This Is How A State Goes Bankrupt, Illinois Edition

Somewhere back in the depths of the 20th century, a bunch of governors, mayors, and public sector union leaders got together and cooked up one of history’s greatest financial scams. They would offer teachers, cops, and firefighters extremely generous pensions but would avoid raising taxes to fund the resulting future obligations. Grateful workers would vote to re-elect their benefactors, while taxpayers would appreciate the combination of excellent public services and low taxes.

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COMEX Search And Seizure

By Craig Hemke – Re-Blogged From Gold Eagle

These are dark times for The Bullion Banks. Their Fractional Reserve and Digital Derivative Pricing Scheme is in great peril as refineries, miners, and mints all shut down in response to the coronavirus pandemic. Will these Banks be able to scrounge up enough physical metal to keep their scheme afloat through June? That remains an open question.

You may recall that we’ve been warning of the outrageous volume of COMEX EFPs (Exchange For Physical) for years. For the calendar years 2018 and 2019, the COMEX swapped out over 14,000 metric tonnes of contracts for alleged “physical metal” in London. And this process grew even more extreme in 2020, as the first three weeks of the month saw 290,000 COMEX gold contracts “exchanged” this way. Here’s the link from the last post dedicated to this subject, written on March 10: https://www.sprottmoney.com/Blog/comex-gold-efp-us…

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In Case Of A Future Banking System Breakdown

By Stefan Gleason – Re-Blogged From Silver Phoenix

The banking system may not be as sound we’ve been led to believe. It continues to get propped up through central bank interventions, which strongly suggests it wouldn’t be able to stand on its own.

Last Thursday, the Federal Reserve injected another $115 billion into financial markets via “temporary operations.” The Fed is targeting the repo market in particular, through which banks lend to each other on an overnight basis.

For some reason, banks have grown weary of committing liquidity to each other in what should be one of the safest lending markets on the planet.

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The Ghost of Failed Banks Returns

By Alasdair Macleod – Re-Blogged From Gold Money

Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.

If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.

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What The World Doesn’t Need Now Is Lower Rates

The Q2 earnings season is upon us and the risks to the rally that started after the worst December on record at the close of last year is in serious jeopardy. We received a glimpse of this with some of the current companies that have reported. For example, to understand how dangerous this earnings reporting season can be, take a look at what one of the largest US multinational firms had to say recently after it reported earnings. The Minnesota-based Fastenal, which is the largest fastener distributor in North America, reported worse-than-expected second-quarter earnings and revenue. Shares of Fastenal promptly tanked more than 4%. But what the management said about the quarter was very interesting. The company said in its press release that its strategy to raise prices to offset tariffs placed to date on products sourced from China were not sufficient to also counter general inflation in the marketplace.

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Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis

By Stefan Gleason – Re-Blogged From Silver Phoenix

Presidential candidates Bernie Sanders and Elizabeth Warren are promising as much as $1.6 trillion in student debt forgiveness for millions of borrowers. Critics smell a cynical campaign ploy to try to buy the youth vote.

How is it either realistic or fair to declare an entire category of debt to be assumed by taxpayers?

Regardless, pie-in-the-sky proposals to cancel student debt shed light on a very down-to-earth problem for not only college students and recent graduates – but also for the economy and financial markets.

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If You Could Design A Perfect World For Gold…

By John Rubino – Re-Blogged From Dollar Collapse

Are you sick of your gold just sitting there when it was supposed to have long since made you rich? Have you been fantasizing about a world in which your gold really does make you rich?

If so you’re in good – or at least numerous – company.

So let’s sketch out such a world.

Start by envisioning an America in which a handful of oligopolies have captured banking, media, healthcare and several other important industries, while a tiny group of super-rich neo-aristocrats control as much wealth as the 200 million least-rich citizens.

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Pension Fund Problem Just Got Much Worse

By Bloomberg – Re-Blogged From Newsmax

The 14 percent drop in the S&P 500 Index last quarter has big implications for state and local pension funds, which probably saw the value of their assets fall by about 7 percent. Investors with the benefit of a long-term horizon have the ability to ignore market dips, and pension funds are among the longest-term investors, but their problems are not long-term and further short-term declines could precipitate a crisis.

The table below shows pension fund assets and liabilities as compiled by Pew Charitable Trusts. There is a large and growing gap, but that’s not the primary problem. Although the value of those assets is known with reasonable accuracy, the liability figure is based on assumptions about the future. The actuarial and political assumptions are uncertain, but it is the investment assumptions – plans assume an average discount rate of 7 percent – that are the most problematic.

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Unthinkable!

By Gary Christenson,- Re-Blogged From Gold Eagle 

Sometimes we must consider the unthinkable.

Official US national debt is $21.6 trillion. Unfunded liabilities are five to ten times higher. Global debt is about $250 trillion. US national debt has doubled every eight to nine years for decades.

  1. National debt in 2018 – $21.6 trillion
  2. National debt in 2026? – $40+ trillion
  3. National debt in 2040? – $100+ trillion
  4. How much will prices rise when the dollar is devalued by an additional $80 trillion in new US government debt plus more private debt?
  5. What interest rate will be needed to sell that debt? 5%, 10%, 15% or higher?
  6. Annual interest payments on current debt run about $500 billion. Both rates and debt are rising. One $ trillion per year in interest payments is coming soon. Six percent interest on $40 trillion requires $2.4 trillion per year, a large smoking hole in the federal budget!
  7. The government can never pay the debt with dollars of current value. Soon the interest will be difficult to pay.

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Public Pensions Could Become Retirement Crisis for Everyone

By Peter Reagan – Re-Blogged From Newsmax

It’s become fairly common knowledge that public pensions are on the verge of either radical overhaul or extinction.

Worldwide, pensions are set to reach a shortfall of $400 trillion. This is a larger amount than 20 of the world’s largest economies, according to Sovereign Man.

