U.S. States Prepare For Hyperinflation
Why Our Currency Will Fail
The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water. As goes the rest of the world, so goes the US. When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning. This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people.
Mohamed El-Erian, CEO and co-chief investment officer of bond fund giant PIMCO, said investors should be underweight equities while favoring "selected commodities" such as gold and oil, given the fragile global economy and geopolitical risks. Over the long term gold will reward investors who own gold as part of a diversified portfolio. Trying to time purchases and market movements is not recommended – especially for inexperienced investors. New research from Credit Suisse and London Business School entitled ‘The Credit Suisse Global Investment Returns Yearbook 2012’ continues to be analysed by market participants. The 2012 Yearbook investigates data from 1900 to 2011 and looks at how best to protect against inflation and deflation, and how currency exposure should be steered. The chief findings are that bonds do well in deflation and benefit from currency hedging, and equities are not a perfect inflation hedge, but benefit from international diversification. The report shows that gold offers a timely inflation hedge and long term holders of gold should expect a positive correlation to inflation – gold is one of only two assets since 1900 to have positive sensitivity to inflation (of 0.26). Only inflation-linked bonds had more - 1.00, as expected. By contrast, when inflation rises 10%, bond returns have fallen an average 7.4%; Treasuries fell 6.2%, and equities lost 5.2%. Property fell by between 3.3% and 2%. Importantly, gold managed to increase its value across both extreme inflationary and deflationary scenarios. The academics from LBS analysed 2,128 individual years in 19 major countries (1900-2011), finding gold rose 12.2% in the most deflationary years - when average deflation was 26%.
Get Ready for Wild Gasoline-Price Spikes
http://www.moneynews.com/StreetTalk/Gasoline-Price-Spikes-kloza/2012/02/07/id...
Unemployment Rate at a Staggering 22.5%
http://kingworldnews.com
Something Is WRONG with the Nevada Election Results
http://futuremoneytrends.com/Nevada_was_likely_stolen_from_ron_paul.html
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2012/02/07/national/a055113S...
'We the People' Loses Appeal With People Around the World
http://www.nytimes.com/2012/02/07/us/we-the-people-loses-appeal-with-people-a...
Detroit: With Fewer Police and Rising Crime, "Justifiable Homicides" Soar
http://thenewamerican.com/usnews/crime/10778-detroit-with-fewer-police-and-ri...
FBI Warns of Threat From Anti-Government Extremists
http://www.reuters.com/article/2012/02/07/us-usa-fbi-extremists-idUSTRE81600V...
10 Things To Do Before The Economy Collapses
http://www.youtube.com/watch?v=6aF0t7tn0dw
Child Pornography Bill Makes SOPA Look Saintly
http://www.mywebtimes.com/archives/ottawa/display.php?id=449895
While the disclosure of New York Fed's FX swap line usage with the ECB continues to be between 1 and 2 weeks delayed, courtesy of our ECB friends/Goldman alumni, who post swap line usage in real time, we find that in the week starting with tomorrow's settlement, the total swap line usages has risen yet again in the past week, this time to a fresh multi-year high of $89.7 billion, an increase of $400 million compared to last week, and the highest since July 2009. The reason for the increase is that the 7 Day swap line for $3.73 billion maturing tomorrow and used by 10 banks, and at a cost of 0.59% has been replaced with a fresh 7 Day swap line for $4.13 billion and at a higher cost of 0.61% and used by 11 banks. We do realize that this fact goes 100% against the prevailing flawed meme that European bank liquidity, especially in USD, has been restored (why, just look at BBA member bank self-reported 3M USD Libor - it is declining - by Jupiter, it means all is well!). For that we apologize profusely.
This chart from Credit Suisse cuts through all the propaganda BS like a hot knife through butter.
