13 Nov 2015

Central Banks Snapping Up Gold at Near-Record Pace

Central banks and other institutions boosted gold purchases to the second-highest level on record in the quarter to September as countries including China and Russia sought to diversify their foreign-exchange reserves.
Net purchases were 175 metric tons, nearing the record 179.5 tons in the same quarter a year earlier, and up from 127.9 tons in the preceding three-month period, the World Gold Council said in a report on Thursday. Still, over the first nine months central banks’ net purchases dropped 6.7 percent to 425.8 tons, according to the council.
Russia, China and Kazakhstan are among states buying bullion this year, helping to support prices that are headed for a third annual loss. Central banks will probably remain net buyers as emerging-market institutions continue to boost their allocation, while developed countries are reluctant to sell, Barclays Plc said in an Oct. 21 report.
“Diversification of reserve assets, especially among developing nations, remains the primary motivation for this increase in official gold reserves, as many recognize that the economic and geopolitical outlook continues to look far from certain,” the council said.
In July, the People’s Bank of China ended six years of mystery surrounding its reserves, revealing a 57 percent jump in gold assets since 2009 to about 1,658 tons. Asia’s largest economy, which rivals India as the biggest gold consumer, has been increasing holdings monthly since then and may have added a further 14 tons in October.

We’re in the Early Stages of Largest Debt Default in US History

We are in the early stages of a great debt default – the largest in U.S. history.
We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults.
Here's the pattern.
Default rates on "speculative" bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It's part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt.
If you'll look back through recent years, you can see this cycle clearly...
In 1990, default rates jumped from around 4% to more than 8%. The next year (1991), default rates peaked at more than 11%. Then default rates began to decline, reaching 6% in 1992. By 1993, the crisis was over and default rates normalized at 2.5%. Around $50 billion in corporate debt went into default during this cycle of distress.
Six years later, in 1999, the distress cycle began to crank up again. Default rates hit 5.5% that year and jumped again in 2000 and 2001 – hitting almost 8.7%. They began to fall in late 2002, reaching normal levels by 2003.
Interestingly, the amount of capital involved in this cycle was much, much larger: Almost $500 billion became embroiled in default. The growth in risky lending was powered by the innovation of the credit default swap (CDS) market. It allowed far riskier loans to be financed. As a result, the size of the bad corporate debts had grown by 10 times in only one credit cycle.

The most recent cycle is the one you're most familiar with – the mortgage crisis.
Six years after default rates normalized in 2003, they suddenly spiked up to almost 10% in 2009. But thanks to a massive and unprecedented government intervention, featuring trillions of dollars in credit protection, default rates immediately returned to normal in 2010. As a result, only about $1 trillion of corporate debt went into default during this cycle.
You should know, however, that the regular market-clearing process of rising, peaking, and normalizing default rates did not occur in the last cycle. A massive, unprecedented intervention in the markets by the Federal Reserve stopped the default cycle in its tracks. As a result, trillions of dollars in risky debt did not enter default and were not written off.

Over the last six years, this "victory" against bankruptcy and the credit cycle has led many government leaders and their economic apologists (like Paul Krugman) to declare victory. What they won't admit is that the lack of a debt-clearing cycle has resulted in a weak recovery, and an economy that's still heavily burdened by unsustainable debts.
What happens next should be obvious to everyone: The big debt-clearing cycle that was "paused" in 2009 will make the next debt-clearing cycle much, much larger – by far the biggest we've ever seen. When will that happen? Six years after default rates last returned to normal. In other words... right now.

