• The Three-Pronged Attack That’s Destroying the Market

    23.02.2018 • AustraliaComments Off on The Three-Pronged Attack That’s Destroying the Market

    Vern Gowdie – Markets and Money (Australia) –


    The word ‘disruption’ is thrown around these days like confetti.

    Every facet of life – political, religious, economic, social, sporting, entertainment – is changing, adapting, or dying due to some form of disruption.

    As soon as you think you’ve got a handle on the disrupted disrupting the disruptors.

    The ‘making of better mousetraps’ is not new. Civilization has thrived and prospered on innovation.

    In 1942, Joseph Schumpeter, in his book Capitalism, Socialism and Democracy , described capitalism as ‘creative destruction’.

    He Described creative destruction as the ‘ process of industrial mutation That incessantly revolutionizes the economic structure from Within, incessantly destroying the old one, incessantly Creating a new one.

    Old and inefficient business models are replaced by more economic and faster models.

    Technology has changed the pace of creative destruction from a canter into a sprint. Every day something new and disruptive comes along.

    Personally, I’ve given up trying to keep up … not that I ever really tried. My world can still function with an old phone, a good book and a real newspaper. However, I must say I would have lost my internet banking, google maps and trip advisor.

    The reason I mention my less-than-impressive credentials when it comes to all things ‘tech’ is that even I can see massive disruption coming to the investment industry . And I mean massive .

    The assault on the industry’s business model is coming from several flanks.

    The imminent threat of fee-free advice

    Yes, fee-free advice.

    I know … ‘no nothing for free’.

    Well, in this disruptive world we live in, that’s not entirely true anymore.

    Do you pay to maintain your Facebook page?

    Do you pay ‘What’s the App’ or Facetime to stay in touch with family and friends?

    Does Google charge you to do a search?

    What about when you look up Wikipedia?

    How about uploading something on Instagram or Snapchat?

    Have you ever received a bill from Hotmail or Gmail for using their email services?


    Free. Free. Zilch. Not a bean.

    Yet, collectively, these businesses are worth hundreds of billions of dollars.

    Therefore, in this new world of creative destruction, free is possible.

    And in the case of investment platforms, it’s a reality, and not a possibility.

    And this is the face of the disrupter …

    The Future of Finance Is Free 23-02-2018

    Source: Wealth Management
    [Click to enlarge]

    This news is hot off the press. The article was published a week ago … 16 February 2018.

    Here’s an edited extract from the article (emphasis is mine):

    M1 Money lets you automatically invest in what you want and on Dec. 13 [2017] , we decided to offer this service for free .

    In the digital world of bits, your marginal cost can approach zero. In other words, we have built the platform, it does not cost us any more to serve additional users.

    Every day, we sign up hundreds of new users, transfer millions of dollars, and process tens of thousands of trades (all in a matter of minutes) with minimal human interaction.

    This is how it works. Mum and Dad investors fill out an online questionnaire. Based on your answers, the robo-adviser can design a portfolio for your risk profile and / or you can choose to ‘DIY’ your investments. The advice and the investment of funds is all done for … FREE. 

    So how does M1 Finance make money?

    We do incur costs, particularly in development, and need to support our ongoing operations. To cover those costs, M1 monetizes other services, the same way other brokerages currently do, and in exactly the same way we did it before we decided to eliminate management fees. We make money lending the user-owned securities and cash held in their accounts. In this way, we operate identically to a bank. We also are paid to transact on a number of exchanges that actually improve the pricing of our customers. In the coming months, we will introduce additional loans, adding an additional revenue stream for those who opt in.

    M1 Finance is based in the US. It’s still early days on a fee-free model will prosper or not. But you can rest assured that if it gains traction, the big boys – JPMorgan, Charles Schwab et al. – will not sit idly by.

    The creative destruction of ‘free or almost free’ investing is coming. Nothing safe.

    The destruction we’ve seen in the retail sector will be repeated in the investment industry.

    A good number of financial planning and business enterprises are going to fail to adapt, and will therefore die.

    But the most impending disruptor I see who is expecting.

    The investment industry has flourished and prospered from three major influences: rising share markets, falling interest rates , and soaring debt levels.

    All three factors have been hugely positive for an industry, at its core, and are more likely to be delivered than in the bank.

    And, it’s mostly delivered on that promise.

    But what happens when the next debt crisis hits and shares plunge 60%, 70% or even 80% in value?

    And what happens if ‘all the central bankers and all the central bankers’ can not?

    They may have built up an immunity to be overstimulated and they may fail to respond to greater doses of QE and below-zero interest rates.

    What if the next recovery – the new one – is long and painful?

    How long is long?

    Using post-1929 as an indicator, it could take two or three decades for the Dow to permanently reach and then pass its recent high.

    With the market share in tatters, the investment industry’s promise of ‘outperformance’ is starting to face tougher scrutiny … and not just by the public investment.

    The third disruptor will come from tougher and tighter legislation.

    The 2008 crisis exposed numerous examples of poor and inappropriate advice.

    The government’s response to the media shaming and public outcry was the introduction of the FOFA (Future of Financial Advice) legislation in 2012.

    More power to ASIC … the removal of conflicted remuneration structures … a duty to act in the best interests of customers.

    How is FOFA legislation working out?

    Here’s an extract from ASIC’s 24 January 2018 media release (emphasis is mine):

    ASIC has aussi Examined sample of files to test whether advice to switch to in-house products satisfied the “best interests” requirements. ASIC found that in 75% of the counsels reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their customers . Further, a financial position.

    As fate would have it, the next (and far more destructive) share market collapse could happen smack bang in the middle of the Royal Commission Financial Services.

    And, if that’s not bad enough for the big end of town, we could have a Labor government (which pushed for the Royal Commission) in power.

    I can see it now … PM Bill Shorten on TV lamenting that what has happened to ‘hard working Australians’ is unacceptable, and that the government will be responsible for these accounts.

    The industry is facing a ferocious three-pronged attack.

    The coming ruination of this decades-old business model is a combination of creative and self-created destruction.

    With the best 20/20 foresight I can muster, my guess is that the investment industry is going to be radically different in five years’ time.

    If you want to stay informed of what’s happening in the world and how to benefit from creative destruction, please go here .


    Vern Gowdie,
    Editor, The Gowdie Letter


    -Read more at www.marketsandmoney.com.au-

    Comments Off on The Three-Pronged Attack That’s Destroying the Market

    Read More
  • Draghi’s Unexpected Collateral Damage Will Spike U.S. Rates

    23.02.2018 • FranceComments Off on Draghi’s Unexpected Collateral Damage Will Spike U.S. Rates

    Simone Wapler – La Chronique Agora (France) –


    The reduction of bond redemptions of the ECB causes an unexpected collateral damage: the rise of the United States which threatens the zombies.

    In the United States, it is the fault of the European Central Bank, explained Bloomberg yesterday.

    To sum up: Mario Draghi’s purchases have dried up the European bond market; institutional investors (zinzins) in US Treasury bonds; Mario Draghi Reduced Euro Securities Available on the Market; Suddenly the zinzins of the Eurozone abandons the US bond and resumes domestic securities.

    ECB signals coincides with rising long-term rates in the United States

    In fact, Draghi’s redemptions were so massive that they exceeded the bond issuance capacity of some governments; the movement of zinzins to the dollar zone was therefore important. Bloomberg mentions the figure of 1 200 billion dollars of European purchase.

    The volume of the European bond market peaked at more than 3,500 billion euros in early 2015 before the ECB intervened. It has now been reduced to 1.6 trillion euros.

    Draghi’s QE has also forced rates down in the United States. The survival of zombies unable to honor their debts depends on low long rates. It seems that, for the moment, the American zombies are more in danger than the European zombies.

    The S & P 500 equity index starts to notice the change in the bond market. With 10-year yields at over 2.8%, shares, perceived as very (too?) Expensive, fall.

    Comparative Developments in 10-Year Treasury and Bill S & P500 Index Returns

    What will Jerome Powell do? Will he have the courage not to act and let the market go? Will the zombies finally die?

    Nobody has the answer to these questions (and certainly not the zombies of the Office of Financial Research supposed to alert the public in case of danger, as Bill Bonner explains ).

    But three things are sure:

    • The instability of the financial markets is progressing.
    • The survival of the current parasitic financial system depends on low rates.
    • You have nothing to gain by leaving your money exposed to these risks for lousy pay.

    [Editor’s note: How to put your savings at the service of the productive economy, regain compensation, earn growing stocks at price-to-earnings ratios? Everything is here .]


    -Read more at la-chronique-agora.com (French)-

    Comments Off on Draghi’s Unexpected Collateral Damage Will Spike U.S. Rates

    Read More
  • The Coming Crash Will Hit Harder Than 2008

    23.02.2018 • United KingdomComments Off on The Coming Crash Will Hit Harder Than 2008

    Tim Price – Capital and Conflict (United Kingdom) –

    Today’s Capital & Conflict comes from the latest issue of The Price Report by investment director Tim Price.

    Within my asset management business, we deal with two levels of emotional responses to the state of the financial markets.

    At the level of hope or fear At the next level there is the hope or fear experienced by our customers.

    While we may be completely relaxed about some of the investments we undertake, we might also be interested in our customers. At the extreme, if customers are uncomfortable with what we buy for them, we risk losing them forever.

    They do not cover emotion in the financial textbooks. Which is odd, given that deep swings in emotion inevitably occur at market tops and bottoms, and those swings create what, in the fullness of time, become tremendous buying (and selling) opportunities.

    But then most of the financial textbooks are useless. As most modern economics is useless. Utterly unfit for purpose.

    If this view seems a little extreme, do not take my word for it. William White, the former chief economist for the Bank for International Settlements, said the following last month:

    “All the market indicators right now look at the situation.

    “Central banks have been pouring more fuel on the fire. Should regulators really be congratulating themselves that the system is now safer? No knows what is going to happen when they unwind QE [quantitative easing]. The markets had better be very careful because there is a lot of fracture points out there.

    “Pharmaceutical companies are subject to laws forcing them to test their effects before launching a drug, but central banks have launched a huge social experiment with QE.”

    Needless to say, I completely agree. (I recently published a warning on US and UK stock markets, qui, Regardless of the recent correction still look massively overvalued. You can read it here .) QE Was a leap into the unknown extremes of monetary policy experimentation, and yet central bankers conduct themselves with the confident demeanor of credentialed scientists, rather than the quacks they actually are.

    Unusually for an economist, White has a habit of speaking his mind. Here, for example, is what he said during a previous moment of refreshing candor about his profession:

    “The analytical underpinnings of what we [mainstream economists] are actually pretty shaky. A reflection of that fact, is that virtually every aspect of the world has changed over the past 50 years. So, this stuff is not science.

    “Think about what’s happened recently. One, it’s completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past. Secondly, what they’ve been making up as they go along differs across central banks. The Bundesbank, for example, is invariably fighting the threat of high inflation, while the US Federal Reserve is more concerned about the prospect of deflation. They can not even agree on themselves. I’m becoming more and more convinced that all of us are using uselessly.

    “The best way to look at the economy is as an ecosystem. Some live, some die. There is no equilibrium as such; things are constantly growing. It’s surprising that we’ve had this huge crisis that the mainstream did not predict. It’s gone on for years, which the mainstream absolutely did not predict. I would have thought this was a basic statement about what we believed. But that has not happened. The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same. Demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

    “We’ve got the potential to do so much by not getting rid of money. We’ve got the capacity to do so much that we should not be doing much more.

