GoldCore Review of 2010 And Outlook For 2011

Tyler Durden's picture

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atomicwasted's picture

Oh no!  All of those eggs are in one basket!

Dr. Sandi's picture

That's okay, they're laced with dioxins anyway. They'll either be destroyed by German authorities or shipped to a Chinese baby food factory.

terryg999's picture

I am diversified.  I have both Gold and Silver.

 

 

High Plains Drifter's picture

Diversification?  We got diversification. LOL!!!

DoChenRollingBearing's picture

@terryg,

Consider adding Pt and/or Pd for even more diversification.  Both are PMs, and both are used in industry as catalysts.

LowProfile's picture

He already has (arguably) the best industrial PM.

I doubt LT it will do as well as gold (silver won't be monetized).

Spalding_Smailes's picture

I love ZH !!!!

Thanks T for cultivating a herd of doomers .... Viva' the short-sellers. 

Shameful's picture

Doomers perhaps.  But a real doomer would not short because they are expecting massive inflation, so that rising tide would raise all ships.  Only a fool would think "I think there will be hyperinflation, I better short a bunch of stocks/bonds!".  As a inflation "doomer" myself I would never contemplate of running shorts into the market.  Zimbabwe Ben can juice the market as much as he likes.  Likewise because the markets can be manipulated this brand of doomer is more likely to look at commodities and hard assets.

I suppose there is the deflationist breed of doomer that thinks that all the central banks will not resort to printing.  I can only assume this group has never opened a history book or suffers under the fallacies that there is no way to print the money.  Perhaps this group would short waiting for DOW 1000, which isn't coming.

Spalding_Smailes's picture

Shameful,

 

The deflation in the quadrillion dollar derivative ponzi is epic. Uncle ben injected dollars/treasuries into the system and plugged the hole. Now the game is starting all over, they continue to drink down dollars/treasuries ( the cb's ) because of the flood of dollar denominated debt in the host countries banking system.

 

You will not see " hyperinflation " doomer style. This dollar thang is global & the thirst continues yesterday, today, next week. Borrowing in dollars going out 5,10,30 years.

 

 

Hephasteus's picture

Well with all those customers why don't these global people just use dollars and we'll use silver. Or do you need the merican tested mother approved stamp on it or something?

Shameful's picture

Ah but there is no way to support the debt framework unless interest rates get a lower. Debt is continually added in huge amounts but the ability to repay does not significantly improve. If there is to be a continuation then this means rates will continue to fall, and eventually go negative in nominal terms, or there is a default. And I can assure you that if we see a -1.00% on the 10 year we are deep in Outer Limits territory. Look at the projected debt growth and tell me how that can be financed without basically a 0 in the interest category? Is there a trillion+ a year of capital (Not QE) that is looking to buy US Treasury paper at what will by necessity be insignificant yields?

When there is a default from the US Federal Government what do you think the dollar will be worth? After all it has the full faith and credit of the US behind it. If it has value then great, default, kick back the debt spigot and take the world for another ride. I'm less optimistic about the world being stone dead retarded, but it would be nice.

Deflation of the ponzi also assumes these bad beds and debts will be unwound as the little guy defaults, this has not happened because of gov guarantees. This shifts all risk to the govs. Deflation ends the game because it increase the cost of the debt not decreases it (both in the guarantees and real value of money increases), making it much harder to repay. So either there will be hyper inflation to purge a debt that cannot be repaid, or there will be a default on debt that cannot be repaid. In either case I do not care to be in the currency of the default or in debt based instruments.

But please by all means invest in deflation. If your right and there is deflation and somehow the system does not collapse into the black hole, great. I would really mean this time in different and infinite debt does not matter, totally rewrite all economic thinking. If I'm right then your bet helps delay the day of reckoning allowing me more time to save up for my bets. I'll keep on betting on history, and economics as known now that unpayable debts are bad. Good luck to us all.

Spalding_Smailes's picture

 

Ben can always service the debt he's the only one with a key ....

