“These days, interest rates tell us little about a nation’s creditworthiness .. The culprit behind this mess is a familiar one: central banks. Targeted rate reductions, quantitative easing, and other easy-money shenanigans have pushed rates to the floor .. and through it in some cases. Germany, Switzerland, Japan, France, Holland, and even troubled Italy are among the growing number of countries with negative-yielding government bonds. Negative-interest-rate policies (NIRP) have even spilled over into the corporate world. This upside-down environment makes it difficult for investors to grasp underlying economic conditions, especially since there’s no historic precedent. Credit has never been so abundant. The world has also never had so many currencies deadlocked in a race to the bottom. We are truly in uncharted territory .. Artificially suppressed rates have punished savers, encouraged reckless consumerism, and spurred share buyback crazes in the United States and Japan—a trend that’s likely to pick up in Europe now that the European Central Bank has begun its own bond-buying program .. Monetary policy is the only game in town.”
– Casey Research

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.

Special Guest: Kristina Hooper – Managing Director, US Investment Strategist, Allianz Global Investors

FINANCIAL REPRESSION

What is financial repression?

Government actions (lower interest rates, increased regulations, etc.) to reduce debt while maintaining inflation

Goal: Create negative real (after-inflation) returns and inflate away public debt by forcing real rates below GDP growth

Why does it matter to investors?

It’s a “stealth tax” that systematically strips wealth; “safe” investments no longer generate enough income

It rewards debtors and punishes savers—especially retirees

Financial repression: It’s happening now around the globe

A Financial Repression checklist:

• Extremely low key interest rates and bond yields
• Central bank purchases of government bonds
• Political pressure on banks to purchase government bonds
• Nationalization of select banks
• Repression-friendly regulatory measures
• Restrictions on foreign capital movements
• Pension asset transfers to government

HOW TO ADJUST:

Cash alone may not cut it. Consider whether you are properly diversified to generate the income you need,

Add risk-mitigating strategies to provide downside protection and total return,

Consider moving a portion of your fixed income portfolio out of traditional instruments for income,

Look beyond traditional bonds for alternative sources of income,

Have adequate exposure to equities,

Use an actively managed multi-asset solution

Post-QE, Active Management will be key to uncovering growth opportunities.

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.

Market Watch article reports on new rules by the SEC on certain bond funds to prevent an investor exodus of a short period of time, similar to what happened at the beginning of the financial crisis .. these rules are influencing investor behavior .. [This is another example of financial repression – governments & regulators ‘ring-fencing’ to control the movement of capital.

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.

Special Guest: Peter Poockvar – Managing Director, Chief Market Analyst, The Lindsey Group

FINANCIAL REPRESSION

“Financial Repression is the artificial suppression of interest rates well below the rate of inflation and well below what they would be otherwise if set by the supply and demand for money. That is what should determine what the cost of money is!”

SUPPLY & DEMAND CONSEQUENCES

“The central banks are pressuring you to act today in some activity that you would otherwise have done tomorrow. They want you to buy a car today, they want you to buy a house today, they want you to buy that stock today – not tomorrow. It just pulls demand activity forward! When this begins activity in the short term accelerates both in terms of both economic activity and higher asset prices. At some point you reach a wall where you have pulled forward so much activity that you have reached the law of diminishing returns!”

“All of this has pulled forward future returns on asset prices, but that doesn’t stop asset prices from going higher! … “You get short term benefits but at the expense of long term costs. You pay for it over the long term.”… “What the central bankers actually end up creating is Deflation because of the excess capacity build-up to match the artificially created demand!”

We have Deflation presently in Commodity prices but in the US we have Inflation in Professional Services.

“Central Bankers have ‘mucked’ up the entire concept of Supply & Demand and price discovery. All the various inputs are ‘out of whack relative to where they would be historically!”

AT SOME POINT THE FED WILL LOSE CONTROL

“We know the Fed lost control of commodity prices. The Fed is trying to generate inflation and commodity prices have gone the exact opposite way! At some point they are also going to lose control of stock prices.”

“ECB QE was the final act of Central Bank Largesse!”

“There is literally Monetary Madness Going On!”

POTENTIAL FED RATE INCREASES

“This ends when Inflation actually starts to increase! When Interest Rates do start to rise and in affect take away the printing press of the central bankers. Right now Central Bankers have given themselves license to do what they want because at these low levels of inflation, but at some point the bond market is not going to be so accommodating!”