According to the WSJ, the “ECB is willing to forego profits on their Greek bonds”. That statement strikes me as one of the scariest things that a central banker could say (and there is some tough competition for that one). Forego profits? Here is the chart of a typical Greek bond over the past 2 years. The ECB started buying Greek bonds in May 2010, and stopped sometime in 2011. How do they possibly have “profits” to give up? They have “profits” because they live in an accrual accounting world. They buy bonds, don’t mark them, and accrue the interest. The accrued interest counts as “profit”. That is the carry trade. That is what everyone is so excited about for the banks. Banks can buy bonds, not mark them, and book the interest accrual (and payments) as profit. The problem with accrual accounting is when a sale is forced. Whatever the reason for the sale (in this case, a restructuring/default by Greece), the accrual accounting game is over and you have real profit or loss. The “profit” is the total proceeds received for the sale, versus total purchase price, plus any coupon payments received, minus costs of carrying the position. Some entity is taking the real world loss.
Why Our Currency Will Fail
The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water. As goes the rest of the world, so goes the US. When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning. This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people.
Gold Increased In Value In Both Extreme Inflationary And Deflationary Scenarios - Credit Suisse & LBS Research
Mohamed El-Erian, CEO and co-chief investment officer of bond fund giant PIMCO, said investors should be underweight equities while favoring "selected commodities" such as gold and oil, given the fragile global economy and geopolitical risks. Over the long term gold will reward investors who own gold as part of a diversified portfolio. Trying to time purchases and market movements is not recommended – especially for inexperienced investors. New research from Credit Suisse and London Business School entitled ‘The Credit Suisse Global Investment Returns Yearbook 2012’ continues to be analysed by market participants. The 2012 Yearbook investigates data from 1900 to 2011 and looks at how best to protect against inflation and deflation, and how currency exposure should be steered. The chief findings are that bonds do well in deflation and benefit from currency hedging, and equities are not a perfect inflation hedge, but benefit from international diversification. The report shows that gold offers a timely inflation hedge and long term holders of gold should expect a positive correlation to inflation – gold is one of only two assets since 1900 to have positive sensitivity to inflation (of 0.26). Only inflation-linked bonds had more - 1.00, as expected. By contrast, when inflation rises 10%, bond returns have fallen an average 7.4%; Treasuries fell 6.2%, and equities lost 5.2%. Property fell by between 3.3% and 2%. Importantly, gold managed to increase its value across both extreme inflationary and deflationary scenarios. The academics from LBS analysed 2,128 individual years in 19 major countries (1900-2011), finding gold rose 12.2% in the most deflationary years - when average deflation was 26%.
CNBC Video: They Are Changing The Way To Calculate Inflation, Again
Admin at Jim Rogers Blog - 2 hours ago
Jim Rogers on CNBC.
*Jim Rogers is an author, financial commentator and successful
international investor. He has been frequently featured in Time, The New
York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The
Financial Times and is a regular guest on Bloomberg and CNBC.*
Gold - Choppy trading pattern continuing
Trader Dan at Trader Dan's Market Views - 13 minutes ago
Gold currently seems unable to better the level near $1750 which is proving
to be rather stubborn. There appears to be a bit of a headwind arising from
lingering fears about Greece and a potential slowdown impact on the global
economy as debt issues remain in the back of traders' minds. That was
trumped the other day by Chairman Bernanke's promise of another 18 months
or more of free money but in today's session, apparently the effect has
been somewhat muted. I am noticing that equities are lower today and the
Dollar has managed a bit of a bounce with bonds moving up slightly off of ... more »
The Leading Formula Should Lead The Sovereign Debt Crisis
Eric De Groot at Eric De Groot - 3 hours ago
Technical weakness in the leading formula, an derivative of Jim's Formula,
will likely foreshadow another step down in the sovereign debt crisis. For
example, a break of the 2010 up trend and 2011 swing low would represent
significant warnings shots for investors. Chart: Federal Taxes Withheld
(TW) Less Total Government Outlays (TO) As A % of GDP, 12 Month Moving
Average "The Leading Formula"
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content, and more! ]]
Divergence Foreshadow Trend Changes
Eric De Groot at Eric De Groot - 3 hours ago
Divergences between price and price to volatility ratios usually foreshadow
trend inflections. For example, when new highs are not confirmed by new
highs in the price to volatility ratio, it suggests a marginal change in
the risk profile of the rally. Chart 1 reveals this type of setup unfolding
in the NASDAQ composite. The NASDAQ’s recent surge to new highs has yet to
be confirmed by the...