 

 The treasuries recycled by foreign central banks are being transformed from sub-inflation rate, pathetic-interest bearing notes into negative interest loans.  Uncle Ben keeps the volume of the liquidity just right and by pouring treasuries and by increasing the amount of power money supply. The Fed is blowtorching the foreign central banks and produces more negative interest loans. (With negative interest loans, the more you loan from a bank the bigger profits you get - it's the prefect investment ). The negative interest loans combined with a fresh round treasuries (released by the Fed in order to avoid a deflationary collapse over the last few years) produces bubbles and inflation on a global scale, look at China .... Lol'

This game really hurts the countries that peg ... Look at all the new debt being borrowed every single day by cb, businesses & people all across this globe. All the countries that peg , india, the opec crew, china, brazil, vietnam .... they all drink up our treasuries keeping this peg. All the commodities, global trade built upon the dollar.

The dollar has been global since the late 70's. Forex/Global Finance/Commodities all this debt floating around the globe for 40 years & since 2007 we have created how much more debt ?????

We already have a quadrillion out on the street at what point is this  " Massive Hyperinflation " going to start after all this ??? 5 more trillion ? 10 more trillion ? 

 

Shameful's picture

So there is a magical formula that will allow Ben to keep this act going forever? Can I see it? It's the greatest equation ever, putting the idea of Foundation to shame. Such an equation allows one to spin straw into gold.

These nations will be forever bound to the dollar and Ben flooding them with dollars? Why? What gain do these nations get?

Your investment plan is to count on foreign nations constantly wounding themselves to prop the dollar up? And when do you expect this to end? Ever? Won't there come a time when these nations finally kill themselves from the damage? It would be a great miracle, a nation that can produce nothing but accounting units and ship them to the world for goods and services, forever.

As far as massive hyperinflation, I don't have a date. But I will say the dollar will not be anywhere near it's current value in 5 years if it is still around at all, measured against commodities not other melting fiats. The world does not have limitless capital to toss at this, and unless Ben can get a control on commodity prices he'll get blown out pretty quick.

Spalding_Smailes's picture

They are keeping the peg.  Also as China raises rates this year and the drum beat of "slow down " grows louder the commodities will fall. What happens to China's subsidised ponzi manufacturing complex if they de-peg..... ? China is now heading into a shit storm, with banks,insurance,shadow banks,real estate just like we did and all the money will run for safety ( USA ).

 

 

Mike Pettis on China .... This is why they peg.

 

.... " One of the problems with a severely repressed financial system, especially one with rapid credit expansion, is that there tends to be a huge amount of capital misallocation supported by borrowing, and in an increasing number of cases it is only the artificially-reduced borrowing costs that allow these investments to remain viable.  I worry that even if the PBoC wanted to raise rates, it would not be able to do so without exposing how dependent borrowers are on artificially cheap capital.

 

Take the most obvious example, the PBoC itself.  The central bank officially has about $2.5 trillion in reserves.  This by the way almost certainly understates its true position but let’s ignore that for a moment.  The PBoC has funded this position with an equivalent amount of RMB liabilities, which makes it very vulnerable to changes in the value of the currency.

 

Rate addiction

In fact there were strong rumors last year that the PBoC was technically insolvent as a consequence of the 20% increase in the value of the RMB against the dollar during the 2005-08 period of currency appreciation.  Weirdly enough, although the numbers are huge, it has proven difficult to convince anyone that the PBoC is not the richest institution in the world, and that it is actually very vulnerable to big losses (although I notice that Sovereign Trends’ Terrence Keeley, in an OpEd in the Financial Times Tuesday, seems also to have done the numbers).

The problem for the PBoC occurs not just because of the currency mismatch but also because it needs repressed funding costs to keep it profitable.  How much do the PBoC foreign currency assets earn?  I would guess probably between 3% and 4%, maybe less.  The RMB funding cost, on the other hand, is roughly between 1.5% and 2.5%.  This leaves the PBoC with a net positive carry of between 1% and 2%.