The Central Bankers are trapped in a policy they can’t get out of. It is ridiculous that after 6 years of ZIRP everyone is ‘freaking out’ over a mere 25 basis point increase.

The Fed’s academic econometric models are flashing red over labor market metrics. Therefore they will increase rates in June irrelevant of whether that is actually the right thing to do (assuming you believe the Labor numbers) . That is what guides them.

“The issue is not whether the Fed raises rates but rather the turbulence it causes and what it means to potential future rate hikes.”

A MAJOR CORRECTION IS POTENTIALLY JUST BEGINNING

The combined Fed tightening and a changed earnings picture suggest the basis for rising equity markets is no longer there. The Multiple expansion game is not there.

“How far we decline I am not sure. I am not sure where the Yellen ‘Put’ is. It is an ‘out of the money’ Put but I am not sure what the strike price is! I don’t know if it is 15% or 25% lower. I am pretty sure if we are down 20-25% Yellen will cut rates below where she has them after raising them in June. I would then not be surprised to see another round of QE.”

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.

Special Guest: Doug Noland – Credit Analyst

FINANCIAL REPRESSION

“Financial Repression is fundamental to current policy to try and sustain a global credit bubble… Policies have become ever more desperate as the credit bubble has gone global! It is a matter of policy makers distorting the incentives, especially the financial incentives. It is particularly painful for savers. Policy makers want to drive money out of savers into risk markets by creating incentives for speculation and leveraging to reflate the system and generate significant credit growth.“

“It is flawed economic doctrine, flawed policy making and goes back a long way.”

• After the 1987 Stock Market Crash the Greenspan Fed flooded the market with liquidity,
• We then had the late 80’s excesses and that bubble burst,
• In the early 90;s the Greenspan Fed came in and aggressively slashed interest rates and created a steep yield curve so the banks could borrow cheap and lend dear,
• It created leveraged speculation,
• We have been in serial bubbles ever since then. Each gets bigger and each post reflationary effort is even more extraordinary.
• The ‘Once in 100 Year Flood’ was not the 2008 Crisis. We are in an even bigger bubble now. It is a Global Bubble. It is at the heart of money and credit. When the next crisis occurs the policies of Financial Repression won’t have much of an impact unfortunately.

THE MARKET BASED CREDIT SYSTEM

“Back in the 1990’s I was obsessed with trying to understand how an impaired banking system from the early 1990’s morphed into this new age financial system that was fueling historic prosperity and a bull market. By the late 1990’s I was convinced we had fundamentally changed finance. That uniquely for the first time in history we had global credit that was unconstrained. The quality and quantity of credit was unrestrained. There was no gold standard, there was no Bretton Woods Monetary regime, there was not even any ad hoc. dollar reserve system to restrain credit. Unlike historically when credit was dominated by bank lending, this new credit that developed in the 1990’s was market based – securitization, Fannie Mae, Freddie Mac, Derivatives, Wall Street Finance. I was convinced that credit which is unstable would see this new credit highly unstable.”

“I believed the government would reign this credit in. I had no inkling that the government would accommodate this type of credit and use this type of credit for reflationary policy. That is really how it got away from them! Accommodating financial leveraging and speculation etc.”

WE HAVE DISREGARDED THE VULNERABILITIES OF CAPITALISM

“I am very much a free market person. I want the market to dictate price. As much as possible I want the government out of it. I look at the Financial Sphere and Economic Sphere. The Financial Sphere needs to be carefully regulated. You cannot have unconstrained credit! You cannot have a Financial Sphere that inflates at a whim because that distorts the pricing mechanism.”

“I fear that when the crisis collapses the system it is going to be folks like us and our listeners who will have defend Capitalism by saying:

“Capitalism wasn’t to blame. It was a run away Financial Sphere and poor Policy making in managing money & credit that was the culprit!”

Capitalism is not flawed but instead has vulnerabilities. We cannot disregard these vulnerabilities. These vulnerabilities are in Credit. We have disregarded the vulnerabilities within Capitalism. We have not separated the real economy pricing mechanism which operates very differently in the Financial Sphere.