    Faced with the full ferocity of the global financial crisis in 2008, our politicians and central bankers had an opportunity to reset the system, and to allow capital to weak hands (bad banks) to strong hands ). They did not take that opportunity. Instead, markets have become cheaper with the QE process. Interest rates were driven down to rock-bottom levels – and in some cases below that. The can was kicked down the road. Now our central banks have run out of road, and that is a real problem.

    I always expected to get a new share of the market. But incredibly, Alan Greenspan, the original architect of central bank intervention, left the Marriner Eccles building like some kind of conquering hero. I then hoped that natural justice would be successful, Ben Bernanke. No goal, ” the Ben Bernank ” survived too. And then Janet Yellen after him. Jay Powell is going to be the patsy on which the sucker finally goes down.

    In line with the world’s other major central banks, including our own Bank of England, the Fed is now in a desperate bind. It is made to become standardize (ie, raise) interest rates. On the other hand, the financial markets are now distinctly fragile, and like, Pavlov’s dogs, traders are baying for more help. They would prefer to see a lot of money, but also to get a chance at a lower price. But if we were to reduce the trader to angst, let alone reintroduce QE, it would lose what fragment of credibility it now retains – and that has implications for, among other things, confidence in the currency system, bond yields, and so on.

    Yields on long-term US government bonds have now risen to four-year highs as investors on economic growth and the prospect of rising inflation. Given how derisory bond yields still are, this is why I Elected to liquidate our last remaining bond investments in The Price Report Portfolio [NB Tim HAS aussi removed leaps from the London Investment Alert portfolio]. It’s still possible that a deflationary scare could be seen, but the overarching markets are all over the top. Any aggressively buying bonds are in the process of picking up nickels in front of a very fast steamroller.

    You can see how the market is disintegrating in the following chart, which shows recent price declines in the ten-year US Treasury bond futures contract:

    Ten-year US Treasury futures, last five years

    Having reached a high of 134 during the summer of 2016, the contract is now trading at 122. In bond markets, a loss of over 10% is big news. And as I have pointed out on numerous occasions, what happens in the bond market, because the market for bonds dwarfs the market for stocks. Declining bond markets will inevitably impact equity markets, and probably not for the better. Prices in all things are relative, after all. All markets are ultimately a competition for capital. So when bonded cheapen, especially when they do so dramatically, expect stocks to cheapen too.

    It’s still too early to say whether it’s a global crisis, or simply signs of investor skittishness, or a significant scale. One thing that is worth pointing out is that they are tending to show up in the US – which is a sign that investors globally are panicking, and, as ever, looking for North America to lead the way. (This may also mean that some foreign markets are trading off because of sentiment, and not because of fundamentals.)

    My friend Jonathan Allum, for example, makes the following joke. Q: What’s the difference between the Japanese stockmarket and a supermarket trolley? A: A supermarket trolley has a mind of his own. He quoted the way that Japan’s Topix is ​​just meekly trotting behind the US Dow Jones Future (in blue):

    Source: SMBC Nikko Capital Markets Ltd

    As Jonathan goes on to say,

    The parallels with early 2016 are intriguing. Whilst most commentators stress the similarities between the recent market rout / collapse / turmoil (choose excessively melodramatic deion of your choice) and 2007-9, it is worth noting that things stand – and I accept that things can not stand still – the global We have seen this month and we have seen it less than two years ago.

    This is certainly true in Japan. In the first two weeks of February 2016, the TOPIX index fell 16.5% – so far this month it is off 6.1%. There are, I suspect, two reasons why the media ignores the parallels with the events of two years ago. Firstly, it is because they ignore the 2016 correction at the time. Whilst financial markets are all over the world, they are very much restricted to the City sections two years ago.

    Secondly, the 2016 correction does not lead anywhere and does not support the fate of financial Armageddon story in which so many pundits delight. It was one of the “false positives” so often thrown up by the markets. As Paul Samuelson famously observed, way back in the 1960s, the stock market has predicted nine out of the last five recessions.

    To be it another way, while I’m very concerned about the technical breakdown in US stockmarkets, I’m much less concerned about the weakness being displayed in Japan – not least because the Japanese market is trading more attractive valuations, US remains horribly expensive on any historical analysis.

    So all markets are not created equal, but when the proverbial hits the fan, as it did last week, all things tend to correlate towards a level of 1 on the way down. This will be an opportunity, in other words, for investors who will be missed on the Japanese rally the first time round to get back in again relatively cheaply.

    There’s another reason why I’m bloody about the current heightened stockmarket volatility. I do not believe in market timing, and I certainly can not do it with any success, so it is more or less fully invested, equity exposure on the most defensive, value-oriented stocks or funds I can find.

    A couple of weeks ago I had the opportunity to listen to an update from Greg Fisher (manager of the Halley Asian Prosperity Fund, the best performing equity vehicle in the entire The Price Report portfolio). Asian Prosperity Fund has returned 151.4% in GBP since inception in November 2012, the equivalent of a compound annual return of 19.9%. What’s fascinating, though, is that the overall metrics of Fisher’s fund are more or less identical to what they were.

    What it is that Asia (especially Japan and Vietnam) is not expensive, and that it should be discriminating between markets that are expensive because they are extremely expensive. Asia is the train; the US is the latter. Read my letter to UK stock market investors here to get the full picture.

    Until next time,

    Tim Price
    Investment Director, The Price Report

    -Read more at www.capitalandconflict.com-

    Comments Off on The Coming Crash Will Hit Harder Than 2008

    Read More
  • What Venezuela’s New Crypto Is Covering Up

    23.02.2018 • United StatesComments Off on What Venezuela’s New Crypto Is Covering Up

    Bill Bonner – Bill Bonner’s Diary (United States) –


    BALTIMORE, MARYLAND – From south of the border, we get a bad situation worse.

    “Venezuela Launches Its Own Cryptocurrency,” reports The Wall Street Journal .

    The cash-strapped nation – which is experiencing hyperinflation, an extended worthless physical currency, and widespread food shortages – took the first step in its plan to raise trillions of dollars by launching a digital currency, named the Petro … An initial corner offering is expected in March.

    Not interested in the world’s funniest money, issued by a desperate nation run by an incompetent crackpot?

    Oh, Dear Reader, where’s your sense of adventure?

    Self-Destructing Debt?

    Venezuela lurches from one absurdity to the next.

    It owes money all over town. It can not pay. Its creditors have cut it off.

    Who wants to pay a 5,500% annual rate of inflation? Who wants a currency of no value, backed by the full faith and credit of a “sh * thole” country?

    The story is complicated by US financial sanctions, dollar-denominated debt, anemic oil prices … and many other things.

    But the basic plot is simple: Venezuela spent too much. It borrowed too much. Now, it is broke. It can not even keep up appearances.

    But from a dear reader comes a puzzling message:

    You are wasting your time worrying about the debt, as it will never be repaid and will self-destruct. You know that Congress will never run balanced budgets, so do not worry about the budget – they just want freebies. I read your writings, but sincerely do not like your writings.

    We suspect the writer is right about one thing: Most people do not care about deficits.

    Sans Souci

    The feds just agreed to add $ 15 trillion of debt to the federal burden over the next 10 years.

    This will bring the total debt to about $ 35 trillion.

    You’d expect there to be some hue and cry from taxpayers, whose sounds, daughters, and grandchildren will have to tote the load.

    You’d expect that “conservatives” – the Tea Party movement in particular – would be up in arms.

    They are supposed to be the voice of moderation … of restraint … of limits on what the federal government should try to do … and of realism about what it can afford to do.

    If they do not stand for that, what do they stand for?

    But our reader has judged the political climate correctly. There has been no outrage; as for the deficits, the public and its leaders are of one mind – no problem.

    What he is surely wrong about, though, is that the resulting debt will “self-destruct.”

    Debt Monster

    As far as we know, no debt has ever disappeared, gone away, leaving no forwarding address.

    Instead, they are paid. If not by the debtor, then by the creditor. If by no one, then by all.

    Debt is not nothing. If you have a dollar, you still have the dollar as a credit. The other party has a debt.

    If he does not pay, the debt may vanish, but so does your credit. The money was not a fiction or a fantasy. It was real.

    It’s been here for your daughter … or for buying a new house. Now it’s gone, so is the retirement, the wedding, or the new house.

    And so are the jobs that depend on these things … and the incomes that depended on those jobs … and the spending that depended on those incomes.

    We’re not arguing that the federal debt will be repaid; it will not be. We will only be disappointed when it is not.

    And it is not just the federal debt that is a problem …

    By feeding fake money into the system … and lending it out at the expense of paying taxes (pretending that it should be better).

    It is big. It is real. And it’s coming to eat the US economy.

    Out of

    And what makes this especially lethal is that most people have no idea it’s coming. With little in real savings, they are unprepared for the calamity a.

    Former Republican Vice President, Dick Cheney, famously said that “deficits do not matter.” Now, a Republican president – and a Republican Congress – make it clear: They do not think deficits matter, either.

    And for nearly two generations, they have apparently been right.

    Total debt expanded three times as fast as GDP, and nothing bad has happened. At least, nothing could be fixed by more debt!

    And so, the sum also rises … and rises … and rises.

    When Ronald Reagan arrived in Washington, the federal government owed less than $ 1 trillion. Now, it owes 20 times as much.

    During that time, GDP has only gone up by seven times.

    Businesses and households have followed suit – all increasing debt loads to the point where the average balance between debt and income – 1.5 to 1 – is out-of-a-mullet.

    Overall, with $ 67 trillion of debt and only $ 19 trillion of GDP, the ratio for the entire nation is now at 3.5.

    For the federal government alone, it is 5.5 (federal debt / tax revenues).

    But wait. The feds can not go broke. A country that issues its own currency.

    Maybe they really can make the debt self-destruct; can not they?

    Yes, but for a quick look at how that turns out, make a visit to Venezuela.

    We are offering some big discounts … if you pay in dollars.





    By Nick Giambruno, Editor, Crisis Investing

    You’ve probably never heard of REE …

    Rare earth elements, or REEs, are a group of 17 chemically similar elements in the periodic table that are usually found together in the Earth’s crust. REES and heavy REEs. Heavy REEs are the rarest and most valuable.

    It’s not essential to understand the specific science of these elements, but here’s what you need to know …

    They are used to make crucial components for advanced electronics like iPhones, electric cars, flat-screen TVs, computers, and sophisticated military equipment – like guidance systems, drones, anti-missile systems, radars, and fighter jets.

    The United States’ top-line jet fighter, the F-35, contains nearly 450 kilograms of rare earth elements.

    There is no substitute for these resources in these advanced electronics. The US military and the US consumer depend on them.

    And here’s where things get interesting: China controls almost 90% of the global supply of REEs. Have a look at the below chart.


    This unchallenged monopoly could quickly become a huge problem for the US Here’s why.

    Early on in his presidency, Donald Trump said he would not handle China like the previous US presidents.

    During the campaign, Trump is under threat of extinction

    He also said China was sucking “the blood of the United States” and “we can not continue to allow China to be our country, and that’s what they’re doing.”

    Trump can actually keep. He does not need anyone’s cooperation. Legally, he can implement the necessary policies on his own.

    And there’s already signs that he can just do it. It was reported earlier that the Trump administration was considering imposing tariffs on Chinese imports of steel and aluminum.

