“Its pure confiscation, cannibalism, and slavery. It is eating the golden goose. It’s the people that aren’t self-reliant and don’t produce anything eating those that do.”

It’s pure confiscation, cannibalism, and slavery. It is eating the golden goose. It’s the people that aren’t self-reliant and don’t produce anything eating those that do. Nobody owns their homes, it’s simply a record that’s held in a database and all they have to do is misplace it. Nobody owns their stocks in their name and if you look at your banking agreement you don’t even have title to your money, the bank does. Slowly but surely they have removed everything. They don’t let you hold money because they can’t steal from it; real money has been outlawed.

“Gold is the currency of kings, silver is the currency of merchants, and debt is the currency of slaves.”

CURRENCY EXTINCTION EVENT

GDP is nothing of the sort, it’s just debt disguised as GDP. It is spending future wealth rather than creating future wealth for proper allocation to productive enterprises.

“We have nothing; we are just a bunch of debt slaves living in an illusion until we wake up.”

THE EVENTS OF 1971

President Nixon changed from a reserve backed system where the dollar was semi redeemable in gold and silver to a system that has no backing.

“It was the greatest heist in history. It was the greatest transfer of wealth from the public to the ‘bankseters’.”

He did this so that he wouldn’t have to operate in a prudent manner. Prudent manner means have to pass laws and have taxes which gives people a reason to get up in the morning and have the ability to do the capitalism which was discussed earlier. When you have bad laws and bad regulations, the economy will either collapse or they have to print the money to fill the whole; unfortunately they chose the latter.

“History has shown what happens to people who try to fix this system.”

Kennedy was taking the central bank back and creating silver backed money, 90 days later he was dead. Of course we will never truly know, everything is so covered up now and the government is incapable of telling the truth.

THE INDIRECT EXCHANGE

“This is how you go through a currency and financial extinction event. Exchange something of uncertain value, fiat money, for something of certain value, real wealth. This is the indirect exchange in simplest terms.”

So much of the ‘financialization’ of the economy is an illusion because it is not the real things going up; it’s the paper that they’re priced in losing its purchasing power

“The greatest applied Austrian economist in the world is none other than Warren Buffet. “

What Warren does is he sells paper which means liabilities are being debased by central bank’s printing presses and credit creation. If he writes an insurance policy for someone for $10 million, he now has a liability of 10 million, if he did this in 2000 that liability may be 5 million and simultaneously he took that money and bought the Burlington Northern Railroad, which is something that will just reprice to reflect the lower purchasing power it is denominated in. If we are in a depression or a boom, regardless the railroads will run. Half of his great track record is inflation that isn’t properly disclosed. He has been doing this since, coincidently 1971. He has been selling paper and buying real things with cash flow ever since.

Gold doesn’t cash flow but it is about to. Because of negative interest rates you’re paying somebody to borrow money from you. If you are able to hold your money without having to pay someone to hold it.The gold and silver bear market is over. As these destructive negative interest rates go deeper and deeper, people will eventually wake up. They’ve already woken up, this is what’s going on with the presidential race and particularly Donald Trump.

“This is the greatest insanity ever. It will be studied and written about for centuries. It is a much bigger example of stupidity and failing to learn the lessons of history. It is much larger in scale than the Great Depression because of the nature of globalization and the nature of man.”

Abstract written by, Karan Singh  Karan1.singh@ryerson.ca

Video Editor: Sarah Tung sarah.tung@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.

Gordon T Long, Co-Founder of FRA interviewed Egon von Greyerz  in Zurick. Egon Von Greherz is the founder of Matterhorn Asset Management who has worked as a financial director for over 17 years in Geneva, and has been advocating for wealth preservation through Gold for over 13 years. MAM now has plans in over 40 countries for investors to place their savings into physical Gold storage for preservation in the world’s largest Gold vault in Switzerland.

Wealth Preservation

Egon says that approximately less than half a percent of assets are invested in Gold today by the people and that most of them do not own any Gold whatsoever. Even with the risky stock market in recent months we have not seen a significant increase in the purchase of Gold as an investment itself. However the increase in Gold purchases is linked more closely to the retail market for public use. Von Greyerz expects the market stocks to drop further down below their current value and is viewing the current spike in stocks as a mere bear trap, insisting that following this we may see a rise in purchases for gold.

“Less than half a percent of world financial assets are of gold today and that’s absolutely nothing!”

It is necessary to understand that gold is not to be viewed as an investment but for insurance purposes against all the property investments and bonds that you may have currently. For over 5000 years the price of gold has only gone up and the value of money has been decreasing ever since. With the expectation of the stock market dropping by at least 50% in its current state, having even 10% of your assets in gold will ensure the safety of your portfolio. The reason being that with the drop in stocks the price of gold compared to the dollar could be at a 1:1 ratio like the 1980’s meaning Gold will outperform all the other assets.

