Saturday, January 25, 2020

The Four Most Dangerous Words In Investing…

by Dave Kranzler, Investment Research Dynamics:

“This time it’s different.” That quote is from Sir John Templeton, a legendary investor who is considered the father of the modern mutual fund industry. For most of the month of December, I’ve been hearing ads from mortgage brokers who are promoting the idea of refinancing your house in order to take care of holiday bills. It reminded of the early 2000’s when then Fed Chairman, Alan Greenspan, was urging Americans to use their house as “an ATM” by taking on home equity loans as a means of drawing out cash against home equity for consumption spending. Adding more debt against your house to pay off big credit card balances merely shifts household debt from one creditor to another. What’s worse, it frees up room under the credit card accounts to enable the consumer to take on even more debt.

In reference to the mortgage and housing market collapse in 2008, Ben Bernanke wrote, “Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.” It’s hard to know if that statement is genuine or not, given that many of us saw the housing bubble that was developing as early as 2004.

The Federal Government’s low-to-no down payment programs via Fannie Mae, Freddie Mac, the FHA, VHA and USDA, combined with the hyper-promotion of cash-out refinancings (bigger 1st mortgages and/or second-lien mortgages) tell me that, once again, most people in this country believe – or rather, hope – that the outcome will be different this time.

The graphic just below  is an interesting way to show the affect that Central Bank monetary inflation has on asset valuation vs income. Asset valuation should be theoretically derived from the income levels connected to the assets. Either the asset requires a certain level of income level to purchase and maintain the asset or the asset itself generates income/cash flow.

You’ll note the pattern that developed starting with the tech bubble era. Prior to the Clinton administration the Fed subtly intervened in the financial system by been printing money in excess of marginal wealth creation (GDP growth) once Nixon closed the gold window. But, in conjunction with the Greenspan Fed, the Government’s willingness to print money as an official policy tool took on a whole new dimension during the Clinton administration.  Note:  I’m not making a political judgment per se about the Clinton presidency, because the Fed’s ability to print money to prop up the stock market was established with Reagan’s Executive Order after the 1987 stock crash. You’ll note that the household net worth to income ratio began to rise at a sharp rate starting in mid-1994, which was when the Clinton-Rubin strong dollar policy was implemented. It’s also around the time that Greenspan began regularly printing money to address the series of financial problems that arose in the 1990’s.

The current ratio of household net worth to income is 6.75 – the highest household net worth to income ratio in history. It peaked around 6.5x in 2007 and 6.1x in early 2000. You’ll note that from 1986 to 1995 the ratio averaged just around 5.1x.

A graphic that is correlated to the household net worth/income ratio is the household net worth to GDP.  The pic to the right shows household net worth (assets minus debt) vs. a plot of the U.S. nominal GDP. As you can see, when the growth in household net worth deviates considerably from the growth in nominal GDP, bad things happen to asset values. Note: household assets consist primarily of a house and retirement funds. Currently the level of household net worth – that is, the value of homes and stock portfolios – relative to GDP is at its highest point in history. This will not end with happiness.

I wanted to present the two previous graphics and my accompanying analysis, in conjunction with the theme that “it is not different this time.” The extreme degree of household asset inflation relative to incremental GDP wealth output is yet another data-point indicating the high probability that a nasty stock market accident will occur sooner or later. To compound the severity of the problem, household asset inflation has been achieved primarily through massive credit creation. The amount of debt per home sold in this country currently is at a record level.

During this past week, the bullish sentiment of investors continued to soar.  A record level of investor bullishness never ends well for the stock market. Speaking of which, there has been an interesting development in the Conference Board’s Consumer Confidence metrics. The headline-reported index showed an unexpected declined from 129.5 to 122.1 vs 128 expected. This is a big percentage drop and a big drop vs Wall Street’s crystal ball. However, while the “present situation” index hit its highest level since April 2001, the “expectations” – or “hope” – metric plunged from 113.3 to 99.1. It seems the current euphoria connected to the stock and housing markets is not expected to last.

Read More @ InvestmentResearchDynamics.com

QE Party Over, even by the Bank of Japan

by Wolf Richter, Wolf Street:

First decline in its colossal balance sheet since 2012.

An amazing – or on second thought, given how central banks operate, not so amazing – thing is happening.