It was even reported that Congress is planning for pension fund failure in the U.S. Not to mention, Philadelphia has considered tapping public utility payments to cover their shortfall.

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Australia’s Banking System May Go BOOM!

By Nick Hubble – Re-Blogged From Silver Phoenix

We’re edging ever closer to the financial crisis I’ve been investigating since 2012. I moved to four different cities in Australia to conduct my research, interviewing mortgage brokers and former bankers over four years.

Over the last few months, a Royal Commission has exposed what my research did back then. But the campaigner who first exposed the issue going back to the early 2000s continues to discover even more extraordinary facts.

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Bankruptcy Soars As The Country Grapples With An Unprecedented Debt Problem

By Michael Snyder – Re-Blogged From Freedom Outpost

America, you officially have a debt problem, and I am not just talking about the national debt.  Consumer bankruptcies are surging, corporate debt has doubled since the last financial crisis, state and local government debt loads have never been higher, and the federal government has been adding more than a trillion dollars a year to the federal debt ever since Barack Obama entered the White House.  We have been on the greatest debt binge in human history, and it has enabled us to enjoy our ridiculously high standard of living for far longer than we deserved.  Many of us have been sounding the alarm about our debt problem for a very long time, but now even the mainstream news is freaking out about it.  I have a feeling that they just want something else to hammer President Trump over the head with, but they are actually speaking the truth when they say that we are facing an unprecedented debt crisis.

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Public Sector Pensions: The Parasite Devours Its Host

By John Rubino – Re-Blogged From Dollar Collapse

The Wall Street Journal recently highlighted a better method of analysing the impact of public sector pensions on state and local budgets. The results are ominous for government finances, the bond markets, and pretty much everything else:

Why Your Pension Is Doomed

A new study shows that benefits are rising faster than GDP in most states.

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Italian Debt – A Financial Disaster Waiting To Happen

By Mark O’Byrne – Re-Blogged From http://www.Silver-Phoenix500.com

The new Italian government will increase public spending and public debt.

It promised to reduce taxes, introduce basic security and reform pensions. Italy’s Northern League’s leader Mateo Salvini surged in the polls and the party is now the strongest in Italy.

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Social Security Deterioration

By Keith Weiner – Re-Blogged From http://www.Silver-Phoenix500.com

We have been writing about capital destruction. This week let’s look at an event which is currently making news. Social Security will begin tapping into its trust fund this year. This happens, as the Social Security Board of Trustees states antiseptically, “four years earlier than projected in last year’s report.” In other words, the economy is growing by every conventional measure, yet Social Security is spending more than its tax revenues years earlier than projected. According to those same inaccurate projections, the trust fund won’t run dry until 2034.

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Return of the Euro Crisis: Italy Quakes, Rest of the World Shakes and Merkel’s Empire Breaks

By David Haggith – Re-Blogged From Great Recession Blog

Europe’s many fault lines are spreading once again, bringing the endless euro crisis saga back in 3-D realism. Italy gained a new anti-establishment government last week, even as Spain elected a new Socialista government that could crack Catalonia off from the rest of Spain. All of Europe fell under Trumpian trade-war sanctions and threatened their own retaliation. And Germany’s most titanic bank got downgraded to the bottom of the junk-bond B-bin.

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4.5 Million US Homeowners Still Under Water on Mortgages

By Bloomberg – Re-Blogged From Newsmax

A staggering number of American homeowners remain under water on their mortgages a decade after the housing bubble burst.

Almost 4.5 million households — or 9.1 percent — owed more than their homes are worth in the fourth quarter of 2017, according to data firm Zillow, with an estimated 713,000 owing at least twice as much as their property’s value.

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But “We Owe It To Ourselves”

By Keith Weiner – Re-Blogged From http://www.Gold-Eagle.com

Have you ever heard someone say this? It falls into the category of, it’s so perverse, so wrong, and so wrong-headed that there has got to be a constituency out there somewhere, to assert this!

First, let’s head off at the pass the objection that the majority of US government debt is held by foreigners. As of March this year, the US Treasury estimates that $6.3 trillion worth of Treasury bills and bonds are owned by foreign holders. This is not even close to the majority of it.

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Here’s When Everyone Should Have Known That Argentina Would Implode

By John Rubino – Re-Blogged From Dollar Collapse

About a year ago, Argentina – which has inflated away and/or defaulted on its currency every few decades for the past century – issued 100-year government bonds. And the issue was oversubscribed, with yield-crazed developed-world institutions throwing money at the prospect of a lifetime of 7% coupon payments.

A contemporaneous media account of the deal:

Argentina sees strong demand for surprise 100-year bond

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Death Of The Great Recovery (Part 2): The Second Coming Of Carmageddon

By David Haggith – Re-Blogged From http://www.Silver-Phoenix500.com

Like the disintegration of the formerly charmed stock market, the return of Carmageddon is right on schedule. I had stated early last year that one of the first cracks in our economy to become evident would be the crash of the car industry.

That crack materialized as promised, but then Hurricanes Harvey and Irma showed up to flood a million automobiles. Before any statistics materialized to show the economic impacts of those storms, I wrote the following revision for the dates of Carmageddon:

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Debt And Delusions (Part 2)

By Gary Christenson – Re-Blogged From http://www.Gold-Eagle.com

The problem with debt is the creditor expects to be repaid.

Sovereign debt will be “rolled over,” never extinguished, and repaid with new debt. We delude ourselves and pretend total debt will increase forever (it can’t). That explains global debt exceeding $230 trillion today and official U.S. government debt over $21 trillion, with unfunded liabilities adding another $100 – $200 trillion. There are two choices.

