Monday, July 4, 2022

Where the Next Major Banking Crisis Will Begin…


by Justin Splitter, Casey Research:

Ray Dalio just bet $1.1 billion against Italy.

Specifically, he shorted (bet against) five Italian banks and one insurance company last quarter. And he did so to the tune of $770 million.

Dalio also bet $311 million against Italy’s largest utility company.

This is a big deal.

You see, Dalio is one of the world’s most respected investors. He manages $160 billion at Bridgewater Associates, the world’s biggest hedge fund.

• But Dalio didn’t reach the top of Wall Street by accident…

He got there because he can spot massive threats and opportunities long before other people do.

For example, Dalio predicted the U.S. housing bubble would burst in 2007. Not only that, he said the crash would spread to the banking sector.

At the time, many people thought this was a crazy idea. But Dalio was right.

That year, the U.S. banking sector imploded. This triggered the worst financial crisis since the Great Depression. The average U.S. stock plummeted 57{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} over the next two years.

• In short, it pays to watch what Dalio’s doing…

So in a minute, I’ll tell you why Dalio made this giant bet. I’ll also show how you, too, can profit from Italy’s problems.

But you first need to understand what those problems are…

Italy’s banking system is a ticking time bomb.

Its banks are sitting on $356 billion worth of non-performing loans (NPLs).

These are loans borrowers have stopped paying. They’re considered “sour loans” because banks often don’t end up collecting them. They take huge losses instead.

To give you a sense of how serious this is, consider this: NPLs make up 18{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of all loans issued by Italian banks. For perspective, NPLs accounted for 5.3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of all loans issued by U.S. banks at the height of the Great Recession.

As if that weren’t enough, these sour loans are valued at around 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of Italy’s annual economic output.

It’s an incredibly fragile situation, to say the least.

• European regulators are now scrambling to prevent a banking crisis…

The Italian government, for one, has pledged to bail out the banking system if necessary.

This is when the government gives banks money to keep them from crashing. Taxpayers end up footing the bill.

The European Central Bank (ECB) is also trying to help. On October 3, it announced plans to impose strict capital requirements for European banks.

In short, it wants Italian banks to set aside billions of euros to cover losses from NPLs.

• These regulations are intended to shore up Italy’s fragile banking system…

They were supposed to make people feel safer. But that’s not what happened.

Instead, the ECB rattled investors’ nerves. In fact, Italian bank stocks plummeted on the news.

➢ Since the start of October, the FTSE Italia All-Share Banks Index is down 5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

➢ UniCredit, Italy’s largest bank, has fallen 6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

➢ UBI Banca, another major Italian bank, has plunged 11{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

➢ And BPER Banca is down 15{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

These are staggering declines for such a short period. Still, you might not be worried about this.

And that’s because most U.S. investors don’t own any Italian banking stocks. But you must realize something…

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China-Ruble Settlement and the Dollar System


by F. William Engdahl, New Eastern Outlook:

The Peoples’ Bank of China has just announced a payment-versus-payment (PVP) system for Russian ruble and Chinese yuan transactions. The stated aim is to reduce currency risks in their trade. The only conceivable risk would be from the US dollar and potential acts of US Treasury financial warfare to damage Russian-Chinese trade which is becoming very significant in volume and value. By December it should reach $80 billion, a 30{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} rise over 2016. Yet there is more to this seeming technical move by China and Russia than meets the eye.

The official announcement, posted on the website of the China Foreign Exchange Trade System (CFETS) adds the enormously significant note that CFETS plans to introduce similar PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative.

This confirms what I discussed in an article I posted in April 2016, namely that the grand design behind China’s Belt, Road Initiative (BRI) has an integral gold-based currency component that could change the global balance of power in favor of the nations of Eurasia, from Russia and the nations of the Eurasian Economic Union to China and across all Asia.

Earlier termed the New Economic Silk Road, the BRI is a vast network of high-speed rail linkages being constructed criss-crossing the countries of Eurasia including Central Asia, Mongolia, Pakistan, Kazakhstan and, of course, the Russian Federation and extending to Iran, potentially to Turkey and East Africa. Altogether at present some 67 countries are participating or have asked to join the ambitious project whose total cost could run into trillions of dollars and will transform global trade. HSBC estimates that the BRI infrastructure project, which today encompasses countries generating almost one-third of global GDP, will generate an additional $2.5 trillion worth of new trade annually This isn’t chump change for the world economy. It’s a game-changer of the first order.