On one hand…

Bank of Japan Governor Haruhiko Kuroda keeps saying that the BOJ would “patiently” maintain its ultra-easy monetary policy, so too in his first speech of 2018 in Tokyo, on January 3, when he said the BOJ must continue “patiently” with this monetary policy, though the economy is expanding steadily. The deflationary mindset is not disappearing easily, he said.

On December 20, following the decision by the BOJ to keep its short-term interest-rate target at negative -0.1% and the 10-year bond yield target just above 0%, he’d brushed off criticism that this prolonged easing could destabilize Japan’s banking system. “Our most important goal is to achieve our 2% inflation target at the earliest date possible,” he said.

On the other hand…

In reality, after years of blistering asset purchases, the Bank of Japan disclosed today that total assets on its balance sheet actually inched down by ¥444 billion ($3.9 billion) from the end of November to ¥521.416 trillion on December 31. While small, it was the first month-end to month-end decline since the Abenomics-designed “QQE” kicked off in late 2012.

Under “QQE” – so huge that the BOJ called it Qualitative and Quantitative Easing to distinguish it from mere “QE” as practiced by the Fed at the time – the BOJ has been buying Japanese Government Bonds (JGBs), corporate bonds, Japanese REITs, and equity ETFs, leading to astounding month-end to month-end surges in the balance sheet. But now the “QQE Unwind” has commenced. Note the trend over the past 12 months and the first dip (red):

JGBs, the largest asset class on the BOJ’s balance sheet, fell by ¥2.9 trillion ($25 billion) from November 30 to ¥440.67 trillion on December 31. In other words, the BOJ has started to unload JGBs – probably by letting them mature without replacement, rather than selling them outright.

Some other asset classes on its balance sheet increased, including equity ETFs, Japanese REITs, “Loans,” and “Others”

On net, and from a distance, the first decrease of the BOJ’s assets in the era of Abenomics was barely noticeable. Total assets are still a massive pile, amounting to about 96% of Japan’s GDP (the Fed’s balance sheet amounts to about 23% of US GDP):

Read More @ WolfStreet.com

“Fire and Fury”

by James Howard Kunstler, Kunstler:

It’s told that Richard Nixon, during the endgame weeks of Watergate, wandered the west wing hallways in the wee hours, fueled on scotch whiskey, conversing with portraits of notable Americans, including many of his predecessors. “Whaddaya say, Millard? Should I stay or should I go?” He was a trapped animal, after a long, grueling, hunt, and he knew the hounds were closing in. Perhaps he took some consolation in hearing that old Abe Lincoln was even more depressed in the final, victorious days of the civil war than he, Nixon, was at the sheer cruelty of history. In the end, he marshaled the remaining shreds of his dignity, and mounted the helicopter to — his pursuers hoped — an oblivion more fathomless than the mystery of the grave.

And now here is Mr. Nixon’s latest successor, the Golden Golem of Greatness, Donald J. Trump, haunting those hallways with the political equivalent of a sucking chest wound, Big Mac in one hand, Big Gulp in the other, wondering who all the people in those oil paintings are… and what are they looking at, anyway, as he storms back to his lonely private quarters for a few last tweets of anguish.

It’s beginning to look like the last round-up at the OK corral for this somewhat accidental president, product of a decrepitating polity that otherwise grudges up a leadership of fretful, craven, corporate catamites and call-girls. Michael Wolff’s juicy book, “Fire and Fury,” would be a career-ender for any self-respecting politician, but the narcissism of Trump is altogether a different mental state. Speaking of which, it sounds like some of the amateur psychologists in congress are taking a deep Talmudic dive into the 25th amendment, to see if they can pound the square peg of Trump’s head through that particular round hole in the constitution.

Is he fit for office? This question hangs in the air of the DC swamp like a necrotic odor that can’t be seen while it can’t be ignored. In a way, the very legitimacy of the republic comes into question — if Trump is the best we can do, maybe the system itself isn’t what it was cracked up to be. And then why would we think that removing him from office would make things better? How’s that for an existential quandary?

