Rates Eye Negative Territory As Capital Prepares For Slow Death

By Mike Gleason – Re-Blogged From Silver Phoenix

Precious metals markets appear to be gearing up for another leg higher. On Thursday, the metals complex rose sharply across the board. Gold gained about 2.5% while silver packed on nearly 4%.

Both of the monetary metals showed signs of breaking out of the sideways trading ranges they’ve been stuck in over the past four weeks. Silver price closed solidly above its 50-day moving average for the first time since late February.

Bulls will be looking for confirmation with strong weekly closes today and then follow-through early next week.

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Time To Reset Portfolios For Inflation

By Stefan Gleason – Re-Blogged From Gold Eagle

As investors reset their clocks to accord with the end of Daylight Savings Time, they may also need to reset their expectations for future returns.

A strong body of research suggests that artificially changing the time twice a year – forward, then backward an hour – does more harm than good.  It leads to sleep disruptions, heightened stress, missed appointments, wasted time (ironically), and a diminishment of productivity around these biannual time changes.

As reported in HeadlineHealth, “Circadian biologists believe ill health effects from daylight saving time result from a mismatch among the sun ‘clock,’ our social clock – work and school schedules – and the body’s internal 24-hour body clock.”

That mismatch can have dire consequences: “At least one study found an increase in people seeking help for depression after turning the clocks back to standard time in November.”

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Deeply Negative Nominal Rates Are On Their Way

Growing evidence of a severe global recession is sure to provoke more aggressive monetary policies from central banks. They had hoped to have the leeway to cut interest rates significantly after normalising them. That hasn’t happened. Consequently, as the recession intensifies central banks will see no alternative to deeper negative nominal rates to keep their governments and banks afloat through a combination of eliminating borrowing costs and inflating bond prices. It will be the last throw of the fiat-money dice and, if pursued, will ultimately end in the death of them. Gold and bitcoin prices are now beginning to detect deeper negative rates and the adverse consequences for fiat currencies.

The problem

Central banks face a dilemma: how can they cut interest rates enough to stop an economy sliding into recession. A central banker addressing it will note that the average cut required to put an economy back on its feet is of the order of 5%, judging by the experience of 2001/02 and 2008/09 and what their economic models tell them. Yet, in Euroland the starting point is minus 0.4% and in Japan minus 0.1%. In the US it was 2.5% before the recent reduction and in the UK 0.75%. The solution they will almost certainly favour is deeper negative nominal interest rates.

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Negative Interest Rates And Cash

By Bart Klein Ikink – Re-Blogged From Gold Eagle

Is it possible to have cash with negative rates?

War on cash?

There is talk about a war on cash to pave the way for negative interest rates. Negative interest rates and cash go not well together, at least so it seems. People may opt for cash when interest rates on bank accounts and government bonds are negative. In Europe many interest rates are already in negative territory but the central bank still promotes the use of cash. So is there a war on cash? At least not at the European Central Bank (ECB) it seems. Some ECB policy makers can even get a bit emotional about cash being the only real link between the central bank the people.1

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What A US Rate Cut Could Mean For Gold Prices

By Frank Holmes – Re-Blogged From Gold Eagle

Stocks surged last Friday following a U.S. jobs report that, to put it mildly, fell far below expectations.  At first this might seem counterintuitive. Shouldn’t signs of a slowing economy act as a wet blanket on Wall Street?

Not necessarily. Investors, it’s believed, are responding to the expectation that the Federal Reserve will have no other choice than to lower interest rates this year in an attempt to keep the economic expansion going. Earlier this month, Fed Chair Jerome Powell himself commented that he was prepared to act “as appropriate” should the global trade war risk further harm. President Donald Trump has also renewed his attacks on Fed policy, calling last December’s rate hike a “big mistake.”

So a rate cut looks more and more likely in 2019, perhaps as soon as this summer. And investors rejoice.

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Negative Interest Rates Spread To Mortgage Bonds

By John Rubino – Re-Blogged From Dollar Collapse

There are trillions of dollars of bonds in the world with negative yields – a fact with which future historians will find baffling.

Until now those negative yields have been limited to the safest types of bonds issued by governments and major corporations. But this week a new category of negative-yielding paper joined the party: mortgage-backed bonds.

Bankers Stunned as Negative Rates Sweep Across Danish Mortgages

(Investing.com) – At the biggest mortgage bank in the world’s largest covered-bond market, a banker took a few steps away from his desk this week to make sure his eyes weren’t deceiving him.