    If this happens, China will not take it lying down. They have a big card to play. REE materials that I mentioned above.

    That would bring any country – including the US – to its knees.

    This is not wild speculation. China has done this exact thing before.

    In 2010, it was clamped down on Japan’s trade with Japan. Japan from its REEs, Japan relented.

    And here’s where it gets interesting for investors.

    When China restricted REEs to Japan, it caused a mania. Almost overnight, the price of REEs went up more than 10 times. And shares in rare earth miners went up by many times that magnitude. Investors who staked a claim in these miners made a fortune.

    The same opportunity is here today. Investors who are willing to do some of these rare earth elements have the potential to see massive gains as China escalates.

    – Nick Giambruno

    PS As you saw, the Chinese control around 90% of the supply of REEs. But there’s one tiny company outside China that could see huge gains if the trade war with the US materializes. I just released a new video presentation with the details. Click here to watch it now.


    -Read more at bonnerandpartners.com-

    Comments Off on What Venezuela’s New Crypto Is Covering Up

    Read More
  • Quiz: What Started the Crisis of 2007?

    22.02.2018 • FranceComments Off on Quiz: What Started the Crisis of 2007?

    Simone Wapler – La Chronique Agora (France) –

    Has the financial world become weird enough that the same causes do not produce the same effects?

    Let’s start with a little quiz, dear reader.

    Remember your memories of the subprime credit crisis .

    Consider that the official beginning of this crisis was August 9, 2007: BNP Paribas froze the withdrawal of its clients in three of its funds.

    -1- How long did it take between the moment the Fed started raising its key rates and the moment the crisis broke out?

    Six months, one year, two years?

    At what level of interest rates did subprime credits explode in flight?

    2.5%, 3%, 5%, more?

    -3- What was the yield on 10-year US Treasuries?

    1%, 2%, 3%, 4%, more?

    -4- What was then the global indebtedness

    $ 110 trillion, $ 150 trillion, $ 200 trillion?

    Here are the answers.

    The Fed raised its key rates from 2004 to 2006 for just under two years , from 1% to 5% . When the first alarming signals appeared, she stopped her hikes. The yield on the US Treasury bill slightly exceeded 5% before falling back in 2007 to 4.5%. Global debt was just under $ 140 trillion.

    The bubble of bad credit piled up since 2001 collapsed as a result of rising interest rates.

    Let us admit that – even in the delirious world of central bankers and interventionist economists – the same causes produce the same effects.

    Subsidiary question to my quiz of the day:

    How long and what rate will it take this time for the rotten credit pyramid to collapse?

    An index, the rotten credit pyramid now stands at $ 233 trillion.

    So a priori, it’s less time and it will crack at a lower rate …

    Evolution of the Fed's key rates since 2000<img src=”https://cdn.publications-agora.com/elements/lca/newsletter/images/contenu/180222-lca-taux-directeurs.jpg” alt=”Evolution des taux directeurs de la Fed depuis 2000″ width=”550″ height=”320″ />

    That being said, Jerome Powell is different from Ben Bernanke and Janet Yellen. He is not an academician, he has experience in banking. He is an insider.

    Bernanke and Yellen lived in their illusory world of great planners, claiming to control the financial markets and the economy.

    Powell’s inaugural speech did not mention “the markets” but the Fed’s responsibility (1) for “the stability of the financial system and the integrity of the payment system”. He also believes that (2) “the financial system is now much stronger than it was before the financial crisis that began about a decade ago”.

    Is Powell an impostor too, or a very knowledgeable insider ? Can it be that despite the growth of student loans, subprime car loans and consumer loans, the financial system of 2018 is stronger than that of 2007?

    The key rates rise since December 2015. Already more than two years but only 1.5% …

    The same causes produce the same effects…

    What is abnormal returns to normal …

    What is abnormal today is the debt pyramid. It will go back to nothing, one way or another. This is what should guide your strategy. And I draw your attention in Bill’s column on what gold is.

    (1) We play a key role in ensuring the stability of our financial system, and the integrity of our payment system. (2) our financial system is now stronger than it was before the financial crisist began a decade ago. We intend to keep it that way.

    -Read more at la-chronique-agora.com (French)-

    Comments Off on Quiz: What Started the Crisis of 2007?

    Read More
  • Eulogy of a Crypto-Gambler

    22.02.2018 • United KingdomComments Off on Eulogy of a Crypto-Gambler

    Harry Hamburg – Exponential Investor (United Kingdom) –

    Growing up, I was a big fan of Conan the Barbarian.

    Swords, magic, Schwarzenegger – the perfect combination for 11-year-old me.

    In the film, Conan falls foul of the villain, Thulsa Doom. He is sentenced to crucifixion. But not any old crucifixion. He must be crucified on the Tree of Woe.

    This barbarous fate has always been held in my mind as the ultimate suffering.

    Until yesterday… when I spotted this stomach-churning post on the web forum, Reddit:

    “Financially ruined. Learn from my mistakes.”

    Naturally, I was intrigued.

    The poster’s entry reads thus:

    People say don’t out all your eggs in one basket but I believed in the project so much that I did. I put everything I had in crypto investment (50% of my life savings) into nano near ATH. As the price started dropping, I put in the remaining 50% of my life savings to dollar cost average because I genuinely believed that with the rebranding, binance announcement, I would see a profit but the price kept dropping.

    I was an idiot to buy using bitgrail instead of kucoin and now I have officially lost everything due to the alleged hack. I wish I could have withdrawn to my wallet but withdrawals were disabled.

    I was also an idiot to put in more than I could lose. Money I had saved up by working so hard. I lost $120,000.

    Please don’t do what I did. Please be cautious with your investments, diversify, and don’t invest more than you are willing to lose. I know we all think that won’t happen but you can…like I did…your money, your happiness and most importantly, your mental health.

    This is so depressing. I feel so defeated in life. This was money that was going to go to my further education, my wedding, honeymoon, any travel plans, my downpayment. This puts me back at least 7-8 years in my life.

    Burn the Tree of Woe! What this crypto-gambler must be feeling must be far, far worse. Thulsa Doom take note… sentence your next victim to staking his life savings into a promising coin on a dodgy exchange like BitGrail.

    This level of regret is my new high-water mark of ultimate suffering.

    What makes it so galling is that it’s an entirely avoidable experience. But one we can learn from. Because it illustrates an important point about investing your money. Be smart. Be disciplined. Even in the greatest bull run the world has ever seen, you can dig yourself into a deep dark hole. Chasing losses, investing emotionally, staking more than you can afford to lose begs for disaster.

    Now isn’t the time for wild risk taking – this isn’t a trolley dash. Now is the time for careful and considered wealth accumulation.

    This week alone has seen a number of key developments in the crypto sector that make me more confident than ever about its future as a key financial asset.

    With the most important of them all being…

    The rise of self-regulation

    For cryptos to be taken seriously by the mainstream investment horde, they need further legitimisation.

    The way to do that is, obviously, regulation.

    In place of traditional financial authorities providing clarity and guidance, the cryptos are doing it themselves.

    Seven of the largest crypto companies around are forming a UK cryptocurrency trade . It’s called CryptoUK and includes both Coinbase and eToro – two of the biggest household names in the crypto-verse.

    This isn’t just a movement taking root in the UK either, as reported on bitcoin.com:

    The number of cryptocurrency exchanges participating in self-regulation has nearly doubled in South Korea. The crypto self-regulation efforts are led by the Korean Blockchain Association which has recently launched with 66 members. The association also plans to develop standard price indices for the main cryptocurrencies.

    Korea is a vibrant crypto hub and a corner of the world where the authorities are actively engaged with crypto exchanges and investors. As this tweet confirms, Korea is leading the way when it comes to providing structure to crypto as a financial asset:

     tweet that confirms, Korea is leading the way when it comes to providing structure to crypto as a financial asset: tweet that confirms, Korea is leading the way when it comes to providing structure to crypto as a financial asset:

    This week has also seen an interesting wrinkle in the initial coin offering (ICO) market… with the Russian Blockchain Association launching a “guarantee system” for ICO funding.

    As reported in Cointelegraph:

    For those looking to raise funds via ICO, the ICO-hub system makes it possible to accept both crypto and fiat — an escrow account is opened with Globex for accepting fiat money, and a CrowdHub wallet opened for accepting cryptocurrency.

    The idea is that the use of escrow accounts provides both parties with guarantees. I don’t know if this will work or provide real levels of improved security… but the goal here is obviously to inspire confidence among investors.

    There’s a race going on right now between nations including Russia, Korea, Singapore, Gibraltar and Portugal to become to cryptos what Switzerland is to banking… or what Silicon Valley is to tech. A sympathetic haven.

    They can see the immense value of grabbing a slice of a new and fast-rising financial asset class.

    Now is not the time to crucify yourself on the Tree of Woe by chucking all your money on one hit-or-miss crypto.

    If crypto investing is for you… set yourself up with some core cryptos. Seek a deep long-term reward, don’t chase a short-term high.

    It’s a briefing that shows you how to download something I put together with my colleagues Sam Volkering and Eoin Treacy – The 2018 Crypto Roadmap.

    You can find out which five cryptos we recommend you buy and hold on to. And one to avoid at all costs.

    Don’t leap blindly into this market. Take a cautious but ambitious approach.

    Harry Hamburg
    Editor, Exponential Investor

    Related Articles:


    -Read more at www.exponentialinvestor.com-

    Comments Off on Eulogy of a Crypto-Gambler

    Read More
  • Tool of Choice for the Zombiepocalypse: High Interest Rates

    22.02.2018 • United KingdomComments Off on Tool of Choice for the Zombiepocalypse: High Interest Rates

    Nick Hubble – Capital and Conflict (United Kingdom) –

    Who knew? If you’refaced with a zombie apocalypse in coming years, the solution is simple. Justset up some interest rate trip wires around your home. Or nail a certifiedcopy of your adjustable-rate mortgage balance to your door.

    -Read more at www.capitalandconflict.com-

    Comments Off on Tool of Choice for the Zombiepocalypse: High Interest Rates

    Read More
  • Robert Mueller – The Hero We Don’t Deserve (Or Need)

    22.02.2018 • United StatesComments Off on Robert Mueller – The Hero We Don’t Deserve (Or Need)

    Bill Bonner – Bill Bonner’s Diary (United States) –

    BALTIMORE, MARYLAND – If mockery is an art, here’s a fellow who calls out for the talents of a Leonardo: Mr. Robert Mueller.

    Clean as a whistle. Hard as steel. Incorruptible. Unstoppable.

    He just keeps going, hammering away… until he nails a dangerous felon.

    Or railroads someone else…

    Last week, Mr. Mueller handed in his indictment.

    After so many months of rumors… accusations… countercharges… and fake news, we now have a federal prosecutor who’s managed to collar a gang of real desperadoes.

    Who are these hellish perps? What mayhem and murder have they committed?

    Did they plant a charge of dynamite under the Capitol dome? Have they given the nation’s nuclear codes to our mortal enemies?

    Stay tuned… more in a moment.

    Back in Baltimore

    We got back to Baltimore yesterday evening, after a long drive from Dulles International Airport.

    It was bumper to bumper the entire way, adding an extra hour to the trip.

    Even coming into Baltimore, where traffic is normally fairly light, the backup caused us to take a detour through the slums.