We’re informed in The New York Times today that “Everyone in Trumpworld Knows He’s an Idiot,” though “moron” (Rex Tillerson) and “dope” (General H.R. McMaster) figure in there as well. Imagine all the energy it must take for everyone in, say, the cabinet room to pretend that the chief executive belongs in his chair at the center. It reminds me of that old poker game, “Indian,” where each player holds a hole card pressed outward from his forehead for all to see but him.

Ill winds are blowing and dire forces are converging. Do you think that it’s a wonderful thing that the Dow Jones Industrial Average just bashed through the 25,000 gate? The President obviously thinks so. And, of course, he’s egged on by all the fawning economic viziers selling stories about a booming economy of waiters, bartenders, and espresso jockeys. But, I tell you as sure as there is a yesterday, today, and tomorrow, those stock indexes, grand as they seem, are teetering on the brink of something awesomely sickening. And when they go over that no-bid Niagara cascade into the maelstrom, Mr. Trump’s boat will be going over the falls with them.

Read More @ Kunstler.com

Survey Shows Majority Of Pensioners Have No Idea Their Pensions Are Underfunded

from ZeroHedge:

Over the past several years, we’ve written a countless number of posts on the precarious financial situation of numerous state and local public pensions around the country all while frustratingly wondering how the massive $3-$6 trillion dollar ticking time bomb doesn’t seem to be that much of a concern to frothy asset markets.  As it turns out, precisely no one (our readers excluded, of course), including the workers who are active participants in insolvent public pension ponzi schemes, have any idea just how underfunded they really are.

According to a staggering new survey conducted by Spectrem Group6 out of 10 CalPERS retirees and 8 out of 10 NYC retirees are apparently under the illusion that their pensions are fully funded…

NYC Funds pension members were the most likely to indicate that their pension is fully funded (80%) while the CalPERS members were the least likely to indicate that their pension was fully funded (63%). Sixty-six percent of National members indicated that they believe their pension fund is fully funded. In reality, none of these pensions are fully funded. Based upon annual reports, CalPERS is funded at 68.1% and NYC Funds is funded at 62%.

and that’s a survey of the people who are actually owed money by these ponzi schemes…which means that the general population working in the private sector has no clue whatsoever that underfunded pensions could literally result in a complete, global economic crisis at some point over the next 10-20 years.

Of course, as this one simple map illustrates, reality is somewhat different than the hopes and dreams of America’s public pensioners.  In fact, when using realistic discount rates, there is only 1 state pension system in the entire country, Wisconsin, that is more than 50% funded….all the others are trillions of dollars short.

Read More @ ZeroHedge.com

A Good German Idea for 2018

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by Yanis Varoufakis, Project Syndicate:

While many Europeans agree that institutional reforms are needed to revive integration efforts, there is deep disagreement on what to do, and how to do it. The place to start is to recognize, with Immanuel Kant, that to be rational means more than being able to deploy your means efficiently in order to achieve your ends.

ATHENS – By 2016, almost all Europeans had realized that radical policy and institutional reforms were essential to revive the European project. Yet serious reform was impeded by the usual disagreement about what should be done – a dispute that Emmanuel Macron, France’s new president, once described as a “holy war” between German and French elites.

The year just ended, highlighted by the election of a French president much to German Chancellor Angela Merkel’s liking, demonstrated that, ultimately, it does not really matter who rules in Berlin and in Paris, or how much they like each other. The “holy war” persists, even if the missiles with which each side demolishes the other’s proposals are now wrapped in diplomatic velvet.

At the heart of this Franco-German war is the clash between two Rs: the German commitment to rectitude versus the French penchant for redistribution. German officials greet every French government proposal by mentally computing its cost for German taxpayers. And, behind every German counter-proposal, French officials see a ploy to hide behind rules and regulations so that the German elites can have their cake and eat it. Europe’s continued slide into stagnation and disrepute is the natural outcome.

Perhaps the German insistence on rectitude is right, although not in a sense that German officials will necessarily appreciate. I could not, in good conscience, side credibly with any French, Italian, or Greek proponent of redistribution if their proposals violated the principles of rectitude. Doing what is right is, surely, superior to doing what is wrong, but expedient. But then the question becomes: What is the right thing to do? And how can we agree on any answer, given our different interests, dispositions, and cultural backgrounds?

