The Economic Death Spiral Has Been Triggered 

For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended. It is now in the process of reversing and becoming a vicious downward economic spiral. One of the strategies is the Asian Mercantile Strategy. The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end. One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world... So what could possible stop this ideal symbiotic relationship from continuing to feed on itself? A number of factors, all of which are now coming together to end this Virtuous Cycle.

Revaluation vs. Remonetization of Gold

posted by Eric De Groot at Eric De Groot - 2 hours ago

John, Which came first the chicken or the egg? Evolution suggests the chicken, but that's another discussion. The re-monetization of gold will occur at higher price, so technically, it’s still nothing more...

 

 

 

 

The Chinese Domino Has Fallen... Or Has It? And Why No Power, May Really Mean No (Inflationary) Problem 

Submitted by Tyler Durden on 05/27/2011 15:32 -0400

Earlier today SocGen came out with a report that is a must read for everyone who has an even passing fancy in global monetary policy, as the currently rampant inflation in China, and the approaches ushered to deal with it, threatens to derail the global "recovery" (although not sure in what: printing of credit money - yes; economy - no) which according to Morgan Stanley is "too young to fail." To be sure, SocGen discusses the first of three dominoes that will or already have, fallen, as part of the increasingly popular domino theory of Chinese inflation. SocGen explains: "Quite simply, the domino theory of 2011 is that when China comes under the influence of inflation, the surrounding countries, those with the most immediate trade ties, would also fall to inflation. It will only be a matter of time till those economies with the greatest trade ties; indeed the entire world has succumbed to the great inflation cascade emanating from China." And the first domino, which SocGen claims to already  have fallen is the following: "The first domino is China creating  autonomous structural inflation: China’s domestic inflation accelerated at an unprecedented pace at the end of 2010 and policy makers remain well behind the curve. As China engineers its economy to a more domestically focused one, its demand curve is shifting outwards and the global supply curve has been inelastic in response. That domino has already fallen and is the focus of this paper." And while we respect SocGen's opinion on China, most recently referenced to debunk a BCG report on imminent US-Chinese worker wage parity, in this case we wonder if SocGen has simply gotten on the boat of conventional wisdom a little too fast. What we mean is that "structural" inflation may not be all that "structural"especially if one considers a flip to a traditional Stalin saying: "no man - no problem".... in this case "no electricity - no inflation." Bernstein's Michael Parker explains...

Long Euro Speculator Exodus Continues As Dollar Short Covering Pushes USD To First Net Positive Level Since January 

Submitted by Tyler Durden on 05/27/2011 16:42 -0400

The most recent CFTC data is out and the results are in: momentum chasing FX speculators continue to retrench to exit positions, as the Euro long orgy, which as recently as May 3 hit a multi year record at 99.5k net long non-commercial contracts. Fast forward 4 weeks, and the recent plunge in the EURUSD has brought the exposure to just 19.1K contracts, the lowest since January 18, and a level prevalent in October and November of 2010. The 4 week drop is the biggest one month drop, as the momentum to the downside accelerates. Although it may still have a ways to go: the recent "support" is around -50k contracts. At this rate it will be hit in about 3 weeks. In the other camp we have the USD which saw short covering bring it to net non-spec exposure climb from -1,270 to 2,485, the first net positive exposure since January 2011. That said, with the EURUSD on the verge of breaching of 1.43, it seems that the great unwind is now over. A complete historical chart of non-commercial specs, and several other products, can be seen below. 

 

 

 

 

Step Aside "Too Big To Fail" - Morgan Stanley Comes Up With The New Catchphrase; Calls Recovery "Too Young To Die" 

Submitted by Tyler Durden on 05/27/2011 13:16 -0400

Asked about the fate of the economic "recovery", which incidentally is nothing more than a $2 trillion dollar dilution-funded blip on the depressionary downtrend commenced in December 2007, Greg Peters, the head of fixed income research, at Morgan Stanley, the firm whose other fixed income strategist Jim Caron will now have been proven wrong three years in a row following his annual broadly bullish call for a jump in rates (not based on bearish considerations such as those postulated by Bill Gross... bullish), tells Tom Keene that the recovery is "Too Young To Die." Yep. That's the justification. Alas there was no mention that the 98 year old ponzi scheme perpetrated by the Fed since 1913 is now "Too Obvious To All." And when that fails, many of the same people who get paid huge sums of recycled taxpayer money to come up with catchy four word slogans while spouting flawed economic projections will suddenly find themselves "Too Pitchforked To Fly Away (To Non Extradition Countries)"

Guest Post: Past Peak Oil - Why Time Is Now Short 

Submitted by Tyler Durden on 05/27/2011 12:59 -0400

The only thing that could prevent another oil shock from happening before the end of 2012 would be another major economic contraction. The emerging oil data continues to tell a tale of ever-tightening supplies that will soon be exceeded by rising global demand. This time, we will not be able to blame speculators for the steep prices we experience; instead, we will have nothing to blame but geology... With Brent crude oil having lofted over $100/bbl at the beginning of February and remained above that big, round number for four months now, we are already in the middle of a price shock. It may not be a perfect repeat of the circumstances of the 2008 oil shock, but it's close enough that the risk of an economic contraction, at least for the weaker economies, is not unthinkable here. Japan, now in recession and 100% dependent on oil imports, comes to mind. Looking at the new data and reading even minimally between the lines of recent International Energy Agency (IEA) statements, I am now ready to move my ‘Peak Oil is a statistically unavoidable fact’ event to sometime in 2012, which tightens my prediction from the prior range of 2012-2013. Upon this recognition, the next shock will drive oil to new heights that are currently unimaginable for most. First, $200/bbl will be breached, then $300, and then more. 

 

 

 

 

Jamon y Baton: Extended Photogallery From A Violent Barcelona 

Submitted by Tyler Durden on 05/27/2011 12:40 -0400

Looking at these pictures from Barcelona one would think this is Tunisia, Cairo, or at best, Athens. Instead, it is from the once incomparably wealthy capital of Catalunia (although they did have Olympics there: an event guaranteed to result in at least one municipal bankruptcy at some point in the future), and before the Barcelona-Man United game. One can only imagine what happens if Barcelona wins (or is that loses). 

 

 

 

 

 

Mike Krieger On Risk Redefined 

Submitted by Tyler Durden on 05/27/2011 11:41 -0400

I remember the first time I saw someone us the terms “risk on” and “risk off” as a way to describe the flow of capital into and out of certain baskets of assets that are supposedly “risky” or “safe.” The terms got under my skin back then and they continue to do so until this day. Wall Street and the media just love coming up with trite and untruthful statements as a way to condition investor behavior and ultimately separate you from your money. First of all, the world and the successful deployment of capital is much more complicated over any serious investment horizon than the simplification of everything into “risk on” and “risk off.” This way of thinking is even more dangerous when conventional wisdom allocates to the “risky” category many items that are in reality the true safe havens and to the “safe” category those that are guaranteed to destroy your financial well being... As long as the central planners have some degree of control of the markets, which they still do at the moment, if you are playing the game and managing money in this world of investment horizons of weeks if not days you have no choice but to trade the market you are given. Nevertheless, as I have said countless times before, in the final equation there will be no other asset that will lose investors more money that U.S. government bonds and nothing that will protect wealth more than gold. Moreover, when the central planners do lose control of the markets (and they most certainly will) the fact that they have spent so much time manipulating them as well as pushing investors into the worst types of capital allocation decisions they could make, guarantees the total wreckage of the life’s savings of most of this nation.