    “I hope you locked your doors,” said a friend. “I don’t even stop for red lights in West Baltimore.”

    It was an unseasonably warm evening. People were out on the sidewalks, sitting on their front steps, or standing on street corners.

    Here and there, junkies wobbled and shook. Mothers screamed at their children. Loud, boom-boom music came from parked cars.

    Coming from Europe, the effect is shocking – and not just the poverty.

    We’ve never seen anything like it elsewhere. Every third house was boarded up. Trash was everywhere. Broken windows and doors… busted signs… burnt-out stores.

    There was no new construction. No investment. No attempt to fix up or improve. No flower pots. No neighborhood bars or restaurants. No theaters. No commerce or industry, except for the liquor stores and convenience stores run by Koreans.

    This was a real “sh*thole,” right here in the USA.

    What kind of society produces such a forlorn, degenerate place?

    How could it exist just an hour away from the Washington Swamp, where dollars flow in by the trillions from all over the country?

    “Baltimore’s homicide rate hit a new high last year – 353 murders in 365 days. That’s almost one a day,” our friend continued with mock pride.

    “There was some guy around your neighborhood a few minutes ago. He looked crazy and he was carrying a gun. I called the police. By the time they got here, he had gone. Welcome home!”

    Claptrap Story

    But thank God, we’ve got crime fighters like Robert Mueller on the job!

    He’s assuring the safety of our citizens and the integrity of their institutions.

    And at last, after months of following elusive clues and spending millions of dollars of other people’s money, he’s nabbed some fiendish criminals.


    A retired St. Petersburg police officer… a 31-year-old web designer… and various other big-time miscreants earning $4 to $6 an hour!

    And what did they do?

    We turn pale and recoil at the sheer horror of it: They were tweeting… blogging … and posting on Facebook… with messages such as, “Trump is our only hope for a better future.”

    No kidding…

    The Russian government wasn’t involved.

    The meddlers spent a trivial amount of money putting out dumb messages, most of which were never delivered and never read.

    They organized protest marches, to which no one showed up… and must have had zero impact on the election.

    And now that Mr. Mueller has brought the heavy hammer of justice down on their s, we can all sleep more soundly.

    Hopeless Laughingstock

    At least, that’s the spin from the mainstream media. They made Mr. Mueller the Hero of the Hour… the pride of U.S. legal system… proof that the judicial system works!

    But just drive through West Baltimore; it doesn’t work at all.

    A young man here is more likely to go the jail than to college. Children are lucky to have one parent. Many people can neither read nor write.

    Few have jobs. What more damage could the Russians do to these people… to these neighborhoods?

    They are so unsafe, insalubrious, and ungenial that you can’t even give away a house in them.

    And Mr. Mueller. He is not a dumb man. What does he think… in the dark of night… without his suit and tie… without the media egging him on…

    …when stark reality hits him like a recurring nightmare?

    Does he realize that, by taking on such a silly, woebegone project – making a federal case out of nothing – future legal scholars will regard him as a hopeless laughingstock?

    Donald Trump is right: The Russians must be laughing their a**es off.





    By Chris Lowe, Editor at Large, Bonner & Partners

    Here’s a bull market that no is talking about…

    …the bull market in lumber.

    Today’s chart tracks the price of lumber going back to 2013.


    As you can see, lumber prices dropped 46% from 2013 to 2015.

    Since then, they’re up 139%.

    That’s more than three times as much as the S&P 500 over the same period.

    – Chris Lowe

    -Read more at bonnerandpartners.com-

    Comments Off on Robert Mueller – The Hero We Don’t Deserve (Or Need)

    Read More
  • Corporate Bad Loans Are Draining the Indian Government

    21.02.2018 • IndiaComments Off on Corporate Bad Loans Are Draining the Indian Government

    Vivek Kaul – Vivek Kaul’s Diary (India) –

    One of the good things to have happened because of the jeweller Nirav Modi’s fraud of $1.8 billion, is the focus that the mainstream media has been giving to public sector banks.

    News channels which did not have any discussion on the bad loans of Indian public sector banks touching almost Rs 7,00,000 crore, are now staging fist fights with the prospect of Rs 11,400 crore ($1.8 billion in rupees) being further added to the overall bad loans of these banks.

    Bad loans are essentially loans in which the repayment from a borrower has been due for 90 days or more.

    So what’s the problem facing public sector banks? It’s clearly not the aam aadmi, i.e. individuals who take on loans from banks, or what in banking parlance is referred to as the retail loan business. That has been working just fine. The aam aadmi has been taking loans and paying his EMIs on time.

    The problem is with the fat cats, the seths, the big businessmen, the corporates, who have made a habit of taking bank loans and not repaying them. Nirav Modi is just another addition to that long list.

    Take a look at Table 1. It basically lists corporate bad loans as a proportion of corporate lending, for public sector banks other than the State Bank of India. It also lists out overall bad loans of these banks.

    Table 1:
    Year Corporate bad loans (in %) Total bad loans (in %)
    2012-2013 3.61% 3.24%
    2013-2014 4.97% 4.09%
    2014-2015 6.12% 5.26%
    2015-2016 14.96% 10.69%
    2016-2017 19.13% 12.95%

    Source: Author calculations on data from Rajya Sabha Unstarred Question No: 278 and www.rbi.org.in.

    As can be seen from Table 1, by 2016-2017, nearly one out of every five rupees of corporate loans that India’s government owned banks had given (except the State Bank of India) had been defaulted on. For the State Bank of India, the

    While Table 1 tells us what the problem is, it does not show us the enormity of the problem. For that we need to look at data in a slightly different way. The question that we need an answer to is: what portion of the total bad loans do corporate bad loans make up for?

    As of March 31, 2017, corporate bad loans made up for nearly 69% of overall bad loans of public sector banks. Take a look at Table 2. It basically lists out, the total corporate bad loans along with the total bad loans, of each public sector bank, for 2016-2017.

    Table 2:
    Name of the bank Corporate bad loans (in Rs crore) Total bad loans (in Rs crore) Corporate bad loans as a proportion of total bad loans
    Allahabad Bank 17,198 20,688 83.13%
    Andhra Bank 14,237 17,670 80.57%
    Bank of Baroda 21,153 42,719 49.52%
    Bank of India 32,786 52,045 63.00%
    Bank of Maharashtra 11,904 17,189 69.25%
    Bharatiya Mahila Bank Ltd. 50 54.99 90.93%
    Canara Bank 22,418 34,202 65.55%
    Central Bank of India 19,323 27,251 70.91%
    Corporation Bank 13,063 17,045 76.64%
    Dena Bank 8,395 12,619 66.53%
    IDBI Bank Limited 33,070 44,753 73.90%
    Indian Bank 7,691 9,865 77.96%
    Indian Overseas Bank 23,081 35,098 65.76%
    Oriental Bank of Commerce 18,466 22,859 80.78%
    Punjab & Sind Bank 4,094 6,298 65.01%
    Punjab National Bank 38,441 55,370 69.43%
    Syndicate Bank 9,815 17,609 55.74%
    UCO Bank 15,216 22,541 67.50%
    Union Bank of India 21,357 33,712 63.35%
    United Bank of India 7,683 10,952 70.15%
    Vijaya Bank 4,914 6,382 77.00%
    State Bank of India* 80,079 1,12,343 71.28%

    *large corporates plus mid corporates
    Source: Indian Banks’ Association, Analyst Presentation SBI, March 2017 and Rajya Sabha
    Unstarred Question No: 278, July 2017

    Table 2 does not paint a very pretty picture. As can be seen, a bulk of the bad loans of public sector banks are loans which haven’t been repaid by corporates. Corporate bad loans account for more than three fourth of the bad loans of many public sector banks.

    Given the massive amount of bad loans of public sector banks, the banks need to regularly keep writing off loans. Between 2004-2005 and September 30, 2017, the public sector banks have written off loans worth Rs 3,81,549 crore, with a bulk of this amount having been written off in recent years. The loans are written off against the capital of the bank.

    With a very low rate of recovery of bad loans, this means that the government, as the major owner of public sector banks, has had to keep infusing fresh capital into these banks to keep them going. From 2007-2008 onwards and by the end of 2017-2018 (the current financial year), the government would have infused a total capital of Rs 2,19,718 crore, to keep the public sector banks going.

    Long story short-public sector banks keep sucking taxpayer money to basically finance Indian corporates who default on the loans. This needs to stop. As we have been advocating for a while, the government does not need to own 21 public sector banks, as it currently does. Nevertheless, given that privatisation is a difficult option in the Indian scenario, what is the other way out? (Dear Reader, here is another solution!)

    The other way out is narrow banking. Public sector banks other than the top 5 public sector banks, should not be lending to corporates, given that the defaults on corporate loans make up for the bulk of bad loans.

    This is not to blame the loan officers and managers in public sector banks, who commission these loans. This is more on account of the nexus that prevails between politicians and businessmen in this country and because of which the public sector banks over the years have been forced to give loans to businessmen and businesses, not in the habit of repaying. One way to break this nexus is to ensure that the government gets out of the banking business, lock, stock and barrel. There is another way as well.

    Banks finance their loans by raising deposits, which typically tend to have a fixed tenure of one to five years. With these deposits, banks, at times, finance corporate projects which have a term of more than a decade. There is a clear mismatch here. Long term financing needs specialised project finance institutions. It needs a stronger corporate bond market. It needs pension funds which have access to money for long tenures and are willing to invest money for the long term.

    Public sector banks should not be in the long term corporate lending business. Neither is the solution to replace them easy nor can it be implemented overnight. Having said that, most problems do not have readymade solutions. Solutions also need to be built into place. The Nirav Modi fraud has given the Narendra Modi government an opportunity to set things right at India’s public sector banks. It can either privatise them or get them out of lending to corporates.

    Warm Regards,

    Vivek Kaul
    Editor, Vivek Kaul’s Diary

    -Read more at www.equitymaster.com-

    Comments Off on Corporate Bad Loans Are Draining the Indian Government

    Read More
  • Kiss Blood Tests Goodbye, Thanks to New Google AI Tech

    21.02.2018 • United KingdomComments Off on Kiss Blood Tests Goodbye, Thanks to New Google AI Tech

    Andrew Lockley – Exponential Investor (United Kingdom) –

    There are more to your eyes, it turns out, than meets the… eye?

    This week Google revealed its artificial intelligence (AI) can predict your age, gender, blood pressure and risk of heart disease from a photo of the back of your eye.

    Current tests for heart disease rely on drawing blood to measure your cholesterol. They are around 72% accurate.

    Google’s AI can analyse a photo of your retina and predict heart disease with 70% accuracy. And Google believes the accuracy of its AI will go up as it feeds it more data.

    This is a massive achievement and will have far-reaching effects on diagnosis procedures.

    Imagine being able to take a photo of your eye on your phone and email it to your doctor to get a heart disease test, or blood pressure reading.

    The researchers involved in this study stress we’re some way off that scenario yet. But it does seem likely that’s where we’re ing in the near future.

    Here’s what USA Today had to say:

    Google’s technique generated a “heatmap,” or graphical representation of data that revealed which pixels in an image were the most important for predicting a specific risk factor. For example, Google’s algorithm paid more attention to blood vessels for making predictions about blood pressure.

    “Pattern recognition and making use of images is one of the best areas for AI right now, says Harlan M. Krumholz, a professor of medicine (cardiology) and director of Yale’s Center for Outcomes Research and Evaluation, who considers the research a proof of concept.

