Friday, April 18, 2014

We Could Be In Trouble If Global Growth Stays This Low Much Longer

"When it comes to the state of the global economy, there’s both good news and bad news to report. On a positive note, Credit Suisse economists forecast that global GDP will increase 3.3 percent this year, an improvement over last year’s 2.9 percent expansion. The bad news? Even at that improved level, growth is merely hovering near the 40-year average of 3.4 percent. Since we’re technically in a recovery, the economy should be growing faster than average, and the fact that it isn’t indicates potential GDPis lower than in other recoveries.
Neal Soss, Credit Suisse’s Vice Chairman of Global Fixed Income and Economics Research, says that it’s not unusual to have periods of sluggish growth after a major financial crisis, as governments, businesses, financial institutions, and consumers retrench. The danger arises if that retrenchment phase drags on for too long. At that point, mediocre growth can start to feel more permanent, and businesses will feel a declining incentive to invest in the possibility of expansion. What’s more, the skills of the long-term unemployed can atrophy to the point that they verge on being permanently unemployable. “The downside to an episode of this sort – if that sluggish growth continues – isn’t just the slower growth itself. It’s that the potential of the economy will deteriorate,” he says.

With no new fiscal or monetary stimulus on the horizon, there is concern among economists that world leaders are running that very risk. “Most of the world is allergic to explicit fiscal stimulus and the public sector balance sheet leverage it implies,” Credit Suisse’s fixed income analysts wrote in their most recent quarterly global economics survey, “Speeding Up to Average.” European officials have imposed stringent austerity requirements on Greece, Spain, Portugal, and Ireland in exchange for their various bailouts. A combination of tax increases and spending cuts over the last four years have reduced the U.S. budget deficit from 10 percent of GDP in 2009 ($1.4 trillion) to a projected 3 percent ($514 billion) this year. Japan’s consumption tax rose from 5 percent to 8 percent without any accompanying monetary stimulus, a reflection of how eager Japanese policymakers are to shrink both the deficit and the public debt, which is twice the size of the economy. Meanwhile, Chinese authorities are trying to rein in local government spending by reducing credit availability, while Brazil pledged to cut its budget by $18.5 billion in February to meet a budget surplus target of 1.9 percent..."


Princeton Study Confirms 'US Is An Oligarchy'

"Submitted by Mike Krieger of Liberty Blitzkrieg blog,
Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.

From a recent study titled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens by Martin Gilens of Princeton University and Benjamin I. Page of Northwestern University
In response to the publication of an academic study that essentially proves the United States is nothing more than an oligarchy, many commentators have quipped sentiments that go something like “so tell me something I don’t know.” While I agree that the conclusion is far from surprising to anyone paying attention, the study is significant for two main reasons..."


The Elites Fear What Will Crash The Global Financial System

"Today one of the legends in the business spoke with King World News about what the elites fear is going to crash the American economy and the global financial system.  Keith Barron, who consults with major companies around the world and is responsible for one of the largest gold discoveries in the last quarter century, also discussed the massive demand for gold from China as well as what to expect from the gold market in the future.

Barron:  “The flow of gold into China is massive and it hasn’t abated.  If anything, it has picked up speed.  If you look at the growth in Chinese gold demand over the past few years, it won’t be long before we see almost the entire annual gold production in the world going to China....

“This has huge implications for the futures markets such as COMEX.  Will they be able to continue delivering gold in that environment?  The other big concern for various countries and entities around the world is:  If they loan or lease their gold out, will they ever get it back again?  Countries and individual entities are becoming less willing to lend or lease their gold because they are losing faith that they will ever get it back.  This will cause additional stress in the already strained delivery system as we advance through this bull market in gold.

If we look back, it’s almost a year ago to the day when the bear raid started on the gold ETFs.  Basically the bullion banks were raiding the last major depository of gold in the world outside of central banks.  The ETFs were being raided because they were arbitraging the price.  Bullion banks were getting anywhere between a $50-$70 premium for each ounce of gold they sold to Shanghai.