The chart above shows the iShares iBoxx High Yield Corporate Bond Fund (HYG), which invests in a broad range of speculative corporate bonds. As the risk of defaults in this market grows, these bonds will begin to trade at much lower prices, causing their yields to increase. Currently, the yield on this basket of bonds is less than 6%. Look for yields to increase to well above 10% before default rates begin to normalize. That implies losses of 30%-40% are still to come in these bonds.
Over the last year, HYG is down about 9%. A negative return is unusual for the corporate-bond market, especially when there isn't a recession.
So far this year, nearly 300 U.S. corporations have seen their bonds downgraded. That's the most downgrades per year since the financial crisis of 2008-2009. The year isn't over yet. Neither are the downgrades. More worrisome, the 12-month default rate on high-yield corporate debt has doubled this year. This suggests we are well into the next major debt-default cycle.
And it will almost surely be a "super" cycle – meaning it will last longer and cause far more losses than most people expect.
Here's another way to time the next debt-clearing cycle.
At the end of 2014, only 1.42% of speculative corporate debt had gone into default for the year – near a record low. The only better year for speculative corporate debt in recent history was the top of the mortgage-debt boom in 2006. As you know, two years later, disaster struck. A new low for defaults in 2014 points to 2016 as the year when corporate debt will begin a new default cycle.
Martin Fridson, the world's foremost expert on the high-yield bond market, says his "base-case scenario" is for between $1.6 trillion and $2 trillion in defaults in high-yield bonds over the next three to four years. We believe default rates will be a lot worse, simply because the market has grown so much, thanks to things like CDS credit protection and the securitization of subprime consumer lending.
Now, before you panic... here's an idea you'll see us repeat again and again over the next three to four years.
What's happening – rising default rates, rising interest rates on corporate debt, and falling stock prices – doesn't need to be a crisis for you, personally.
Instead, this period could be the best opportunity that you will ever get to buy great assets and great businesses at great prices.
You don't need to think of this coming crisis as the "end." Instead, think of what's happening as a badly needed reckoning. It's simply a housecleaning. Nothing much will change. The best assets and best businesses will still be here after the storm. The only real difference will be who owns them.
What's coming is the greatest transfer of wealth in history. Over the next few years, trillions of dollars' worth of businesses, land, resources, and intellectual property are going to exchange hands – legally, but unwillingly.
Investors who have been frugal and cautious will be rewarded. Investors who have been greedy and foolish will be punished.
In tomorrow's final segment, I'll show you the absolute best way to take advantage of this upcoming opportunity.


12 Nov 2015

Greatest (Legal) Wealth Transfer in History

Have you heard of Jet? It's a new online "marketplace."

I put marketplace in quotes, because Jet isn't really a marketplace at all. It's a facsimile of a marketplace. It purports to compete with Amazon – offering everything imaginable for sale. But unlike Amazon, Jet doesn't really have much to sell... or really any products at all. What it does have, though, is lower prices than other online retailers.

Currently, Jet lists 4.5 million products for sale on its website. But it owns almost none of them. Instead, Jet copies the products and descriptions of other online retailers. It then offers the same products on its website at a lower price.

When a Jet customer orders a product, a Jet employee goes to the actual online retailer's website and orders the product. It's then shipped to the Jet customer's home.
While Jet is losing money – a lot of money – on every sale, it plans to make up for the losses by dealing in huge volume. No, I'm not kidding. The company's business model is to build a huge client list by taking these losses and then, eventually, turn a profit by charging its users a $50 membership fee. A recentWall Street Journal test of the website revealed the company lost more than $200 on the sales of 12 items.
Currently, Jet is valued at $600 million by the geniuses at Goldman Sachs, Google Ventures, and Alibaba.
I doubt Jet would be possible were it not for essentially unlimited amounts of nearly free capital it could borrow, courtesy of the world's investment banks. That much seems obvious...
For the past six years, the Federal Reserve (the central bank of the United States) and its major counterparts around the world have conducted an enormous monetary experiment.

As my research team and I have shown our subscribers again and again... not since World War II has the U.S. created so much paper money. Other nations, like Japan, have created even more "monetary stimulus." All around the world, central banks have been creating money out of thin air and buying trillionsworth of government bonds and other "safe" forms of fixed-income securities, like mortgages.

This has driven down the cost of capital drastically in all developed economies. Academic and popular economists, like Paul Krugman, have endorsed these massive experiments. Politicians clearly believe in the "medicine" of central banks' massive currency printing and bond buying.

On the other hand, we've been fierce critics of these actions. Call us old-fashioned, but we believe in an older, more conservative "brand" of economics. In our experience, the creation of wealth always begins with the act of saving capital.
Interest rates, in our humble opinion, should be set by actual demand for capital. This demand ought to create interest rates that encourage thrift, economy, and savings. These interest rates would act as a brake on reckless speculation, forcing entrepreneurs and large businesses to consider what new projects are worthwhile.

But... what happens when capital is not created by the crucible of careful saving... and what happens when entrepreneurs pay essentially no cost to gamble? You get farces like Jet.
While the Federal Reserve's policies might spur economic activity, we do not see how lower interest rates necessarily create bona fide economic growth or actual wealth. By messing around with the most important price in all of capitalism (the price of capital itself), the Fed deliberately short-circuited the flow of information between consumers and producers and between borrowers and savers. Change the price system and you'll change behavior, because you're changing the information about incentives that people receive. And that rarely works out in the long run.