    It will “help us understand these processes and diagnoses in ways that we haven’t been able to do before,” he says. “And this is going to come from photographs and sensors and a whole range of devices that will help us essentially improve the physical examination and I think more precisely hone our understanding of disease and individuals and pair it with treatments.”

    The scientists also said they were optimistic they could apply this AI method to other areas of scientific discovery, such as cancer research.

    If you want to know more about this development, you can read the full published study in the Nature Biomedical Engineering journal here.

    Hopefully this technology will reach the point where you can get an accurate cancer test in minutes by just sending in a photo of your eye to an online, automated service. Imagine the time and anguish that would save.

    Could scars reveal the secret to eternal youth?

    Scientists at the University of Pennsylvania managed to make wounds heal without scaring.

    Although that might not sound very impressive, it could actually be a massive breakthrough.

    The ability to make skin regenerate, rather than scar will open up a whole world of medical treatments for accident and attack victims.

    Even more than that, this research may even reveal how to stop our skin from ageing.

    As Science Alert reports:

    If you’ve ever wondered why scar tissue looks so different from regular skin, it’s because scar tissue doesn’t contain any fat cells or hair follicles.

    The type of skin that regenerates over a small, superficial cut is filled with fat cells called adipocytes, just like the skin you were born with, which means the two will eventually blend into each other once the wound has healed.

    But scar tissue is made up almost entirely of cells called myofibroblasts, and doesn’t contain any fat cells at all. So instead of blending into the surrounding skin once the wound has fully healed, it looks completely different – permanently.

    The same goes for ageing skin – as we age, we lose our adipocytes, which leads to discolouration and deep, irreversible wrinkles.

    But scientists have discovered that existing myofibroblasts can actually be converted into adipocytes, which suggests that as a wound is healing, scar tissue could be converted to regenerated skin instead – something that scientists thought could only be possible in fish and amphibians.

    The secret, they say, lies in hair follicles.

    Suspecting that the growth of hair follicles actually assists the growth of fat cells in regenerating skin, the researchers wanted to see what would happen if they induced hair follicles to grow in newly forming scar tissue in mice and lab-grown human skin samples.

    This is something that would never occur in nature, seeing as scar tissue has no hair follicles in it.

    They found that the hair follicles released a signalling protein called Bone Morphogenetic Protein (BMP) as soon as they started forming, and this actually converted the scar’s myofibroblasts into adipocytes.

    If hair follicles were induced to grow where a wound was healing, the resulting skin was found to be indistinguishable from pre-existing skin.

    The article only really touches on the fact that the loss of our “adipocytes” is what leads our skin to age. But if they now have a path to regenerating these adipocytes in wounds, surely the next step is adapting the technique to work on healthy, but ageing skin.

    UK leads the world in offshore wind production

    When you think of great energy-producing nations, the UK doesn’t easily spring to mind. But, as it turns out, we are the undisputed leader in offshore wind.

    The world’s biggest wind farm is currently being built off the coast of Yorkshire. It’s called Hornsea Project One. It will supply enough electricity for 1 million UK homes and it’s scheduled to be completed in two years.

    However, that one has recently been surpassed by Hornsea Project Two. This second installation is even bigger. It will supply enough electricity for 1.3 million UK homes, and it just announced who will be building its turbines.

    tweet showing that will supply enough electricity for 1.3 million UK homes, and it just announced who will be building its turbines.tweet showing that will supply enough electricity for 1.3 million UK homes, and it just announced who will be building its turbines.So the UK is now home to the two biggest offshore wind farm projects in the world.

    According to the Office for National Statistics, there are currently around 27.2 million households in the UK. So between them, these projects will supply around 8.45% of their electricity.

    And Orsted, who is in charge of these projects has already started work on another one. The Hornsea Project Three will supply enough electricity for 2 million UK homes.

    So that will mean that between them, the Hornsea projects will supply around 15.8% of our household electricity.

    It’s fair to say the UK is doing very well in the renewable energy game.

    Long-dead NASA satellite comes back to life, probably not possessed by demons

    We finish off today’s issue with a rather strange story.

    In 2005, NASA’s IMAGE satellite unexpectedly dropped out of communication. NASA attempted a reboot of the satellite in 2007 during an eclipse, but when that didn’t work it gave up on it.

    Then this January, an amateur astronomer started picking up signals from it.

    Picture of NASA’s IMAGE satellite Picture of NASA’s IMAGE satellite Source: NASA

    NASA has since confirmed it has “been able to read some basic housekeeping data from the spacecraft, suggesting that at least the main control system is operational.”

    Imagine if your old computer suddenly started up again and logged on to the internet after being broken for 13 years.

    As phys.org reported:

    After successfully completing and extending its initial two-year mission in 2002, the satellite unexpectedly failed to make contact on a routine pass on Dec. 18, 2005. After a 2007 eclipse failed to induce a reboot, the mission was declared over.

    I’m sure it’s all routine. But it really does read like the opening scene of 90s sci-fi horror film, Event Horizon.

    In that film, scientists created a spaceship – the Event Horizon – that could bend space to go faster than light.

    It disappears on its maiden voyage and suddenly reappears many years later. A rescue ship is sent to investigate and it turns out the Event Horizon has bent space time and travelled directly to hell.

    The rescue crew become possessed by demons and, well, all hell breaks loose.

    If you like sci-fi and horror films, it’s well worth a watch. Aside from the horror (it really is quite a terrifying film) there are some interesting theories about faster-than-light travel discussed by the crew.

    Now, as I say, I’m sure NASA’s IMAGE satellite hasn’t been to hell and isn’t possessed by demons. But it is quite an intriguing story.

    If you’re interested, you can follow updates on NASA’s recovery attempts of the IMAGE here.

    Until next time,

    Harry Hamburg
    Editor, Exponential Investor

    -Read more at www.exponentialinvestor.com-

    Comments Off on Kiss Blood Tests Goodbye, Thanks to New Google AI Tech

    Read More
  • Sound the Alarm! A Volatility Spike Isn’t Just Coming… It’s Here

    21.02.2018 • United StatesComments Off on Sound the Alarm! A Volatility Spike Isn’t Just Coming… It’s Here

    Bill Bonner – Bill Bonner’s Diary (United States) –

    Apollo, Apollo!

    God of all ways, but only Death’s to me,

    Once and again, O thou, Destroyer named,

    Thou hast destroyed me, thou, my love of old!

    – [In Aeschylus’ Agamemnon, Cassandra regrets ever having laid eyes on Apollo]

    PORTLAW, IRELAND – At last… a genuine improvement from Washington!

    In the panic after the 2008 financial crisis, Congress created the Office of Financial Research (OFR).

    The idea was that this group would sound an alarm if the financial system were ever in danger.

    It’s about time. Now, we have nothing to fear. The feds will tell us when it is safe to buy… and when we should run for the hills.

    No Warning

    But what’s this?

    Now, 10 years later, stocks are three times as expensive. Debt is far higher, too.

    The feds alone have borrowed an additional $10 trillion. And the OFR was specifically charged with warning us about coming volatility spikes.

    But here we are… And no warning.

    What gives? The Wall Street Journal reports:

    Almost a decade and nearly $500 million later, the agency has struggled to establish a place for itself in Washington. Major projects have been delayed or scaled back. Morale has suffered amid turf battles with other regulators and opposition from Republicans. And one of its most ambitious initiatives – developing a database for recording financial contracts – has progressed no further than a 16-page paper calling for “information gathering sessions” among constituents.

    But now, the Great Disruptor, Donald J. Trump, seems to have the OFR in his sights. The Wall Street Journal again:

    The OFR’s record of underachievement has made it an easy target. In November, Treasury Department officials told OFR employees that the agency’s budget would be cut by one-quarter and its staff by more than one-third.

    What? Only a quarter? Why not cut the whole thing?

    Patriots and Poltroons

    Setting up the OFR in the first place suggests a naiveté about markets that is breathtaking.

    It is so preposterous it calls out for ridicule. And euthanasia. Its director should have been given a loaded pistol a long time ago.

    Really, what are those 1,000 Ph.D. economists said to be working for the Fed doing?

    Wouldn’t it be reasonable to expect they might check the pressure in the boiler from time to time… and give us a s up before the whole thing explodes?

    And if you could put together a team of government hacks to tell you when markets were about to blow a fuse, why not also ask them which stocks are going up… for how long… and how high?

    And then, why not ask them to put you in touch with your dead grandmother?

    If they really could tell when a bubble was about to burst, wouldn’t you expect that word might leak out… perhaps from the brokers handling their personal accounts? And that they might thereby let the hot air out, so that the explosion never comes?

    Oh, Dear Reader… what dunder in Congress voted for such an absurd thing?

    If you could see disaster coming, it would never arrive.

    Bought a ticket on the Titanic?

    Change it!

    And who would stay invested in stocks if he knew they were going down?

    Oh… and that marriage… to the Vegas showgirl with expensive tastes.

    Never would have happened!

    There are thousands of full-time market analysts and researchers already. Plus millions of amateurs.

    Every day, these people – geniuses and morons alike – study the numbers and the skies, looking for clues. Surely, if there were a storm coming, these cloud watchers would see it, wouldn’t they?

    And yet, the mist rolls in… the clouds are obscured… the newspapers say unemployment is down. The Fed says a “worldwide synchronized growth spurt” is just getting under way. The president says everything is swell… “beautiful”… and getting sweller.

    Surely these patriots and poltroons wouldn’t let us down?

    Bubble Alert

    And imagine the poor number crunchers and cloud gazers.

    What are they to think?

    They are human, too.

    They might be looking at some pretty scary numbers. But… heck… the GOP tax cut is coming on line! And huge increases for the military ought to be good for Raytheon and GE, right?

    “Hey, I’m just a GS-11 here. Am I gonna stick my neck out and tell the president that he is full of sh*t?

    “Am I gonna contradict the greatest geniuses who ever lived over at the Fed? Am I gonna risk my cushy job? I’ve got my kids in St. Albans, for Pete’s sake! I’ve gotta think of my family!

    “Besides, you never know about these things. Greenspan said bubbles were undetectable. Maybe he’s right. Whatever.

    “And if I go public with a Bubble Alert… what do I get? Probably fired. The end of my career. Even if the thing does blow sky high, no is gonna appreciate that I warned them.

    “They’ll accuse me of being ‘negative’… and an ‘alarmist.’ Harvard won’t touch me. I’ll be viewed as a crackpot.

    “Cause every knows the engineers at the Fed and the Treasury can handle this job. Every knows they’re watching the incoming data –heh-heh – and that they’ll make sure there’s never a big blow-up… or a depression… or a credit crisis.

    “I mean, if there’s a big bubble blow-up now, it means they’re all a bunch of incompetent poseurs, right?

    “It means they were all wrong. No’s gonna wanna hear that. I’ll be treated like a leper… like a Holocaust denier… or a climate-change skeptic.

    “I’ll have to get a job teaching Econ 101 at a community college. My kids will have to go to public school…

    “And I’ll end up like that Greek woman who cried wolf. You know, Alessandra or something. And no believed her. And I’ll probably get raped in the temple… and then murdered by a jealous lover.

    “No thanks…”





    By Jeff Clark, Jeff Clark’s Market Minute

    When the market was in the midst of a vicious selloff the other week, I commented to my Delta Report subscribers that the technical conditions had reached oversold levels that had only occurred (to my recollection anyway) two previous times in my 35-year career in the markets.