If the RMB appreciates by as little as 2% a year, in other words, the PBoC runs a negative carry on its assets.  Every further 1% increase in interest rates, or additional 1% rise in the value of the RMB, then, erodes its capital by at least $25 billion (annually, if it happens through an increase in interest rates).

Let’s assume, for example, that over the next two years we see a combined appreciation and interest rate increase of 10% (let’s say a 2% increase in interest rates and a 4% annual appreciation), which is, in my opinion, the absolute minimum that China must do to slow down the worsening domestic imbalances.  Assuming no change in the rate earned on reserve assets, which in fact may decline, this means that the PBoC’s net indebtedness would rise by over $250 billion, or roughly 5% of the country’s GDP.

These kinds of number quickly add up.  And of course it is not just the PBoC that has this addiction to repressed interest rates.  Many years of very low cost borrowing has created a huge dependency on low interest rates among SOEs, local governments, and other creditors of the bond markets and the banks (not to mention the banks themselves), all of whom are directly or indirectly funded by long-suffering households." ................

 

 

Spalding_Smailes's picture

I can't wait till I can buy China stocks at rock bottom in a year or two.

 


Sunday, April 04, 2010 A Reply to my Critics on Local Debt

Victor Shih

Since the publication of my editorial in the Asian Wall Street Journal on local debt, there has been a wave of interest on this issue. Several investment banks have issued reports on local debt, and some of them have disputed my main finding that current local government investment vehicle debt stands at around 11.4 trillion RMB. The World Bank likewise addressed this issue and came up with a much lower estimate on local investment company (LIC) debt. In the discussion below, I outline some reasons why I still adhere to my estimate that existing local investment vehicle debt stands at around 11 trillion RMB. Furthermore, I once again reiterate that local debt is a serious problem which will require decisive actions from the Chinese government. 

Some points people have raised about my estimate of local debt:
1. The Chinese government claims that there is only 6 trillion RMB in local investment vehicle debt.
My response: A. This widely cited figure was produced by a 6/2009 CBRC survey of the situation. The exact methodology is unclear, but informants state that the CBRC extrapolated this amount on the basis of a partial study of a few provinces.
B. Other government agencies have provided conflicting and higher amounts. For example, a MOF research team uncovered "well over 4 trillion" in late 2008 (excellent Credit Swiss research even states that the 4 trillion was a YE 2007 figure).
C. The CBRC finding concerns only bank loans, but total debt should also include bond issuance and accounts payable, which constitute triangular debt.
D. if we sum the gross debt of just the top 50 or so LICs, we quickly arrive at gross debt of over 2 trillion (try adding the gross debt of Guangdong Highway, Guangdong Transportation Group, Chongqing Highway, Beijing Basic Construction, Shanghai Urban Construction and Development Company, Shanghai Pudong Development Co., Tianjin Urban Basic Infrastructure, Binhai Development...etc.), so the remaining 8000 or so entities only owe 4 trillion (on average 500 mln RMB each)?

2. The 11.4 trillion is too high when compared with total bank loans in various categories.
My response: A. First of all, total loans outstanding at the end of 2009 was well over 40 trillion RMB, and I think it is completely reasonable to believe that nearly 1/4 of it was loans to LICs. In fact, I wouldn't be surprised that a higher share of bank loans ended up in LICs. 
B. Some analysts have trouble believing that such a high share of medium and long-term loans ended up in LICs. When we consider how many LICs there are and the vital role they play in the local economic strategy, it is not surprising that likely as much as 3/4 of new medium and long term loans in 2009 ended up in LICs. 
C. Beyond medium and long term loans, many LICs are holding companies with subsidiaries engaged in a wide range of businesses. For example, the LICs run thousands of hotels across China, and loans to these hotels would be classified as loans to the service industry. Thus, in addition to medium and long term loans and loans to infrastructure, it is perfectly reasonable for a sizable share of working capital loans, trust loans, and loans in the "other" category to end up in LICs. Again, gross debt of these entities would also include bond issuance and debt owed to each other.