One thing is certain: We will never find out what rectitude commands if we are driven solely by our “interests.” Europe’s impasse is largely due to a standoff between opposing desires, objectives, and concerns: German fears of Greco-Latin rule-bending will always trump French fears of German empire-building, and vice versa. But if prejudicial desires lead to a dead end, and fail to reveal the right course of action, where does the key to rectitude lie?

“We should all do our duty” – a very German reply – merely displaces the disagreement to another plane, where we interminably debate competing duties. All madmen in authority, after all, believed they were doing their duty. So the question becomes: “How can I know what my duty entails?” A theist answer is equally unacceptable, given the monstrous crimes carried out by zealots convinced they were fulfilling their divine duty.

The best answer I have come across is German: Immanuel Kant’s, to be precise. For Kant, who struggled to re-define ethics in a new era of market societies, our duty can and must be deduced from our capacity for rationality. Unlike personal tastes, which are fickle and offer no sure path to happiness or virtue, duties can be discerned by a logical mechanism common to all humans.

To be rational means more than being able to deploy your means efficiently in order to achieve your ends. All sorts of animals are good at matching available means to given ends. But humans are unique, Kant insists, because, unlike cats and dogs, we can pass rational judgment on our desires. We can ask ourselves, “I like X, but should I?” And we can say, “It is my duty to do Y, even though Y will probably lead to outcomes I dislike, given my expectations of what others will do.”

But if the mark of a rational person is a capacity to act on reasons transcending cost-benefit analysis, how can our rational duty be deduced impartially, free of the influence of personal interests or prejudices?

Kant offers a famous example: Language is what distinguishes us from other species; without it, we are mere beasts. While lying often pays, if we all lied all the time, language would become obsolete. Rational humans, Kant concludes, must recognize that they have a duty to abstain from a practice (lying) that, if adopted by everyone at once, would annul our most precious invention (language).

No god is necessary, no moralizing is required, to demonstrate our duty to tell the truth. Practical reasoning is all it takes: A world where everyone lies is one in which human rationality, which depends entirely on language, dies. So it is our rational duty to tell the truth, regardless of the benefits lying might bring in practice.

Applied to market societies, Kant’s idea yields fascinating conclusions. Strategic reductions in price to undercut a competitor pass the test of rational duty (as long as prices do not fall below costs). After all, producing maximum quantities at minimum prices is the holy grail of any economy. But strategic reductions of wages to ever lower levels (the Uberization of society) cannot be rational, because the result would be a catastrophic collapse, owing to disappearing aggregate demand.

Turning to Europe, Kant’s principle implies important duties for governments and polities. And Germany and France would be held to be in dereliction of their duties to a functioning Europe.

Read More @ Project-Syndicate.org

Peter Thiel’s Founders Fund places a big bet on Bitcoin

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by Alex Christoforou, The Duran:

Billionaire Silicon Valley investor is investing heavily in Bitcoin.

Few mainstream investors have bought large sums of bitcoin, scared off by concerns about cybersecurity and liquidity, but one of the biggest names in Silicon Valley is placing a a very big moonshot bet on bitcoin.

According to various insiders, Founders Fund, the venture-capital firm co-founded by Peter Thiel, has amassed hundreds of millions of dollars in bitcoin.

The bet has been spread across several of the firm’s most recent funds, including one that began investing in mid-2017 and made bitcoin one of its first investments.

Via WSJ

Founders and Mr. Thiel, 50 years old, are well-known for early investments in companies like Facebook Inc. that sometimes take years to come to fruition. The bitcoin bet is quickly showing promise. Founders bought around $15 million to $20 million in bitcoin, and it has told investors the firm’s haul is now worth hundreds of millions of dollars after the digital currency’s ripping rise in the past year.

It isn’t clear if Founders has sold any of its holdings yet. The bet hasn’t been previously reported.

Bitcoin vaulted last year from a fringe area of Wall Street interest to the most talked-about asset in the financial world. The currency, essentially a digital form of money with no government or central bank behind it, started 2017 trading around $1,000, then shot to near $20,000 as individual and institutional investors alike ramped up speculating on its rise. From its all-time high reached in mid-December, the price chopped almost in half over the rest of the month.

Prices as of late Tuesday afternoon were up 10% to $14,783, after ending 2017 at about $14,000, according to research site CoinDesk. Bitcoin spiked after The Wall Street Journal reported Founders’ investment.