So for a number of months the bullion banks withdrew gold from the ETFs, they shipped the gold to Switzerland, where it was recast, and then the gold was shipped to Hong Kong and Shanghai to satisfy the massive Chinese buying.  Also, I believe that lat year European Central Bank President Mario Draghi was pressured into saying the ECB was going to sell Cyprus’ gold.  This is what started the waterfall decline.  But this smash had the effect of knocking all the gold out of the weak hands.  

So the weak hands are out of this market, but I don’t think the central planners are ever going to be able to pull that stunt again.  I believe that if they ever tried it again the queues around the world to buy gold would be even longer than they were in 2013.  For now the Chinese continue to buy all the physical gold they can get their hands on.  As fast as the gold is produced, it goes right out of the refineries to the Far East.”


Former White House Official - Western Default, China & Gold

"Today King World News interviewed the former White House official who was Special Assistant to the President of the United States for Economic Policy and a former member of the U.S. President’s Working Group on Financial Markets, also known as the Plunge Protection Team, or PPT.  While in the White House, Dr. Philippa “Pippa” Malmgren served as financial market advisor in the White House and functioned as the direct liaison between the White House and the Federal Reserve. 

Dr. Malmgren formerly headed the Global Asset Management business for Bankers Trust in Asia, out of Hong Kong, and was also Chief Currency Strategist for Bankers Trust Company, and former Head of Global Investment Strategy at UBS.  Dr. Malmgren was also a senior consultant to Deutsche Bank, and currently advises the largest sovereign wealth funds, hedge funds, and pension funds in the world.

Eric King:  “The last time we spoke you discussed gold (when the gold price was being crushed in mid-2013). The gold market, they (central planners) have had a lockdown on gold.  You talked about the governments coming in and doing that from time-to-time.  At one point (in your previous interview) you were talking about the government manipulation in gold and you said:

“There are times when the presence of extremely large players, like governments, will move the price 
way more than normal.  You just have to whisper at it (the price of gold), and you can move 
it big time.  Are governments good at that?  Yes, they are good at that.”

Eric King:  “Of course you were part of the President’s Working Group on Financial Markets, so nobody knows this stuff better than you.  But the gold market, they (the governments) are still in there as the central banks are expanding their balance sheets, trying to hold (the price of) gold down.”

Dr. Malmgren:  “You know it’s interesting, I think at the end of the day what really matters is that emerging markets like China, Russia, they are definitely increasing their holdings of gold.  And I find it quite extraordinary how they can increase their holdings of gold so dramatically and yet the price goes down...."


Thursday, April 17, 2014

Everyone's Talking About This Bullish Trend, But Art Cashin Warns It's Hyperinflationary

"There's just a general higher level of interest in loan activity and lines of credit," he said.
The implications of this are potentially huge – to the economy; to the stock market; to Fed policy; and perhaps, most importantly, to inflation.  In a fractional banking system, money gets velocity when it's lent.  High velocity risks hyperinflation.  We'll discuss more fully next week.
Cashin has long warned that an increase in the velocity of money could quickly turn hyperinflationary..."


Unprecedented $5 Trillion Liquidity Monster To Be Unleashed?

"Today one of the legends in the business warned that for the first time banks are beginning to push what could be a staggering amount of reserves into the financial system.  50-year veteran Art Cashin, who is Director of Floor Operations at UBS ($650 billion under management), also warned the implications of this are “huge” because it will have a massive impact on major markets, Fed policy, inflation, and may possibly lead to hyperinflation..."


Friday, April 11, 2014

Marc Faber : 2014 Crash will be worse than 1987's

"Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, says a 30 percent crash is coming in the next 12 months. With CNBC's Jackie DeAngelis and the Futures Now Traders..."


Gold Delivery Strains Reappear & What Might Destroy COMEX"

"Today an outspoken hedge fund manager out of Hong Kong spoke with King World News about delivery strains in the gold market reappearing and what might destroy the COMEX.  William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, also discussed the major problems the entities managing the gold market are now facing.  Below is what Kaye had to say in this timely interview.