Building a dollar reserve currency

Academic presentations of currency theory and of reserve currency theory tends to be boring beyond at least my patience. This direct currency settlement move by China and Russian, however, is one of the most dynamic game-changing developments since Washington’s Treasury and Wall Street banks came up with the US Dollar system at Bretton Woods in 1944.

It’s not about reducing currency risks in trade between Russia and China. Their trade in own currencies, bypassing the dollar, is already significant since the US sanctioned Russia in 2014—a very foolish move by the Obama Administration Treasury. It’s about creating a vast new alternative reserve currency zone or zones independent of the dollar.

The American Century domination that Time-Life publisher Henry Luce proclaimed in 1941 came into being at the end of the war. In 1945, as the bombs stopped falling over Europe and Japan, President Harry Truman made clear to England that there would be no place for the British Empire as a rival, cancelling US Lend-Lease credits and demanding bankrupt Britain repay its war debts to Washington, as well as demanding a dramatic reduction in world trade conducted in Pound Sterling, then still about 50{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of total world trade. The British based their hopes of rebuilding their Empire on their Commonwealth and its Sterling Preference trade region.

For Washington and Wall Street after 1945 there was room for only one dominant monetary power, the United States. Britain was forced to swallow its huge arrogant pride and turn to the newly-created International Monetary Fund and to, step-by-step, dismantle the colonies of the British Empire beginning with India for financial reasons. That opened the door for the dollar hegemony over the world economy outside the communist countries. Since 1945 the power of the United States as global superpower has rested on two pillars—the most powerful military and the dollar as undisputed world reserve currency allowing Washington to control the world economy.

In 1944 the Federal Reserve held over 70{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of world monetary gold as part of its reserves. Every other currency was pegged to the dollar. The dollar alone was fixed to gold. A dollar-hungry postwar world in the 1950s desperately needed dollars to finance reconstruction. The dollar began its ascent as the currency held by world central banks as reserve currency or anchor currency, helped by the fact that OPEC countries agreed to sell their oil only for dollars. Most world trade financing was done in dollars.

Nixon and the Great Dollar Inflation

Under Bretton Woods, the US Federal Reserve guaranteed that other countries holding dollar reserves could exchange them for US Federal Reserve gold at any time. By the end of the 1960’s that began to break down as France and other countries demanded gold in exchange for what they saw as inflated US dollars. US industry was rusting from lack of new investment and US Federal deficits were soaring because of the Vietnam War. Other nations were no longer willing to accept that the “dollar was as good as gold.” They demanded the gold, not “as good as.”

After the “Nixon Shock” when President Nixon tore up the Bretton Woods Agreement in August 1971 to let the dollar float, free of any redemption in gold, the world had little choice but to accept inflated paper dollars, an inflation that soared with the 1973 oil price shock engineered by Secretary of State Henry Kissinger, and the Rockefeller faction in US politics. The gold-dollar convertibility suspension was a Washington reaction to the fact the central banks of France, Germany and other OECD countries demanded more and more hard gold from the Fed for their paper dollars and US gold reserves were in danger of being depleted.

Here began the roots of the most extraordinary global great inflation in history. Beginning the US budget deficits during the Vietnam War in the 1970s and the 400{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} oil price rise by 1974, a price that Washington’s Treasury in a secret deal with Saudi Arabia in 1974-75 insured would be paid by the rest of the world in dollars, the world dollar supply grew astronomically. Dollars in global circulation, no longer redeemable in gold, rose by 2,000{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} between 1971 and 2015. Production of real goods did not rise anywhere near 2,000{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

The fact that the dollar remains the most significant foreign central bank reserve currency, still some 64{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of all world reserves at present, with the Euro at 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} the closest rival, gives the US Government an extraordinary advantage.

Since 1971, the US has run budget deficits for 41 of the past 45 years, the sole exception being four years in the 1990’s when the Baby Boom generation reached peak income and peak Social Security Trust Fund tax payment. The Clinton Treasury made an accounting manipulation to count this one-off effect as general Treasury tax income, a fraud. Every other year since 2001 the US Budget has resumed huge deficits, exceeding $1.4 trillion in 2009 alone, as in $1,400 billion, during the financial crisis that began in 2008.  In 2000, before the dollar break with gold, the US deficit was $3 billion.