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Stock Plunge Could Hasten State Pension Collapses

By Aaron Brown – Re-Blogged From Newsmax

Warnings about looming public pension disasters have regularly cropped up since the 1950s, pointing to problems 25 years or more down the line. To politicians and union leaders,  the troubles were someone else’s predicament. Then crisis fatigue set in as the big problem remained down the road.

Today, the hard stop is five to 10 years away,  within the career plans of current officials.  In the next decade, and probably within five years, some large states are going to face insolvency due to pensions, absent major changes.

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Liquidating Civilization

By Keith Weiner – Re-Blogged From http://www.Gold-Eagle.com

Further to our ongoing theme of capital destruction, let’s look at a topic which is currently out of favor in the present market correction. Keynes called for pushing the interest rate down near to zero, as a way of killing the savers, whom be believed are functionless parasites. The interest rate has been falling since 1981.

It did not merely fall near to zero. Nor even to zero. It has gone beyond zero, into negativeland. This alone ought to wipe out the mainstream notions of how interest rates are set in our very model of a modern monetary system. You know, the rubbish about bond vigilantes, inflation expectations, real interest rates, risk, etc. Might as well add unicorns, dragons, and leprechauns!

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More Absolutely Crazy Pension News

By John Rubino – Re-Blogged From http://www.Silver-Phoenix500.com

“War” and “pensions” are conceptually about as different as it’s possible to be. But – in a measure of how far into Crazy Town we’ve wandered – they’re both taking the world in the same direction.

If a Middle East (or Asian!) war doesn’t spike oil prices and push the global economy into recession, then pensions will probably produce the same end result. Here’s an excerpt from a much longer New York Times article that should be read in its entirety for a sense of what public finance has become:

A $76,000 Monthly Pension: Why States and Cities Are Short on Cash

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Smaller Subprime Auto Lenders Are Folding as Losses Pile Up

By Bloomberg – Re-Blogged From Newsmax

Growing numbers of small subprime auto lenders are closing or shutting down after loan losses and slim margins spur banks and private equity owners to cut off funding.

Summit Financial Corp., a Plantation, Florida-based subprime car finance company, filed for bankruptcy late last month after lenders including Bank of America Corp. said it had misreported losses from soured loans. And a creditor to Spring Tree Lending, an Atlanta-based subprime auto lender, filed to force the company into bankruptcy last week, after a separate group of investors accused the company of fraud. Private equity-backed Pelican Auto Finance, which specialized in “deep subprime” borrowers, finished winding down last month after seeing its profit margins shrink.

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Sacrificing Future Spending

By Gary Christenson – Re-Blogged From http://www.Gold-Eagle.com

Financial sacrifices are so obvious and commonplace they are seldom acknowledged.

Borrowing money on a credit card, mortgage or car loan to purchase something is typical. You have sacrificed future spending for use in the present.

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Global Debt Crisis II Cometh

By Mark O’Byrne – Re-Blogged From http://www.Silver-Phoenix500.com

Global debt ‘area of weakness’ and could ‘induce financial panic’ – King warns

– Global debt to GDP now 40 per cent higher than it was a decade ago – BIS warn – Global non-financial corporate debt grew by 15% to 96% of GDP in the past six years – US mortgage rates hit highest level since May 2014

– US student loans near $1.4 trillion, 40% expected to default in next 5 years

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Banks Suffer 20 Percent Jump in Credit-Card Losses

By I McGuire – Re-Blogged From Newsmax

U.S. banks have reportedly recently suffered a 20 percent jump in credit card losses.

The soaring bad debts has fueled fear about the financial health of middle America, the Financial Times explained.

Recently disclosed results showed Citigroup, JPMorgan Chase, Bank of America and Wells Fargo took a combined $12.5 billion hit from soured card loans last year, about $2 billion more than a year ago. The FT reported.

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2007 All Over Again, Part 7: Borrowers Start Scamming Desperate Lenders

By John Rubino – Re-Blogged From Dollar Collapse

One of the hallmarks of late-stage bubbles is a shift of power from lenders to borrowers. As asset prices soar and interest rates plunge it becomes harder to generate a decent yield on bonds and other fixed income securities, so people with money to lend (like pension funds and bond mutual funds) are forced to accept ever-less-favorable and therefore far-more-risky terms.

Recall the liar loans that were popular towards the end of the 2000s housing bubble and you get the idea. Lenders were so desperate for paper to feed the securitization machine that they literally stopped asking mortgage borrowers to prove that they could cover the interest.

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”It’s A Wonderful Life” Is A Wonderful Lesson

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

– Christmas film serves as reminder that savings are not guaranteed protection by banks
– Savers are today more exposed to banking risks than ever before
– Gold and silver investment reduce exposure to counterparty risks seen in financial system
– Basket of Christmas goods has climbed since 2016 thanks to 11% climb in gold price

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Subprime Auto Defaults Soaring

By Bloomberg – Re-Blogged From Newsmax

Private-equity firms that plunged headlong into subprime auto lending are discovering just how hard it might be to get out.

A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone Group LP has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times.

And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits.

In the years after the financial crisis, buyout firms poured billions into auto finance, angling for the big profits that come with offering high-interest loans to buyers with the weakest credit. At rates of 11 percent or more, there was plenty to be made as sales boomed. But now, with new car demand waning, they’ve found the intense competition — and the lax underwriting standards it fostered — are taking a toll on profits.

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Chicago Pawns A Crown Jewel

By John Rubino – Re-Blogged From Dollar Collapse

A new bond issue from Chicago is rated AAA. That’s great because it means the city’s finances are on the mend, right?

Nope, just the opposite. Here’s the story:

Bondholders fret as alchemy turns Chicago’s junk to gold

(Bloomberg) — Chicago’s public pension debt is $36 billion and growing, it’s facing $550 million in budget deficits over the next three years and this summer the state had to bail out a school system that was flirting with insolvency.