Kaye:  “Gold is still trading in a very narrow range.  I find this to be interesting, especially with all these heightened geopolitical tensions, as well as the recent FOMC minutes, which showed a scaling back in the timetable for any possible future tightening of monetary policy....

“All these things are positive for gold, but we really have not yet seen that much of a move since the beginning of the year.  Gold is now up a little over $100.  So we’ve essentially traded up from the low $1,200s to the low $1,300s, and gold is down from earlier in the year when it nearly reached the $1,400 mark.

You might recall that I was warning KWN readers in early March that the gold market was primed for a bit of short-term weakness.  That concern has now been addressed as gold has consolidated and filled a gap that existed since the outbreak of hostilities in Ukraine.

I believe that for readers who don’t feel they are fully invested in gold or silver, today’s prices are still very attractive.  It’s advantageous for long-term investors to continue to accumulate physical metal at these levels.  From a trading perspective, I now think the risks are pretty evenly balanced, but the footprints of official intervention continue to be present in the gold market.  So the risk still exists that we could see a further move to the downside.”


Thursday, April 10, 2014

The Solar Industry Has Been Waiting 60 Years For This To Happen — And It Finally Just Did

"It's now a question of how and where, not if, solar becomes a dominant force in energy markets.
AllianceBernstein's Michael Parker and Flora Chang published a note last week with the following chart showing how rapidly the cost of solar on a real-dollars-per-million-BTU equivalent basis has, in many instances, come to match that of conventional fuels.
Nothing else looks like this. And the title of the chart, Welcome to the Terrordome, reflects this almost violent decline in solar pricing..."
solar terrordome

Read more:

Nomi Prins - All the President's Bankers: The Hidden Alliances That Drive American Power

"This is from the book summary at
"Culled from original presidential archival documents, All the Presidents’ Bankers delivers an explosive account of the hundred-year interdependence between the White House and Wall Street that transcends a simple analysis of money driving politics—or greed driving bankers.

Prins ushers us into the intimate world of exclusive clubs, vacation spots, and Ivy League universities that binds presidents and financiers. She unravels the multi-generational blood, intermarriage, and protégé relationships that have confined national influence to a privileged cluster of people. These families and individuals recycle their power through elected office and private channels in Washington, DC...

Prins divulges how, through the Cold War and Vietnam era, presidents and bankers pushed America’s superpower status and expansion abroad, while promoting broadly democratic values and social welfare at home. But from the 1970s, Wall Street’s rush to secure Middle East oil profits altered the nature of political-financial alliances. Bankers’ profit motive trumped heritage and allegiance to public service, while presidents lost control over the economy—as was dramatically evident in the financial crisis of 2008."


Exploring the transmission channels of contagious bank runs

"Contagious bank runs are an important source of systemic risk. However, with observational data it is near-impossible to disentangle the contagion of bank runs from other potential causes of correlated deposit withdrawals across banks. This column discusses an experimental investigation of the mechanisms behind contagion. The authors find that panic-based deposit withdrawals can be strongly contagious across banks, but only if depositors know that the banks are economically related..."


Whole Eastern World Rebelling Against the Dollar-Jim Willie

"Financial newsletter writer Dr. Jim Willie thinks 2014 will be a pivotal year for the U.S.  Dr. Willie says, “We’re going to end this year with no resemblance to the beginning.  We spent a lot of years trying to hold this thing together.  The whole system broke in 2007 and 2008 with the subprime mortgages.  I was saying before that we’ve got the entire U.S. economy depending on the housing bubble and the mortgage finance bubble, and when that breaks, the system is going to break.  In the following couple of years, it continued to break. What did we do?  We went to zero percent interest rates and made it pretty clear it’s forever.  What else did we do?  We did bond monetization, QE.  I love QE, it makes it sound like CPR.  It’s death.  It’s hyper-monetary inflation.  It’s what Nazi Germany did . . . it wrecked everything.  These are desperation measures to hold it together because the system is broken.”  Dr. Willie, who holds a PhD in statistics, contends, “Now all the QE and bond purchases are causing some major problems, breaking major economic structures. . . It’s all breaking, it’s all breaking, and they are having a tremendous problem holding it together.  Now, the whole Eastern World is rebelling against the dollar.” 