    Once was after the crash in 1987. The other time was in August 2011.

    It makes sense, therefore, to go back and take a look at the market action following each of those previous two events in order to get an idea of what we may be in for this time around.

    Take a look at this chart of the S&P 500 from 1987…


    The S&P 500 collapsed 95 points during the 1987 crash. It took a couple of days for the market to claw its way higher and recover about 30% of the points lost.

    Then the S&P fell back to retest its low. That retest was followed by another rally attempt that recovered 30% of the lost points. But the real bottom of the market didn’t happen until about six weeks later when the S&P made a slightly lower low.

    Now, here’s the chart of the S&P 500 from 2011…


    This time, the S&P 500 collapsed 220 points. It took about six days for a bounce to take hold and recover 30% of the points lost.

    Then, the market sold off and retested the lows. That retest was followed by an even stronger bounce attempt which recovered almost 50% of the decline.

    But the final bottom didn’t occur until early October – two months after the initial collapse. That’s when the S&P 500 made a slightly lower low.

    The CBOE Volatility Index (VIX) stayed elevated during that entire two-month period in 2011. And, if my memory serves, the 1987 version of the VIX (which was structured differently back then) stayed quite elevated as well.

    If we use these two examples as roadmaps, then we’re likely in for a six- to eight-week period of sustained volatility.

    This week could be a bit rough.

    – Jeff Clark

    P.S. No matter which direction stocks go, my Market Minute subscribers are always up to date on the trends taking shape – and the best ways to profit from them – hours before the opening bell rings.

    Sign up for the Market Minute for free right here… and get your next issue at 7:30 ET sharp tomorrow morning.

    -Read more at bonnerandpartners.com-

    Comments Off on Sound the Alarm! A Volatility Spike Isn’t Just Coming… It’s Here

    Read More
  • You Won’t Recognize Brexit by the Time EU Negotiations Stop

    21.02.2018 • United KingdomComments Off on You Won’t Recognize Brexit by the Time EU Negotiations Stop

    Nick O’Connor – Capital and Conflict (United Kingdom) –

    The absurdities of Brexit roll on.

    Boris Johnson supposedly told Germans that Brexit is a mess. No doubt everyone can agree some aspect of the process is a shambles. So why the controversy?

    Brexit negotiator David Davis found himself reassuring Europe that Britain would not tear up EU regulations, burn them on a bonfire, or leave them behind on a race to the bottom. After all, we don’t want to end up looking like the Mad Max dystopias of Singapore and Hong Kong. Let alone recreate the economic disaster of the Margaret Thatcher government after the prosperous 1970s.

    Michael Gove came under fire from farmers because of a worker shortage. The lack of seasonal fruit and vegetable pickers from the EU is causing a real problem.

    “Other countries get it; the Portuguese are hiring Thais, the Spanish are hiring Moroccans, even the Polish get it, they are hiring Ukrainians under their equivalent of seasonal agricultural schemes,” explained the chair of the National Farmers Union horticultural team.

    Apparently the Home Office prevents foreigners from outside the EU working in the UK as seasonal agriculture workers. Which tells you how capable UK politicians are at actually fulfilling the policies that will deliver the Brexit of their claims. If they can’t sort out immigration now, how will they figure out trade when it’s their responsibility?

    But what’s really mystifying here is that we haven’t left the EU yet. There has been no policy change. If farmers are experiencing a worker shortage, it’s got nothing to do with Brexit policies. After all, the workers are seasonal. Why are the farmers complaining to the government about a problem that it hasn’t created yet?

    In a twist I did not see coming, cooperation on intelligence and policing entered the Brexit debate. Supposedly there’s a chance the likes of Europol and European intelligence agencies won’t work as closely with the UK under Brexit.

    This shows that EU politicians are willing to risk the lives of their citizens for the sake of tainting Brexit. It’s quite clear that Theresa May should’ve told the world she fears for the sanity of the EU if it is not willing to cooperate on security.

    A list of conservative MPs wrote a letter to May marked “Private and Confidential” which you can find here. It argues that the EU is vindictively preventing the UK from pursuing trade deals with other nations and we should therefore leave. In other words, being stuck in the negotiating process with the EU fails the cost benefit analysis. We have more to gain by leaving than we lose because the EU is making life so difficult.

    On the matter of a UK-EU trade deal, the news was looking good. Until the threat of withholding the divorce payment made the news. Without a deal on trade, the UK wants to be able to withhold its owed financial contribution to the EU. So even what you’ve agreed to remains a bargaining chip.

    But all this is a little academic. By the time Brexit is finalised, the UK and the EU will have changed so much. Especially if you throw in the transition phase.

    Next year, Europe could feature all sorts of changes that completely change the face of Brexit too. If you want to anticipate the future of Brexit, anticipate the future of Europe first.

    Who will Britain negotiate with in 2019?

    In just a few months we could have a new Italian government negotiating the violation of the Maastricht Treaty while holding a gun to its own . If the EU doesn’t agree to approve Italy’s vast deficits, it’ll leave the euro and default say leading Italian politicians. Some even want a restructuring of Italy’s debt approved by the EU. Deutsche Bank analysts claim this would obviously lead to a financial crisis.

    In Germany, a new poll has the wacky upstart Alternative for Germany (AfD) party a of the previous stalwart of German politics, the Social Democrats (SPD). The SPD is also the traditional supporter of the EU and integration. With the AfD holding plenty of power as the opposition party, German politics will look completely different in the coming year.

    With Brexit pencilled in for April 2019, you’ll never guess when the EU Parliament elections will be held. May 2019. What a coincidence.

    If the national elections of Germany, Austria, Italy, France, Hungary, Czechia, and so on, are anything to go by, the EU Parliament will feature a huge amount of eurosceptics. If the EU Parliament has to become more moderate about the EU, it’ll soften its stance on Brexit dramatically too.

    Even from the national government level, these movements are already causing trouble for the EU. Bulgaria has demanded the end of border controls inside the Schengen Area. Germany, Austria, Denmark, Sweden and Schengen participant Norway were singled out. I suspect people in those countries will not appreciate having EU law dictated to them by eastern European countries.

    Meanwhile the EU’s Brexit rat will be sure to jump ship before the dust settles. Michel Barnier is set to quit his role as chief EU negotiator in March 2019, which is well before the end of the transition period during which the EU wants to negotiate the trade deal with the UK. Who will be the new negotiator?

    Then there’s the unpredictable nature of UK politics. Who will be PM and in government in coming years? Will Brexit motivations hold out? Will the ploy of an election in 2017 avoid one until 2022?

    The European Central Bank is winding up quantitative easing, ending its support for government bonds this year too. It might raise interest rates the next. Can southern Europe afford to fund itself? I doubt it. Italian debt is yielding less than American, an absurd state of affairs.

    The point is that every conceivable factor which influences Brexit will change over the next few years. Many before the Brexit deadline and the rest before the end of the transition phase. Remember, the Brexit deadline can always be extended by unanimous agreement in the EU.

    By the time the UK and EU come to an agreement the world will have changed completely. And so will Brexit.

    Just another bitcoin correction

    With bitcoin back over $10,000, it’s time to assess the damage. Is the correction a buying opportunity?

    This chart from bitcoincharts.com uses a log scale. As you can see, the distance between $1 and $2 is the same as the distance between $10,000 and $20,000, as well as between $100 and $200. The aim of a log chart is to keep things in perspective. A doubling of the price shows up as the same sized rise in the chart.

    chart from bitcoincharts.com uses a log scale to show the price evolution of Bitcoinchart from bitcoincharts.com uses a log scale to show the price evolution of BitcoinSource: bitcoincharts.com

    The conclusion is that the recent drop in bitcoin’s price of over 60% wasn’t that big. The price fell more during corrections in 2016, 2014, 2013 and 2011.

    What’s concerning about the correction is that it undermines the stability and usefulness of bitcoin once more. A 60% loss is hard to stomach, no matter who you are.

    The recent run was far less parabolic and unsustainable than the media suggested. The log chart illustrates that nicely. The recent drop returns bitcoin to its long-term price trend.

    And so now the upside is obvious. If the corrections is over and the price is in for another jump, the gains are as promising as ever.

    But take a look at what happens after every correction. The price languishes. Usually for months, sometimes for years.

    Of course, bitcoin’s version of languish still meant 100% gains in 2012 and 2015. But downtrends are possible. The one in 2014 lasted a year and a half.

    If you want to make gains in cryptocurrencies, I suggest you leave bitcoin behind. There are far better opportunities in the crypto world. Innovations that could revolutionise industry and commerce the way bitcoin claimed it would.

    Find out which cryptocurrencies to buy now here.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

    Comments Off on You Won’t Recognize Brexit by the Time EU Negotiations Stop

    Read More
  • Are You Lobotomizing Your Portfolio?

    20.02.2018 • AustraliaComments Off on Are You Lobotomizing Your Portfolio?

    Vern Gowdie – Markets and Money (Australia) –

    In 1936, Portuguese neurologist Egas Moniz devised an ingenious method to treat schizophrenia. The newly developed surgical procedure went by the fancy name of ‘prefrontal leukotomy’.

    We know it as a ‘lobotomy’. If you don’t know what a lobotomy does, I suggest you watch the movie One Flew Over the Cuckoo’s Nest and see what happens to Jack Nicholson’s character.

    The procedure’s aim was to destroy the connections between the prefrontal region and other parts of the brain. In crude non-medical terms, the operation involved ‘putting an icepick through the eyes’.

    A very permanent way of short-circuiting one’s grey matter.

    Turning some poor bastard into a vegetable certainly gathered a crowd.

    Lobotomy 19-02-2018

    Source: Cracked.com
    [Click to enlarge]

    You have to ask: Were they there for medical reasons or to see what sort of idiot would drive an icepick into another human’s brain…or what sort of nutter would let him?

    With hindsight, we look back on this medical procedure as absurd and barbaric.

    But, at the time, Moniz’s procedure was considered the ‘remedy’ for all sorts of mental issues.

    According to cracked.com…

    By 1960, parents were getting them [lobotomies] for their moody teenage children…some 70,000 people were lobotomized before some figured out that driving a spike into the brain probably was not the answer to all of life’s problems.

    The widespread acceptance of Moniz’s ground- (no, make that, ice-) breaking ‘operation’ earned him the Nobel Prize in 1949.


    Yet this is what happens in the world.

    Myths, beliefs, and procedures go unchallenged and become accepted by officialdom and academia.

    Questioning conventional ‘wisdom’ risks ridicule. Go along to get along.

    Powerful interests do not want any disruption to the status quo. Egos and money are at stake.

    But what about public interest?

    Well, we are told it is all in the public interest, but mostly it is in self-interest.

    In April 2017, the government established the Financial Adviser Standards and Ethics Authority Limited (FASEA).

    The purpose of the FASEA is to ‘…set the education, training and ethical standards of financial advisers, licensed under Australian law.’

    Admirable intent.

    What about ‘ethical standards’?

    Unless an adviser is truly independent (no ties whatsoever to an institution), how can they serve two masters?

    Does their interest lie with the institution or the client?

    In theory, we know it should be the client. But in practice we know — from the recent ASIC report — that isn’t the case.

    The only way to rectify this situation is for the government to drive an icepick through the eyes of the industry and destroy the connection between the front end (advisers) and the rest of the industry. Gone. Permanently remove any association between the advice provider and the product supplier. 