3. LIC debt can be calculated by subtracting government spending on basic infrastructure from the total infrastructure spending figure. In that light, LIC debt only increased by 2.8 trillion RMB in 2009.
My response:
A. First, as pointed out, LIC are diversified holding companies which do not only engage in infrastructure construction. For example, thousands of subsidiaries of local investment companies engage in real estate development and absorb some share of the real estate loans. The figure generated using the method above, however, may be meaningful one-day when the government decides how much of the existing LIC debt it will seek to take over as part of a bail out. 
B. The calculation above assumes that much of the extrabudgetary revenue from local governments derived from land sales went to infrastructure construction. According to excellent research done by Standard Chartered and UBS on land sales, much of the land sales revenue is spent on compensating original residents, leaving only a minority share for actual investment. Thus, a realistic application of this methodology would lead to something like 3.5 trillion RMB in new loans to LICs, not just 2.8 trillion. 

4. My estimate of 12.7 trillion in future LIC debt is baseless and is way too high for YE 2011.
My response:
A. To be sure, I now think most of this debt will not realize by YE 2011 also. However, it would not be far-fetched to think that most of this debt will be realize by YE 2012. This estimate is not "baseless" as it comes from the hundreds of lines of credit that banks have granted to local governments. As long as banks more or less adhere to these lines of credit, they will lend this amount to local governments at some point in the future.

Shameful's picture

Ok lets assume China is trapped and the US will vampire on them for a while. So eventually China explodes and dies, then what?

What nation will replace China for the US? What nation can replace them in allowing us to consume without producing? And when that nation is burned out what then? This game might go on for a few years, but how does it play out long term? Can the ponzi go on forever? Will endless nations rapidly rise and fall to take on our burden and never wise up?

Spalding_Smailes's picture

They will not blow-up, just a little crash and burn, we are a team. China will be fine in the long run but the transition into a consumer driven economy will be a bit bumpy'.

 

Its not just China, all the countries that peg have economies built upon cheap credit/debt. They must hold the peg or go boom. They will hold the peg. The house of Saud' loves the status quo-

 

Not sure how long it can go on but the dollar is at 81 and in the next few years China & the Euro will have some issues this is a given. The dollar is the best of the lot' & the strong bid/churn will continue for a long time.

Pettis thinks it will take until 2030 before China becomes the new reserve currency or maybe we go 50/50 with them some day ? The per capita in China is around $8,000  like the USA in the 40's.

Shameful's picture

So China will not collapse and they will forever support our wild spending? I almost feel like I should vacation over there to thank them. So the team is they produce and we consume? Have to tell you sounds like a shitty deal for them.

"Ok here is the plan. You g out and make all the money and I'll do the hard part, spending it!"

I cannot for the life of me believe that the Chinese are so dumb to follow this course forever. I would not be investing on the idea that the Chinese will forever under consume so America can over consume, but that's just me. I'm no pro.

So how is them going to infinite leverage and never crashing deflationary? Won't them getting wealthier send commodity prices to the moon?

Spalding_Smailes's picture

It all sounds crazy but its true. They de-peg they blow up the PBoC and the banks.

Confessions of an Economic Hit Man. Great book. Great insight ....

 

We are going to transition ( everyone ). They want to become a consumer driven economy and bring the farmers online, we need jobs back home. Not sure how its all going to play out but they will try to revalue 5% a year then maybe the banks adjust the books not sure how they get off uncle sugars cheap credit high. But they are stuck with Ben's game for now they really have no oher choice. When China does revalue over the next few years some manufacturing work will come back to the USA.

But no, we can't borrow ( joe sixer ) like we did in the past unless they get the shadow banks rolling and turbo charge the credit again.