Gold and the US Dollar Fight to the Death-Paul Craig Roberts

"Former Assistant Treasury Secretary, Dr. Paul Craig Roberts, says, “Gold and the dollar are in a fight to the death.”  Dr. Roberts explains, “The Fed, in order to save a handful of banks too big to fail that are the mindless deregulation of the 21st century, the Fed has had to create a tremendous number of new dollars.  The United States has never experienced anything like the creation of new money it has issued from quantitative easing, which is now multi-years old. Because the dollar has been the world reserve currency since the end of WWII, countries all over earth have huge stocks of dollars.  It’s not just countries or central banks, but companies and   individuals.  As people view their holdings, an enormous supply of dollars in light of this extraordinary printing of new money by the Fed, they get nervous.  They say ‘I should lighten up my holdings of dollars and get into something else.  Maybe I should get into gold or foreign currency.’  So, this puts pressure on the dollar’s exchange value.  The first way that pressure manifested itself was the rising price of gold.  Despite the fact the price of gold has been pushed down since 2011, it still has about the highest rate of return of just about anything in the 21st century.   The Federal Reserve, in order to protect quantitative easing which is necessary to save the banks, began manipulating the gold price in a new and more intense way.  They used their bullion banks to short the gold in the COMEX futures market.  The trouble with this policy is that it’s been going on long enough that it’s being recognized by people who formerly thought ‘the Federal Reserve would never do anything like that.’  Of course they would, and people are catching on.” 
Dr. Roberts goes on to say, “Another factor is central banks such as China and Russia are purchasing more and more gold. . . . So, what is happening is the actual physical quantity of gold is moving out to Asia in such large quantities that supply in the West to meet purchases is diminished dramatically.  This is starting to bite on the ability of the Federal Reserve of this sort of operation of rigging the gold price. . . . So, it looks like the Fed could be running out of the ability to continue this policy, in which case it will be bad news for the dollar.”  So, is the Fed losing the fight to the death between gold and the dollar?  Dr. Roberts says, “They are not losing right now, but they’re running out of bullets; but the Chinese and the Russians are not running out of dollars in which to buy gold.  The Fed is running out of gold in which to make these deliveries.” 
What happens when physical gold can no longer be delivered to buyers?  Roberts predicts, “The gold price would skyrocket.”  Dr. Roberts doesn’t give the timing for physical non-delivery of gold.  He does point out, “The fact they are having now to use naked shorts in the futures market, paper gold, implies they don’t have enough real physical gold to suppress the price any longer. So, they have to take it to the futures market where they can do it with purely paper contracts. . . . Yes,the possibility of not being able, at some point, to make delivery is real.  Of course, that then would cause all confidence to be lost certainly in the dollar.” 

Critical Metric Is Now Over 1,000 Times Higher Than Normal!

"These Numbers Are Stunning – Earlier this week, I alluded to the terrific speech that Richard Fisher, the President of the Dallas Fed gave on Friday, in Hong Kong to the Asia Society.  It contained facts and numbers that boggle the mind – at least my simple little mind.
Early on, he refers to the fact that much of the easing the Fed has done – QE and otherwise – has tended to lie fallow.
Thus far, much of the money we have pushed out into the economy has been stored away rather than expended to the desired degree. For example, we have seen a huge buildup in the reserves of the depository institutions of the United States. Less than a fifth of commercial credit in the highly developed U.S. capital markets is extended through depository institutions. Yet depository institutions alone have accumulated a total of $2.57 trillion in excess reserves—money that is sitting on the sidelines rather than being loaned out into the economy. That’s up from a norm of around $2 billion before the crisis..."