Rightly so, other countries see this as an enormous disadvantage. Their US dollar Treasury bond investments for their own central bank reserves are becoming worthless paper. Because they are more or less forced to invest the trade surplus dollars earned from their exports in secure US Treasury bonds or bills or similar US securities, the annual inflow of China central bank dollars—of Japanese trade surplus dollars, of Russian dollars before 2014, of German and other trade surplus countries—allows the US Treasury to keep interest rates abnormally low. That also allows Washington to finance those deficits with no major stress. This year the US deficit reached an impressive $585 billion.

In effect, China and Russia in recent years finance the US military budget by buying US bonds and bills that allow the Treasury to finance that deficit without raising interest rates. The cynical irony is that that US military budget financed by Russia and China’s need to hold dollar reserves against potential currency wars by Washington as was done against Russia after 2014, is aimed at controlling Russia and China, and ultimately at destroying their economies.

If the Trump tax cut legislation now becomes law, the US deficits will hit the moon. This is the backdrop to better understand what China and Russia and allied countries are preparing in order to reduce their vulnerability to what is on a ballistic trajectory to a bankrupt global dollar reserve system. If China, Russia, and other allied countries of Eurasia, most especially countries of the Shanghai Cooperation Organization and prospective members such as Iran and Turkey turn to bilateral arrangements like China and Russia to settle trade, bypassing the US dollar, the dollar as world reserve currency domina will fall, and other currencies will replace it. The Chinese Yuan is the leading candidate. The Ruble as well.

Yuan Reserve Status

The newest move to a direct settlement of bilateral trade between China and Russia with other countries along the new Silk Road being brought into the system is a major foundation stone in creation of a viable alternative to the US dollar as an anchor reserve currency.

A decade ago such an idea was dismissed by Western economists as preposterous. They claimed it would be decades before the world would accept the Yuan as a reserve. The yuan was not convertible.

In 2016 China was admitted by the International Monetary Fund as one of the five leading currency components of IMF Special Drawing Rights calculated in a currency basket. That step gave the yuan a major boost in international acceptance.

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Yuan “De Facto” Backed By Gold…? by Bill Holter

by Bill Holter, JSMineset:

I intended to write this yesterday but was still buried from response to last Thursday’s article. My wife teased me, she told me she had not seen me work like that since I retired from brokerage back in 2006. From Friday morning through yesterday I burned my cell battery down 5 times and was stuck several times plugged in and talking with a 3 ft. chord attached! I thank everyone for the huge response and reiterate this is a window that when closes will probably never open again.

This is a very important week. We had an IMF meeting over the weekend and an extremely bland “communique”. I am sure much more went on behind the scenes than this “don’t worry be happy” statement.

China has their 29th Communist Congress the 18th and 19th this week. For sure it will contain pomp and circumstance as they install new and old leaders but the highlight will be their “5 year plan” discussions. We may (most probably) not be privy to the true core to the plan and only offered public tidbits for view but we will see.

We can look back at the last five years and see China has readied herself to assume leadership for the world in many if not most areas previously lead by the US. They have set up credit facilities, a clearing system alternative to SWIFT, trade deals all over the world especially including the Middle East and other commodity rich areas. (And amassed a huge hoard of gold). They have also cozied up to Russia in many ways including militarily. We have also seen several instances where US Naval vessels may have been compromised technologically. In fact, I understand the Fitzgerald will have new electronics installed by Lockheed Martin. The main supporter of the U.S. dollar (the military) may have been tested publicly and only understood by those watching closely?

The point is this, China is “ready”. They can now at this point begin to “pull the trigger”. Whether it is one big trigger or many smaller triggers I do not know. (A betting man would wager many small triggers as the Chinese are a very polite society). I also do not know if one of the smaller triggers creates a domino effect but I suspect so. Do not mistake this, China does have huge leverage and imbedded fraud as does the West. The biggest difference as I have stressed for over two years is China actually created “stuff” whereas the West took their plundered spoils and “ate” them. In other words, China has built out their infrastructure and actually has premade “ghost cities” ready to roll. The U.S. is left with 50-100 year old infrastructure, little manufacturing left and highly unfunded liabilities in pensions. The American party is over…

As I have maintained, the Chinese have an “out” in the case of imminent financial global collapse. They can simply mark up their gold holdings and fill the balance sheet black holes with appreciated gold. The U.S. cannot do this as gold has been leaked out for years and may not even be an asset at this point. We have received many questions regarding the supposed “Chinese oil contract, settled in yuan and backed by gold”. We also received an extreme amount of questions regarding Koos Jansen’s article calling this a “myth” First, if you recall when I first wrote about this, I suggested China would NEVER convert yuan into THEIR gold. Rather, they would take presented yuan and buy on the open markets including COMEX and LBMA (and expose their lack of inventory?). In this manner, they would simply be taking cash flows from the oil trade and using it as a way to break the “paper pricing” forced on physical markets by dollar hegemony.