This extensive discussion covers a wide range of subjects including:

• THE BUILD-UP OF SYSTEMIC RISK
• A CRISIS OF CONFIDENCE IS AHEAD
• WHY WE HAVE RECORD ARTIFICIAL HOUSEHOLD WEALTH
• FINANCIAL FRAGILITY – As long as Credit is expanding things looks good. But it camouflages the underlying financial fragility.
• 2008 WAS ABOUT PRIVATE CREDIT – THE NEXT CRISIS WILL BE ABOUT PUBLIC CREDIT
• THE GLOBAL BUBBLE HAS NOW BEEN PIERCED

“You can now expect the unexpected from Policy Makers”

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.

Special Guest: Marshall Auerback – Institute for New Economic Thinking (INET)

FINANCIAL REPRESSION

“Financial Repression can be a fairly loaded word. I think you can say that anytime you have a central bank which is a monopoly of anything, which can establish a price, you can have repression. I am less concerned with the labels and more concerned with the fact that we have been in response to this unprecedented crisis, been increasingly undertaking exotic experiments on behalf of the central banks. Most notably Quantitative Easing. It has had the effect of repressing interest rates or keeping them low. This of course is great for borrowers, but has the unintended by-product of depriving people of income.”

A FLAWED SYSTEM

Financial Repression is an experiment that ” is flawed in terms of the economics behind it. I don’t think it does much to help elevate aggregate demand (spending power) and it turns out to be a large implicit subsidy for the financial sector.”

“As far as I am concerned we are already over-financed as an economy and do too much for the banks anyway. It is really a fundamentally mistaken policy approach!”

TRENDS SINCE THE FINANCIAL CRISIS

“We have had three rounds of Quantitative Easing by the Fed, we have undertaken similar policies in Japan and more recently in Europe. If you look at the impact it has been rather minimal! The Japanese economy is still pretty stagnant. The US is growing but I believe that has less to do with QE and more to do with the fact that we had a fairly robust fiscal policy response after the crisis in 2009. Likewise in Europe we have been mired in depression like numbers which is worse than anything we had in the 1930s. It hasn’t worked but we keep trying it.”

“The economics behind it are flawed. it is based on the notion that if a bank buys a bond and puts reserves into the banking system that somehow it can encourage the banker to lend. We actually don’t lend out reserves and are only used for interbank lending amongst banks. Also lending is a two way process. You have to have a credit worthy borrower and a credit worthy lender. If you have individuals or business that are piled down with debt they may not be very credit worthy or they may be less inclined to take on more debt”

“You want to engender rising employment, rising income so people aren’t as reliant on credit. I think that is the problem our system has had over the last 30 years. We have become Credit centric versus Income centric!”

“We have been conducting this ‘pulmonary resuscitation’ to a fundamentally dead financial system rather than use the money to revive the economy and transition it into more productive economic activity.”

CONTROL FRAUD

“When you have an economy that is over financialized and banks account for a disproportionate amounts of activity, and you have a compensation incentive system that is highly dependent on share price appreciation, then you provide a very perverse incentive for business not to invest in productive business affairs but to use excessive cash to buyback shares.”

“What is worse is you begin to use all sorts of accounting tricks. This is what Professor Bill Black calls ‘Control Fraud’ . You get a form of casino capitalism. Actually, the casinos in Las Vegas are regulated more favorably than the banks are.”

PRIVATE DEBT BUILD-UP

Marshall Auerback believes we have had excessive build-up in Corporate and Household debt. “When you have a demand shock, then servicing that debt becomes a problem. You end up with a large build-up of public debt in response.” Unfortunately those who benefited now want cuts to things like Medicare that were not the cause of the problem. “Its a pretty perverse example of the wrong headed people running our system.”

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.

Create Research’s Amin Rajan sees the changing priorities of investors & in particular retirement money going into a new breed of diversified funds that target the evolving priorities – see above chart .. financial repression in a debt-fueled world are causing investors to rethink & to reallocate their funds .. permission for the below article provided by Amin Rajan, Create Research www.create-research.co.uk

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.