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Missing Paperwork May Erase $5 Billion in Student Loan Debt

By F McGuire – Re-Blogged From Newsmax

Missing paperwork reportedly may ultimately erase $5 billion dollars of debt for loans that tens of thousands of former students took out over a decade ago.

National Collegiate Student Loan Trusts — a 15-trust company that purchases private student loan debt — reportedly lost the paperwork documenting these loans’ chains of ownership, according to cases brought forward in Pennsylvania and Delaware, the New York Times reported.

The shoddy record-keeping means that if the trust tries to come after students who default on them, they may see the entire debt written off. Judges have dismissed dozens of lawsuits against borrowers who defaulted on student loans from private creditors, the Times reported.

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US Economy Keeps Moving Into Summer Storm

By David Haggith – Re-Blogged From http://www.Silver-Phoenix500.com

One of the kookiest moments last month came when Fed Chairwoman Yellen spoke about seeing no financial collapse in sight during our lifetimes

“Would I say there will never ever be another financial crisis? No. Probably that would be going a little too far, but I do think that we’re much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”  (CNBC Play video for quote on next crisis.)

That certainly calls to mind the times when Chairman Ben Break-the-banky pontificated about there being no housing bubble and no recession in sight:

Yellen’s predecessor, Ben Bernanke, once famously called problems in the subprime mortgage market “contained,” a statement that would be proven wrong when the collapse of illiquid mortgage-backed securities cascaded through Wall Street and contributed to the worst economic downturn since the Great Depression.

Asked at a recent FOMC meeting about any possible problem with banks still being too big to fail, Yellen only said, “I’m not aware of anything concrete to react to.”

Nice to know she’s sound asleep while sugar plums dance in her head, bringing forth prophecies of good times for the rest of everyone’s foreseeable life … or, at least, the rest of hers.

When a Fed chair says something as audacious as there is no chance of another financial crisis in our lifetimes and when she sees no concrete situations of banks being too big to fail, even when the ones that were too big to fail last time are now twice as big, I think Titanic disaster. I think of all those nuclear experts who said, when three Fukushima reactors were blowing up and melting down, that they saw no chance of meltdown anywhere because these reactors were built too tough to melt down. As they spoke, you could hear the reactors exploding and see tops blowing off the buildings on videos playing behind them and watch people running around in protective suits, which made for quite a spectacular orchestration of expert feel-safe baloney.

“Nothing to see here, folks. Just minor gas venting, typical of reactors in a non-meltdown stage of something. Move along.”

I think minor gas venting is what we are hearing out of Yellen.

The inability of central bankers to see anything coming, even as it is bearing down on top of them, is classic. If recessions were trains, Yellen would be tied to the tracks right now, sipping tea. Her saucer would be rattling on the rails, but you wouldn’t be able to hear the rattle because of the rumbling of a locomotive in the background. Yellen would look up from her tea cup and smile at you like the nice grandmother that she is as the train runs over her.

You can also comfort yourself with this bit of superior Fed protection: All of Yellen’s major underling banks just passed the Fed’s most stringent stress test of their reserves. Because they passed gloriously, Yellen & Co told them they can now reduce their reserves, just as she is talking about strapping the economy with quantitative tightening. This move is for the important reason of freeing up something like $100 billion so they can pay themselves fat bonuses and share the wealth with their stockholders.

Whew! Glad the risk of being too big to fail is over. Maybe she meant she has just removed the risk for banksters and major share holders because they all get their bonuses now before the banking collapse.

If you wonder how blind Grandma Yellen is, look at her following statement, which offers a penetrating glance into the obvious:

Valuation pressures across a range of assets and several indicators of investor risk appetite have increased further since mid-February… (Zero Hedge)

Really? Just since mid-February? That was the first time you noticed that maybe, just maybe, the stock and bond markets were starting to look a little bubbly? These high valuations are just now pressuring the Fed to back off on stimulus because the market started to look a tad inflated in February?

She made this statement in order to justify her other statement ab out the Fed’s following choice to reduce stimulus even though it’s inflation target has not yet been met:

The Committee currently expects to begin implementing the balance sheet normalization program this year provided that the economy evolves broadly as anticipated…

So, the Fed has changed its metric from its mandate of manipulating inflation to setting policy based on curbing overly exuberant market valuations. Once again, we see evidence that the Fed is manipulating markets and setting a course correction on stimulus because of markets.

In other words, the Fed wants you to believe the bubblicious pricing of stocks was not something they rigged by “trying to create a wealth effect” in “front-running the stock market” as former Fed governor Richard Fisher said of the actions he was involved in, but that it is just a side-effect of their stimulus that now pressures them to back down. No, it was dangerous manipulation that is now pressuring the Fed to pursue a course of unwinding stimulus.

The Great Unwind Is About To Begin

The unwinding of the Federal Reserve’s balance sheet has been saved to the end because it is more problematic than either the end of quantitative wheezing or the end of low-interest policy, and it is being carried out be people who have never seen a recession coming in the past and who see no reason to believe we will ever again in our lifetimes see a financial crisis like the last one.

By “the Great Unwind,” I mean the reversal of QE (quantitative tightening). While investors are buoyed a little by Yellen’s dovish indication this week that the Fed will only raise interest one more time, the reversal of QE over time will be by far the Fed’s most difficult change toward normalization to navigate.

JPMorgan Chase & Co. Chairman Jamie Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.

“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris Tuesday. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before…. We act like we know exactly how it’s going to happen and we don’t.”

All the main buyers of sovereign debt over the last 10 years — financial institutions, central banks, foreign exchange managers — will become net sellers now, he said. (Newsmax)

A risk never experienced in the history of the world. Never is a long time. That risk, anticipated to begin at the end of summer, is far greater than the mere termination of QE that already took place or than the incremental rise in interest rates. This change actually sucks liquidity out of the market, versus slowing the expansion of liquidity.