 

China is now sending work into Africa, outsourcing Lol' !!!

breezer1's picture

i believe you are right ss. tomorrow i am going to dump my PMs and mining shares. the market will never go down and the dollar will always be strong. i will trust the government. i will trust the government. i will tru....................

velobabe's picture

gold finger, bitch†

goldmiddelfinger's picture

Gold. Gold will be CRUSHED, putain

fiddler_on_the_roof's picture

Can you give a time frame when Gold will be CRUSHED to less than $1000.

That is how Johnny_Bravo left the scene. you could also open another

account now, make a statement about Gold and come back in the new account

bashing Gold.

Dr. Sandi's picture

I think they caught up with JB over the weekend in Tucson. He doesn't have net access in his new digs.

Praetor's picture

Your right dickhead, gold will be crushed to form coinage.

goldmiddelfinger's picture

Somewhere in Africa a tree is missing it's monkey

latcho's picture

We aren't talking perpetual physical gold/silverholdings here. We ride the ride and get out on time (and that might be the time you consider to get on the boat)

latcho's picture

newbie... double |save| hit

Arius's picture

i just hope china backs off and realize one doesnt bite the hand that feeds her...

cranky-old-geezer's picture

When that hand is feeding dollars rapidly losing value, China's opinion may change somewhat.

Arius's picture

these dollars made tourists out of chinese peasants...they better not forget it....

yabyum's picture

Velo, is that a butterfly net you are holding?

velobabe's picture

no, my ninja sword in the right and my handmade fan in the left.

me, samurai sword fan yogi. and my belt inbetween.

goldmiddelfinger's picture

this is where the shit hits the fan

Dr. Sandi's picture

Fan, Hell. The shit's already so deep we're gonna need an auger!

DocLogo's picture

first 10 commentors get 1 free oz of gold?

High Plains Drifter's picture

Damn, how nice of TD to help us out like that.....

umop episdn's picture

More for the metalheads! Welcome, Goldcore! I hope to see more reports as well done as this one.

High Plains Drifter's picture

Its a metalhead world....

Goldenballs's picture

A Golden Opportunity.

youngman's picture

Tomorrow is going to be interesting...I bet the Portugese bonds have a 5 to 1 demand.....lol....it will be sold to the world that all is good....

DoChenRollingBearing's picture

Great move Tyler(s), your JV with  GoldCore ought to bring lots of interesting news to ZH.

belogical's picture

This stuff isn't for trading, but I found it interesting given the CFTC meeting on Thursday and the Judge getting documents in the GATA case on Friday. 

 

 http://www.halfpasthuman.com/badfood.html

mrgneiss's picture

The rant that link links to sucks.

Buzz Wired's picture

I saw that. I've been following HPH for The last 6 months or so. Should be interesting to see what might come of it all.

Silversinner's picture

Bejing put is making us gold and

silverbugs filty rich.See more than one

billion greedy fingers wanting the shiny stuff.

This demand will overwelm the market.

India likes gold and silver too,one

billion extra.Lot of them being farmers

and be able to buy some more with higher

foodprices.Banks insolvent,gouverment broke

in the west.What is not to be liked about PM.

 

goldmiddelfinger's picture

No targets, not even a directional call, just a call for diversification. Find some balls.

FB24601's picture

In buzzwords the "black swans" means:

- they will try to install proxy wars
- they will put out new mutated "cleaning" virus
- they will let crisis develop to a certain extent to make people believe there is deflation and no inflation
- you know HAARP

greenewave's picture

The Establishment and Mainstream Media is losing control of the PEOPLE and as a result vehemently ATTACKING ALTERNATIVE NEWS. Suddenly, anyone that does not agree with the Socialist policies of the Obama Administration is an ENEMY OF THE STATE!

Watch the video “The Establishment is Losing Control” at (http://www.youtube.com/watch?v=6JIDs7Luwxg).

Anonymous-

“We do not have much time left before the FREEDOM of Americans is robbed by our leaders, the Internet Censored, Guns confiscated and the PEOPLE jailed for speaking truth!”