    What do the education and training standards consist of?

    Is the formal education and training going to be the equivalent of attending medical school and learning about the benefits of performing a prefrontal leukotomy?

    If what’s being taught is based on misguided content, then all you’re doing is institutionalising a process of ‘garbage in, garbage out’.

    Here’s a case in point.

    Since the early 1980s, the fortunes of the share market and the investment industry have operated in tandem.

    The share market has been an outstanding performer — albeit with some fairly wild swings — for over 30 years. The investment industry has evolved into big business thanks to the public’s willingness to invest in an asset class that has done well…extra emphasis on ‘has’.

    In simple terms, the reasons for this stellar performance are twofold:

    • $200 trillion of debt has boosted corporate earnings; and
    • The multiple applied to those earnings (price-to-earnings ratio) has expanded fivefold from 6.7-times to 33-times.

    Share Market performance over 30 years 19-02-2018

    Source: gurufocus.com
    [Click to enlarge]

    In addition to an expansion of multiples, earnings have been artificially inflated by share buyback schemes — companies borrowing money cheaply to boost earnings per share (EPS).

    According to the Associated Press…

    Companies have been spending big on buybacks since the 1990s. What’s new is the way buybacks have exaggerated the health of many companies, suggesting through earnings per share that they are much better at generating profits than they actually are.

    The distortion is ironic. Critics say the obsessive focus on buybacks has led companies to put off replacing plant and equipment, funding research and development, and generally doing the kind of spending needed to produce rising earnings per share for the long run.

    “It’s boosted the stock market and flattered earnings, but it’s very short term,” says David Rosenberg, former chief economist at Merrill Lynch, now at money manager Gluskin Sheff. He calls buybacks a “sugar high.”

    Will the investment industry’s formal education and training standards question whether these two dynamics — artificially inflated earnings and an expanding multiple — can be maintained?

    I doubt it.

    Will they even look at how the myth of ‘shares for the long run’ was even created?

    I doubt it.

    Do you think they might analyse long-term market trends and note — like the Shiller PE 10 graph shows — that PE multiples can shrink as well as expand?

    And, in the unlikely event that they do, will they show how devastating a contracting multiple and declining earnings can be on share values?

    I doubt it.

    Instead, we’ll get the same old, same old…shares for the long term.

    History categorically shows that shares can be the worst performing asset for periods lasting up to two decades.

    That’s OK if you’re 20, 30 or even 40 years of age.

    But for anyone older than that, who was told by their suitably qualified planner to expect the future to be a repeat of the past, well, they’ll have to do some serious rethinking of their retirement plans.

    Planners, in over-weighting client portfolios with shares (due to a blind obsession for theory over logic), are in effect lobotomising those portfolios.

    When, not if, this market collapses, the disconnect between theory and reality will become all too evident…and, as is always the case, all too late.

    To learn how you could avoid having the industry’s ice pick being applied to your portfolio, please go here.


    Vern Gowdie,
    Editor, The Gowdie Letter

    -Read more at www.marketsandmoney.com.au-

    Comments Off on Are You Lobotomizing Your Portfolio?

    Read More
  • Draghi, the Great Racketeer

    20.02.2018 • FranceComments Off on Draghi, the Great Racketeer

    Simone Wapler – La Chronique Agora (France) –

    A second crisis of the euro is smoldering. The European Central Bank and the monetary system will be undermined. Prepare your savings to cash the shock.

    While I was thinking about an article about the orientation of the savings of the French, enamelled article of nonsense that aroused my discontent, my colleague Cécile Chevré, La Quotidienne de la Croissance , throws me through the office this question: “Simone , do you follow the story of Mario Draghi’s succession to the European Central Bank?

    Uh, mmmmm, no.

    Error. Serious mistake! It is true that one must always have an eye on the Parasitocracy to try to arm itself against the next racket that threatens us. The mandate of Mario Draghi’s central banker ends in October 2019.

    A central banker is a biped extremely well paid and not paying taxes (because of his status as an international civil servant), responsible for covering the stupidity of banks “too big to fail” who have the privilege to lend interest to money that does not exist.

    This biped is supposed to watch over “monetary stability” and has a goal of inflation.

    The first goal is impossible to achieve in a system where money is available credit in unlimited quantities. As for inflation, it is an intellectual scam that consists in making us believe that a general price increase would be good for the consumers we all are. In reality, it is a tax that does not say its name.

    Mario Draghi, great racketeer of ants

    Mario Draghi has racketed us by forcing interest rates down and by buying back financial securities on the markets and even in private placement , from 80 billion euros to 40 billion euros per month.

    The drop in rates deprives millions of European savers who are capitalizing for retirement, from a decent return. 10 years of low interest rate is 10 years of capitalization and compound interest lost that will never be found since we are deadly.

    Redemptions of financial securities artificially raise the markets, forcing investors to buy too much.

    The pretext? “Save the euro”. In reality, it is not the euro that is saved by these maneuvers, but an unhealthy credit system that supports zombie banks full of bad debts, and expensive governments whose lifestyle is based on free credit (or almost).

    My colleague Cécile Chevré is right. The estate of Mario Draghi is important. The current financial system, like the Italian and French governments, can not support a rise in long-term rates.

    A second euro crisis about to burst

    Germany now has 900 billion euros of bad loans stored in the European Target 2 compensation system.

    Target 2<img src=”https://cdn.publications-agora.com/elements/lca/newsletter/images/contenu/180220-lca-target2.jpg” alt=”Target 2″ width=”550″ height=”433″ border=”0″ />

    Source: http://www.eurocrisismonitor.com/

    If everything worked well in the Eurozone, the curves should slightly oscillate around the horizontal. This is not the case. Today, the imbalances exceed those reached during the first crisis of the euro in 2012.

    The cynical reader will note with bitter amusement that the ECB has an Italian president and a Spanish vice president, the two most debtor countries vis-à-vis Germany.

    Indeed, the Germans have just admitted Spanish Luis de Guindos to the vice-presidency of the ECB.

    The echoes<img src=”https://cdn.publications-agora.com/elements/lca/newsletter/images/contenu/180220-lca-les-echos.jpg” alt=”Les Echos” width=”550″ height=”477″ border=”0″ />

    Luis de Guindos comes from a Cicada country in Southern Europe but is nevertheless considered a “hawk”, that is to say, a supporter of a strict monetary policy (as opposed to a gentle dove for monetary policy).

    Admire in passing the photographic treatment of the Echoes of a “hawk” which, of course, is mean.

    The echoes :

    “In the European Parliament, voices worried about his image of ‘hawk’ and his stint at Lehman Brothers (2006-2008). German economics minister Wolfgang Schäuble, who in the most acute years of the crisis was perceived by Luis de Guindos to be one of those who, within the Eurogroup, firmly only possible way.

    This profile of hard does not prevent him from recognizing, today, that the Troika ‘ could have had more political sensitivitywith Greece as with Ireland, Portugal or Cyprus. A great supporter of European integration, he arrives at the ECB with the intention of working for a single deposit guarantee system and for the preparation of new instruments to act counter-cyclically against the possibility of asymmetric shocks.

    Note also that our Iberian hawk passed by Lehman Brothers (just as Mario Draghi went through Goldman Sachs). Crony capitalism always works well.

    The last phase – totally absurd for a non-expert of the language of wood – simply means that in case of crisis, it will be necessary to cover the fraud of the monetary policy of creating more free credit for the friends.

    Here is another comment, from the Saxo Bank letter this time:

    “De Guindos and Lane are, in any case, considered as ‘neutral’ in terms of monetary policy positioning. De Guindos is notably known to have posted strong support for QE, which he believes does not create a bubble risk on the financial markets . For his part, Lane maintains that the Phillips curve (link between inflation and the unemployment rate) is still a relevant analytical grid.

    As you know dear reader, the Phillips curve – of which it is empirically proved to be false – is another intellectual swindle but it justifies the interventionism whose sole objective is crony capitalism.

    As for the fact that Guindos thinks that Mario Draghi’s free credit creation has not generated any financial bubbles, it says a lot about the fake falcon.

    What is important to remember at this point is that this “false falcon Iberian” will continue to work in the direction of banks and zombie governments.

    What is interesting is that Germany will soon be torn between its own zombie banks (including Deutsche Bank) and Target’s bad debts.

    It’s a tragedy. It will take a moment to choose.

    Can there be a happy ending to the disastrous global monetary experience of credit? No. There is rarely a happy outcome to the silly experiments piloted by the interventionists.

    Who will be the man who will manage the second crisis of the euro?

    It would be the German Jens Weidman if we believe the latest poll Bloomberg.

    Macintosh HD: Users: waplers: Library: Containers: com.apple.mail: Data: Library: Mail Downloads: FFE23A54-1823-404F-8C53-602E7D282750: DWaHcL8UMAEUVJx.jpg<img src=”https://cdn.publications-agora.com/elements/lca/newsletter/images/contenu/180220-lca-classement-small.jpg” alt=”Macintosh HD:Users:waplers:Library:Containers:com.apple.mail:Data:Library:Mail Downloads:FFE23A54-1823-404F-8C53-602E7D282750:DWaHcL8UMAEUVJx.jpg” width=”550″ height=”288″ border=”0″ />

    Click on the image to enlarge

    -Read more at la-chronique-agora.com (French)-

    Comments Off on Draghi, the Great Racketeer

    Read More
  • Here’s Why a Blanket EU Plan Can’t Work

    20.02.2018 • United KingdomComments Off on Here’s Why a Blanket EU Plan Can’t Work

    Nick Hubble – Capital and Conflict (United Kingdom) –

    What if you’d treated your children exactly the same?

    No matter what crisis of confidence or overconfidence they faced, you encouraged them. No matter their academic abilities, you sent them all off to by nuclear physicists or sculptors. No matter their behaviour, you bought them a new iPhone.

    I think all parents, and innocent bystanders of other people’s families, would agree it’s a recipe for disaster.

    People perceive things differently, are differently inclined, require supervision of a very different nature and much more. Fail to recognise this and you sow discord and disaster.

    The research institute Bruegel recently examined how Europe’s economic crisis was perceived differently between several different nations in Europe since 2007. Spain blames itself, the Germans blame spendthrift southern nations, the French blame vague concepts I don’t understand, and the Italians claim they’re always victimised.

    But the consequences are more interesting. Having vastly different perceptions of what caused and happened during the crisis, Europe now has to come up with a single uniform policy response.

    Do you see the problem? The EU has to treat its children the same, even though they couldn’t be more different. They can’t even agree on what happened.

    The result is the discord and disaster of the EU. Treating nations that are fundamentally different with the same set of reforms, institutional rules and policies is just a bad idea in the same sense that it’s bad parenting. The same policy does not deliver the same outcome between the various nations of Europe.

    It’s much the same in the monetary policy world. Would you lend all your children the same amount of money in the same way? Or would you think twice about how much and on what terms depending on the kid? Perhaps some children need the precaution of legal formalities, while others do not.

    Well, the European Central Bank (ECB) is supposed to treat all eurozone members the same. The result is a complete lack of feedback mechanisms. Each country can get away with fiscal murder or doesn’t receive the support it needs. One country might use the ECBs support to worsen its deficit without fear of bond markets holding it accountable, while the other uses the emergency liquidity to improve an already decent fiscal position that doesn’t need support. And then everyone cries foul at the others’ abuses.

