Friday, August 29, 2014

The Greater Depression

"First it was the 2007 financial crisis. Then it became the 2008 financial crisis. Next it was the downturn of 2008-2009. Finally, in mid-2009, it was dubbed the “Great Recession.” And, with the business cycle’s shift onto an upward trajectory in late 2009, the world breathed a collective a sigh of relief. We would not, it was believed, have to move on to the next label, which would inevitably contain the dreaded D-word.
But the sense of relief was premature. Contrary to the claims of politicians and their senior aides that the “summer of recovery” had arrived, the United States did not experience a V-shaped pattern of economic revival, as it did after the recessions of the late 1970s and early 1980s. And the US economy remained far below its previous growth trend.
Indeed, from 2005 to 2007, America’s real (inflation-adjusted) GDP grew at just over 3% annually. During the 2009 trough, the figure was 11% lower – and it has since dropped by an additional 5%.
The situation is even worse in Europe. Instead of a weak recovery, the eurozone experienced a second-wave contraction beginning in 2010. At the trough, the eurozone’s real GDP amounted to 8% less than the 1995-2007 trend; today, it is 15% lower.
Cumulative output losses relative to the 1995-2007 trends now stand at 78% of annual GDP for the US, and at 60% for the eurozone. That is an extraordinarily large amount of foregone prosperity – and a far worse outcome than was expected. In 2007, nobody foresaw the decline in growth rates and potential output that statistical and policymaking agencies are now baking into their estimates.
By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode “the Lesser Depression.”
But the story does not end there. Today, the North Atlantic economy faces two additional downward shocks.
The first, as Lorcan Roche Kelly of Agenda Research noted, was discussed by European Central Bank President Mario Draghi while extemporizing during a recent speech. Draghi began by acknowledging that, in Europe, inflation has declined from around 2.5% in mid-2012 to 0.4% today. He then argued that we can no longer assume that the drivers of this trend – such as a drop in food and energy prices, high unemployment, and the crisis in Ukraine – are temporary in nature.
In fact, inflation has been declining for so long that it is now threatening price stability – and inflation expectations continue to fall. The five-year swap rate – an indicator of medium-term inflation expectations – has fallen by 15 basis points since mid-2012, to less than 2%. Moreover, as Draghi noted, real short- and medium-term rates have increased; long-term rates have not, owing to a decline in long-term nominal rates that extends far beyond the eurozone.
Draghi’s subsequent declaration that the ECB Governing Council will use “all the available unconventional instruments” to safeguard price stability and anchor inflation expectations over the medium-to-long term is telling. The pretense that the eurozone is on a path toward recovery has collapsed; the only realistic way to read the financial markets is to anticipate a triple-dip recession.
Meanwhile, in the US, the Federal Reserve under Janet Yellen is no longer wondering whether it is appropriate to stop purchasing long-term assets and raise interest rates until there is a significant upturn in employment. Instead, despite the absence of a significant increase in employment or a substantial increase in inflation, the Fed already is cutting its asset purchases and considering when, not whether, to raise interest rates.
A year and a half ago, those who expected a return by 2017 to the path of potential output – whatever that would be – estimated that the Great Recession would ultimately cost the North Atlantic economy about 80% of one year’s GDP, or $13 trillion, in lost production. If such a five-year recovery began now – a highly optimistic scenario – it would mean losses of about $20 trillion. If, as seems more likely, the economy performs over the next five years as it has for the last two, then takes another five years to recover, a massive $35 trillion worth of wealth would be lost.
When do we admit that it is time to call what is happening by its true name?"