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The Scheme To Eliminate Cash and Impose Negative Interest

By Clint Siegner – Re-Blogged From Gold Eagle

Central bankers and politicians love inflation, but they need “bag holders” to have faith in the value of the fiat currency IOUs they hold. The trick is to avoid suddenly destroying the ephemeral confidence in currencies by printing too much too fast.

Central bankers may also need to limit the options inflation wary citizens have for escaping.

They are both shifty and innovative when it comes to making sure the ill effects of perpetually devaluing currency are primarily borne by the citizenry.

Lying and trying to hide what they are doing to the currency has been tradition with politicians since Roman times. Nero began quietly reducing the silver content of the Denarius around 60 A.D.

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Catalyst For Chaos

By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com

Up until very recently, stocks had been humming along without so much as a minor speedbump and volatility was becoming a distant memory. However, it now seems prudent to once again remind investors that this extremely overvalued market is headed for an epic crash. The Cassandras, myself included, have been wrong about this warning for what seems like a long time. Nevertheless, much like those who warned of a housing bubble a few years before the bottom completely fell out, reality is destined to slam into the current triumvirate of asset bubbles, and those sounding the alarm will be proven correct again.

The governments’ massive interest rate manipulation and record amount of new debt accumulation have engendered unprecedented equity, real estate and fixed income bubbles across the globe.

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Bond Bubble has Finally Reached its Apogee

By Michael Pento – Re-Blogged From http://www.PentoPort.com

Boston Fed President Eric Rosengren recently rattled markets when he warned that low-interest rates were increasing the temperature of the U.S. economy, which now runs the risk of overheating. That sunny opinion was echoed by several other Federal Reserve officials who are trying to portray an economy that is on a solid footing. And thus, prepare investors and consumers for an imminent rise in rates. But perhaps someone should check the temperatures of those at the Federal Reserve, the idea that this tepid economy is starting to sizzle could not be further from the truth.

In fact, recent data demonstrates that U.S. economic growth for the past three quarters has trickled in at a rate of just 0.9%, 0.8%, and 1.1% respectively. In addition, tax revenue is down year on year, S&P 500 earnings fell 6 quarters in a row and productivity has dropped for the last 3 quarters. And even though growth for the second half of 2016 is anticipated with the typical foolish optimism, recent data displays an economy that isn’t doing anything other than stumbling towards recession.

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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 Impoverishment Of The Masses

By Alasdair Macleod – Re-Blogged From http://www.financeandeconomics.org

Feudal and mercantilist economic systems were characterised by the lower orders of ordinary people being enslaved by, or subjected to, the commands of an elite. Beyond basic subsistence, serfs and slaves were not enabled to consume other goods, nor were they given the means to do so. Communism was hawked as handing power to the serfs, or workers, united in and by the state. But again, it meant that workers remained serfs, employed and commanded by a state set up in their name. Freedom from the bourgeoisie became subjugation by the state. Only capitalism, founded on free markets and freedom of choice for all, held the promise of freeing the masses from a life of drudgery and servitude.

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Stagflation & Bond Collapse

By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com

Mike Gleason, Money Metals Exchange: It is my privilege now to be joined by Michael Pento, president and founder of Pento Portfolio Strategies and author of the book The Coming Bond Market Collapse: How to Survive the Demise of the US Debt Market. Michael is a money manager who ascribes to the Austrian school of economics and has been a regular guest on CNBC, Bloomberg, and Fox Business News, among others.

Michael, it’s good to talk to you again. Thanks very much for joining us today and welcome back.

Michael Pento, Pento Portfolio Strategies: Thanks for having me back on.

Mike Gleason: Well to start off here, Michael, I want to get your thoughts on some of the economic data we’re seeing out there and maybe you can explain some of the market action to us because there seems to be a lot of confusion. Now as you pointed out in an article you wrote earlier this week, we have a big disconnect between what the payroll reports and the employment numbers are showing compared to the tax receipts the Treasury Department is collecting. Talk about that if you would and also let us know what conclusions you’re drawing from these numbers.

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US Treasury Yields Go Negative Everywhere But Here

By John Rubino – Re-Blogged From Dollar Collapse

Negative interest rates are an existential threat for insurance companies, pension funds and other financial entities that need positive investment returns to survive.

As rates on government bonds have gone negative in Europe and Japan, the above companies have been big buyers of US Treasury bonds, which still (for some reason) continue to offer positive yields.