“All of the massive liquidity—-which took the Fed’s balance sheet from $900 billion to $2.5 trillion in less than a year—–worked it magic in the canyons of Wall Street, not in the household and business sectors of the main street economy .. The 5X gain in the Fed’s balance sheet .. has not been harmless——even though it has not stimulated the main street economy. What is has done, obviously, is reflate a massive financial bubble. The latter will splatter eventually, sending the main street economy into a new tailspin of short-term labor and inventory liquidation and another financial crisis for no reason whatsoever .. Do not these clueless Keynesian apparatchiks recognize that the money market rate and the yield curve are the most important prices in all of capitalism, and that their policy of massive and continuous financial repression generates blatantly false prices in the financial markets and therefore rampant speculation and asset price inflation? .. Needless to say, another quarter of no ‘escape velocity’ on main street and a further round of Kool Aid drinker speculation on Wall Street takes us just that much closer to the brink. Yet the Fed remains oblivious and continues to manufacture excuses and equivocations as to why ZIRP should extend into its 80th month and beyond .. This is mis-governance on a colossal scale. So when the next thundering crash occurs—-it is devoutly to be hoped that ‘audit the Fed’ turns out to be the least of the threats descending on the Eccles Building.”

– David Stockman

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.

Special Guest: Rick Rule – Chairman and Chief Executive Officers of Sprott US Holdings

FINANCIAL REPRESSION

“Financial controls or ‘trickery’ imposed on the public by the state.”

“There is certainly financial ‘trickery’ imposed on us by large financial institutions but they do that utilizing the state or in conjunction with the state. The practical manifestation of Financial Repression are all around us. I would suggest that a large part of the manadate of the Securites and Exchange Commission as an example is to effect barriers to entry to smaller participants in the securities business.

The most egregious forms of Financial Repression are in the first instance:

• Tax (which many regard as slavery – I don’t but regard it as extortion!)
• The Manipulation of Interest Rates and
• The Manipulation of the Currency.”

“The interest rates payable to savers relative to the real rate of depreciation of the purchasing power of – pick one: the dollar, the euro, the yen – are despicable!”

ALAN GREENSPAN

“As recently as October last year I had the pleasure of listening to Alan Greenspan who ironically (despite the fact he is a vowed libertarian and architect of a lot of this Financial Repression) and he said something very stark too the audience! He said that a sound currency is not consistent with a representative democracy. A sound currency benefits the productive class and savers. In a representative democracy most of the people are spenders. Low interest rates and a depreciating currency aids the spenders and borrowers. It doesn’t aid the savers. In that context Financial Repression is understandable and I’m afraid inevitable.”

INVESTMENT IN LONG TERM PRODUCTIVE ASSETS

Rick Rule feels that the perverse incentives from manipulated data has resulted in a lack of investment within the US in Productive Assets that would allow the employment of technology and the real wages of workers to rise.

The reason is:

1- If you aren’t seeing underlining demand and top line sales growth in your business, why would invest in productive capacity?

2- The US Tax Code is anti-growth. Depreciation schedules are much more investor friendly even in socialist countries today that in the US.

EXTRAORDINARY FAITH & “RETURN FREE RISK”

“We appear to be in a place in history and the economy where there is extraordianary faith in the big thinkers in the world – the Merkels, the Obamas, the Greenspans, the Yellens. It is partly this faith that is allowing them to keep these interest rates this low. It is a belief that the big thinkers of the world “stick handled” societies global financial crisis of 2008 and by managing the levers of the economy, managed to save us from ourselves. I would of course disagree with that diagnosis (but no one cares much what I think). I certainly believe that savers will tire of buying financial instruments that have no real yield. If you think about the value proposition as an example offered up by the bellwether savings instrument world wide (the US 10 Year Treasury) yielding 1.8%. What that means is the Fed absolutely, positively guarantees you 1.8% per year for 10 years. The difficulty I have with that is that even at their ascribed CPI inflation rate, what they are promising you is 20 basis points a year in real yield. Jim Grant famously described that as “Return Free Risk”.

GOLD

“I don’t know what is going to happen with gold short term”. “What will move Gold, Silver, Platinum and Palladium are first and foremost is a reduction in confidence in the US dollar and the US 10 Year Treasury. It important to understand that gold doesn’t need to win the war. It just needs to lose the war less badly!”

“Gold has performed admirably outside the US over the last year.”

Gold can be seen to be already in a Bull Market globally – except in the US, as a result of a 25% rise in the US dollar.

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 4 pillars of Financial Repression:

1. Inflation

2. Negative Real Interest Rates

3. Ring Fencing

4. Obfuscation & Mis-Information

THE FOURTH PILLAR – OBFUSCATION & MIS-INFORMATION

UNEMPLOYMENT

Graham Summers of Phoenix Capital writes:

For six years, we’ve been told that the US economy is in recovery.