JPMorgan Warns Military Escalation In Ukraine "May Lead To A Lehman-Style Shock"

"The sudden military escalation in Ukraine in recent days has, according to JPMorgan's Alex Kantarovich, reduced the earlier hopes that the high level meeting in Minsk on 26 August would help to defuse the conflict. As Kantarovich warns, the markets are now bracing for the US/EU responses. In the worst case scenario, now appearing more likely, severe pressure on stocks may extend. As he concludes, "we believe that with the significant deterioration in the Ukrainian situation, markets may treat this as a Lehman-style shock."
Via JPMorgan Cazenove,
Lehman moment. We believe that with the significant deterioration in the Ukrainian situation, markets may treat this as a Lehman-style shock. We note there are substantial fundamental differences between the current situation and the 2008/09 crisis; the oil price is now holding up relatively well and the economic contraction may not be that deep. On the other hand, for traded stocks, the challenges and risks to investability presented by sanctions could be practically open-ended. We demonstrate that revisiting the post-Lehman lows would imply downside of 50% from an index perspective, and ~40% from the forward P/E perspective..."


Rule Rule - I Am Incredibly Bullish On Gold & Silver

"Today one of the wealthiest people in the financial world told King World News that demand for gold coming out of Asia is extremely robust.  Rick Rule, who is business partners with Eric Sprott, also discussed why he is so incredibly bullish on gold and silver.

Rule:  “It’s interesting to note that the inflows an outflows of precious metals from precious metals ETFs, which earlier in the decade were a wonderful predictor of gold prices, have ceased to work.  Meaning, you can have inflows into GLD and yet the gold price goes down, and outflows and the gold price goes up...."


Wednesday, August 27, 2014

Expect Skyrocketing Gold As China & Russia Continue Buying

"Today an acclaimed money manager told King World News that we can expect skyrocketing prices for gold in coming years as China and Russia continue buying the metal in preparation for a new monetary order.  Stephen Leeb also spoke about the evolving relationship between Russia and China..."


Legend Warns More Shocking Global Chaos On The Horizon

"Today a legendary value investor warned King World News that more shocking global chaos is on the horizon.  Below is what the legendary investor, Jean-Marie Eveillard, who oversees more than $85 billion, had to say about the tremendous danger the world faces in this fascinating interview..."


The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan

"Several months ago, when Russia announced the much anticipated "Holy Grail" energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar's stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative.
This changed in late June when first Gazprom's CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People's Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.
And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay and the long awaited first shot across the Petrodollar bow was absent.
Until now.
According to Russia's RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfersMeaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.
More on this long awaited first nail in the petrodollar coffin from RIA:
The Russian government and several of the country’s largest exporters have widely discussed the possibility of accepting payments in rubles for oil exports. Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. Two oil tankers are expected to arrive in Europe in September.

According to Kommersant, the payment for these shipments will be received in rubles.

Gazprom Neft will not only accept payments in rubles; subsequent transfers via the ESPO may be paid for in yuan, the newspaper reported.

According to the newspaper, the change in currency was made because of the Western sanctions against Russia.

As a protective measure, Russia decided to avoid making its payments in US dollars, which can be tracked and controlled by the United States government, Kommersant reported..."


Tuesday, August 26, 2014

Martin Weiss: "We’re Already in Cold War 2.0" - So What Does This Mean for Gold?


Embry - We Are Headed For A Financial System Apocalypse

"Today a man who has been involved in the financial markets for 50 years warned King World News that the world is now headed for a financial system Apocalypse.  John Embry, who is business partners with billionaire Eric Sprott, also included an ominous quote in his fascinating interview below..."


Expect Extreme Long Term Systemic & Economic Instability

"...The desperate avoidance of creative destruction is going to have long-term negative consequences for systemic economic stability. The seeds of the next crisis have already been sown as a result of the policy of low interest rates and monetary stimulus."


Richard Russell - Current Financial System To Tear Itself Apart

"At 90 years old and still going strong, the Godfather of newsletter writers, Richard Russell, warned that the current financial system is going to tear itself apart.  The 60-year market veteran also discussed gold and the U.S. dollar, and warned about a possible stock market crash.

Russell: “The Aden sisters (they flew up from Costa Rica to attend my 90th birthday party), have studied gold for decades -- they are indeed gold experts. In their recent report, the Adens note that gold runs in cycles. Gold tends to form key bottoms every 7-8 years, and it forms key tops every 11 years. The Adens believe that gold is now in the process of forming an important bottom, prior to the beginning of a new bull market to start next year..."


