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Thursday (Non?) Humor: A Look Inside The Real Fed Balance Sheet

Sometimes one just needs a little translation to see the big picture for the trees...


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Guest Post: What Are The Boundaries Of 'Legitimate' Espionage?

Using espionage for gain in negotiations is an age-old tactic; but are the norms of 'appropriate' espionage changing?


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Chinese Premier Li Keqiang Punctures The Keynesian "Excess Savings" Myth

For two decades now mainstream Keynesian economists have been gumming about China’s remarkable economic boom and its accumulation of unprecedented foreign exchange reserves. The latter hoard has now actually crossed the $4 trillion mark. But this whole narrative is PhD jabberwocky with a Wall Street accent.


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Carmaker Hype Sends Palladium To Highest Against Gold In 10 Years

Gold is trading at the lowest level relative to palladium since 2004 as Bloomberg notes that prospects for a record shortage has lured investors to the metal used in pollution-control devices for cars amid concern that supply will be disrupted. As the chart below shows an oz of gold buys only 1.54 oz of palladium (less than a 3rd of the 5oz gold could buy in 2009) as supply problems (mining strikes and Russian sanctions) collide with demand expectations (the 'recovery' of the global car market). Despite GM's problems, record levels of channel-stuffed inventories, and a still stagnant consumer (showing no interest in big purchases), IHS expects a record level of auto sales this year at 85 million. Seems like this ratio is an interesting derivative play on the excessive exuberance in the world's car market expectations.


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The Connection Between Oil Prices, Debt Levels, And Interest Rates

If oil is “just another commodity,” then there shouldn’t be any connection between oil prices, debt levels, interest rates, and total rates of return. But there clearly is a connection. As we have seen, rising interest rates will bring an end to our current equilibrium, by raising costs in many ways, without raising salaries. It will also reduce equity values and bond prices. A rise in the cost of extraction of oil, if it isn’t accompanied by high oil prices, will also put an end to our equilibrium, because oil producers will stop drilling the number of wells needed to keep production up.  If oil prices rise (regardless of reason), this will tend to put the economy into recession, leading to job loss and debt defaults. The only way to keep things going a bit longer might be negative interest rates. But even this seems “iffy.” We truly live in interesting times.

 


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China's Rising 'Working Class Insurrection' Problem

Last week we highlighted the stunning images of China's "fists and daggers" police force training for a "working class insurrection." It appears to be good timing, given last night's terrible blasts in Urumqi. The chart below shows the worrying escalation in social unrest in China - at a time when the leadership is pushing a "strike first" anti-terrorist policy that appears to be failing badly. The "serious violent terrorist incident" that occurred last night in Urumqi, killing 31 and injuring 94, was the worst in years and prompted domestic security chief Meng Jianzhu to vow to strengthen a crackdown on the "arrogance of terrorists," but, as one analyst warns tightening controls on the Uighur region may be "smacking them in the face."


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"Our Industry Is Absolutely Crazy": The Subprime Wolf Of Wall Street In 125% Interest Clothing

The last time we wrote about the number 125% it was in the context of the return of that old Subprime 1.0 staple home loans that cover more than the purchase price of the home (because one must always have some leftover cash for improvements), i.e. 125% loan-to-value loans. Today 125% comes back and again it is in the context of subprime, only this time it is about the second coming of the credit bubble when, as Bloomberg writes, a certain group of distinguished individuals is now offering loans to troubled Americans at the whopping annual interest rate of 125%.


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Europe's Soaring Revulsion Against "Europe" In One Chart

Mario Draghi may have lied to Zero Hedge when saying there was no European "Plan B" (or Z), but he was right when he said that there has been a "vast amount of political capital that has been invested into the Euro." There is one problem: that political capital (like virtually every other form of capital in Europe) is evaporating at an unprecedented pace.


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Marc Faber: "The System Is Very Vulnerable," Brace For A "General Asset Deflation"

With global debts 30% higher than they were at the 2007 crisis peaks, enabled by the money printing of central banks, Marc Faber warns that the "asset inflation" of the last years is not reflective of the broad growth seen in the 70s. "The system is still very vulnerable," he warned as investors are exuberant over "hot new issues" just as they were in 2000 and fears "excessive speculation" means investors should brace for a "general asset deflation." Emerging markets are relatively cheap to the US and Europe, he notes, but it is too early; there is nothing to like about low treasury yields but they are good to offset risk. As the market soared recently, fewer and fewer stocks are making new highs and this internal weakness (lack of breadth) and the breakdown in so many 'loved' stocks says the drop is coming sooner rather than later...


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The Annotated History Of The World's Next Reserve Currency

With de-dollarization escalating and Chinese officials now openly calling for "a new and more efficient system," specifically on which is not dominated by the US and the dollar, it appears the day of a rebalancing is approaching more rapidly than most would like to believe. On the heels of the vice president of China's central bank commenting that "renminbi will become the reserve currency" we thought it time to look at the long-run history of the Chinese currency and its rapidly rising internalization efforts.


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Keynesian Madness: Central Banks Waging War On Price Stability & Savers

Central banks see their main role now in supporting asset markets, the economy, the banks, and the government. They are positively petrified of potentially derailing anything through tighter policy. They will structurally “under-tighten”. Higher inflation will be the endgame but when that will come is anyone’s guess. Growth will, by itself, not lead to a meaningful response from central bankers. No country has ever become more prosperous by debasing its currency and ripping off its savers. This will end badly...


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The Battle For Africa: Chinese Investments Vs US Military

We have been vociferously following the 'battle for Africa' - the last untapped Keynesian credit growth economic region of the world - for a few years. One common theme has emerged China and the US are aggressively chasing down 'assets' - especially in the equatorial region. However, as the following two charts indicate, the two nations are engaged in very difference tactics for that 'takeover' - China's investment versus US brute force and military intimidation (and fake vaccination programs).


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Bundesbank Warns European Investors: "We See Risks, Despite Calm Markets"

A day after the Federal Reserve warned that "low level of expected volatility implied by some financial market prices might also signal an increase in risk appetite" and this complacency; the Bundesbank has decided to try and jawbone back investors' exuberance across Europe. As Die Welt reports, while stocks and bonds are near record highs across Europe - thanks to the ECB's Mario Draghi's promises, Bundesbank board member Andreas Dombret warned "we see risks - despite the fact that markets are calm," and perhaps incredibly suggested investors "flatten all risks now to avoid the herd behavior."


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Hot On The Heels Of Its China Breakthrough, Russia Set To Build Eight Nuclear Power Plants In Iran

The Eurasian crescent of Russia and China would be made all that much stronger if the two nations had a toehold on the Straits of Hormuz, and were able to shut traffic - either tanker or military, with the US Fifth Fleet located in Bahrain - into the Gulf at their bidding. Which is why it was not surprising that not even 24 hours after Russia and China announced the "holy grail" energy deal, that RIA reported Russia is already preparing to lock in the Tehran regime with a deal to build not one but 8 (!) more nuclear power plants in the country.


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The US Government Explained In One Chart

The oligarchic pilfering and capital misallocating and squandering network of insiders known as "government" truly deserves a picture rather than 1000 words.


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