Considering the Fed has pumped $4.5 trillion of liquidity into the economy to help “recover” from the Great Recession, there is potentially a lot of unwinding to now begin, and it starts in an economy that is limping along the ground, not in the kind of recovery the Fed anticipated rewinding from. Between the European Central Bank, the Bank of the Japan and the Fed, there is $14 trillion to unwind … or, at least, some large portion of that.

The Great Unwind happens in a period where global debt has reached $217 trillion, which presents a major problem for the Fed in selling off so many bonds. They will almost certainly have to offer them at better yields more interest in order to attract buyers. That sifts throughout debt markets to raise the interest on carrying or refinancing all of this debt. Nations will have to compete with central bank yields in order to issue new debt or refi old. The European Central Bank and Bank of Japan are also looking like they may start unwinding soon, so compound all of that in your mind.

“As I believe the main factor in driving market multiples to historically high levels was QE, ZIRP and NIRP, then yes, the reversal will have major implications for markets and volatility.” Peter Boockvar, chief market analyst at The Lindsey Group, told MarketWatch.

The Fed’s Great Unwind is scheduled to start (if the Fed’s hints bear out) during the stock market’s unwind from Trumphoria, too, and during the retail apocalypse and auto market crash:

Crispin Odey, who made money for a second straight month by sticking to bearish equity bets, said the chance of a market crash is rising as growth slows and the Federal Reserve normalizes interest rates.

The credit cycle boosted by loose monetary policy has peaked and there’s a widespread slowdown in the auto, commodity, industrial and retail sectors, Odey wrote in a letter to investors. Unlike previous dips since the financial crisis, central banks aren’t responding by printing more money.

“This time they are doing the reverse,” which is likely to exacerbate the negative trend, the London-based hedge fund manager wrote. “All this sits very uncomfortably with the fun being felt in the stock markets. When I look at the move up since Trump’s election as president, I detect the walk of a drunken man.”

“The chances of car crashes everywhere are rising,” according to Odey. “Enjoy the hot summer,” (Newsmax)

The timing for the Fed’s Great Unwind does not look fortuitous. Key to understanding why the Federal Reserve always has such bad timing so that it routinely crashes its own recoveries can be found in recognizing that the Fed’s dual mandate — setting monetary guidance based on maximizing jobs and maintaining inflation at a set level — means the Fed is always aiming to create goals that may take a year to develop from the time they make any change.

Inflation is largely dependent on the wage/labor market, and a change in hiring decisions is dependent first on a change in economic conditions; so the movement of these lagging indicators that the Fed monitors the most can easily be a year or more away. Thus, the Fed will continue to move every quarter more and more toward their new bias of stimulus reduction until they see the results in their job and inflation metrics. But they are doing that when the economy is already receding. By the time they see the results in their two sacred metrics, they’ve moved further than they need to and downhill momentum has already built up.

So, they will do it again.

The Death Of Trumphoria

The irrational exuberance that superheated the stock market after Trump’s election is dead right where I said months ago it died. A quick look at any chart of its biometrics proves that:

The patient has been pretty-well flatlining for half a year with a couple of attempted jolts with the paddles that yielded no lasting results. The market has scratched its way sideways in daily tremors up and down ever since, but has gone almost nowhere for more than four months.

While the NASDAQ just looks like a heart attack:

Chris Whalen, a long-time bank analyst, expects [bank] earnings to come in soft enough that the stocks will trade off. “There’s no real growth on the top line,” he told MarketWatch. After several lean years, banks have run out of expenses to cut to boost the bottom line.

And most investors are finally starting to acknowledge that the hoped-for “reflation trade” isn’t coming, Whalen said. “The Trump Bump is dead.”

Hopes that the economy would be boosted by structural reforms, including tax reform, have faded as the administration of President Donald Trump has made little leeway on its plans. (Marketwatch)

The stock market gained a little more headroom in the first half of last month, but has, again, petered out. The market is in its summer doldrums — that hot, sultry period of dead winds before the summer storms — where any gains look like a mirage, typically passing away as soon as they are reached. Relentless stories about Trump’s supposed Russian electioneering collaboration — whether true or fake — also have diminished investor hopes that a fiscal stimulus plan will come about this year, an outcome I’ve suggested is likely all year.

And FAANG stocks — those high-tech draft horses of the stock market — are now weighing down on the market with dead weight, rather than dragging it up. This is a major reversal of the pattern that has supported the market for years when many stocks were in a bear market, but the FAANG’s relentlessly pulled the averages ever skyward.

Bank of America’s chief strategist Michael Harnett sees the top forming in the market and predicts the stock market will crash this fall:

We don’t think this is “big top” in stocks;  greed harder to kill than fear; don’t think this “big top” in stocks…. summer 2017 = significant inflection point in central bank liquidity trade…will likely lead to “Humpty-Dumpty” big fall in market in autumn, in our view. But Big Top likely occurs when Peak Liquidity meets Peak Profits. We think that’s an autumn not summer story. (Zero Hedge)

In BofA’s view, the stagnant humidity we feel in the market now — the doldrums after Trumphoria  — is building toward an autumn storm more likely than a summer storm because it will required the Fed’s move into the Great Unwind to really kick things off. I’ve said summer because I’d rather err’ on the side of safety, miss a part of the ride and be out ahead of the stampede. (And I’m not a trader, just someone who has moved his retirement funds out of stocks. I do not even try to give trading advice. My interest on this blog is macro-economics — where the economy is headed — and the stock markets of this world are only a part of that (a part we now know is rigged by central banks’ direct stock purchases).

Carmageddon 0n Cruise Control

“There’s been a consistent reduction in plant output in the last six months, and what is ahead in the next six months could be pretty startling,” said Ron Harbour, a noted manufacturing analyst….

“The industry has dramatically expanded employment in the United States in the last several years, but the growth is just not there anymore,” said Harley Shaiken, a labor professor at the University of California, Berkeley.

