Archive - Aug 1, 2015

While mocking socialist paradises everywhere is a recurring theme especially once they have completely run out of other people's money to burn through, what always follows next is far less amusing - complete social collapse, with riots, civil war and deaths not far behind. That is precisely what the video shown below has captured. In the clip, a demonstration against Venezuela's poor transportation services quickly turned violent. End result: one person dead from a gunshot wound, more than 80 arrested and four shops looted on the Manuel Piar Avenue in San Felix.

Now, more than ever, with Greece and Ukraine front and center, understanding how corporations take control of countries, and how capitalism drives the expansion of the Military Industrial Complex is crucial: "we have created a mutant form of predatory capitalism which has created an extremely unstable, unsustainable, unjust and very very dangerous world."

"The robots have produced almost three times as many pieces as were produced before. According to the People's Daily, production per person has increased from 8,000 pieces to 21,000 pieces. That's a 162.5% increase."

We have argued that it is a perilous myth that central bankers these days control a general price level. They instead incentivize massive financial flows into securities markets and fashionable sectors. Over time, ramifications and consequences reach the profound. For one, excess liquidity promotes over/mal-investment. It’s only the scope and nature that remain in question. If major Bubble flows inundate new technology investment, the resulting surge in the supply of high-margin products engenders disinflationary pressures elsewhere. Policy responses to perceived heightened “deflation” risks then only work to exacerbate Bubbles, mounting imbalances and structural fragilities. This was a critical facet of “Roaring Twenties” analysis that was lost in time.

"Opposite"-land...

To get a sense of the complete devastation in the world of commodities, consider the curious case of Australia's Isaac Plans coking coal mine, which was valued at $630 million in 2011. It sold on Thursday for $1.  it gets worse: based on data from Citi Research, 90% of all M&A that miners did since 2007 has been written off. The commodity bubble has officially burst - feel free to thank China.

Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.

The US has determined that the Chinese cyber attack on the databases of the Office of Personnel Management "was so vast in scope and ambition that the usual practices for dealing with traditional espionage cases [does] not apply," The New York Times reports. In short: "this agression will not stand, man."

Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015...

Two weeks ago we noted something that has never happened before in gold - hedge funds, according to CFTC, had a net short position for the first in history. The past week saw a very surprising negligible shift of just 11 contracts as the short position shrank to 11,334 contracts. However, the aggregate net long position has dropped to a level that in the past has represented a threshold for signficant short-covering (21% and 17% rallies respectively). So with hedgies as short as they have ever been in history and aggregate positioning at a historically crucial level, one wonders if gold is due for a bounce...

A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the precise location in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two  weeks before the 20th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.

Note that the classic sign of crisis and capital flight, higher interest rates, falling currency, and falling bank stocks are now visible in Brazil (and elsewhere). Indeed, the correlation between Brazilian bond yields and Brazilian financials/BRL turned sharply negative during each of the past 3 systemic crises (Asia ‘98, Tech ‘02 & Lehman ’08) and is doing so again today.

Earlier this week I told you about Social Security’s Disability Insurance Trust Fund (DI), which will become insolvent in a matter of months.  The DI problem (just like the rest of Social Security) has been a long time coming.  But rather than form some meaningful solution, Congress has instead opted to commit financial fraud by commingling DI monies together with the other Social Security funds. Now comes the Highway Trust Fund. The difference between DI and the Highway Trust fund is that this one won’t be insolvent in a matter of years or months. Their own data shows that it may very well be toast… today.

Some were confused if the Mt. Gox founder, Mark Karpeles, was going to get away with nothing more than an excuse, even if - as many speculated - he had personally fabricated exchange data entries and embezzled millions of dollars for his own account. Earlier today we got the answer when nearly 18 months after his infamous apology, Mark Karpeles was arrested in Tokyo. FT reports that Japanese police have arrested Mark Karpelès, the head of the bankrupt Japan-based bitcoin exchange Mt Gox. The arrest charge is that he made an illegal entry to the system in February 2013 and increased the balance of his account by $1 million.