Sunday, January 19, 2020

This Is Not Normal: Markets, Elon Musk and Donald Trump


by Pam Martens and Russ Martens, Wall St On Parade:

If Wall Street can glam up a story around a stock or a man or both, it can sell the hell out of the shares to the dumb money. If enough dumb money invests, the Dark Pools spring into action and drive the price even higher. That brings in hedge funds. Pretty soon you’re talking about real money. This is how we got the 1929 stock market crash, the Great Depression, the bust in 2000, the Enron, Worldcom and Tyco flameouts, and whatever we end up calling the bust that lies ahead of the current brainless bubble market.

Take yesterday’s market, for example. Boeing lost 2.91 percent of its value, driving the Dow lower, while Tesla gained 5.61 percent driving the Nasdaq higher.

The West Has Been Outwitted, But the Warmongers Are Panicked and Pushing for War


from LaRouchePac:

The West has been “sleepwalking, in their arrogance,” said Helga Zepp-LaRouche this weekend, first missing the boat on China’s New Silk Road, and now outflanked by Vladimir Putin’s dramatic announcement on March 1 that Russia has successfully developed weapon systems based on new physical principles which render the entire missile defense system deployed around Russia and China to be useless, obsolete. The pathetic effort to discredit the Putin announcement as a hoax, based on the fact that he used animations to demonstrate the new hypersonic missile rather than videos, fell flat yesterday as the Russian Ministry of Defense posted videos of the successful testing of the Kinzhal aeroballistic hypersonic missile.

The Fed Is Going “Cold Turkey”


by Jim Rickards, DailyReckoning:

March 21 is just over a week away.

That’s when the Federal Open Market Committee, FOMC, the Fed’s interest rate policy arm, will raise interest rates another 0.25%, the sixth such rate increase since the “liftoff” in interest rates in December 2015.

This is the most aggressive tempo of rate hikes of any major central bank and puts U.S. policy rates significantly higher than those in the U.K., Japan or eurozone.

The issue for investors is whether the Fed is raising rates too aggressively considering the strength of the U.S. economy. Higher rates imply a stronger dollar, imported deflation and head winds to growth.

Silver Purchasing Power

by Gary Christianson, Miles Franklin:

We know:
a) Federal Reserve and U.S. government policies devalue the dollar—down about 98% since 1913.

b) US. government spending is out of control, increases every year, regardless of revenues, and shows no sign of plateauing or declining.

c) Few people encourage balanced budgets and LESS spending. All government agencies, lobbyists, congresspersons, military contractors, and many corporations encourage MORE spending, and by necessity, more debt.

d) Debt based fiat currency units “printed” almost without limit enable deficit spending.


Get Ready for JPMorgan and Goldman Sachs to Get Yanked from the Dow

by Pam Martens and Russ Martens, Wall St On Parade:

Yesterday, Wall Street mega bank, JPMorgan Chase, was the biggest percentage decliner in the Dow Jones Industrial Average, losing 2.79 percent. Goldman Sachs, another Dow stock, was third in line after Caterpillar, losing 2.56 percent. But that performance was absolutely mild compared to how other global bank stocks that aren’t in the Dow performed.

Morgan Stanley lost 3.55 percent; Citigroup shed 3.30 percent; while Deutsche Bank, a German bank heavily interconnected with Wall Street banks, that trades on the New York Stock Exchange, touched $13.34 intraday – its lowest share price in more than 30 years. Deutsche Bank closed the day at $13.40, down 3.67 percent. A U.S. unit of Deutsche Bank, which is designated a global systemically important bank (G-SIB), recently failed its stress test according to the Federal Reserve.

China is One Signature Away From Dealing the Dollar a Death Blow

from Birch Gold Group:

If you leave your sliding glass door open, you might let in a stray cat, raccoon, or bugs without knowing it.

Some intruders are worse than others. All can be annoying. But let in a thief, who robs your home… and it only takes that one time to change your life forever.

The U.S. has essentially left their “sliding glass door” open, and on March 26 China is set to become the intruder that may very well deal a death blow to the dollar.

China Prepares Death Blow to the Dollar

On March 26 China will finally launch a yuan-dominated oil futures contract. Over the last decade there have been a number of “false-starts,” but this time the contract has gotten approval from China’s State Council.

With that approval, the “petroyuan” will become real and China will set out to challenge the “petrodollar” for dominance. Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), already warned last year that China launching a yuan-denominated oil futures contract will shock those investors who have not been paying attention.

This could be a death blow for an already weakening U.S. dollar, and the rise of the yuan as the dominant world currency.

But this isn’t just some slow, news day “fad” that will fizzle in a few days.