But according to a Bloomberg analysis published today, Treasuries’ positive yield has recently evaporated when the cost of hedging currency fluctuations is included. Here’s an excerpt:

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Corrupt Or Just Stupid? Markets Hand Corporations An Unlimited Credit Card

By John Rubino – Re-Blogged From Dollar Collapse

In the sound money community it’s generally understood that abandoning the last vestige of the gold standard in 1971 gave major countries effectively-unlimited credit cards – which corrupted them irredeemably.

Now – with government bonds yielding either next to or less than nothing – that corruption has begun to spread to corporations, whose bonds are being snapped up by yield-deprived investors. For example:

Japan stock investors learn to love corporate debt

(Nikkei) — A shift is taking place in the Japanese stock market. Companies that take risks rather than playing it safe and transform themselves to seize growth opportunities are the new darlings among investors.

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ECB And BOJ Now Trapped In Endless Counterfeiting

By Michael Pento – Re-Blogged From http://www.Gold-Eagle.com

The Fed was able to end its massive $3.7 trillion series of Quantitative Easing campaigns without the stock market and economy falling apart. The end of QE 3, in October of 2014, did cause temporary turmoil in the major averages; but all in all, it did not lead to a protracted market decline, nor did it immediately send the economy into a recession.

The consensus view then became that the Fed’s strategy of unprecedented interest rate and monetary manipulations was a huge success, and it would be able to slowly raise the Fed Funds rate with impunity.

Perhaps it was this assurance that gave Ben Bernanke’s successor, Janet Yellen, the temerity to begin liftoff in December of 2015. However, when the Fed commenced its first rate hike, it led to the worst beginning of a year in stock market history, as the Dow Jones industrial average lost more than 10% of its value between January 1st and Feb. 11th. Therefore, while the markets seem to have become somewhat comfortable with the end of QE (at least for now), they have also reached the consensus that a protracted tightening cycle is a completely untenable position for the Fed to hold.

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Secret Meeting That Accelerated the War on Cash

Interview With Nick Giambruno – Re-Blogged From International Man

Scott Horton: Happy to have you back on the show, Nick.

I’m looking at one of your articles in Casey Research’s International Man and I like the title: “Revealed: The Hidden Agenda of Davos 2016.”

Can you tell us about it?

Nick Giambruno: Yes. There’s an annual World Economic Forum meeting in Davos, Switzerland. Leaders in business, government, media, and even some celebrities go to these events to discuss the big issues of the day. This conference happens every year in the open. But this year, I think a secret meeting took place during the conference behind the scenes, with huge historical significance…

Immediately after the conference, there was a big acceleration to eliminate paper cash, or at least high-denomination currency notes. A flood of articles from The New York Times, The Economist, Zero Hedge, and other publications picked up on this.

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Sovereign Debt – What Could Go Wrong?

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

It has been reported that about $10 Trillion of sovereign debt “yields” negative interest. Assume total global sovereign debt is about $60 Trillion.

Therefore, about one-sixth of all sovereign debt has negative interest rates. This brings to mind a few questions.

  1. Do negative interest rates sound absurd, even insane?
  2. Would bankers and central bankers in 2012 have believed that interest rates could be pushed so low they actually went negative?
  3. Does anyone see a problem with negative interest rates?

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Real Estate Bubble Part II

By Michael Pento – Re-Blogged From http://www.PentoPort.com

It shouldn’t be hard to understand that nearly 90 months of ZIRP has regenerated the equity and real estate bubbles that first pushed the global economy off a cliff back in 2007. In fact, the Fed’s unprecedented foray with interest rate manipulation has caused these assets to become far more detached from underlying fundamentals than they were prior to the start of the Great Recession.

The prima facie evidence for the stock market bubble can be found in the near record valuation of the S&P500 in relation to GDP and in its median PE multiple. But perhaps the best metric to illustrate this overvaluation of equities is the current 1.8 Price to Sales ratio of the S&P. This is the highest ratio exhibited outside of the Tech Bubble…and is especially absurd given 5 quarters in a row of falling revenue.

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Welcome To The Currency War, Part 21: Japan Goes Negative; US To Return Fire In 2016

By John Rubino – Re-Blogged From http://www.Gold-Eagle.com

Well that didn’t take long. Two weeks of falling share prices and the European and Japanese central banks go into full panic mode. The ECB promised new stimulus — which the markets liked — and then BoJ upped the ante with negative interest rates — which the markets loved. Here’s a quick summary from Bloomberg:

Central Banks Intensify Campaign for Negative Rates

In surprising markets by penalizing a portion of banks’ reserves, the Bank of Japan on Friday joined a growing club taking the once-anathema step of pushing some borrowing costs beneath zero.