The Fed's policies have created several obvious bubbles in the financial markets...
One is in student lending. U.S. students have borrowed $1 trillion for college. Most of these loans were used to purchase vastly overpriced "online" educations of highly dubious value. Consider that in 2000 – just 15 years ago – the largest debt-funded college in the U.S. was New York University, a highly credible, long-standing institution that serves smart and ambitious students. At the time, former and current NYU students had $2.2 billion in student loans outstanding.

Today, the leading debt-funded college in the U.S. is the University of Phoenix, where $36 billion (yes, that number is real) has been lent to current and former students, almost all of whom received an online education.

Eight out of the 10 largest debt-funded universities are online schools. I'd estimate the debts used to fund these educations make up around 80% of all outstanding student loans. These debts will never be repaid. And the default tidal wave is starting right now.
Another bubble is in the oil and gas sector... Nearly all the growth in the U.S. high-yield bond market over the last decade is related to oil and gas exploration and production. Since 2010, more than $500 billion worth of new corporate debt was raised for U.S. onshore oil and gas producers. It's this capital that financed the oil boom – which is responsible for all the net job creation in the U.S. since 2009.
These debts cannot be repaid with oil prices at less than $60. And yet they're all coming due between 2016 and 2020.

As these debts go bad, even major oil companies will see their bonds downgraded and their dividends cut. For the banks, insurance companies, private-equity funds, and pension funds that provided this initial capital, there's a tremendous amount of pain ahead.

However... while the end of these bubbles could be painful for many people. It will be a tremendous opportunity for those who know what's coming and are prepared for it. You can be among them...
Investors who are patient and liquid will have an opportunity to buy exceptional assets at great bargains. Over the next two days, I'm going to show you how to be on the right side of what will be the greatest legal transfer of wealth in history.


IMF to include CHINA (RMB) to Reserve currency this month?

Foreign asset managers are preparing to increase their exposure to yuan-denominated bonds, as the International Monetary Fund (IMF) looks likely this month to approve the inclusion of China's "redback" into its currency basket.
A decision by the IMF to add the currency, also known as the renminbi (RMB), to its $US280 billion ($A396.77 billion) basket of reserves would prompt central banks to follow suit, and fund managers say they, too, would make similar adjustments to their portfolios.
"The endorsement from the IMF raises the RMB's profile as an international reserve currency. We think many official investors will start to allocate to RMB assets," AXA Investment Managers said in a report.
Analysts forecast the IMF would give the yuan an initial weighting of around 14 per cent in the basket, which goes by the official title Special Drawing Rights (SDR), bringing about $US40 billion direct inflows in the next few years.
"Most central banks we've spoken to are supportive of the inclusion and are preparing for it. Several central banks are considering their first allocation and some considering increasing their existing ones," said Jukka Pihlman, head of central banks and sovereign wealth funds at Standard Chartered.
But central bank holdings would be the tip of the iceberg.
"That will trigger a lot of FX reserve managers to rebalance," said Stephen Chang, head of Asian fixed income at JP Morgan Asset Management.
"Global investors are certainly under-invested in Chinese bonds as they just started from pretty much zero," he added.
Together with other reserve managers and investors, a re-allocation annually of about one per cent of global FX reserves outside of China to yuan assets is expected in the short term.
AXA estimates total inflows to be around $US600 billion over the next five years. Fund managers and analysts say the vast bulk of the flow will target fixed-income products, especially high-grade bonds issued by the Chinese government and policy banks, which offer high returns at low risk.
"We are progressively increasing our exposure to yuan bonds, and we are more interested in onshore government bonds compared to (offshore) 'dim sum' bonds," said Bryan Collins, a portfolio manager at Fidelity Worldwide Investment. Foreign participation in China's $US7 trillion onshore bond market is a meagre two per cent at present, and Beijing is keen to broaden the sources of funding as the economy slows.
Bankers say that what the government has done to meet the technical criteria to get included in the SDR should in itself lead to an increase in foreign holdings of yuan assets.
China has scrapped quota limits for foreign central banks and sovereign wealth funds to buy bonds in its interbank market and is planning to extend yuan trading hours to cover the European trading session to attract more investors beyond Asia.
As more investors start to trade yuan bonds, improving market liquidity, that will further boost the appeal, said Sanjiv Shah, Chief Investment Officer at Sun Global Investments in London.
"It will make it easier for us to invest and will definitely lead to an increase of our investment in yuan bonds," said Shah, whose firm has assets under management of around $US500 million, of which about $US12 million is invested in offshore yuan bonds.