Relatively few mainstream investors have bought large sums of bitcoin, scared off by concerns about cybersecurity and liquidity, as well as more mundane fears of investment losses. JPMorgan Chase & Co. Chief Executive James Dimon famously called the digital currency a “fraud,” while Bridgewater Associates founder Raymond Dalio said it was a bubble. Even some of those who do own it are cautious about speaking too publicly, lest they draw the attention of hackers.

The late-year price plunge has also spooked some. On Dec. 22, the prominent investor Michael Novogratz said he was delaying launching a crypto-focused hedge fund for outside investors, stating “we didn’t like market conditions for new investors.” South Korea announced last week it would crack down on cryptocurrency trading, an ominous sign given that the country at one point accounted for as much as one-fourth of global bitcoin trading activity.

Founders began buying in for its investors before the recent volatility, the people familiar with the matter said.

The billionaire Mr. Thiel is an outspoken libertarian who co-founded digital payments service PayPal Holdings Inc. and made headlines as a prominent booster of President Donald Trump. He serves on the president’s technology advisory council. Mr. Thiel previously ran a multibillion-dollar hedge fund focused on global macroeconomic trends, and had some success navigating the financial crisis before racking up investment losses by investing in havens and missing out on the subsequent rebound.

As a venture capitalist, Mr. Thiel and Founders fund are among the most successful in Silicon Valley. Founders has more than $3 billion under management and has taken stakes in more-than 100 companies, including Facebook, Airbnb Inc., SpaceX and Lyft. More recent investments include the crypto-focused hedge funds Metastable Capital and Polychain Capital, which puts money into blockchain companies.

Mr. Thiel made the decision to buy up bitcoin together with Founders’ other investment partners, a person familiar with the matter said.

In an October onstage interview at an investment conference in Saudi Arabia, Mr. Thiel described cryptocurrencies as “charismatic.”

“While I’m skeptical of most of them, I do think people are a little bit underestimating bitcoin, specifically, because it is like a reserve form of money,” Mr. Thiel said. “If bitcoin ends up being the cyber equivalent of gold, it has great potential.”

Read More @ TheDuran.com

Silver News: Supply and Demand Fundamentals, and New Technological Breakthroughs

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by Peter Schiff, SchiffGold:

Silver had a tough year in 2017, with flat demand and shrinking supply. Even with these headwinds, the white metal still gained more than 6% on the year. With demand growing in key industrial sectors and supply tightening, it appears silver is poised for a strong year in 2018.

In its most recent issue of Silver News, the Silver Institute outlines the 2017 silver market data compiled in the GFMS/Thomson Reuters’s Interim Silver Market Review and highlights a number of technological innovations involving silver.

According to the GFMS survey, overall silver demand fell roughly 5% in 2017 primarily due to a sharp dip in investment. The market will show a small annual physical surplus of 32.2 million ounces for 2017, but there are signs demand is turning around. Industrial fabrication is forecast to show a 3% rise when the numbers are all in for 2017, led by strong gains in the solar industry and modest increases in demand from electronics and brazing alloys and solders. This is expected to accelerate in 2018.

Silver supply remained broadly flat last year. Mine production fell about 2% year-on-year. An increase in scrap supply helped offset declining mine production.

During the Silver Industrial Conference in Washington, D.C., the focus was on growing demand for silver in key sectors.

The latest issue of Silver News also features some fascinating technological developments related to silver.

  • By combining silver nanowires and graphene — a form of carbon — a team of UK scientists has made a material that could produce touchscreens that are stronger and more flexible than those currently available.
  • Scientists at Kumamoto University, Keio University and Dai Nippon Toryo Co., Ltd., in Japan have developed a process using lasers that increases the anti-bacterial fighting properties of silver nanoparticles.
  • A team led by Shahnaz Qadri, Ph.D., College of Science and Engineering, Hamad Bin Khalifa University, Doha, Qatar, explored the potential of using particles composed of silver, copper and boron to minimize the risk of bone infection in diabetics. A single dose of the antimicrobial nanoparticles killed 90% of bacteria-causing infection in bone cells.
  • A research team at Binghamton University, State University of New York, has developed a textile-based, bacteria-powered bio-battery that could be integrated into wearable electronics. The batteries are powered by bacteria in sweat and rely on silver-oxide as one of its components.