This is a totally bogus narrative that was dreamt up by the Central Planners running the Fed. Remember the “green shoots” craze of 2009. It was BS. The US economy is a disaster and has been since 2009.

The bean counters in Washington fabricate a load of nonsense to “prove” otherwise, but telling someone who is 5’6” tall that they are actually 6” tall doesn’t change their height.

Similarly, telling Americans experiencing a REAL unemployment rate of 10+% and an underemployment rate in the high teens that the economy is “recovering” doesn’t change their real-world experience.

Gordon T Long supported this view in the March edition of the GMTP where he wrote:

The U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

THE DISTORTIONAL TRICK

1. GIVEN UP – If you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news — currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed.

3. UNDER-EMPLOYED – Those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%.
4. BIRTH DEATH MODEL – a Plug number that shows dramatic job growth yet the net new enterprises added in America is Negative 70,000 over the last 6 years. Big corporations are still cutting (HP -58,000, America Express -4000) so the number is obviously a statistical “fix”

When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives.And we will also quit wondering what hollowed out the middle class.

Only 15% of those entering working age population are finding jobs

Graham Summes of Phoenix Capital also writes :

GROWTH & GDP

As far as real economic growth goes, if you want a clear picture, you need to look at nominal GDP growth. The reason for this is that because the Fed greatly understates inflation, the official GDP numbers are horribly inaccurate.

By using nominal GDP measures, you remove the Feds’ phony deflator metric and the other accounting gimmicks created by the bean counters to overstate growth. With that in mind, consider the year over year change in nominal GDP that has occurred.

Historically, the level of economic growth post 2010 has been associated with recessions. Small wonder that this “recovery” actually feels like an economy that is not growing: when you take out the accounting gimmicks, GDP is flat lining.

ACCOUNTING GIMMICKS

Speaking of accounting gimmicks consider the massive divergence between corporate revenue growth and EPS growth (hat tip Lance Roberts). You cannot fake revenues: they represent real growth. EPS on the other hand, can be massaged a million different ways.

Notice that the un-massaged growth post-2009 is just 30%. The massaged “growth” is 250%. Bear in mind, executive stock options are linked to EPS… so guess who got rich in the process.

Again, this whole economic “recovery” and stock market boom is based on accounting gimmicks and outright fraud. It’s a giant house of cards that is primed to come crashing down… just as it did in 2000, 2007… and will today.

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.

Forbes article emphasizes the worst “scandal” of LIBOR, not what happened a couple years ago when the LIBOR rate was found to be controlled by a few banks – but about the effects of a low LIBOR rate (low interest rates) on the global economy .. what is LIBOR? – it stands for “London Interbank Offered Rate,” which is a benchmark interest rate that is derived from the rates that major banks charge each other for loans in the London interbank market – LIBOR is used as a reference rate for hundreds of trillion dollars worth of commercial & consumer loans, derivatives, & other financial products across the globe .. “The vastly worse LIBOR ‘scandal’ that I am referring to is the fact that the LIBOR has stayed at record low levels for the past half-decade [from financial repression], which is helping to fuel a massive economic bubble around the entire world that will end in a devastating financial crisis that will be even worse than the Global Financial Crisis. Instead of causing a few tens of billions of dollars worth of losses like the LIBOR rate-fixing scandal, the ‘LIBOR Bubble’ will gut the global economy by trillions of dollars.”

Extended low LIBOR rates have been “helping to inflate the emerging markets bubble that I am warning about” .. sees 3 scenarios of the end-game .. concludes: 
“The popping of the ‘LIBOR Bubble’ may not even require Libor rates to rise because the bubbles may endogenously collapse under their own weight after growing even larger in the next few years. Though the popping of the global bubble is likely several years away, the time to worry about this situation is now because the damage (the debt buildup and asset price inflation) is occurring at this very moment.”

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.

Special Guest: Amin Rajan – CEO, CREATE Research

FINANCIAL REPRESSION

“Financial Repression is a device used by governments to liquidate their debt.”

Financial Repression uses low interest rates (which reduces their financing costs) and inflation (which vaporizes its debt). The Negative Real Interest Rates which the two in combination create, has in the modern era been the way governments reduced their debt burdens.

“Financial Repression brings about an arbitrary redistribution of wealth.”

Today it is the governments only politically realistic option.