Energy Market firms warn they may default at any minute

The last 3 days have seen the biggest surge in US energy credit risk since December 2014, blasting back above 1000bps. This should not be a total surprise since underlying oil prices continue to languish in "not cash-flow positive" territory for many shale producers, but, as Bloomberg reports, the industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. "It’s been eerily silent," in energy credit markets, warns one bond manager, "no one is putting up new capital here."

The market is starting to reprice dramatically for a surge in defaults...

Eleven months of depressed oil prices are threatening to topple more companies in the energy industry. As Bloomberg details,
Four firms owing a combined $4.8 billion warned this week that they may be at the brink, with Penn Virginia Corp., Paragon Offshore Plc, Magnum Hunter Resources Corp. and Emerald Oil Inc. saying their auditors have expressed doubts that they can continue as going concerns. Falling oil prices are squeezing access to credit, they said. And everyone from Morgan Stanley to Goldman Sachs Group Inc. is predicting that energy prices won’t rebound anytime soon.

The industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. Barclays Plc analysts say that will cause the default rate among speculative-grade companies to double in the next year. Marathon Asset Management is predicting default rates among high-yield energy companies will balloon to as high as 25 percent cumulatively in the next two to three years if oil remains below $60 a barrel.

“No one is putting up new capital here,” said Bruce Richards, co-founder of Marathon, which manages $12.5 billion of assets. “It’s been eerily silent in the whole high-yield energy sector, including oil, gas, services and coal.”

That’s partly because investors who plowed about $14 billion into high-yield energy bonds sold in the past six months are sitting on about $2 billion of losses, according to data compiled by Bloomberg.

And the energy sector accounts for more than a quarter of high-yield bonds that are trading at distressed levels, according to data compiled by Bloomberg.
Barclays said in a Nov. 6 research note that the market is anticipating “a near-term wave of defaults” among energy companies. Those can’t be avoided unless commodity prices make “a very large” and “unexpected” resurgence.
“Everybody’s liquidity is worse than it was at this time last year,” said Jason Mudrick, founder of Mudrick Capital Management. “It’s a much more dire situation than it was 12 months ago.”

Charts: Bloomberg

11 Nov 2015

China to devalue the Yuan?

China’s economic model of export-led and investment-driven growth is in crisis. With no one left to export more to every year, China now finds itself with extraordinary excess capacity across every industry. Product prices are falling, companies are unprofitable and bank loans are going bad. Any further investment will just worsen the situation.
Therefore, China is buying much less raw materials from the rest of the world. As a result, commodity prices have collapsed. Last month China’s imports were 20% less than during the same month last year. So, China is no longer a driver of global growth.
In fact, it is a very significant brake on global growth.
For that reason, many of the emerging market economies around the world have suffered a very sharp economic slowdown or even gone into recession. Many emerging market currencies have dropped substantially in line with the economic growth prospects of the emerging markets.
As many of these countries have borrowed heavily from abroad in recent years, often borrowing U.S. dollars, there is now a growing chance that they will not be able to repay those loans. Many creditors are attempting to withdraw their money from the emerging markets before the debt defaults begin.
The resulting capital outflows are compounding the problems those countries now face by making credit more expensive. All of these problems combined have thrown the global economy into a new recession that seems likely to become considerably worse before it gets better.
The dollar is the principal international reserve currency for one reason: the United States runs massive trade deficits with the rest of the world every year. That means that the rest of the world accumulates hundreds of billions of dollars every year. These they must invest in U.S. dollar-denominated assets, like U.S. government bonds.
The yuan is not an important international reserve currency because China does not have a massive trade deficit. Instead, it has a massive trade surplus every year. For that reason, other countries don’t own a lot of yuan. If China began to run a huge trade deficit with the rest of the world, then other countries would have a lot of yuan and they would be forced to buy yuan-denominated debt instruments.
Then the yuan would be an important reserve currency. But running a large trade deficit would cause tens of millions of Chinese factory worker to lose their jobs, leading to social instability. For this reason, the yuan is unlikely to become an important reserve currency within the foreseeable future — if ever.END Pull Quote Right
China’s economy is now under severe strain. Chinese policymakers would like to devalue the yuan against the dollar to boost China’s exports and economic growth. But China’s trade surplus with the United States was $340 billion last year. That means that, in the absence of intervention by the Chinese central bank, the yuan would appreciate against the dollar, not depreciate.
The value of the yuan relative to the dollar is something that is negotiated between the U.S. and Chinese governments on an ongoing basis. The U.S. government would like the yuan to continue appreciating against the dollar so that China’s trade surplus with the U.S. would stop expanding. The U.S. government certainly does not want the yuan to be devalued.
Not only would that further weaken the competitiveness of U.S. exporters relative to Chinese exporters, it would also export deflation to the United States since the U.S. buys $500 billion worth of goods from China every year. Any yuan devaluation would cause the price of those imports to fall and that would cause the U.S. price level to fall.
China, on the other hand, does not want the dollar to strengthen any further relative to the euro and the yen. That’s because the yuan is closely tied to the U.S. dollar, so when the dollar strengthens against the euro and the yen, so does the yuan. A stronger yuan hurts Chinese exports to Europe and Japan. Therefore, China does not want the Fed to increase interest rates since higher U.S. interest rates would cause the dollar and the yuan to appreciate against other currencies.
If the Fed does increase U.S. interest rates, China may devalue the yuan vs. the dollar so that the yuan does not appreciate against other currencies. One theory suggests that the small yuan devaluation in August was a warning to the Fed not to hike rates or else China would devalue.
A large devaluation of the yuan would be a terrible blow to the Fed because it would push down U.S. inflation (perhaps into negative territory), making it much more difficult for the Fed to reach its 2% inflation target.
So in my assessment, an interest rate hike by the Fed would increase the chance of a yuan devaluation. This “threat” may prevent the Fed from hiking interest rates any time soon.
However, there is still a possibility that China will devalue the yuan further even if the Fed does not hike. If China’s economy continues to deteriorate, Chinese policymakers may resort to currency devaluation as an emergency measure to prevent a serious economic contraction.

