Even as the popular press if focused on the 5 year anniversary of Lehman, we decided to go back double that period, and take a look at what happened to the developed world economy in the past decade, starting with 2003. What we found was interesting.
The collapse of Lehman Brothers, the risk of other large important banks failing in the coming months and the still significant systemic, macroeconomic, monetary and geopolitical risk of today shows the vital importance of real diversification and an allocation to physical gold.
Everything flows, it all evolves and nothing remains static. The Lavoisier Universal Law whereby nothing is created, nothing is lost, everything is transformed.
- Government has too much debt to issue more debt
- Government nationalizes private pension funds making their debt holdings an "asset" and commingles with other public assets
- New confiscated assets net out sovereign debt liability, lowering the debt/GDP ratio
- Debt/GDP drops below threshold, government can issue more sovereign debt
"I have met a number of politicians over the years, but lately it has dawned on me that very few of them are seriously prepared to stand up for their beliefs, if indeed they have any. ...
Ideologies and courage have been consigned to the past and, as I see it, Europe’s Achilles’ heel is the German Chancellor Angela Merkel, the de facto leader of the EU, and her lack of vision for the single-currency bloc. ... Her lack of vision stands as a striking contrast to the emotional feelings that dominated much of post-war European political thinking. ...
As I see it, the research is done. The verdict is out. We have to re-evaluate the EU."
In a sense the markets are experiencing a "Vietnam Moment" where we all believed what we were told and we all accepted the official headlines until the day came when we found out we had been flimflammed and you know the results of that fiasco. We believe that the markets are quite close to a shift in psychology where people and institutions alike no longer blindly accept the stories as told.
With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing. At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank conceded that policymakers rarely learn from their mistakes: "...in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur."
Will a US led war in Syria be the precursor to a multi year run in Gold?
Gold Confisaction Imminent? Or Does India Simply Have An Offer For Its Citizens They Can't Refuse...Submitted by Tyler Durden on 08/29/2013 09:08 -0500
Even as the Indian capital outflows and current account exodus may be threatening to shut down the economy altogether (except for the three oil companies that received a last ditch USD infusion from the RBI yesterday), the central bank is planning and strategizing. And it appears to have come up with more of precisely the same that has led it to its current unprecedented predicament: prevent the population from converting their wealth into hard money, i.e., gold. But while the government's attempts to impose capital controls on gold purchases have been well documented, the latest foray is just a headspinner. Reuters reports that India is now considering a "radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency." Here we can safely assume that the commercial banks will pay for the gold in... Rupees which just hit an all time low?
Japanese finances are in a shambles and very soon investors are going to run screaming from the Yen and JGB markets.
The 10Y Treasury yield has jumped nearly 130bp from its low point in early May. Given the tight ranges and low volatility of yields during the most of QE era, this kind of move in just over 3 months seemed stunning to some investors. Consequently, the question that has come up often recently is: what has been driving Treasury yields? As UBS' Boris Rjavinski notes, several years ago a rate strategist would give you a straightforward and predictable answer: inflationary expectations, economic growth projections, and current and future monetary policy. But now, as Rjavinksi notes, central banks and politics in the driver seat. Volatility will remain elevated as we await key messages from the Fed in September, and U.S. political calendar will start to heat up as we approach the “drop-dead” dates to fund the government and extent the dent ceiling.
The yield on 10 year U.S. Treasuries is skyrocketing, the Dow has been down for 5 days in a row and troubling economic news is pouring in from all over the planet. The much anticipated "financial correction" is rapidly approaching, and investors are starting to race for the exits. We have not seen so many financial trouble signs all come together at one time like this since just prior to the last major financial crisis. It is almost as if a "perfect storm" is brewing, and a lot of the "smart money" has already gotten out of stocks and bonds. Of course a lot of people believe that we will never see another major financial crisis like we experienced in 2008 ever again. A lot of people think that this type of "doom and gloom" talk is foolish. It is those kinds of people that did not see the last financial crash coming and that are choosing not to prepare for the next one even though the warning signs are exceedingly clear. The following are 18 signs that global financial markets are heading for a vicious circle...
So let's pretend for the moment that the Federal Reserve gets everything it has stated it wants. And even further: that Washington, D.C. gets everything it wants, too. The credit markets are repaired, and massive new loan growth flows out the door. Loans are made to businesses that hire gobs of new people. Consumers borrow and borrow some more to go to school and buy homes, cars, and gadgets. Inflation remains low and job growth explodes. Tax receipts climb and the deficit falls. The stock market goes higher and higher, gold falls and then falls some more, as confidence in the system, its masters, and its institutions grows. The Fed wins and D.C. wins. But in reality, we all lose. It's all just a matter of timing (and un-sustainability).
Over the last thirty some odd years, the world has seen an unprecedented level of economic growth and prosperity. That much is certain. However, things are not as they appear when the bullish rose-tinted glasses that most view the world through are removed.
And the issue is debt.
Draghi is a clever man in charge of a pretend central bank (for it’s only equipped to fight inflation, not a banking-turned-sovereign-debt-and-unemployment crisis). He must guess that bond investors will soon figure out that a stateless central bank defending a stateless currency is so hamstrung politically that it carries far less firepower than, say, the Federal Reserve has over the US economy and US dollar. If his outright-monetary-transactions bluff collapses, he may well have other tricks ready to suppress yields on struggling sovereign debt and save the euro (without which there is no need for the ECB). If Draghi is out of surprises, he can be thanked for buying time for politicians to come up with durable solutions to the eurozone’s woes. Oh, that’s another flaw with Draghi’s scheme; it removed the pressure for politicians to act. So they haven’t.