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content, and more! ]]
Huge Inflation Down The Road
Admin at Jim Rogers Blog - 14 hours ago
I'm short technology stocks in the US and i'm not buying anything in the US.
I do think that this year is going to be better in the economy and the
stock market partly because they're printing a lot of money, that will help
some parts of the economy and help commodities.
But you also have to remember this leads to huge inflation down the road. -
*in CNBC*
*Jim Rogers is an author, financial commentator and successful
international investor. He has been frequently featured in Time, The New
York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The
Financial Times and is a r... more »
Get Ready for Wild Gasoline-Price Spikes
http://www.moneynews.com/StreetTalk/Gasoline-Price-Spikes-kloza/2012/02/07/id...
Unemployment Rate at a Staggering 22.5%
http://kingworldnews.com
Something Is WRONG with the Nevada Election Results
http://futuremoneytrends.com/Nevada_was_likely_stolen_from_ron_paul.html
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2012/02/07/national/a055113S...
'We the People' Loses Appeal With People Around the World
http://www.nytimes.com/2012/02/07/us/we-the-people-loses-appeal-with-people-a...
Detroit: With Fewer Police and Rising Crime, "Justifiable Homicides" Soar
http://thenewamerican.com/usnews/crime/10778-detroit-with-fewer-police-and-ri...
FBI Warns of Threat From Anti-Government Extremists
http://www.reuters.com/article/2012/02/07/us-usa-fbi-extremists-idUSTRE81600V...
10 Things To Do Before The Economy Collapses
http://www.youtube.com/watch?v=6aF0t7tn0dw
Child Pornography Bill Makes SOPA Look Saintly
http://www.mywebtimes.com/archives/ottawa/display.php?id=449895
European FX Swap Line Usage With NY Fed Rises To Fresh Multi-Year High As More Banks Demand More Dollars
While the disclosure of New York Fed's FX swap line usage with the ECB continues to be between 1 and 2 weeks delayed, courtesy of our ECB friends/Goldman alumni, who post swap line usage in real time, we find that in the week starting with tomorrow's settlement, the total swap line usages has risen yet again in the past week, this time to a fresh multi-year high of $89.7 billion, an increase of $400 million compared to last week, and the highest since July 2009. The reason for the increase is that the 7 Day swap line for $3.73 billion maturing tomorrow and used by 10 banks, and at a cost of 0.59% has been replaced with a fresh 7 Day swap line for $4.13 billion and at a higher cost of 0.61% and used by 11 banks. We do realize that this fact goes 100% against the prevailing flawed meme that European bank liquidity, especially in USD, has been restored (why, just look at BBA member bank self-reported 3M USD Libor - it is declining - by Jupiter, it means all is well!). For that we apologize profusely.
Bloomberg Headline Of The Day
While we wait, and wait, and wait for the neverending story out of Athens to finally end, we present some comic relief. Not even sure where to start with this headline du jour from Bloomberg, there is just so much 101% concentrated #win here...- GOLD WILL RISE TO $1,250 IF EURO ZONE ENDS, ECONOMIST SAYS
Guest Post: Social Fractals And The Corruption of America
The concept of social fractals can be illustrated with a simple example. If the individuals in a family unit are all healthy, thrifty, honest, caring and responsible, then how could that family be dysfunctional, spendthrift, venal and dishonest? It is not possible to aggregate individuals into a family unit and not have that family manifest the self-same characteristics of the individuals. This is the essence of fractals. If we aggregate healthy, thrifty, honest, caring and responsible families into a community, how can that community not share these same characteristics? And if we aggregate these communities into a nation, how can that nation not exhibit these same characteristics? If this is so, then how do we explain the complete corruption of America's financial and political Elites? What else can you call a nation that passively accepts financial predation, looting, robosigning, etc. by protected cartels as the Status Quo but thoroughly corrupt?Italian Recession Accelerating
Yesterday we dedicated a quick post to the glaringly obvious - the complete decimation-cum-implosion of the Greek economy. Today we learn that the obvious apparently continues, following a Reuters report that according to an Italian source, Q4 GDP declined more than the 0.2% drop in Q3, and that there was no improvement in Q1 of 2012. In other words, Italy's economy is now contracting at an at least 0.3% annualized run rate. More as we get it, but it's not like any details will make the news any less bulllish, because this is obviously great news: the accelerating recession is far better than the "priced in" apocalyptic depression that the market was expecting. In other words, by simple inversion worse than expected is better than unexpected. Or something.Germany To Vote On Greek Bailout Next Week
Think the ECB announcement to do undergo a pseudo OSI impairment is a done deal? Not so fast - Germany may yet throw a wrench in there. According to Bloomberg, next week German lawmakers will conduct three votes on Greece among which:- the €130 billion Greek bailout package... Wasn't it €145 billion by now?