If China does devalue, the rest of the world would suffer. Commodity prices would fall further. Emerging market economies and their currencies would weaken further, increasing the chances of a new EM debt crisis. Corporate profits would be hit and global stock markets would sell off.
I expect the Fed to launch a fourth round of Quantitative Easing to keep the United States from falling back into recession.
Since 2008, credit growth has been too weak to drive economic growth in the United States. So the Fed has been driving economic growth by printing money and pushing up asset prices to create a wealth effect that spurs consumption and economic expansion.
After QE 1 and QE 2 ended, US asset prices fell and the U.S. started to go back into recession. Each time, the Fed launched another round of QE to prevent that from happening. I believe the same pattern will be repeated now that QE 3 has ended. The U.S. economy is already weakening very visibly.
I don’t think the Fed will launch QE 4 because it thinks it will be “the right solution for the emerging global economic situation.” I think the Fed will launch QE 4 because it is afraid that the U.S. economy will fall back into a very serious recession if it does not.
Having said that, I do believe that QE 4 will benefit emerging market economies in the same way that the first three rounds of Quantitative Easing did.
Another policy option would be for the United States to run a much larger budget deficit to provide fiscal stimulus to the US and global economy. That, however, will not happen before the 2016 U.S. presidential elections at the earliest, and probably not even after the elections.
Another policy option would be to do nothing. That’s the option policymakers picked in 1930. The result then was a global great depression. If policymakers choose to do nothing now, there is likely to be another global great depression.
The United States has been the driver of global economic growth since World War II. It is no longer growing enough to continue driving the global economy, but there is no other country that can take its place. In order to take over as a new driver of global growth, a country would have to run an even larger trade deficit than the U.S. does. That won’t be possible.
What could Japan have done to accelerate Japanese economic growth in 1990? After the great Japanese bubble economy had taken shape, I really don’t think there was anything Japan could have done to accelerate growth there. China is now in the same place Japan was in 1990. There is a huge economic bubble in China. I don’t see what they can do to “accelerate economic growth going forward.”
They will have a hard enough time just to prevent the bubble from collapsing into a serious depression. It will require very large budget deficits, a great deal of skill and a lot of good luck for China to even achieve 3% annual growth over the next 10 years.
All the government policies since 2008 (trillions of dollars of deficit spending, trillions of dollars of fiat money creation, 0% interest rates, etc.) have prevented a new global great depression thus far.
But now, since the end of QE 3, the policy stimulus is no longer adequate to keep the global bubble inflated. It is now starting to deflate. Our choice now is between more stimulus and a devastating new global depression that could very possibly destroy the world as we know it.