And companies are increasingly looking to build their less profitable car models outside the United States. Ford Motor, for example, said in June that it would move production of its Focus sedan to China from Michigan….

Scaling back jobs in car plants is part of a newfound discipline among automakers to avoid bloated payrolls and inventories when sales start slipping….

Moreover, the Detroit companies have also hired large numbers of lower-wage, entry-level employees with less costly unemployment benefits….

G.M., for example, has reduced the number of shifts at several of its domestic plants….

“We are beginning to enter a period we call the post-peak,” said Jonathan Smoke, chief economist for Cox Automotive, which operates the auto-research sites Kelley Blue Book and Autotrader. (New York Times)

And auto parts are not doing any better than autos. O’Reilly Automotive Inc.’s disappointing sales slammed a sector already seen as Amazon’s next source of fodder, taking a record plunge as it missed its second-quarter projections. Advanced Auto Parts and AutoZone are also continued declining. O’Reilly shares plunged as much as 21%. It is another area where demand is shifting away from brick-and-mortar stores and toward online purchases. Some say that auto manufacturers, seeing that customers are hanging on to their old cars longer, are stiffening up competition from OEM parts, too.

Attempts To Ward Off The “Retail Apocalypse”

Mitigating forces are at work, trying to turn the massive number of closures of mall anchor stores and smaller stores into opportunity for new life, but no one knows yet if these extravagant and creative efforts will work.

Costs are escalating as mall owners’ work to keep their real estate up to date and fill the void left by failing stores. The companies are turning to everything from restaurants and bars to mini-golf courses and rock-climbing gyms to draw in customers who appear more interested in being entertained during a trip to the mall than they are in buying clothes and electronics. The new tenants will pay higher rents than struggling chains such as Macy’s and Sears, and hopefully attract more traffic for retailers at the property, according to Haendel St. Juste, an analyst at Mizuho Securities USA LLC.

“The math is pretty obvious, pretty compelling, but there are risks,” St. Juste said in an interview. “This hasn’t been done before on a broad scale.”

…So far, jettisoning and replacing undesirable tenants has been a successful formula for many landlords, but there is still a lot of work to be done, according to Jeffrey Langbaum, an analyst with Bloomberg Intelligence. Some companies won’t have the cash to keep up amid the relentless pace of store closures, he said.

“For the most part, these companies have been able to redevelop and backfill space,” Langbaum said. “That’s great, but the big wave is still coming.”

…For Ziff of Time Equities, which buys outdated malls and renovates them, it doesn’t matter how you categorize the expenses of making over a center for the modern era, or if there is a linear path to a return on a particular project. Whether it’s installing a fireplace in a new food hall, or buying artwork for the common area, the aim is to drive higher traffic and tenant sales, he said. Ultimately, it’s all cash going out the door. (Newsmax)

The response teams to the retail crisis are already at work on makeovers, but the costs are high, and no one knows yet if it will work beyond a few well-positioned success stories. The fact that they are taking such major risks shows how significance this retail paradigm shift is.

Government Bankruptcies Continue To Grow

I recently reported on the near-default situation of several states, showing how deeply to the core of the state the residual problems of the financial crisis cuts. You can add to that list of serious funding problems, the capital city of Connecticut:

Like many other local governments across the country, Hartford — city of Mark Twain and the young John Pierpont Morgan — has been grappling with budget problems for years. On the same day that Illinois lawmakers finally scrapped together a long-overdue budget, Hartford hired the law firm Greenberg Traurig LLP to evaluate its options, which include bankruptcy. It would be the first prominent U.S. municipality to seek protection from its creditors since Detroit did so in 2013. (Newsmax)

The rise in both corporate and national defaults right now is showing up in other areas of the world, too:

Sovereign government and corporate defaults in both developed and developing economies are beginning to emerge. For example, China has registered in 2017 its highest level of corporate defaults in the first quarter of a calendar year on record. Delinquencies and charge-offs in the United States soared to $US1.4 billion in the first quarter of 2017, the highest recorded level since the first quarter of 2011….

In May 2017, six major Canadian banks were downgraded by Moody’s Investor Service (Moody’s) as concerns rise over soaring Canadian household debt and house prices leave lenders more vulnerable to losses. Moody’s also downgraded China’s sovereign debt in May 2017 for the first time since 1989 and has warned of further downgrades if further reforms are not enacted….

In May 2017, S&P has downgraded 23 small-to-medium Australian financial institutions as the risk of falling property prices increases and potential financial losses start to increase. In June 2017, Moody’s downgraded 12 Australian banks, including Australia’s four major banks.

Standard and Poor’s and Moody’s downgraded bonds for the US State of Illinois down to one notch above junk bond status as the state has over $US 14.5b in unpaid bills. (Zero Hedge)

These pressures are spreading at a rate that could be considered endemic around the world by next year.

More Storm Clouds Keep Gathering

Credit demand for both credit cards and auto loans has gone deeply negative for the first time in years. Credit cards briefly touched into the negative in 2012 with a 4% decline; but this year’s decline of 11% far exceeds that. Auto loans haven’t gone negative since 2011, but are now seeing a 14% decline.

US tax receipts have matched this negative move, also down about 14% this year with an uptick last month. They haven’t gone negative since the Great Recession, other than a brief downtick of about -4% in 2011. Other than that brief downtick, a negative turn of this indicator has exactly matched with every recession in the post WWII era.

Factory orders took their second monthly drop and fell by more than economists expected. Durable goods orders declined in April and May, following a year of steady albeit slight growth.

Even the formerly blind Fed Chair Alan Greenspan sees that we are now entering what he says will be a long, “very tough” period of stagflation. He anticipates GDP will bump up to growth of 3% for the second quarter, but says that is misleading number, “a false dawn,” that is merely born of problematic adjustments happening this quarter. “The presumption that we’re going to come bouncing back is utterly unrealistic.” (Newsmax) That’s quite a change for Greenspan who, like most central-bank chiefs, never saw trouble coming in the past.