Read More @ SchiffGold.com

Don’t Look Now, but Gold Just Finished Its Best Year Since 2011

by Clint Steiger, Money Metals:

Metals investors may have missed it given the gloomy sentiment that plagued markets for much of 2017, but gold just finished its best year since 2011.

Perhaps in a year like the one just passed, 13% gains are simply not inspiring. U.S. stocks finished about 25% higher for the year, and crypto-currencies including Bitcoin left all other asset classes in the dust. Bitcoin gained roughly 1,400%.

Die hard gold bugs enter 2018 waiting for crypto-bugs and stock bulls to see the value of precious metals. Fortunately, precious metals have served reliably both as an inflation hedge and as a safe haven for most of recorded history. It looks less and less probable investors will get through another 12 months while ignoring both inflation and market risk simultaneously.

While other markets were finishing 2017 strong, the U.S. dollar ended the year with a whimper. The dollar fell 10%, its worst performance in more than a decade.

That weakness has yet to manifest itself as price inflation in consumer goods and services. It has instead shown up in asset prices.

Consumers have yet to feel their dollars getting weaker, which may explain much about why a traditional inflation hedge like gold isn’t getting a lot of attention. That may change in the months ahead, particularly if President Donald Trump can add his debt-financed infrastructure spending program to the tax cuts recently passed. Both initiatives represent fiscal stimulus for Main Street, and a shift from Wall Street oriented monetary policy including Quantitative Easing.

Fiscal stimulus programs should contribute to more weakness in the dollar, as deficits and borrowing increase. Yes, the Republican led Congress could insist on spending reductions elsewhere to compensate for tax reduction and infrastructure spending, but only the most naive would consider that a genuine likelihood.

If the dollar loses another 10% in the year ahead, metals ought to be significant beneficiaries – even if most aren’t paying attention to that possibility.

Read More @ MoneyMetals.com

How quickly will the dollar collapse?

by Alasdair Macleod, GoldMoney:

This might seem a frivolous question, while the dollar still retains its might, and is universally accepted in preference to other, less stable fiat currencies. However, it is becoming clear, at least to independent monetary observers, that in 2018 the dollar’s primacy will be challenged by the yuan as the pricing medium for energy and other key industrial commodities. After all, the dollar’s role as the legacy trade medium is no longer appropriate, given that China’s trade is now driving the global economy, not America’s.

At the very least, if the dollar’s future role diminishes, then there will be surplus dollars, which unless they are withdrawn from circulation entirely, will result in a lower dollar on the foreign exchanges. While it is possible for the Fed to contract the quantity of base money (indeed this is the implication of its desire to reduce its balance sheet anyway), it would also have to discourage and even reverse the expansion of bank credit, which would be judged by central bankers to be economic suicide. For that to occur, the US Government itself would also have to move firmly and rapidly towards eliminating its budget deficit. But that is being deliberately increased by the Trump administration instead.

Explaining the consequences of these monetary dynamics was the purpose of an essay written by Ludwig von Mises almost a century ago.[i] At that time, the German hyperinflation was entering its final phase ahead of the mark’s eventual collapse in November 1923. Von Mises had already helped to stabilise the Austrian crown, whose own collapse was stabilised at about the time he wrote his essay, so he wrote with both practical knowledge and authority.

The dollar, of course, is nowhere near the circumstances faced by the German mark at that time. However, the conditions that led to the mark’s collapse are beginning to resonate with a familiarity that should serve as an early warning. The situation, was of course, different. Germany had lost the First World War and financed herself by printing money. In fact, she started down that route before the war, seizing upon the new Chartalist doctrine that money should rightfully be issued by the state, in preference to the established knowledge that money’s validity was determined by markets. Without abandoning gold for her own state-issued currency, Germany would never have managed to build and finance her war machine, which she did by printing currency. The ultimate collapse of the mark was not mainly due to the Allies’ reparations set at the treaty of Versailles, as commonly thought today, because the inflation had started long before.