A Warning for Investors Since 2015

Back in 2015, the first of a number of strikes against the petrodollar was dealt by China. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar and towards the yuan and other Asian currencies.

Iran followed suit the same year, using the yuan with a host of other foreign currencies in trade, including Iranian oil.

During the same year China also developed its Silk Road, while the yuan was beginning to establish more dominance in the European markets.

But the U.S. petrodollar still had a fighting chance in 2015 because China’s oil imports were all over the place. Back then, Nick Cunningham of wrote

Despite accounting for much of the world’s growth in demand in the 21st Century, China’s oil imports have been all over the map in recent months. In April, China imported 7.4 million barrels per day, a record high and enough to make it the world’s largest oil importer. But a month later, imports plummeted to just 5.5 million barrels per day.

That problem has since gone away, signaling China’s rise to oil dominance…

The Slippery Slope to the Petroyuan Begins Here

The petrodollar is backed by Treasuries, so it can help fuel U.S. deficit spending. Take that away, and the U.S. is in trouble.

It looks like that time has come…

A death blow that began in 2015 hit again in 2017 when China became the world’s largest consumer of imported crude

Now that China is the world’s leading consumer of oil, Beijing can exert some real leverage over Saudi Arabia to pay for crude in yuan. It’s suspected that this is what’s motivating Chinese officials to make a full-fledged effort to renegotiate their trade deal.

So fast-forward to now, and the final blow to the petrodollar could happen starting on March 26. We hinted at this possibility back in September 2017

With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.

First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.

Once the oil markets are upended, the yuan has an opportunity to become the dominant world currency overall. This will further weaken the dollar.

The Petrodollar’s Downfall Could be a Lift for Gold

Amongst all the trouble ahead for the dollar, there are some good news too. The U.S. might have ditched the gold standard in the 1970’s, but with gold making a return to world headlines… we could see a resurgence.

For the first time since our nation abandoned the gold standard decades ago, physical gold is being reintroduced to the global monetary system in a major way. That alone is incredibly good news for gold owners.

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A Bull Market For The History Books — Bear Market To Follow Shortly


by John Rubino, Dollar Collapse:

If you’re getting the sense that stocks always go up, that’s because they’ve been doing so for a really, really long time. From CNBC today:

On the bull market’s ninth birthday, here’s how it stacks up against history


• The Dow has quadrupled during the bull market, which turned 9 on Friday.

• This is the biggest and longest bull market for the Dow post-WWII, according to Leuthold Group.

The bullish run in the Dow Jones industrial average — which celebrates its ninth birthday Friday — is the longest ever and the greatest percentage gain since World War II, according to Leuthold Group.

The corresponding run by the S&P 500, notes LPL Financial, is that benchmark’s second-largest and second-longest bull market ever, with only the 1990s stock market run led by technology stocks in the way.

Despite a more than 10 percent correction in equities last month following a burst of bullish activity, Leuthold’s Doug Ramsey doesn’t think the bull is done yet.

“Assuming the Dow Jones industrial average can exceed its late-January high on March 9th or thereafter, this cyclical bull market will become the first one ever to last nine years,” said Ramsey, his firm’s chief investment officer. “Historically, cycle momentum highs are usually followed by a push to even higher price highs over the next several months.”

The Dow hit an all-time high of 26,616.71 on Jan. 26, the same day the S&P 500 clinched its own record of 2,872.87. The major indexes are off their record highs 6.4 percent and 4.6 percent respectively.

This chart from Leuthold Group shows where the Dow bull market stacks up since 1900. It’s far and away the longest in modern financial times. In terms of percentage gains, it’s third behind two bull markets pre-WWII.

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There is No “Free Trade”–There Is Only the Darwinian Game of Trade

by Charles Hugh Smith, Of Two Minds:

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.

Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:

1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.

2. Extract foreign resources at low prices.

3. Deny geopolitical rivals access to these resources.

4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources, a dynamic I explained last week in Forget “Free Trade”–It’s All About Capital Flows.

All the blather about “free trade” is window dressing and propaganda. Nobody believes in risking completely free trade; to do so would be to open the doors to foreign domination of key resources, assets and markets.

Trade is all about securing advantages in a Darwinian struggle to achieve or maintain dominance. As I pointed out back in 2005, the savings accrued by consumers due to opening trade with China were estimated at $100 billion over 27 years (1978 to 2005), while corporate profits expanded by trillions of dollars.

In other words, consumers got a nickel of savings while corporations banked a dollar of pure profit as sticker prices barely budged while input costs plummeted. Corporations pocketed the difference, not consumers.

As longtime correspondent Chad D. noted in response to my essay on capital flows, restricting trade may be one of the few ways smaller nations have to avoid their resources and assets being swallowed up by mobile capital flowing out of nations with virtually unlimited credit (the US, the EU, China and Japan).