Yes I know, “people can currently take dollars and buy gold, they can even take yuan and buy gold” already, so what the heck am I talking about? To this point it has not been a very good “life decision” to either accept non dollars for oil, OR to take your dollars and purchase gold…(ask Saddam and Mohamar about this)! Looking at this just under the surface, ANYONE who used a couple hundred million dollars (or God forbid MORE) to purchase gold would be “seen”. Do you see where I am going? They have, are and ALWAYS WILL be seen and known if they use dollars because of something called the SWIFT system. Conversely, should oil producers use their “yuan” to buy gold, the U.S. cannot track these trades because China’s clearing system will clear the trade!

Do you see the beauty of this? Oil producers using yuan instead of dollars will no longer fear buying gold because it can be done under cover of China’s clearing system. (I guess it should be asked, would a logical trade move toward some’s liability or toward something with no one’s liability? Said another way, ending up with gold is true “settlement” as opposed to owning a liability yet to be settled). In addition, a freely trading and much “higher” gold in fiat terms is something the Chinese would desire as they have amassed maybe 20,000 tons or more. This, opposed to something the U.S. would not want, no longer being a major holder of gold. One might argue the previous sentences but good luck with that because common sense, a pencil and napkin will suffice!

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Bank Run Imminent: Catalan Separatists Urge Supporters To Pull Cash From ATMs On Friday Morning

from ZeroHedge:

As tensions escalate in Spain, Catalan Separatists are potentially about to do some real damage and hit Madrid where it really hurts.

In a tweeted message to their 270,000 followers, Assemblea Nacional urged supporters to pull cash from CaixaBank and Banco Sabadell branches between 8 am and 9am Friday to protest at their decision to shift their legal domiciles out of the region…

As the video begins…

“Go to 1 of the 5 main banks and take out as much cash as you want. Don’t forget, it’s your money”.

Catalan News adds:

Civil society organizations in Catalonia call for a mass withdrawal of money from bank ATMs on Friday at 8am in order to pressure the Spanish government. Organizers don’t especify how much money should be taken out nor what to do with it.

The action targets the five main banks in Catalonia: Caixa Bank, Sabadell, Bankia, BBVA and Santander. Organizers call on clients of Caixa Bank and Sabadell to show their disagreement with the banks’ recent decision to move their headquarters out of Catalonia due to the escalating political crisis between governments in Barcelona and Madrid.

This is the first “direct and peaceful” action organized by Crida per la Democràcia (Call for Democracy). This is an umbrella group which includes among others the two main pro-independence organizations in Catalonia: the Catalan National Assembly (ANC) and Òmnium Cultural.

The mass withdrawal is also aimed at condemning the imprisonment of ANC and Òmnium presidents, Jordi Sánchez and Jordi Cuixart, held in custody on sedition charges since Monday.

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Gold backed cryptocurrency Lionsgold hopes to provide alternative to bank accounts by end of the year

by Kenneth Schortgen, The Daily Economist:

Over the past several months we have discussed the growing number of cryptocurrencies being formulated that are backed by a tangible assets such as physical gold.  And while it can often be hard to distinguish which business model in the gold backed cryptocurrency sphere may be better, the reality is that so far each seems to be focusing on a specific sector of finance they seek to replace.

One of these up and coming companies is called Lionsgold, and by the end of the year they hope to complete a new cryptocurrency that is backed by gold and which will use a new blockchain technology called GoldBloc to allow individuals to use their gold backed cryptocurrency the same way they would any regular currency held today in a bank account.

Lionsgold Ltd (LON:LION) roared into action on Wednesday afternoon after the fintech-cum-gold explorer updated investors on the development of its Goldbloc digital currency. 

The AIM-quoted firm has been working on a digital currency backed by real gold for some time now under its majority-owned subsidiary TRAC technology.
The aim of Goldbloc is to give customers the “convenience and utility” of a normal bank account albeit one that is backed by physical gold. 