With only a .5% of current assets invested in Gold there is no current risk of a shortage of physical Gold. However, in the near future with the price of Gold expected to rise rapidly there is a certainly a risk of there being a shortage. If institutions, governments and pension funds begin to hedge their assets in gold there will never be enough Gold to satisfy their needs. Alongside rapid printing of money there will be no way to control the rapid increase other than to increase the price of gold itself to purchase smaller amounts of physical gold but for much larger prices to ensure that there is no shortage of real Gold.

“In the next few years it will be hard to get a hold of gold, as there will be a time when there will be no price offered in the market for gold due to its shortage”

Thoughts on NIRP and the cashless society

There are no positive consequences for this situation, Japan had other options but chose this disease which again will make no difference to either economy in the world. The negative interest rate will however stop withdrawals and place cash limits in Europe since people would rather take the money out and hold on to it rather than pay interest on it. But we should still expect more countries to go into negative interest rates even though it is hard to imagine this central bank policy to solve our economic problems.

Unfortunately there are not many other options for investors at the moment to encourage them to place their money elsewhere outside of the collapsing banking system. To avoid possible ‘bailins’ people can invest in property, fine art, and precious metals but not much else to be safe from this risk. Gold on the other hand has not seen a significant price increase and shows just how powerful it can be in the future. It is like holding real money it has the equivalent purchasing power to any currency in its history for the past 5000 years and does not devalue over time.

Even in the event that a bank does not have money to exchange for your gold you may still use it as barter, it has had this function throughout its history and will remain this way. It is an excellent opportunity for insuring your wealth and having liquidity at the same time. This is away from the banking regime and does not need to be declared to the IRS either for further taxation.

Furthermore, there is no safe spot currently to store your wealth other than a select few countries with good law and politics to ensure you get to keep what you’ve earned. Switzerland currently holds 70% of all the gold bars in the world and is by far the most secure location for storing wealth in long term.

Egon does not think that the current primary elections going on in the United States will have any effect on the current economic situation of the world. Referring to the fact that there is simply too much debt at this point and no difference will come from the selection of a new president. He suggests that there needs to be a complete systemic overhaul of the way the economic system works. Egon von Greherz publishes several articles weekly and you can find his research and upcoming investment opportunities online at www.matterhorn.gold or at www.goldswitzerland.com

ABSTRACT BY: Saad Gohir   sgohir@ryerson.ca

VIDEO EDITING BY:  Min Jung Kim minjung.kim@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.

Egon von Greyerz explains how ZIRP & NIRP is essentially confiscation of your money & it is happening now .. highlights also the growing potential for more bank bailins across the indebted western world .. negative interest rates leading to a cashless society leading to bank bailin confiscation of bank deposits – it is all related & connected .. “The biggest reason for creating a cashless society is stop bank runs. The banking system is insolvent and leveraged up to fifty times and even more if derivatives are included. This means that there is only enough money in the bank for one client in fifty or two percent of clients in total to take out their money. If more people tried, the bank would have to close its doors because it would be bankrupt. By stopping clients to take cash out, bank runs are no longer possible. In theory clients could transfer their money to another bank but that would also be stopped. So now the bank has your money, it charges you for that pleasure and you can’t get your money out because your money is frozen or confiscated. This is what has become of the bankrupt banking system .. When a bank becomes insolvent, depositors money will be used to save the bank and to pay the bank’s losses .. Another method that bankrupt governments will apply is to use bank deposits for forced savings. Every depositor will be obliged to put some or all of his cash into long term government bonds, probably for at least thirty years. It is easy to imagine that the money will be totally worthless after thirty years .. And if your money hasn’t been lost already after all the above, central banks are guaranteed to print enough money in coming years that most currencies will reach their intrinsic value of zero. Governments will have no other option in their attempt to save the financial system. We know of course that money printing can never save the world. All it will do is to add more debt, thus making the final collapse even bigger.”

LINK HERE to the article

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.

The economic uncertainty & negative interest rate policies being implemented in various economies are a boost to gold, & in turn, asset management firm Sprott. For perspective, BNN is joined by Peter Grosskopf, CEO, Sprott .. 5 minutes

Bloomberg reports that Japan’s biggest bullion retailer sees gold demand being driven by deepening negative interest rates in Japan .. “Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates .. Many customers usually sell gold, but we get the feeling that more customers are buying gold even at prices exceeding 5,000 yen.” .. Bloomberg: “In a bid to stimulate bank lending, the BOJ has joined the European Central Bank in setting rates below zero. While that should also spur investment in higher-yielding assets, it may also have had the unintended consequence of households squirreling away cash — or turning to a traditional store of value such as gold. Sales of safes in Japan are surging, suggesting as much.”
LINK HERE to the article

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.