The dollar has enjoyed a considerably longer life as an unbacked state-issued currency than the mark did, but do not think the monetary factors have been much different. The Bretton Woods agreement, designed to make the dollar appear “as good as gold”, was cover for the US Government to fund Korea, Vietnam and other foreign ventures by monetary inflation, which it did without restraint. That deceit ended in 1971, and today the ratio of an ounce of gold to the dollar has moved to about 1:1310 from the post-war rate of 1:35, giving a loss of the dollar’s purchasing power, measured in the money of the market, of 97.3%.

True, this is not on the hyperinflationary scale of the mark – yet. Since the Nixon shock in 1971, the Americans have been adept at perpetuating the myth of King Dollar, insisting gold now has no monetary role at all. By cutting a deal with the Saudis in 1974, Nixon and Kissinger ensured that all energy, and in consequence all other commodities, would continue to be priced in dollars. Global demand for dollars was assured, and the banking system of correspondent nostro accounts meant that all the world’s trade was settled in New York through the mighty American banks. And having printed dollars to ensure higher energy prices would be paid, they would then be recycled as loan capital to America and her friends. The world had been bought, and anyone not prepared to accept US monetary and military domination would pay the price. 

That was until now. The dollar’s hegemony is being directly challenged by China, which is not shy about promoting her own currency as her preferred settlement medium. Later this month an oil futures contract priced in yuan is expected to start trading in Shanghai.[ii] Only last week, the Governor of China’s central bank met the Saudi finance minister, presumably to agree, amongst other topics, the date when Saudi Arabia will start to accept yuan for oil sales to China. The proximity of these two developments certainly suggest they are closely related, and that the end of the Nixon/Saudi deal of 1974, which created the petrodollar, is in sight.

Do not underestimate the importance of this development, because it marks the beginning of a new monetary era, which will be increasingly understood to be post-dollar. The commencement of the new yuan for oil futures contract may seem a small crack in the dollar’s edifice, but it is almost certainly the beginning of its shattering. 

Read More @ GoldMoney.com

Toxicity Plus Toxicity Does Not Equal Purification

by Dave Kranzler, Investment Research Dynamics:

Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’ – Francisco’s “Money” Speech – from “Atlas Shrugged”

You have to love it – the City of Houston issues $1.01 billion  “pension obligation” bonds to “ease” the underfunding of the underfunded public pension fund.  “Pension underfunding”  is the politically acceptable euphemism for “debt obligation.”  Underfunding occurs when a pension investment returns PLUS future beneficiary contributions are not enough to cover current beneficiary payments.

Some might say it’s the difference between the NPV of future payouts and the current value of the fund. But that’s horse-hooey. Houston had a cash flow deficit it had to address and it did that by issuing taxpayer obligation debt – $1.01 billion dollars of taxpayer debt.  Furthermore, let’s use a realistic NPV and ROR assumption on any pension fund plus throw-in a real mark to market of illiquid assets like PE fund investments.  Every pension fund in the U.S. is tragically underfunded.

The rational remedy would be to cut beneficiary payments or force larger contributions from current working stakeholder or both.  The problem is that implementing either or both of those remedies might cost elected officials their jobs in the next election.

Instead, the proverbial can is kicked further into the sewage ditch by issuing more debt and using the the proceeds to help the pension fund cover current cash outflows to beneficiaries.  Regardless of what you call it, an underfunded pension liability is simply “debt”.  This bond issue might ensure that Houston’s retired public employees will continue, for now, to receive their expected flow of monthly pension payment, but this bond deal in no way whatsoever “eases” the debt burden of the pension fund.  Rather, it shifts wealth from the taxpayers to the retired public employees.

Similarly, the Trump Tax Cut does nothing more than shift the distribution of wealth from 99.5%’ers to the 0.5%’ers plus big corporations.  In this case, it’s not wealth per se.  Rather, it’s shifting the burden of supporting the Government’s spending deficit from the tax cut beneficiaries (billionaires and big corporations) to the rest of the population.

I could care less what CBO projections show – CBO forecasts are always appallingly inaccurate – the Government’s spending deficit is going to accelerate next year.   Between the cut in tax revenues from Trump’s Tax Cut and the big jump in spending built into the budget for defense and re-paving the roads that were paved during the Obama era, total spending will soar.  The gap between inflows and outflows will be bridged with more Treasury bond issuance.

Read More @ InvestmentResearchDynamics.com