Each Goldbloc unit will represent 1/1000 of a gram of physical gold – worth around 3p based on current spot prices – and will be divisible by two decimal places.
The ultimate goal is for Goldbloc to become a gold-backed digital currency and banking platform. – Proactive Investors

There is already a well established company called Goldmoney that facilitates many of the attributes and services that Lionsgold is seeking to employ.  But the major difference appears to be in the cryptocurrency model being created by Lionsgold, and how this may synthesize with the slew of other cryptocurrencies currently being traded in the global markets that will go along with their goal of replacing the antiquated model of banking for depositors, savers, and even small businesses.

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Will ICOs Take Down Wall Street The Way Bitcoin May Take Down Central Banks and Fiat Currencies?

by Jeff Berwick, The Dollar Vigilante:

I’ve said it many times in the past. Blockchain technology is the biggest evolution since the internet.

We’ve seen bitcoin quickly become a challenge to fiat currencies and central banks.

We’ve seen Ethereum change the very nature of apps into dapps or decentralized apps. And, it’s barely even begun yet.

And now we are seeing ICOs, Initial Coin Offerings, change how companies are formed and funded.

ICOs, similar to bitcoin, threaten entire industries.

It threatens the traditional investment banking industry… could that be why Jamie Demon hates it so much? Ya think? Over $3 billion has been raised by ICOs in the second quarter of 2017 surpassing the total funds raised via traditional equity financing for the first time.

It threatens the traditional stock exchanges.

And it certainly threatens the government regulators.

And the businesses that are being built with the ability for their tokens to be tradeable without third parties will threaten almost every other traditional business sector in the world.

To say all of this is a massive paradigm shift is an understatement.

ICOs have proliferated in the last year and, so far, on average, they have performed very well for investors.

ICOs remove the stranglehold on investment capital that has been monopolized by the big investment banks and made prohibitively expensive and restrictive by criminal government regulators.

The Chinese government has, as we’ve seen, been one of the first to, as Christine Lagarde puts it, “banned the initial, um, offer of, um, bitcoins.”

And, I have zero doubt that the criminal SEC will soon violently attack those who peacefully and voluntarily participate in the ICO market.

But, like with bitcoin, they can’t stop it. They can only do what all governments do; threaten violence and extort people who try to make the world a better place.

So, there will definitely be a lot of bumps along the road… the same as there will be for bitcoin… as governments and central banks try to stop progress from occurring.

And, there will be plenty of failures, scams, and drama as always occurs in the free market.

But, there will also be investment opportunities potentially of a lifetime.

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Really Bad Ideas, Part 5: The Fed Should Have – And Defend – An Inflation Target


by John Rubibo, Dollar Collapse:

Central banks in general and the Fed in particular are struggling to understand a world in which they’ve thrown everything they have at the economy without generating “beneficial” inflation. Their confusion can be traced back to some profoundly false assumptions.

Here’s a good overview of the current debate:

Fed ‘should defend’ inflation target or risk losing credibility: Bullard

(Reuters) – The Fed needs to mount a clear defense of its 2 percent inflation target and stop raising rates until the pace of price increases strengthens, St. Louis Fed President James Bullard said on Thursday.


The central bank risks losing credibility, and perhaps triggering a recession, if it continues to insist on “normalization” and higher interest rates without better evidence that prices are firming, he said in an interview with Reuters.

“If you are going to have an inflation target you should defend it. If you say you are going to hit the inflation target then you should try to hit it and maintain credibility,” Bullard said.

Persistent weakness this year in the Fed’s preferred measure of inflation means “we more or less lost all the progress that we made the last two years” toward the 2 percent goal, Bullard said. Continuing to raise interest rates in that environment “can send a signal to markets that the inflation target is not that important.”

The Fed’s preferred measure of inflation slipped from 1.7 percent in April to 1.4 percent in June, July and August.

Bullard, a non-voter on policy until 2019, said colleagues who blame the decline on large, one-off price moves for some goods and services were too “finely chopping” their analysis, and overlooking the fact technology or some other force is restraining prices. The argument that recent weak inflation is driven by temporary factors is perhaps the dominant view at the Fed, with culprits including major changes in cell phone pricing and the impact of slower-rising Medicaid costs.