Sunday, August 24, 2014

“I am determined that the American dollar must never again be a hostage in the hands of international speculators”

"Below is the video of Richard Nixon closing the gold window exactly 43 years ago to day. Hat tip to Raja Korman..."


Water – The World’s Most Important Commodity

"It’s quite the strange duality when you think about it. Undoubtedly, water is the single most important thing on earth….ok, so maybe it’s the second most important thing (sorry, oxygen) – but you get the idea. If I go to the store and there’s no bread, I would be shocked, and certainly annoyed, and that’d be about it. But if I turn on my faucet and nothing comes out, I’m about 15 hours away from turning into Mad Max – and so are you.
So why is water so underappreciated?  Why, when I live in a state that’s experiencing a once-in-a-generation drought that could become economically catastrophic in a heartbeat, can my home water bill be just 75 bucks a month? It’s because water doesn’t act like crude oil, or any other commodity for that matter. It’s heavily regulated at the municipal, state, and federal level. It explains why projects like the Carlsbad Desalinization Plant, which will soon be the largest desalinization facility in the western hemisphere, don’t have 100% slam-dunk economics in their favor from day one.
No, we’re far from the day when an Elon Musk type comes in with a massive private effort to supply water and reinvigorate the industry: the costs are just too great to get started, the time to get approvals too long, the current state of our infrastructure too poor, and the potential profits too murky to justify the capital outlay..."


Marc Faber: Asset Bubbles, Quantitative Easing, And Ever-Growing Sovereign Debt Will Eventually End In A Steep Market Crash

"Legendary Investor Marc Faber: Asset Bubbles, Quantitative Easing, And Ever-Growing Sovereign Debt Will Eventually End In A Steep Market Crash
In Part 2, legendary investor Marc Faber calls in from Hong Kong to share his insight about why asset bubbles, quantitative easing, and ever-growing sovereign debt will eventually end in a steep market crash..."


Ex-White House Official - Gold, Capital Controls & Inflation

"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.

Dr. Malmgren:  “Gold is such an interesting subject.  What the state is doing is trying to close the exit doors in lots of different ways.  So we’ve seen some governments introduce currency controls, restrictions of the movement of capital from (point) A to (point) B, and much higher taxes....

“Another way (for governments to accomplish this) is to do whatever they can to stop the price of alternatives from rising, like gold, like silver.  But the real story is that people are looking for a better store of value.  If the U.S. and other governments are going to abandon price stability, if they are going to make prices more unstable, if they are going to devalue, to inflate, then people want something else to go into..."


Rule - Sovereign & Strategic Money Pouring Into Gold & Silver

"Today one of the wealthiest people in the financial world told King World News that large amounts of sovereign and strategic money are pouring into key commodity markets such as gold and silver.  Rick Rule, who is business partners with Eric Sprott, also discussed a new product Sprott is launching.

Rule:  “What’s really healthy about this market is that the big money that’s coming into the sector this time is very different than the big money that took the sector up last time.  The big money that took the sector up last time was dumb money.  It came in the generalist mutual funds, it was momentum-oriented, it was retail, and it was generalist, not mining or resource-specific....

“The money we are seeing in the sector now is coming from sovereign wealth funds, private equity funds, strategic partners.  And it has a focus that’s strategic to get  control of product flows like gold and silver but also copper, lead, zinc, oil, and gas for commodity-short cultures.  Places like the Middle East, North Africa, India, and China.

What’s important is the matchup between the expectation of the investors and the time frames they have involved -- five, six, or seven years -- and the needs of the industry they are circling.  So ironically the soft market serves the interest of those buyers.

I think longer-term it adds some stability in terms of funding and expectation for the sector.  Specifically, the money that has come into Sprott, after a long time trying, was principally Asian money -- Korean and Chinese money.  These are very rational partners who are very technically driven -- partners who are completely unconcerned (as an example) about what Mrs. Yellen might have to say about the economy..."