Protecting fragile domestic industries with tariffs has a long history, including in the US, but the real action isn’t in tariffs: it’s in the bureaucratic tools to limit trade and the soft and hard power plays that secure cheap resources while denying access to those resources to geopolitical rivals.

The bureaucratic means of restricting imports have been raised to an art in Japan and other export-dependent nations: there may not be any visible tariffs, just bureaucratic sinkholes that tie up imports in red tape.

Then there’s currency manipulation, for example, China’s peg to the US dollar.What’s the “free market” price of Chinese goods in the US? Nobody knows because the peg protects China from its own currency being too strong or too weak to benefit its export-dependent economy.

Those bleating about “free trade” are simply pushing a Darwinian strategy that benefits them above everyone else. US corporate profits have quadrupled since China entered the WTO; is this mere coincidence? No: global corporations arbitraged labor, credit, taxes, environmental/regulatory and currency inputs to dramatically lower their costs (and the quality of the goods they sold credit-dependent consumers) and thus boost profits four-fold in a mere 15 years while tossing the hapless consumers a few nickels of “lower prices always” (and lower quality always, too).

The Neoliberal Agenda trumpets “free trade” because “free trade” is a cover for “free capital flows.” Once capital is free to flow from central-bank fueled global corporations, no domestic bidder can outbid foreign mobile capital, as those closest to the central bank credit spigots can borrow essentially unlimited sums at near-zero rates–an unmatched advantage when it comes to snapping up resources and assets.

If we ask cui bono, to whose benefit?, we find the consumer has received shoddy goods and paltry discounts from “free trade,” while corporations, banks and financiers have benefited enormously.

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows: the winners are few and the losers are many. Tariffs will not solve the larger problems of reduced employment, stagnant wages and rising income inequality. To make a dent in those issues, we’ll need to tackle central bank and central-state policies that have pushed financial speculation to supremacy over the productive economy.

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‘Chinese Dream,’ or Why Second Biggest Economy Scraps Presidential Term Limit


from Sputnik News:

Chinese lawmakers voted almost unanimously Sunday to endow the country’s leader, Xi Jinping, with the power of life-long rule; Sputnik has attempted to determine how justified the move is. Here is a list of Xi’s accomplishments since 2012 – the year when he officially took office.

Xi’s Purges and Flat No to Corruption

For the communist country, the past five years have been a period of sweeping reforms and multiple challenges. For a start, Xi chose to transform the ruling party and introduce progressive measures for better inter-party discipline.

Having thus secured the country’s political unity, he embarked on an all-embracing anti-corruption campaign, which saw more than a million high- and low-level officials, as well as former officials, punished for their malfeasance.

Under the ideology commonly referred to as the “Chinese Dream,” coined back in 2012-2013, Xi outlined the sweeping reforms that China plans to implement through 2020, many of which are now under way.

Technology Comes First

The technological revolution, namely in the IT domain, is one of the landmarks of Xi’s first term. Now, despite being partly isolated from the global Internet, the Chinese are able to hail a cab, book tickets or even buy groceries via smartphones – which were still relatively unheard of before 2012.

China to Overtake US in Environmental Race?

He has also been praised for his hard line on environmental polluters and his pledge to eliminate extreme poverty in the country by 2020. For instance, back in 2012, the term that garnered special attention was “Ecological Civilization,” (EC)  a phrase literally included in the Chinese Communist Party Constitution.

Under the framework of Ecological Civilization, Xi claims to contribute in tackling climate change issues, as well as push for energy transformation and build up China’s renewable energy sector. Back then, Xi described the EC in the most romantic terms:  “green mountains and waters are golden and silver mountains and waters.”

On top of that, as President Donald Trump pulled the United States out of the Paris Accord last year, President Xi Jinping, by contrast, staked out China’s ambition to be a committed player in tackling climate change. Critics then even started speculating on whether China would outpace the United States as the new world’s environmental leader.

Second Largest Economy

Under Xi Jinping, in 2015, China became the first-ever nation to have a GDP exceeding $20 trillion, having doubled its overall output in just six years.  As China has confidently secured its status as the second largest economy in terms of purchasing power parity according to the IMF, China’s Renminbi also enjoys considerable growth and is undergoing internationalization. Separately, China masterminded the founding of the Asian Infrastructure Investment Bank in 2015, whereas its most promising Shenzhen province has been dubbed  the world’s next Silicon Valley.

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Toxic Debt Still Plagues Spanish Banks (and Taxpayers Will End Up Paying for It)

by Don Quijones, Wolf Street:

Years after Crisis Was “Solved.”