The critical problem is holders of fixed income debt get hurt where there is a redistribution of wealth:

Historically we should expect Financial Repression to last anywhere from 15 to 50 Years. We are now into only the seventh year! In Prof Rajan’s opinion “this show has a long shelf life and likely to run another 5 – 10 years”

PENSION PLANS – Entering “De-Accumulation Stage”

Aging demographics in the debt burdened developed economies is exaggerating the effects of Financial Repression because of the need for Investment Income products by retirees.

Pension Plans are now going into the “De-Accumulation Stage” where there is more money going out of the plan than is going in. Pension plans face problems of both under contribution levels and De-accumulation resulting in serious underfunding positions.

THE RETIREMENT TSUNAMI

The “Baby Boomer’ Generation is in the process of retiring. There will be 78 Million in the US and 84 Million. Europe which accounts for 8% of the global population and 25% of global output accounts for a massive 48% of global welfare budgets.

The shift from Defined Benefits (DB) to Defined Contributions (DC) is about the “Personalization of Risk” so we are told, “so people can be ’empowered’ and will be less dependent on their employers plans”. Instead Prof Rajan argues we have “Personalization of risk has a big downside. It transfers risk from those who couldn’t manage it to those who don’t understand it!”

LIQUIDITY CRISIS – Volcker Rule Has it ‘Preordained‘

When the next market correction occurs “liquidity is going to dry up in no time at all because of the Volcker Rule. The inventories of Bonds which the Investment Banks are caring are now one-eight of what they were pre-2008. Any mass exit and there will be no liquidity and prices will drop like a stone!”

OBSERVATION

Prof. Amin Rajan observes that two paradigm changes have occurred in capitalism:

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 an Alberta bank is now the first in Canada to shun U.S. clients on bank accounts .. Canadian Direct Financial, a subsidiary of Edmonton-based Canadian Western Bank, is refusing to open new accounts for U.S. citizens, even to those living in Canada – “The information and documentation required to open and monitor an account within Canadian Direct Financial for a U.S citizen or resident outside of Canada is prohibitive to providing the level of service our clients expect and deserve.”

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.

Heta Bank in Austria has perhaps reached the end of the road. The bank, which was bailed out by the Austrian Government a few years ago & is now in need of another bailout but none will be forthcoming .. Rather, bondholders & creditors will be paying for the bailout & this will have the effect of triggering the CDSs (Credit Default Swaps). Will this lead to a series of cascading collapses among banks across the world? That’s the fear among many alternative economists across the globe, only time will tell .. 24 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.

Special Guest: Mebane Faber – CIO Cambria Investment Management

FINANCIAL REPRESSION

“An environment where interest rates are lower than inflation and you have a low or even negative interest rate environment which helps someone and hurts someone else. It hurts savers but is good for borrowers and people who have a lot of debt. The inflation eats away at that debt. It helps someone like the US government”

“Stocks and bonds like high real interest rates. They typically don’t like low or negative real interest rates”. Other asset classes like gold like negative real rates and have over the last decade, but not so much over the last couple of years.”

VALUE & MOMENTUM

Faber likes both value and momentum and believes they can work together as part of a global portfolio, particularly where they intersect. Cambria uses Shiller’s 10 Year CAPE benchmark to look at equities. It is typically around 17 and is now around 27 in the US. It presently shows a lot of great valuations around the world however momentum has been in US stocks, bonds and real estate. “Right now we see a lot of opportunity, but particularly abroad”.

THE “HOME COUNTRY” BIAS

The US is only about 50% of global market cap but most US investors have a ‘hometown bias” of having 70% of their portfolio in US securities. Faber has found that it consistently ranges from as low as 65 to as high as 85%. Meanwhile, when considered on a GDP basis the US is only about a fifth to 25% and on a valuation basis is the third most expensive. This would suggest the US has a headwind, especially after a six year run. An exposure of at least half to foreign investment seems more reasonable to Meb Faber.

DEVELOPED AND EMERGING COUNTRIES

We start with a universe of about 45 countries with reasonable liquidity. One of Cambria’s funds buys the eleven cheapest countries in the world. Faber’s analysis suggests avoiding countries that create large bubbles can be a critically important when viewed over the longer term because of the size of the inevitable corrections.”

“One of the emotional challenges and why value works is because it is hard to do.”