“This idea of throwing out the unpleasant number and finely chopping the price index, you get down to a set of prices that barely can be considered representative and I think that is inappropriate,” Bullard said. “Maybe this is temporary, maybe this will bounce back. What I say to that is you want to see evidence…This is going in the wrong direction. And it is not consistent with the stories that the committee has been telling,” of inflation reaching the Fed’s target in the “medium term.”

“If the committee continues to raise rates that could turn into a policy mistake…I think inflation could drift lower instead of higher. I think a misperception about where rates need to be in this environment could possibly trigger recession if it was carried to an extreme.”

Bullard’s comments are a pointed intervention in a debate that is preoccupying policymakers worldwide, and forcing research into and a possible rethink of the way prices are set in the post-crisis world. Bullard himself completely reversed his assessment of inflation more than a year ago, flipping from among the committee’s hawks to now its most dovish.

Some Thoughts And Assertions
An inflation target implies that modest inflation is actually a good thing. This is simply wrong. Inflation is a “stealth tax” through which governments confiscate a bit of savers’ wealth each year without admitting it. If explained honestly such a trick would be a political loser always and everywhere.

Nor do rising prices increase growth or reduce debt. Just the opposite. Knowing that a currency is going to depreciate because the government has promised to make it so, rational citizens borrow as much money as possible since they’ll be paying future interest in ever-cheaper currency. This leads to what mainstream economists define as “growth” but is actually just 1) pulling future consumption into the present at the cost of lower consumption in the future and 2) malinvestment, as businesses, seduced by artificially-low interest rates, start projects that wouldn’t pass muster if the cost of money was realistic (that is, determined by market forces). So the quality of the capital stock declines over time and productivity falls.

The result: A system where the amount of debt soars, the amount of bad debt rises as a share of total debt, productivity growth slows and the inflation needed to generate future “growth” rises steadily. Governments are then forced to push interest rates ever-lower and eventually negative, which drains savers’ capital even more aggressively and tricks businesses into even more extreme malinvestment. Sound familiar?

An inflation target implies that economists can actually measure the phenomenon. This is also false. Right now, governments create an official inflation number by arbitrarily including some things and excluding others – like stocks, bonds, and house prices. The latter “assets” are for some reason assumed not matter to “the cost of living” when in fact they matter greatly. And many of them are soaring. As the following chart illustrates, stocks and junk bonds are up over 200{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since 2009.

If you’re trying to save and invest, soaring financial asset prices make that process vastly more expensive, which is one definition of inflation. If you’re trying to find a decent home for your family, soaring home prices either make this impossible or squeeze out the other crucial things like health care, high quality food and good schools. Which is also a form of inflation.

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Silver Bullion Prices Set to Soar

by Myra Saefong, via Goldseek:

Silver bullion prices are expected to jump as solar and smartphone demand rises and the Fed tries to stave off economic weakness

Gold prices have far outpaced gains in silver so far this year, but silver will emerge as the winner for the second year in a row.

With a per-ounce price of $17.41 for silver futures as of Friday, analysts say the white metal is poised for a big climb, particularly as the gold-to-silver ratio stands well above historical averages. “Silver is definitely undervalued compared to gold and as a stand-alone investment. I consider it likely to be the most undervalued asset in the general investment markets,” says Paul Mladjenovic, author of Precious Metals Investing For Dummies.

The best barometer of its potential gains comes from its value relative to gold. The long-term average gold-to-silver ratio runs around 15 to 1, while the modern average going back a century is roughly 40 to 1, says Mark O’Byrne, research director at precious-metals storage provider GoldCore. The ratio, which reflects how many ounces of silver bullion it takes to equal the value of one ounce of gold, stood at a whopping 75 to 1 on Friday.

That steep ratio suggests “it’s a good time to buy silver bullion,” says O’Byrne. He explains that the “huge amount of silver used up in industrial applications” suggests the ratio should fall over the long term: “It’s likely that the gold/silver ratio will gradually return to below the 100-year average of 40 to 1.” At the current gold price, that would put silver at nearly $32 an ounce, O’Byrne says.

So far this year, however, prices of gold futures have risen nearly 12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, while silver has gained roughly 6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. Last year, silver’s climb of about 16{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} outpaced gold’s rise of almost 9{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

“Silver isn’t keeping pace with gold because the market perception is that gold is a safer play, while the market perceives silver’s role as exposed to economic weakness. But as inflation heats up, more of the public will realize silver’s second role as a store of value and inflation hedge,” says Mladjenovic.