10 Nov 2015

Global Economic Trade Collapse

If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived.  Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.  And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world.  So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting.  A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628.  However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.
Just within the last few days, new trade numbers have come out of China.  China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.
But now Chinese exports are falling.  In October, Chinese exports were down 6.9 percent compared to a year ago.  That follows a decline of 3.7 percent in September.
The numbers for Chinese imports are even worse.  Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September.  China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.
The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing.  As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…
Chinese Imports Chinese Exports
Other numbers confirm the magnitude of the economic slowdown in China.  I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low
The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.
The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.
It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.
Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…
Demand for Chinese steel is down 8.9 percent compared to a year ago.
China’s rail freight volume is down 10.1 percent compared to last year.
In October, South Korean exports were down 15.8 percent from a year ago.
According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114.  What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.
Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.
Clearly something very big is happening, and it is affecting the entire planet.  The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple
In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.
Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.
Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.
One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade.  A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…
When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.
And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.
A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.
This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.
Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).
But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately.  As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world.  All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash.  Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans.  This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.
Of course we have seen this happen before.  A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s andthe major global recession of 2008 and 2009.
If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.
So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.


China to Allow Direct Conversion Between Yuan and Swiss Franc

This photo taken on December 13, 2011 shChina took another step to boost the yuan’s global usage, saying it will start direct trading with the Swiss franc, as the nation pushes its case for reserve-currency status at the International Monetary Fund.
The link will start on Tuesday, the China Foreign Exchange Trade System said in a statement, making the franc the seventh major currency that can bypass a conversion into the U.S. dollar and be directly exchanged for yuan. The rate will be allowed to fluctuate a maximum 5 percent on either side of a daily fixing, according to CFETS.
“This is an important step in strengthening bilateral economic and trade connections between China and Switzerland,” the People’s Bank of China said in a statement on its website on Monday. The link will help lower conversion costs and facilitate the use of both currencies in bilateral trade, it added.
The announcement, which confirmed an earlier report, comes as the IMF prepares to meet this month to review its Special Drawing Rights. The executive board of the Washington-based institution will gauge whether the Chinese currency has fulfilled the criterion of being "freely usable," after rejecting its bid in 2010. The other major currencies that can be directly converted into yuan are the U.S., Australian and New Zealand dollars, the British pound, the Japanese yen and the euro.
The PBOC this year extended Switzerland a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program, which allows yuan raised offshore to be used to buy securities in China’s domestic markets. In 2014, the Swiss and Chinese central banks signed a three-year currency-swap agreement that can be used to borrow as much as 150 billion yuan.


9 Nov 2015

WARNING: Record Global Sell-Off of U.S. Debt Could Trigger Economic Collapse

Foreign governments buy U.S. debt because of the dollar's status as the world's reserve currency – the American economy has long been viewed as a safe place to invest. That's why the amount of U.S. debt held by foreign nations has increased more than six-fold since 2001.

But that's all changing now – events that could spark a U.S. economic collapseare already underway…
The Wall Street Journal revealed this week that China – the largest holder of U.S. investments – is ridding itself of its U.S. government bonds at the fastest rate in history.
10 9 15 economic collapse 1In fact, a global sell-off of epic proportion is taking place.
Central banks in China, Russia, Brazil, and Taiwan are selling U.S. government bonds at such a pace that it's caused the most dramatic shift in the $12.8 trillion Treasury market since the 2008-2009 financial crisis.
Foreign official net sales of U.S. Treasury debt maturing in at least one year hit $123 billion in the 12 months ended in July, according to Deutsche Bank Securities Chief International Economist Torsten Slok, reported WSJ. That's the biggest decline since data started to be collected in 1978.
By contrast, foreign central banks purchased $27 billion of U.S. notes and bonds in the prior 12-month period.
Foreign central bankers' massive offloading of U.S. debt sends this dangerous signal…