“Negative rates are now very much the new normal,” said Gabriel Stein, an economist at Oxford Economics Ltd. in London. “We’ve seen they are possible and we’re going to see more.” Negative rates once “sounded illogical,” said Stein. “We now know what we thought was true isn’t.”

This is a resounding admission of failure. Over the past seven years the world’s central banks have cut interest rates to levels not seen since the Great Depression and flooded their banking systems with newly-created currency, while national governments have borrowed unprecedented sums (in the US case doubling the federal debt). Yet here we are in the early stages of a global deflationary collapse. Commodity prices have followed interest rates to historic lows, while growth is anemic and may soon be nonexistent.

The official response: More extreme versions of what has already failed. Here’s a JP Morgan chart published by Financial Times that shows just how sudden the trend towards negative interest rates has been:

Future historians will have a ball psychoanalyzing the people making these decisions, and their conclusion will almost certainly be some variant of the popular definition of insanity as repeating the same behavior while expecting a different result.

So what does this new stage of the Money Bubble mean? Many, many bad things.

This latest leg down in bond yields presents savers (the forgotten victims of the QE/NIRP experiment) with an even tougher set of choices. Previously they were advised to move out on the risk spectrum by loading up on junk bonds and high-dividend equities. Now, after the past few months’ carnage in those sectors, even the most oblivious retiree is likely to balk. But having said “no thanks” to the demonstrably dangerous options, what’s left? The answer is…very little. There is literally no way remaining for a regular person to generate historically normal levels of low-risk cash income.

Meanwhile, a NIRP world presents the US with a problem that perhaps only the Swiss can appreciate: As the other major countries aggressively devalue their currencies (the euro and yen are already down big versus the dollar), another round of lower interest rates and faster money printing will, other things being equal, raise the dollar’s exchange rate even further.

For a sense of what that might mean, recall that US corporate profits are already falling because of a too-strong dollar (see Brace for a ‘rare’ recession in corporate profits). Bump the dollar up another 10% versus the euro, yen and yuan, and US corporate profits might fall off a cliff. The inevitable result: Before the end of the year, the US will see no alternative but to open a new front in the currency war with negative interest rates of its own.

The big banks, meanwhile, are no longer feeling the central bank love. Where falling interest rates used to be good for lenders because they energized borrowers and widened loan spreads, ultra-low rates are making markets more volatile (and thus harder to profitably manipulate for bank trading desks) without bringing attractive new borrowers through the door. The result: falling profits at BofA, JP Morgan, Goldman, et al and tanking big-bank share prices.

As for gold, there are now $5 trillion of bonds and bank accounts that cost about the same amount to own as bullion stored in a super-safe vault — and which cost more than gold and silver coins stored at home. Compared with the 5%-6% cash flow advantage that bonds have traditionally enjoyed versus gold, NIRP can’t help but lead savers and conservative investors to reconsider their options. In other words, what would you rather trust: A bond issued by a government (Japan, the US, Europe — take your pick) that is wildly-overleveraged and acting ever-more-erratically, or a form of money that has never in three thousand years suffered from inflation or counterparty risk? At some point in the process, a critical mass of people will get this.

And no discussion of the unfolding financial mess would make complete sense if it left out the geopolitical backdrop. The Middle East is on fire and refugees are flooding the developed world, resurrecting old social pathologies (see Swedes storm occupied Stockholm train station, beat migrant children). Much of Latin America is sinking into chaos (see Caracas named as world’s most violent city and 21 of the 50 most violent cities are in Brazil). Seeing this, who in their right mind would spend thousands of dollars to visit Egypt or Rio or even Paris right now? The answer is far fewer than a decade ago.

So the old reliable economic drivers of expanding global trade and enthusiastic tourism are gone for a while, if not for decades. Central banks are, as a result, swimming against a current that is far faster — in water that is far deeper — than anything seen since at least the 1930s. And all they can do is pump a bit more air into their sadly-inadequate water wings.

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More Outlets Are Suggesting A Carry Tax On Physical Cash

By Graham Summers – Re-Blogged From http://www.Gold-Eagle.com

A Carry Tax… or tax on physical currency… is coming.

The Fed and other Central Banks literally took the nuclear option in dealing with the 2008 bust. Collectively, they’ve printed over $11 trillion and have cut interest rates to zero for nearly six years.

All of these efforts were focused on driving in trashing cash and forcing investors/ depositors into risk assets.

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