Wednesday, April 9, 2014

China Gold Imports Through Hong Kong

"Trend?  Change?  Not possible.

No one is interested in gold.

Nothing to see here. Move along.

Chart by Data Wrangler Nick at


Russian Military Spending Soars

"Russia has announced that it will increase defense spending by some 18 percent this year despite its worsening economic outlook.
According to a report in Jane’s Defence Weekly, the Russian Federal Treasury announced late last month that “Expenditure on National Defense” will rise from 2,101.4 billion rubles ($58.2 billion) in 2013 to 2,488.1 billion rubles in 2014. This is projected to be about 3.4 percent of Russia’s GDP but over 20 percent of government spending. Another 16.5 percent of the government budget will go to national security and law enforcement..."


40 Central Banks Are Betting This Will Be The Next Reserve Currency

"As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."
The infamous chart that shows nothing lasts forever...


Russia And China About To Sign "Holy Grail" Gas Deal

"Several weeks ago we reported that in response to ongoing alienation of Russia by the west Putin was aggressively setting the stage for Russia's eastward expansion, set to culminate with a "holy grail" gas deal with China. We said that "while Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis."
Reuters added, reflecting on the recent trip of Rosneft executive chairman to Asia, that "the underlying message from the head of Russia's biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances.  The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West."
It's time for an update. According to Itar-Tass, "Russia's Gazprom and China are poised to conclude a gas supply contract in coming weeks, the first in a series of energy projects planned between the two countries. "We’re working now to sign a gas contract in May," said Deputy Prime Minister Arkady Dvorkovich. "Consultations are continuing and Gazprom's leaders are holding talks with Chinese partners on the contract terms. We hope to conclude the contract in May and believe it should come into effect by the year end."


Baltic Dry Collapses To Worst Start To A Year On Record

"If you listen very carefully, you will still hear absolutely nothing from any talking-heads of the utter collapse that the last few weeks have witnessed in the Baltic Dry shipping index. The Baltic Dry has dropped 12 days in a row and plunged back to $1061 - its lowest since August 2013. This is the worst start to a year on record... must be the weather.

The Baltic Dry has dropped 12 days in a row and is now back to its lowest levels since August 2013... and almost post-crisis lows..."


German Vice Chancellor Warns 'No Alternative To Russian Gas'

"Even Germany's vice chancellor Sigmar Gabriel realizes that there is no alternative to Russian gas for Germany, at least not in the near future. It should be noted to this that Germany's energy policy has driven energy prices to the very edge of what the population and industry can still handle.
On the one hand, there is the vast subsidization of 'green energy', which is not only thoroughly uneconomic andblighting the landscape, but the costs of which have been off-loaded on consumers, who pay a special 'ecological fee' on top of their already far too high bills.
On the other hand, after the Fukujima accident, Germany's government quickly gave in to pressure from the Greens and decided to completely phase out nuclear energy (as if Germany were in danger of being hit by a tsunami). This is of course a completely futile gesture, as the country is surrounded by other countries brimming with nuclear reactors over which it has no control whatsoever (admittedly, even one nuclear accident would be one too many). However, this hasty step has once again made electricity more expensive.
Fracking also remains forever stuck in the 'debating stage' in Europe, with resistance organized by various NGOs growing steadily.
As Gabriel remarked:
“In the debate over Europe's dependence on Russian natural gas it is often falsely pretended that there are many other possibilities. This is incorrect.”

Moreover he warned of scaremongering and misplaced fears that Russia would stop its  deliveries, arguing that “even in the dark times of the Cold War, Russia has always fulfilled its contractual obligations.”
This insightful observation was followed by a succession of hollow phrases about how EU foreign policy must 'not be guided exclusively by economic interests'. Right. Still no alternative to Russian gas though. Tough titty, as they say. Moreover, as Gabriel rightly points out, it isn't a problem anyway..."