How Foreign Investors Can Spark a U.S. Economic Collapse

The latest Treasury data (from December 2014) shows that more than one-third of U.S. debt is owned by foreign investors.
10 9 15 economic collapse 2China is the biggest foreign U.S. debtholder at 7.2%.
This gives China, along with other major foreign holders of U.S. debt, the power to drastically affect U.S.interest rates.
You see, when foreign governments decide to dump U.S. securities, interest rates go up. That, in turn, makes U.S. debt more risky to buy, which raises rates even higher.
Nonpartisan think tank The Council on Foreign Relations (CFR) explained in June 2010, "A foreign sell-off of U.S. securities could drive up U.S. interest rates and render the nation's formidable stock of debt far more expensive to service…No one knows in advance when the tipping point will be reached, but the damage brought about by higher interest rates and slower economic growth will be readily apparent afterward."
As of November 2013, China held a record $1.317 trillion in U.S. securities. But by the end of July 2015, that amount dipped to $1.241 trillion, according to the latest Treasury data.
Three other of the largest U.S. debt holders are also dumping securities. WSJreports that Russia's holdings of all U.S. Treasury debt fell by $32.8 billion in the year ended in July. Taiwan's holdings fell by $6.8 billion. And Norway reduced its holdings by $18.3 billion.
For now, we haven't seen interest rates shoot up from all this foreign selling because other buyers have stepped in, both in the United States and overseas.
"That buying, driven in large part by worries about the world's economic outlook, has helped keep bond yields at low levels from a historical standpoint," reportedWSJ. "But many investors say the reversal in central-bank Treasury purchases stands to increase price swings in the long run."
"Some analysts have warned for years that persistent fiscal deficits made the U.S. Treasury market vulnerable to a reduction in foreign purchases."
Those analysts include CIA Asymmetric Threat Advisor Jim Rickards. In an August 2014 interview, Rickards told Money Morning that questions over what China will do with U.S. debt is a major concern for Americans.
"The foreigners are now dumping Treasuries and if no one buys it, guess what, interest rates go up," Rickards said. "That'll sink the stock market, that'll sink the housing market. Higher interest rates mean the debt gets higher, so interest rates go up some more."
With these actions, China can take direct aim at the U.S. dollar. And that's just one of the ways China is engaging in financial warfare against the United States.
A global sell-off of U.S. debt is just one of five "flashpoints" that will trigger a U.S. economic collapse. Some of the others are already happening. 


It is undeniable; the final collapse is upon us.

In the years since the derivatives disaster, there has been no end to the absurd and ludicrous propaganda coming out of mainstream financial outlets and as the situation in markets becomes worse, the propaganda will only increase.
This might seem counter-intuitive to many. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily…
In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used. Consider if you’ve heard similar quotes to these in the mainstream news over the past couple months:
John Maynard Keynes in 1927: “We will not have any more crashes in our time.”
H.H. Simmons, president of the New York Stock Exchange, Jan. 12, 1928: “I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”
Irving Fisher, leading U.S. economist, The New York Times, Sept. 5, 1929:“There may be a recession in stock prices, but not anything in the nature of a crash.” And on 17, 1929: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
W. McNeel, market analyst, as quoted in the New York Herald Tribune, Oct. 30, 1929: “This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
Harvard Economic Society, Nov. 10, 1929: “… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”