Bank of America Merrill Lynch’s “Sellside Indicator” hit its highest level since the official end of the Great Recession in June 2011.  The indicator measures how bullish strategists are on US equities, now showing a strong move toward the “jump out and sell” side.

The Chicago Fed National Economic Activity Index took its biggest drop since August, 2016.

US mortgage applications and home purchases have seen steep declines recently. The week ending the month of June, usually a hot time for buying, dropped week-on-week by the most in half a year, even as interest rates had returned to nearly their lowest levels. Correspondingly, pending home sales fell each month from March through May. A majority of economists polled by Reuters, naturally, forecasted that May sales would increase. Here’s dirt in your eye, Economists.

In summary, nothing happening this summer threatens my forecast from the beginning of the year, which said that a major economic breakdown would become evident by summer and that the stock market would crash sometime between early summer and the start of 2018, with it likely to be earlier than later. I’ve bet my blog on it, and I’ll comfortably stay with that bet. I don’t think the above confluence of forces proves that bet right, by any means; but clearly forces are continuing to build strongly in that direction. There is, in fact, almost nothing on our horizon in the US that looks like a playful summer on the beach. (I hope YOU have such a summer, but I am speaking in terms of the economy.)

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The Real Indian Currency Crisis

By Hard Asset Alliance – Re-Blogged From http://www.Silver-Phoenix500.com

On November 8, 2016, Indian Prime Minister Narendra Modi dropped a bombshell. In a televised address at 8:00 pm, he declared that after midnight—four hours later—banknotes with face values of INR500 (US$7.50) and INR1,000 (US$15) would no longer be legal tender.

These bills comprised 86% of the monetary value of currency in circulation, so to say that panic ensued would be an understatement. The market stayed open all night as people rushed to buy gold, Rolex watches, and anything else they could get their hands on to use up their cash.

During the next two weeks, gold traded for as much as US$3,000 per ounce, a premium of almost 100% to the international price. Foreign currencies traded at similar premiums.

Soon, Indian tax authorities descended on the gold market, confiscating security camera recordings to identify any transaction that might have bypassed taxation. They were raiding people’s houses with abandon.

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Welcome To The Third World, Part 24: Illinois About To Default?

By John Rubino – Re-Blogged From Dollar Collapse

The train wreck that is the state of Illinois has generated a lot of questions lately, including “Will its government ever pass a budget?”, “Will it ever pay its overdue bills?”, and “Is it possible for a state to go bankrupt?”

Looks like we’re about to get some answers to these questions, along with one more: “What happens to the financial markets when people finally realize that Illinois is far from the only impending bankruptcy?”

Today’s Wall Street Journal has an anecdote-filled article illustrating what certainly looks like a case of terminal financial mismanagement (How Bad Is the Crisis in Illinois? It Has $14.6 Billion in Unpaid Bills):

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Deposit Bail In Risk As Spanish Bank’s Stock Crash

 By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

– Banco Popular stock crashes most on record – down 63% this year to 34 euro cents

– Spanish bank tells employees – “Don’t panic”

– Risk of Spanish banking crisis as Banco Popular credit curve inverts

– Banco Popular needs to find at least €4 billion more capital – analysts

– Deposits over €100,000 (euro) vulnerable to bail-in

– EU, U.S., UK push for bank ‘bail-ins’ poses risks to depositors

Source: Google

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2017 Economic Forecast: Global Headwinds Look Like Mother of All Storms

By David Haggith – Re-Blogged From GREAT Recession Blog

Headwinds that are starting to assail deep structural flaws in the US and global economies form the basis for my 2017 economic forecast, which looks like an all-out economic crisis building throughout the world. Some of these headwinds are global; some more locally focused within the United States, but that which brings down the US economy wounds the world anyway. Ultimately, global concerns threaten the US, and US concerns threaten the globe. We’re all in this together, even as we seem to be flying apart in political whirlwinds everywhere and fracturing national alliances all over the world.

Even in the US where the Trump Triumph has ignited consumer and business hopes and inflamed the stock market, time is not on Trump’s side. Trump’s own key advisors — like Steve Bannon and Larry Kudlow — have stated unequivocally that Trump’s plans must happen quickly if they are going to save the US economy. Trump, himself, campaigned on the endless refrain that the US economy was rapidly approaching catastrophe. That’s why we needed to elect him. If we take the architects of these hope-inspiring plans at their word, 2017 is a make-or-break year for the US, and the clock is ticking against their success.

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Will Donald Trump Reverse the War on Cash?

Re-Blogged From International Man

Jason Burack: It seems that globalism may be on the retreat. What’s your opinion about that, in light of Brexit, Donald Trump winning, and the Italian referendum failing?

Nick Giambruno: I think you’re right, Jason. Right now globalism is on the decline. But let’s define “globalism” before I explain why. This word gets thrown around a lot. But most people don’t really know what it means.

It’s very simple. Globalism is the centralization of power into a couple of global institutions: the EU, the United Nations, the IMF, the World Bank, NAFTA, NATO, and so on. It’s really just a polite way of describing world government, or what George H.W. Bush termed the New World Order.

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Italy’s Bank Rescue Foreshadows Nationalization Of More EU Banks

By John Browne – Re-Blogged From http://www.Silver-Phoenix500.com

On December 7, 2016, Italy’s Prime Minister Matteo Renzi resigned following defeat in a national referendum, that he had supported, that would have changed the country’s parliamentary system. The development, which represents just the latest sign of anti-EU sentiment spreading throughout Europe, was felt acutely by Italy’s troubled banking sector. In particular, the Banca Monte dei Paschi di Siena (MdP) has been teetering on the brink of collapse and now may stand as a case study that may be encountered by other EU member nations.