CLASSIC MISTAKES

1. “Not Getting Out of Your Own Way!”
   • Getting Caught Up In Performance,
   • Not Having a Plan,
   • Trying to Time Your Investments,
   • Realistic Expectations.
2. “Not Paying Attention to Fees”
3. “Too Wedded to An Investment Style”
   • Need to be Asset Class Agnostic

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.

Janus Capital’s Bill Gross* on the outlook for Federal Reserve policy, the U.S. economy & his objectives at Janus Capital .. “The interest rate can’t be raised substantially even over the next two to three years .. Low interest rates keeps zombie corporations alive because they can borrow at 3 and 4%, as opposed to the 8 or 9%. It destroys business models. It’s destroying the pension industry and in the insurance industry .. Ultimately, low interest rates destroy the capitalistic model at the margin. Instead of investing in the real economy, corporations can now simply borrow at close to 0% and buy their own stocks, which yield 2 or 3% on a dividend basis and provide a return of 6 or 7% on an earnings to price ratio basis.” .. 12 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.

BMG Bullion Group’s Nick Barisheff writes a great essay on how the mainstream media omits facts & distorts the truth to suit their agenda – this is particularly true in the negative media barrage against gold .. “Anyone who cares to look outside of the mainstream media propaganda will conclude that the drop in gold prices was clearly an orchestrated event, first in 2011 with a one day drop of 7.2%, and then in April 2013 for an 8.5% drop. In the early morning hours of January 6th, 2014, 12,000 gold contracts representing $1.5 billion of naked short selling was forced onto the paper gold COMEX market. Without speculating about who did it or why, it should be obvious that no trader would sell that much gold into the market at one time, effectively minimizing their sales proceeds.” .. also highlights the connection between paper COMEX markets & the exchange-traded fund GLD, & how this ETF negatively affects gold prices in times of naked short selling (selling gold without physically having it) –LINK HERE to understand more about the GLD ETF & these problems .. Barisheff dismisses the obfuscation by maintaining “when the manipulation of gold prices can no longer be sustained, gold will skyrocket as the public loses confidence in all fiat currencies.” – see the recommended 20 minutes video below on this .. presents the following factual-based chart showing the positive effect of having gold in your portfolio – see left or link below.

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.

James Turk sees the Federal Reserve as constantly warning that interest rates will rise eventually – but it never seems to happen .. “The obvious strategy the Fed has employed is to delay raising rates as long as possible, but to keep the markets on a knife-edge by saying that rates will rise eventually. They always tie it to something, like the level of unemployment or when the economy improves or inflationary pressures become greater or whatever is the latest benchmark. Former FedChairman Ben Bernanke repeatedly said that the Fed would raise interest rates when unemployment fell to 6.5%. We are below that level — at least by the number reported to the public. But the Fed has done nothing about raising rates except to continue jawboning that it will happen.” .. will it happen & when will it happen? .. Turk emphasizes the Federal Reservenever wants to admit the real reason why interest rates are low – it’s financial repression to keep interest rates low & erode the purchasing power of the currency to lessen the burden of debt .. “Interest rates are low because the U.S. government is over-leveraged and cannot afford to pay a fair interest rate.” .. Turk reasons: therefore if the Federal Reserveraises interest rates, then interest payments on the national debt will escalate money printing even faster to the point of hyperinflation.

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.

“QE was never meant to create jobs or generate economic growth… it was a desperate ploy by Central Banks to put a floor under the bond market so rates wouldn’t rise.

… It’s also why Central Banks have kept interest rates at zero or even negative. They cannot afford to have rates rise.

In the US, every 1% increase in interest rates means between $150-$175 billion more in interest payments on our debt per year.

LINK HERE to the ARTICLE

As Dylan Grice from Societe General notes:

when you include unfunded liabolities, this problem is endemic throughout the Western world and has been for years.

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.

Speaking at AARP headqusrters in Washington, President Obama will announce ORDERS to the Labor Department to write new rules for financial managers who handle retirement accounts for working Americans.

THE COVER

As USA Today reports, The White House says the goal is to end “hidden fees that hurt consumers and back-door payments that help Wall Street brokers,” deals that costs retirees billions of dollars in savings.

THE AGENDA

White House officials said they want new fiduciary standards that would require financial advisers to put clients’ interests ahead of their own… and “buy our bonds.”

We wonder how long before there will be an official asset allocation by dictat…??

ABOVE EXTRACTED FROM > 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.