Here is the issue – as I have ALWAYS said, economic collapse is not a singular event, it is a process. The global economy has been in the process of collapse since 2008 and it never left that path. Those who were ignorant took government statistics at face value and the manipulated bull market as legitimate and refused to acknowledge the fundamentals. Now, with markets recently suffering one of the greatest freefalls since the 2008/2009 crash, they are witnessing the folly of their assumptions, but that does not mean they will accept them or apologize for them outright. If there is one lesson I have learned well during my time in the Liberty Movement, it is to never underestimate the power of normalcy bias.
There were plenty of “up days” in the markets during the Great Depression, and this kept the false dream of a quick recovery alive for a large percentage of the American population for many years. Expect numerous “stunning stock reversals” as the collapse of our era progresses, but always remember that it is the overall TREND that matters far more than any one positive or negative trading day (unless you open down 1000 points as we did on Monday), and even more important than the trends are the economic fundamentals.
The establishment has made every effort to hide the fundamentals from the public through far reaching misrepresentations of economic stats. However, the days of effective disinformation in terms of the financial system are coming to an end. As investors and the general public begin to absorb the reality that the global economy is indeed witnessing a vast crisis scenario and acknowledges real numbers over fraudulent numbers, the only recourse of central bankers and the governments they control is to convince the public that the crisis they are witnessing is not really a crisis. That is to say, the establishment will attempt to marginalize the collapse signals they can no longer hide as if such signals are of “minimal” importance.
Just as occurred during the onset of the Great Depression, the lies will be legion the closer we come to zero hour. Here are some of the lies you will likely hear as the collapse accelerates…
The Crisis Was Caused By Chinese Contagion
The hypocrisy inherent in this lie is truly astounding, to say the least, considering it is now being uttered by the same mainstream dirtbags who only months ago were claiming that China’s financial turmoil and stock market upset were inconsequential and would have “little to no effect” on Western markets.
I specifically recall these hilarious quotes from Barbara Rockefeller in July:
Something else that doesn’t matter much is the Chinese equity meltdown—again. China may be big and powerful, but it lacks a retail base and fund managers experienced in price variations, never mind a true rout…”
Doom-and-gloom types have been saying for a long time that we will get a stock market rout when the Fed finally does move to raise rates. But as we wrote last week, history doesn’t bear out the thesis, not that you can really count on history when the sample size is one or two data points…”
Yes, that is a bit embarrassing. One or two data points? There have been many central bank interventions in history. When has ANY central bank or any government ever used stimulus to manipulate markets through fiat infusion and zero interest fueled stock buybacks or given government the ability to monetize its own debt, and actually been successful in the endeavor? When has addicting markets to stimulus like a heroin dealer ever led to “recovery”? When has this kind of behavior ever NOT created massive fiscal bubbles, a steady degradation of the host society, or outright calamity?
Suddenly, according to the MSM, China’s economy does affect us. Not only that, but China is to blame for all the ills of the globally interdependent economic structure. And, the mere mention that the Fed might delay the end of near zero interest rates in September by a Federal Reserve stooge recently sent markets up 600 points after a week-long bloodbath; meaning, the potential for any interest rate increase no mater how small also has wider implications for markets.
The truth is, the crash in global stocks which will undoubtedly continue over the next several months despite any delays on ZIRP by the Fed is a product of universal decay in fiscal infrastructure. Nearly every single nation on this planet, every sovereign economy, has allowed central and international banks to poison every aspect of their respective systems with debt and manipulation. This is not a “contagion” problem, it is a systemic problem to every economy across the world.
China’s crash matters not because it is causing all other economies to crash. It matters because China is the largest importer/exporter in the world and it is a litmus test for the financial health of every other country. If China is failing, it means we are not consuming, and if we are not consuming, then we must be broke. China’s crash portends our own far worse economic conditions. THAT is why western markets have been crumbling along with China’s despite the assumptions of the mainstream.

China’s Rate Cuts Will Stop The Crash
No they won’t. China has cut rates five times since last November and this has done nothing to stem the tide of their market collapse. I’m not sure why anyone would think that a new rate cut would accomplish anything besides perhaps a brief respite from the continuing avalanche.
It’s Not A Crash, It’s Just The End Of A “Market Cycle”
This is the most ignorant non-explanation I think I have ever heard. There is no such thing as a “market cycle” when your markets are supported partially or fully by fiat manipulation. Our market is in no way a free market, thus, it cannot behave like a free market, and thus, it is a stunted market with no identifiable cycles.
Swings in markets of up to 5%-6% to the downside or upside (sometimes both in a single day) are not part of a normal cycle. They are a sign of cancerous volatility that comes from an economy on the brink of disaster.
The last few years have been seemingly endless market bliss in which any idiot day trader could not go wrong as long as he “bought the dip” while Fed monetary intervention stayed the course. This is also not normal, even in the so-called “new normal”. Yes, the current equities turmoil is an inevitable result of manipulated markets, false statistics, and misplaced hopes, but it is indeed a tangible crash in the making. It is in no way an example of a predictable and non-threatening “market cycle”, and the fact that mainstream talking heads and the people who parrot them had absolutely no clue it was coming is only further evidence of this.
The Fed Will Never Raise Rates
Don’t count on it. Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the “new normal”; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.
That’s right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a “good thing”. They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.
A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don’t seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.
A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the “great economic reset” that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their ‘Dow 20,000’ hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah…clearly that was a pipe dream.
ZIRP has run it’s course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.
The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to “predict” terrible market events they helped to create while at the same time misrepresenting the reasons behind them.
The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.
Get Ready For QE4
Again, don’t count on it. Or at the very least, don’t expect renewed QE to have any lasting effect on the market if it is initiated.
There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE’s were an utter failure, and while their job is to dismantle the U.S. economy, I don’t think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB’s last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I’ll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.
I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar’s world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won’t even have to print Weimar Germany-style in order to kill it.
It’s Not As Bad As It Seems
Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a “hiccup”. This is not a correction which has already hit bottom. This is only the beginning of the end.
Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We’re going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.