Europe’s banking authorities are finally beginning to pile pressure on poorly performing banks to clean up their books, something that should have happened a long, long time ago. But as is often the case with European banking regulation, there’s an elevated risk of unintended consequences.

If a bank with a deeply compromised balance sheet is forced to report its loans that have gone bad — the hidden piles of toxic “assets” — at prices that reflect their real value (rather than the illusory prices the bank arrived at with its mark-to-model formula), that bank could suddenly find that its capital has gone up in smoke.

This is more or less what happened with Banco Popular, the mid-sized Spanish bank that went under in June last year. No matter how creative the rescue plans its management came up with — including spinning off a bad bank called “Sunrise” — Popular simply couldn’t find a viable way of disposing of its nonperforming loans without crippling its financial health.

A similar thing appears to be happening with Spain’s fifth largest bank, Banco Sabadell, the Spanish bank that has grown the most in relative terms since the crisis. It has more than doubled in size in the last ten years (from €78.7 billion in assets in 2008 to €173.2 billion in 2017), following the acquisitions of Banco Gallego, Banco Guipuzcoano, Caixa Penedès, and the bankrupt savings bank Caja de Ahorros del Mediterráneo (CAM).

Now it has immense difficulty ridding itself of the impaired assets it acquired when it took over CAM in 2012. But unlike Popular, Sabadell is getting a massive helping hand from Spain’s government.

As part of the acquisition of CAM, it was agreed that Spain’s Deposit Guarantee Fund (DGF) — the fund that’s supposed to guarantee all insured bank deposits in Spain — would cover 80% of the losses accrued on CAM’s €24 billion portfolio of real estate loans. Even before CAM became the property of Sabadell, the DGF injected €5.2 billion — all of it public funds — into CAM.

It was hoped that CAM’s own loan provisions of €3.9 billion, would cover the rest of the losses. But they didn’t come close. In 2014 the provisions were completely wiped out.

A year later, Sabadell asked the DGF for €825 million euros to cover 80% of its losses on CAM’s impaired assets for that year. In 2016, the total annual losses surged to €981 million euros. At the beginning of 2018, Sabadell presented its next bill, for the losses incurred in 2017. It amounted to €1.3 billion. It’s not hard to see the trend!

What is perhaps most surprising is that this is all happening at a time when Spain’s real estate sector is recovering from the crisis. Real estate prices are rising, yet so, too, are the annual losses on the sale of CAM’s assets.

Based on calculations the DGF published in 2017 (with data from 2016), the total forecast losses of the still-covered portfolio could amount to as much as €7.3 billion, of which the DGF would have to cover almost €6 billion. The remainder would be borne by Sabadell. That’s on top of the more than €8 billion of losses already accrued over the last five years.

In other words, by the time this is all done and dusted, well over €10 billion of public funds will have been spent to fill the gaping balance sheet holes left behind by Sabadell’s sale of CAM’s toxic assets.

Some of those assets include loans for real estate projects of a highly dubious, if not fraudulent, nature. According to an investigation by the Bank of Spain, large parcels of land in Valencia, Catalonia, Murcia and Andalucia were sold at insanely inflated prices. From an initial investment of €594 million, 11 real estate projects funded by CAM generated losses of €467 million (78%), of which €405.6 million have been deemed unrecoverable.

This week the judge presiding the case, Carmen Lamela, ruled that the statue of limitations has unfortunately elapsed. As tends to happen with cases of white collar crime in Spain, the accused were cleared — not because they’d been found innocent but because the wheels of justice moved too slowly for a judgement to be reached.

Most of the losses those dodgy loans racked up will now be covered by the DGF. It’s not clear exactly how much Spain’s DGF has left in its coffers today. According to El Mundo, at the end of 2016 its total balance was €1.6 billion — far short of the €6.4 billion it’s supposed to have by 2024. But it could be much worse now: Since late 2016, the fund has had to shell out some €2.2 billion in guarantees on Sabadell’s toxic real estate assets.

Meanwhile, Spain’s second biggest bank, BBVA, is contemplating selling its own stash of guaranteed dodgy assets, which it inherited from its acquisition of bankrupt Catalan savings bank Unnim in 2012. That would mean even more money flowing out of Spain’s deposit guarantee fund.

What happens if the DGF itself, whose primary purpose is to cover insured bank deposits, runs out of funds? The answer is  predictable: the government steps in with another taxpayer-funded infusion, which it will try to hide with yet more creative accounting while Europe’s political and monetary authorities steadfastly look the other way.

This is all happening because the ECB is finally prodding banks in the Eurozone to unload their bad loans. But the move comes with big risks attached. It could result in big losses and force banks to raise new capital – no mean feat with bank valuations so low.

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