Macro Allocation Founder & Chief Strategist Paul Brodsky thinks it’s time investors prepare for this unconventional world .. Brodsky notes it is irrational to expect economic expansion .. “After seven years of major exogenous monetary stimulus concluding in negative rates around the world, investors today would be irrational to expect an economic expansion in the coming years or even a mild recession followed by a garden variety expansion .. If we assume that high and rising global leverage (as measured by debt-to-GDP or debt-to-base money) will eventually crowd-out global consumption and demand growth, then we can also assume that the purveyors of money and credit will be able to selectively apply austerity within their economies.” ..  Negative rates are a negative sign for investors .. “Negative sovereign yields and policy rates (NIRP) might be ringing the proverbial bell.” .. It is time to find value not just in stocks that have been overlooked & are at low valuations, but also time to project into the future & see stocks that are at unsustainably high valuations .. “Longs, shorts and arbitrage opportunities are presenting themselves clearly .. Prudence demands that wealth seeking investors (as opposed to those matching liabilities or trying to beat indexes) position themselves accordingly.”

LINK HERE to the article

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.

“After the smoke had cleared from ECB’s announcement to cut the deposit rate another 10 BASIS POINTS to NEGATIVE FORTY, the central bank ADDED MORE MONEY TO THE SYSTEM VIA AN INCREASE IN QE TO EIGHTY BILLION EUROS A MONTH. The press called this a BAZOOKA but I THINK IT IS A WATER PISTOL .. The ECB is going to pay banks MAYBE 40 basis points to take money and lend it out to borrowers .. The domestic banks in each nation can buy their government’s debt and under the CURRENT BANK FOR INTERNATIONAL SETTLEMENTS (BIS) RULES government debt is given a zero-weighted risk so sovereign debt does not require holding reserves to offset the liability of lending to the government. DRAGHI IS TRYING TO BAIL OUT THE BANKS THROUGH THE BACK DOOR. As I wrote yesterday, the NON-PERFORMING LOANS ON THE BOOKS OF ITALIAN BANKS ARE CONSERVATIVELY ESTIMATED AT 16%. Do you really think that the battered Italian banks are in a hurry to make more loans to zombie firms or will they take the zero-priced money and load up on Italian 10-year notes that yield 150 basis points? .. DRAGHI IS TRYING TO LOAD UP THE ECB WITH DEBT THAT WILL BE SECURED WITH THE GERMAN CREDIT CARD.”
– Yra Harris

LINK HERE to the article

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.

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.

FRA Co-Founder Gordon T.Long and Jeffrey Snider, Head of Global Investment Research at Alhambra Investment Partners discuss a broad array of Global Macro subjects in this 48 minute video discussion with supporting slides.

As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. Jeff joined Atlantic Capital Management, Inc., in Buffalo, NY, as an intern while completing studies at Canisius College. After graduating in 1996 with a Bachelor’s degree in Finance, Jeff took over the operations of that firm while adding to the portfolio management and stock research process.

In 2000, Jeff moved to West Palm Beach to join Tom Nolan with Atlantic Capital Management of Florida, Inc. During the early part of the 2000′s he began to develop the research capability that ACM is known for. As part of the portfolio management team, Jeff was an integral part in growing ACM and building the comprehensive research/management services, and then turning that investment research into outstanding investment performance. As part of that research effort, Jeff authored and published numerous in-depth investment reports that ran contrary to established opinion. In the nearly year and a half run-up to the panic in 2008, Jeff analyzed and reported on the deteriorating state of the economy and markets. In early 2009, while conventional wisdom focused on near-perpetual gloom, his next series of reports provided insight into the formative ending process of the economic contraction and a comprehensive review of factors that were leading to the market’s resurrection. In 2012, after the merger between ACM and Alhambra Investment Partners, Jeff came on board Alhambra as Head of Global Investment Research.

Jeff holds a FINRA Series 65 Investment Advisor License.

US TIC REPORT, TREASURY SALES

TIC is a compilation done by the US Treasury based on their access to data on foreign accounts and holdings of Dollar accounts and securities, and estimates the foreign Dollar market. Over the last decade or so, it is clear that the Eurodollar market grew steadily at a rapid rate until about August 2007, at which point it pivots and comes back down. The TIC data shows the tendency of dollar markets to essentially be stable, usually addressed through selling Treasury. However, the private dollar markets offshore are in disarray to the extent that central banks around the world are forced to fill the dollar deficiency with their own holdings. Of especial note is China’s reduction of their US Treasuries and foreign currency reserves, and OPEC countries incurring serious Current Account deficits in an attempt to maintain their pegs with the US dollar.  In addition are the emerging markets who borrowed about $7-9T in USD, who now have difficulty paying back debts due to slowing trade and falling currencies.