- the empowerment of the EFSF to guarantee Greek government bonds held by the ECB
- the guarantee of Greek government bonds held by private sector after the debt swap
European Bank Run Full Frontal
This chart from Credit Suisse cuts through all the propaganda BS like a hot knife through butter.
Guest Post: The Eurozone Is Almost Out Of Options
Setting a precedent of official sector losses would raise huge questions over whether Portugal and Ireland will request similar treatment. However there are now no easy options. The current course of a second Greek bailout could just as easily have knock-on effects in the form of a second round of taxpayer-backed rescues. We have always argued strongly against taxpayers taking losses but, unfortunately, this is one of the few plausible options we’re now left with.Goldman Explains Why The Market Has Gotten Ahead Of Itself In Its European Optimism Again
While hardly new to anyone who actually has been reading between the lines, and/or Zero Hedge, in the past few months, the Greek endspiel is here, and as a note by Goldman's Themistoklis Fiotakis overnight, the Greek timeline, or what little is left of it, "allows little room for error." Furthermore, "Due to the low NPV of the restructuring offer it is likely that part of this investor segment may be tempted to hold out (particularly owners of front-end bonds). How the holdouts are treated will be key. Paying them out in full would probably send a bullish signal to markets, yet it would be contradictory to prior policy statements about the desirability of high participation both in practical terms as well as in terms of signalling. On the other hand, forcing holdouts into the Greek PSI in an involuntary way would likely cause broad market volatility in the near term, but could be digested in the long run as long as it happens in a non-disruptive way (as we have written in the past, avoiding triggering CDS or giving the ECB’s holdings preferential treatment following an involuntary credit event could cause much deeper and longer-lived market damage)." Once again - nothing new, and merely proof that despite headlines from the IIF, the true news will come in 2-3 weeks when the exchange offer is formally closed, only for the world to find that 20-40% of bondholders have declined the deal and killed the transaction! But of course, by then the idiot market, which apparently has never opened a Restructuring 101 textbook will take the EURUSD to 1.5000, only for it to plunge to sub-parity after. More importantly, with Greek bonds set to define a 15 cent real cash recovery, one can see why absent the ECB's buying, Portugese bonds would be trading in their 30s: "Portugal will be crucial in determining the market’s view on the probability of default outside Greece... Given the significance of such a decision, markets will likely reflect concerns about the relevant risks ahead of time." Don't for a second assume Europe is fixed. The fun is only just beginning...The ECB's Scary Carry Trade, Or How The ECB Will Forego Greek Bond... PROFITS?
According to the WSJ, the “ECB is willing to forego profits on their Greek bonds”. That statement strikes me as one of the scariest things that a central banker could say (and there is some tough competition for that one). Forego profits? Here is the chart of a typical Greek bond over the past 2 years. The ECB started buying Greek bonds in May 2010, and stopped sometime in 2011. How do they possibly have “profits” to give up? They have “profits” because they live in an accrual accounting world. They buy bonds, don’t mark them, and accrue the interest. The accrued interest counts as “profit”. That is the carry trade. That is what everyone is so excited about for the banks. Banks can buy bonds, not mark them, and book the interest accrual (and payments) as profit. The problem with accrual accounting is when a sale is forced. Whatever the reason for the sale (in this case, a restructuring/default by Greece), the accrual accounting game is over and you have real profit or loss. The “profit” is the total proceeds received for the sale, versus total purchase price, plus any coupon payments received, minus costs of carrying the position. Some entity is taking the real world loss.
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