The advent of the euro currency allowed Eurozone member countries, even those with poor financial health like Italy, to borrow at far lower ‘Germanic’ interest rates than their respective national credit ratings would have allowed. In turn, national borrowers were able to tap into the vast sums of liquidity created under central bank quantitative easing (QE) programs at astonishingly low, and sometimes negative, interest rates. Predictably this has led to a massive misallocation of capital, and billions in potentially non-performing loans.

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Are You “Living In a Death Spiral”? These 6 States Will Collapse During the Next Recession

By Mac Slavo – Re-Blogged From http://freedomoutpost.com

Being on the hook is not going to be pretty when interest rates are raised back up, and debts come due. At a personal level, it will mean more stress and juggling to make ends meet. For the larger economy, it will mean cities and states unable to meet obligations or balance their budgets – ending in bankruptcy, and bailouts. Meanwhile, millions of people are relying on that money to keep coming in order to survive. Something is going to go very wrong.

Relying upon government to function and send you money is not a secure plan.

The mathematics are terrifying and dismal, and so is being caught up in these collapsing states.

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Road to Recovery: Global Epocalypse Inevitable

By David Haggith – Re-Blogged From Great Recession Blog

The financial end of the world in economic apocalypse is here. A funny thing happened on the road to recovery: Trump’s chief strategist admitted his view of the Trumpian future looks like the Great Depression. Even the world’s largest bank just said global financial default is the preferable way out and most likely way out of the Great Recession that began in 2007/2008. That’s the new optimism.  You don’t get better than all of that for an exhilarating view of the imminent future. As Maya MacGuineas, the leader of the Committee for a Responsible Federal Budget, also assessed the situation,

“President-elect Trump is going to be inheriting the worst fiscal situation of any president… other than President Truman … as judged by the debt relative to the economy.” (The Washington Post)

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Next Big Shoe To Drop…Student Loans

By Jeffrey Lewis – Re-Blogged From Silver Coin Investor

More than 40 million young Americans carry federal and private student loan debt – amounting to over $1 trillion. Defaults are on the rise and the issue has grown to become a nasty wealth transfer mechanism, as well as sad example of the failure of finance in general.

This week, President Obama announced a new initiative framed as a way of addressing the issue. Sadly, it is far from the mark, and just one more indication that monetary masters are the real puppeteers.

Many have pointed out that the student loan debt bubble could be the next subprime crisis.

Perhaps so, but it is potentially much worse, acting as an anvil when considered in the context of other consumer debt like car loans and credit cards.

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The War On Cash Is Good For Gold

By Frank Holmes – Re-Blogged From http://www.Gold-Eagle.com

The consumer price index (CPI), a measure of inflation, came in hotter than expected Friday, registering 2.3 percent year-over-year in August on expectations of 2.0 percent. With the five-year Treasury yielding 1.19 percent, government bond investors are now receiving a negative real rate of return (because 2.3 minus 1.19 comes out to negative 1.11 percent).

This is highly constructive for the price of gold. As I’ve discussed many times before, the yellow metal has benefited when real rates have fallen below zero. This was the case in September 2011 when gold hit its all-time high of $1,900 per ounce. And last year around this time, the opposite was true—positive real rates were a drag on gold.

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Japan’s New Framework Of Hyperinflationary Failure

By Andrew Hoffman – Re-Blogged From http://www.Silver-Phoenix500.com

Am I allowed to start with Deutsche Bank?  Or do I have to defer to the Bank of Japan’s Keystone Kops; who once again laid a giant goose egg?  Who, beyond a shadow of a doubt, proved they have not a clue what they are doing – in dramatically accelerating the pace at which the “Land of the Setting Sun” plunges to “second world” status, en route to becoming the first “Western Power” to experience 21st Century hyperinflation.

Hmmm, what to do?  As sadly, I could easily write entire articles on countless other topics as well – such as the Bank of International Settlements issuing a dire warning about the massively over leveraged Chinese banking sector; Donald Trump’s surging popularity; Wells Fargo’s “crime of a lifetime”; the exploding worldwide pension crisis;  OPEC’s Secretary General all but confirming “no deal” at next week’s “all-important” crude oil producers meeting; and the U.S. national debt – and budget deficit – expanding at the fastest rate since the 2008-09 financial crisis.  And the answer is, I’m starting with Deutsche Bank – as unquestionably, it poses the greatest near-term risk to global political, economic, social, and monetary stability.

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The Inflation Imperative

By Gary E Christenson – Re-Blogged From Deviant Investor

The western welfare states (US, UK, EU etc.) have borrowed more digital currency than can be repaid at current values. The choices are:

Massive inflation: a bad choice

Default: an even worse choice

From Jim Rickards (Strategic Intelligence – Sept. 2016 issue):

“Given the non-sustainability of sovereign debt under current monetary regimes and the necessity for global inflation, there are three possible endgame scenarios facing us now.”

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Fill the US Strategic Petroleum Reserve

cropped-bob-shapiro.jpg   By Bob Shapiro

The US created a Strategic Petroleum Reserve in 1975, after the arab oil embargo (and a stupid US rationing scheme) caused supply disruptions. Today, this reserve holds a little over 1 month’s worth of oil.

Assuming that there is a real need for this Reserve, I would hope that it would be run using some basic economic and market principles. Right up at the top of the list of Market Principles is the Commandment: “But Low, and Sell High.”

The Price of Oil today is on the low side over the last 40 years, on an inflation adjusted basis. Back in ’73-’74, the Price of Oil went from under $10 a barrel to the mid-$30s. While the nominal Price today is in the low $40s, adjusted for the CPI, oil is under $8 a barrel in 1975 Dollars. (The CPI is a low-ball number, so maybe $5 is closer.)

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