This all leads to the US dollar strengthening, which is the manifestation of the dollar shortage. In recent days, Japan using NIRP will further disrupt the dollar system.

“US Dollar Strength is a manifestation of a US Dollar Shortage!”

JAPAN: QE FAILURE AND WHAT NIRP MEANS

Under QE, Japan obtained a burst of inflation around 2014. Instead of leading to sustained economic activity, household income and spending dropped about 7%, which was also not offset by growth in GDP and demand. The surge in expansion, due to cheaper money, increases supply which then demolishes pricing power. In addition to the reduced value of savings, large companies have also shifted production offshore, thus increasing the effect and emphasizing the failure of QE/QQE to stimulate the economy.

NIRP also carries with it the threat of failing like QE, along with numerous other particle effects that cannot be currently measured or predicted, mostly as this type of system has not existed for over a hundred years. This is an indicator of the lack of power central banks have over the economy, but can be put down to overemphasizing the value of monetary policy over fiscal policy in the developed world. The dollar system has been artificially expanded past any control by banks and monetary policy, globally, over the last decade. The only way to stop it is to focus on other fiscal factors that would allow economic potential to be realized again and to refrain from following Keynesian economics once it has been proven to be ineffective.

“Japan is a test case in almost clinical conditions for QE and QQE, and it failed on every count.”

CHINA: COLLAPSING TRADE AND CREDIT

China is both an impediment to growth and a casualty of the rest of the world, but recently more of a reflection of the global dollar economy as they are most sensitive to changes there. The lack of growth over several years forces a fundamental shift toward a Keynesian response of fiscal and monetary stimulation that creates asset buffers at odds with overcapacity. Meanwhile, China still lacks any real method for economic growth and is forced to react to outside influences while juggling the problem of overcapacity with the falling export industry. This then leads to capital flight, which furthers the struggle to grow GDP.

China is clearly attempting to manage the Yuan by selling dollars to strengthen it, but will eventually falter like any pegged currency. Many currencies pegged to the US dollar, Eurodollar, and Petro dollar will likely collapse. Keynesian economists believed that 2007 was the beginning of a temporary deviation from sustainable global growth, but was in fact the structural revaluation of higher economics of the financial system. We are likely headed for a systemic reset and reorientation, which will be disruptive with significant risk but can be adapted to.

“I think we are headed for a systemic reset.”

RETAIL: JANUARY SALES AND CONTINUING TREND

Retail sales have been near recession levels of low, indicating that consumers are under pressure, but inventories are still rising despite manufacturers cutting back. Retail slowing is a fixed trend starting from 2012, amplified in 2014-2015 with the disappearance of the manufacturing industry and loss of export goods. This is likely due to lack of real recovery that slowly eroded US consumers’ ability to continuously expand their activity. The middle class has no savings, so thus the capitalist system that relies on savings to reinvest into productivity.

Over the last several years, companies have been spending on buybacks instead of investing in productive capacity. 1900 of the S&P companies spent more on buybacks and dividends than they were earning, thus creating more debt.

“Recession is a necessary process, like anything else. It’s creative destruction.”

LABOR: FULL EMPLOYMENT – NOT REALLY!

There is a major disconnect between major unemployment statistics and the rest of the economy, where even having a job is not necessarily enough to support the expected standard of living. There are low prospects for growth in the job market, and people sense that there is a need for a restructuring of the system. Job growth is mostly in low income occupations, which results in potential workers entering college with a loan but failing to actually enter the labour force.

The current economic state is similar to the suppressed state of the 1930’s and 1940’s, and once the systemic reset is allowed to occur, the economic potential released will be tremendous. Recessions are necessary to allow risk to be properly priced, which in turn creates confidence in investment. The resulting reset should shift away from one centered around banks and the value of credit toward a capitalist system that prioritizes “money is money” over “money is credit”.

“Monetary policy is designed for companies to borrow more; it’s just that economists expected they’d borrow more for productive capacity rather than financial capacity.”

Abstract by: Annie Zhoua: zhou108@gmail.com

Video Editing by: Minjung Kim: minjung.kim@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.

– Otmar Issing, the former Chief Economist of the European Central Bank & a former member of its Board
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.

Chris Ciovacco article references a recent Wall Street Journal essay on what is the real reason behind negative interest rates .. the surface reason is to get consumers to spend rather than save their money, but the real reason is to reduce the burden of government debt – this is the big driver behind financial repression.

LINK HERE to the links

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.