Gold is viewed as more of a “pure monetary play, so as more difficulties emerge with paper assets,” such as currencies and debt, “gold will hold up well,” he adds. At the same time, silver, which is a smaller market, has “greater ties to industry,” notably in tech products like smartphones and solar power, and “will do well as markets see greater demand in those sectors.”

The main reason gold has outperformed silver this year, however, is the U.S. dollar, says Brien Lundin, editor of Gold Newsletter, noting, “Gold and the greenback have been trading in a very close inverse correlation for about the last two years, and the relationship has only grown closer this year.”

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Why Did Sears Holdings’ Largest Outside Shareholder Suddenly Jump Overboard?


by Wolf Richter, WolfStreet:

4th director to quit in 10 months. Bankruptcy prospects heat up. 

The board of directors of Sears Holdings keeps shrinking – and that makes sense: Who’d want to be a director as the retailer careens along its path to bankruptcy, it only being a question of when it’ll get there, and whether or not the company will make it through the holiday selling season.

Today the company announced that Bruce Berkowitz “has decided to step down” from the board of directors, effective October 31, 2017. He’d joined the board in February 2016. So that wasn’t long. No reason was given for the abrupt departure, which caused bankruptcy fears to flare up, and shares (SHLD) plunged 11.5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to $5.99.

Berkowitz is the fourth director to jump overboard over the past 10 months and none has been replaced. The other three:

  • Steven Mnuchin quit the board in December ahead of his appointment as Secretary of the Treasury. He’d been on the board for 12 years. The vacant slot has not been filled.
  • Alesia Haas quit the board in December 2016 after having joined in February 2016 – just long enough to get a look-see before bailing out. She’d been the CFO of OneWest Bank until it was acquired by CIT group.
  • Cesar Alvarez quit the board in March 2017. He’d joined in December 2013. At the time, he was co-chairman of the law firm Greenberg Traurig. His slot has not been filled.

This leaves only six directors, including CEO and hedge-fund manager Eddie Lampert, down from 10 in February 2016.

But Berkowitz is very special. He is the Chief Investment Officer of Fairholme Capital Management, the largest outside holder of Sears Holdings’ shares (insiders Lampert and his hedge fund ESL remain the largest owners). In its Form 13F filing with the SEC on August 14, Fairholme disclosed that it owned 28.86 million shares of Sears Holdings, or 27{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the total shares outstanding!

Fairholme Capital is a beaten-down investment fund. It had peaked in 2011 with $20 billion in assets. According to its Form 13F, filed in August, the fund’s equity positions were down to 9 holdings worth $982 million.

Among the nine positions were the following goodies:

Sears Holdings, 28.86 million shares, valued at the time at $255.7 million – or $172.9 million at today’s closing price.

Sears Holdings warrants, 6.7 million warrants to expire Dec. 15, 2020

Land’s End, 2.855 million shares. The company was spun off from Sears in 2014. At the time, those shares traded at $30.50. They’re now at $12.50.

Sears Canada, 21.56 million shares. The company is now in liquidation and its shares are worthless.

Sears Hometown & Outlet Stores, 77,850 shares, which plunged 9.5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} today to $1.90. They’re down 95{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since the summer of 2014.

Seritage Growth Properties 159,710 shares. The company owns 235 former Sears and Kmart properties. Its shares fell 3.4{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} today, on concerns that Sears was unraveling faster than expected, and that the math might not work out quite as well as expected.

What math?

Lampert is chairman of Seritage, which was spun off via a rights offering from Sears Holdings. The $2.6 billion deal transferred 235 Sears and Kmart properties from Sears Holdings to Seritage. The transaction closed in July 2015. Most of the stores were leased back to Sears Holdings. Since then, Sears Holdings closed a number of these, and Seritage leased the properties to new tenants at much higher rates.

The deal didn’t pass the smell test, with Lampert gallivanting around on both sides of it. Sears and Lampert were sued by individual investors who’d alleged that he controlled Seritage and had benefited from the deal by spinning off Sears’ most valuable locations for a pittance, to the detriment of Sears’ shareholders. In February 2017, Sears Holding and Lampert agreed to settlethe suit for $40 million.

The fact that the Seritage deal closed in July 2015 puts it beyond the fraudulent conveyance provision in the bankruptcy code, which allows for a two-year claw-back period. So now Sears Holdings is free to file for bankruptcy anytime.

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