    The reaction from euro nations is the same as in families. They rebel and their behaviour gets worse. Eurosceptics get into the European Parliament, Brits vote for Brexit, everyone violates fiscal pacts and treaties, and so on.

    Apportioning the blame

    The good news is, children grow up. Actually, perhaps that’s the bad news.

    According to the Bruegel research, the southern German newspaper SDZ saw its mentions of various topics steadily change over time when it discussed the crisis. At first it blamed the private sector – investment banking. By 2016 it focused on the EU and ECB.

    German poll about the frequency of selected topics causing trouble in GermanyGerman poll about the frequency of selected topics causing trouble in Germany

    A realisation is growing across Europe. People are figuring out that their subions to the ECB and the EU are what’s causing their economic trouble.

    Getting yourself into an economic mess is very different to being stuck in one thanks to your overlords in Brussels. Avoiding a fiscal mess with proper budgeting doesn’t sound so good if other nations are getting away with trashing their own budgets and then you have to support them.

    In two weeks, the Italians go to the polls to decide if they’ve had enough of the status quo. Their economy will take another decade to recover from the 2008 crisis according to the International Monetary Fund. It’s barely grown at all since Italy joined the euro. Even while the rest of the eurozone is doing well, Italy is struggling.

    And now the ECB is pulling back its quantitative easing and talking about raising interest rates. Ironically, those interest rate increases will be felt most of all in Italy, where debts and bad debts are the highest, even though Italy needs the interest rate increase least of all.

    Who can the Italians vote for? Well, no has a mildly credible fiscal plan. Some are anti-euro. Most want to breach the EU’s rules on deficits.

    Italy’s economic situation is a bit like Britain in the early 1970s. But Italy is stuck in the euro. It can’t devalue. And leaving the euro means all that euro-denominated debt will become even more unaffordable. Unless they default…

    Your new friend at the ECB

    Simply quoting large blocks of text from the mainstream media doesn’t provide much value to you. And the following quote from the Financial Times won’t either. But it’s just too comical not to mention, with emphasis added:

    Luis de Guindos will become vice-president of the European Central Bank, handing Madrid one of the eurozone’s most senior policymaking jobs and kicking off a shake-up of senior personnel in Frankfurt over the next 18 months.

    Mr de Guindos, Spain’s economy minister and a former Lehman Brothers banker, was the only candidate in the race after Ireland said on Monday it would withdraw Philip Lane, its central bank governor, from the contest. 

    The decision, taken during a meeting of finance ministers in Brussels, means the Spanish minister, who has no previous monetary policy experience, will replace Vitor Constâncio when the Portuguese’s eight-year term ends in May. 

    A Lehman Brothers banker with no monetary policy experience was chosen as the ECB’s new vice-president because no else wanted the job.

    At the helm we still have Mario Draghi, who worked for the Goldman Sachs division which helped Greece get into the eurozone by fudging its accounts.

    What could possibly go wrong? You’ll find the simple answer here.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

    Comments Off on Here’s Why a Blanket EU Plan Can’t Work

    Read More
  • Video: Is It Too Late for Cryptos?

    20.02.2018 • United KingdomComments Off on Video: Is It Too Late for Cryptos?

    Harry Hamburg – Exponential Investor (United Kingdom) –

    As promised, here’s the second video. If you missed the first interview with Tim Price, you can watch it here.

    This one features our resident crypto expert, Sam Volkering, talking with Charlie Morris about the past, present and future of cryptos.

    You’ll get to hear about how Sam first got into bitcoin, back in 2011, and where both he and Charlie see the crypto market going this year.

    To watch it, just click on the image below.

    Until next time,

    Harry Hamburg
    Editor, Exponential Investor


    -Read more at www.exponentialinvestor.com-

    Comments Off on Video: Is It Too Late for Cryptos?

    Read More
  • Boeing’s Future of Flight Doesn’t Include Pilots

    16.02.2018 • United KingdomComments Off on Boeing’s Future of Flight Doesn’t Include Pilots

    Andrew Lockley – Exponential Investor (United Kingdom) –

    What do you think the world record for a non-stop endurance flight is?

    Go on, guess.

    When my friend asked me the same question over the weekend, I thought it would be around three or four days. I was way off.

    It’s 64 days, 22 hours and 19 minutes.

    To be fair, there were two people on the flight, Robert Timm and John Cook, so one could sleep while the other flew. But it is still pretty amazing, isn’t it?

    What’s even more amazing is this record was set in 1958, and it still stands to this day.

    The flight was a charity effort for the Damon Runyon Cancer Fund. I would hope they raised a fair bit.

    They managed to stay up for so long by matching speeds with a chase truck when they needed food or fuel. They then hoisted supplies up with a rope and bucket, and pumped fuel into the plane’s reserve tank.

    Here’s a photo from that legendary flight:

    They only decided to end the flight when the plane’s engine became so overworked it could barely climb any more after dropping to get supplies.

    How did the pilots find the experience? After the flight, Cook said: “Next time I feel in the mood to fly endurance, I’m going to lock myself in our garbage can with the vacuum cleaner running. That is until my psychiatrist opens up for business in the morning.”

    Their plane is now on display in the passenger terminal at McCarran International Airport in Las Vegas. Look out for it if you ever visit.

    If you want to know more on the story, there’s a short video here.

    How safe is aircraft travel, really?

    With that incredible record in mind, I was reminded of another surprising statistic I read in a psychology book a few years ago.

    I couldn’t find the book today, so I decided to work out the numbers for myself from widely available statistics on air travel.

    So, for my second question:

    If you took a flight every single day, how many days do you think it would take before you had a 1% chance of dying in an air accident?

    The answer is 45 years, 7 months and 17 days.

    You would have to fly every day for over 45 years to have just a 1% chance of dying in an air crash.

    For the period between 2002 and 2011 there are only 0.6 deaths per million flights. And since then, those numbers have gone down. 2017 was the safest year on record.

    The main reason for those deaths was pilot error, with accounts for 33% to 60% of all accidents.

    So, the next logical step to making flights safer is to… remove the pilot?

    Pilotless planes are coming sooner than you think

    We have had “autopilot” for years. But we still have pilots. I guess that knowing a pilot is up there makes people feel safer.

    It really shouldn’t, given the stats, but our brains don’t work on logic, they work on feelings.

    “The intellect may seem at times to lead the will, but only as a guide leads his master. The will is the strong, blind man who carries on his shoulders the lame man who can see,” as Arthur Schopenhauer said.

    Still, autopilot isn’t really designed to take care of entire flights. At least it wasn’t until recently. But all that is now changing.

    As reported by Reuters last June:

    The world’s biggest aircraft maker [Boeing] says the growing global demand for air travel and the need for more pilots is driving the development of the self-flying technology. 

    “When I look at the future I see a need for you know 41,000 commercial jet airplanes over the course of the next 20 years. And that means we’re going to need something like six hundred and seventeen thousand more pilots. That’s a lot of pilots.

    “So one of the ways that may be solved is by having some type of autonomous behaviour and that could be anything from taking instead of five pilots on a long haul flight down to three or two, taking two pilots down to one in a freight situation, or in some cases going from one to none,” said Mike Sinnett, vice president of product development at Boeing. 

    Planes can already take off, cruise and land using their onboard flight computers. 

    The new technology, which Boeing hopes to test in a cockpit simulator this summer, would allow artificial intelligence to make some of the decisions normally made by pilots. 

    If all goes well, Sinnet says the technology could be tested on a real aircraft sometime next year.

    Given that article was written last year, “sometime next year” now means sometime this year.

    And, eager not to be left behind, Boeing’s main rival Airbus has upped the stakes in the pilotless planes business.

    Why get an Uber, when you can fly instead?

    Airbus sees small, electric-powered, pilotless planes taking over from taxis in the future.

    And not the far future. We’re talking by 2020. Oh, and it’ll cost you no more than a regular taxi, too.

    As HuffPost reported:

    The Vahana is a small, lightweight self-flying aircraft that uses eight electrically-powered engines to propel passengers from A to B.

    It’ll have a range of around 62-miles and just like taxis today, it’ll be summoned using a smartphone app.

    Airbus, just like Uber, wants Vahana to eventually replace land-based taxi services by offering something that’s quicker, more convenient and a lot faster.

    If that wasn’t enough incentive, Airbus is hoping to price journeys in the Vahana at around £1-2 per mile, making it as expensive as normal taxis.

    By using a revolutionary electric motor instead of a conventional combustion engine the Vahana doesn’t produce any harmful emissions.

    Electric has additional benefits including fast-charging, easy maintenance and reduced running costs because you’re not paying current fuel prices.

    What’s potentially even more astonishing is that Airbus (and Uber for that matter) both believe we’ll actually be able to ride one of these as a customer by 2020.

    And it seems Airbus is right on schedule. The Vahana (which I misread for Valhalla, which would not be the best name for an aircraft…) had its first successful test flight on 31 January.

    Here’s a photo:

    Source: Airbus

    The possibilities for a taxi like this are endless. Imagine the amazing places you’d be able to visit on an adventure holiday with one of these on hand.

    Of course, I suppose by the same token, hundreds of these things flying around in the sky would then round the view.

    All this innovation begs the question, will proper, big commercial airliners ever be powered by electricity?

    Electric passenger jets are already in testing

    The answer is a definite yes.

    The E-fan X is a hybrid-electric plane developed jointly by Airbus, Rolls-Royce and Siemens.

    It aims to be ready by 2020.

    Here’s what The Guardian had to say about it in December:

    Passenger jets are poised for an electric makeover that could fundamentally change the economics and environmental outlook of the aviation industry.

    Up until now the fact that the necessary batteries weigh two tonnes each has limited the switch from fossil fuels to a totally electric-powered future.

    However, last month a consortium comprising Airbus, Rolls-Royce and Siemens said they had found a way to use hybrid electric jet engines to conquer gravity. They are converting a regional jet into a demonstration plane, called the E-Fan X, which will be ready by 2020.

    And here’s a fun diagram of how it will all work:

    Source: Airbus

    How can you invest in this mammoth change to the airline industry?

    Given all the above, we can see it’s not just cars and trucks that are going electric and driverless. Planes are getting in on the act, too.

    What we are seeing now, is a huge shift out of one technology – combustion engines – and into another – electric.

    The change, as things like this usually do, will happen much faster than most people realise. According to the industry itself, we’re less than two years away.

    So, given what we know, what is the best way to invest and make money from this sea change?

    That’s where Eoin Treacy comes in. In this month’s Issue of Frontier Tech Investor he has identified one small firm that will massively benefit from the coming change.

    In his own words:

    This brings me back to my “secret suppliers” idea. I’ve spoken about this before, mostly in relation to our lithium and rare earth plays

    The concept is simple. When we see a new technology taking off, growing globally and being developed by multiple businesses, sometimes the smart thing to do is back a supplier. Find the scarce resources needed to produce the technology and invest in the firms that provide them. It’s a simple strategy, but one that’s done well for us so far.

    And the next secret supplier he’s found has even more potential than the last ones. He believes this company could go up by as much as 733% in the next three years.

    Don’t just read about these huge advances. Give yourself the chance to make money from them too.

    Until next time,

    Harry Hamburg
    Editor, Exponential Investor

    -Read more at www.exponentialinvestor.com-

    Comments Off on Boeing’s Future of Flight Doesn’t Include Pilots

    Read More
  • French Interventionism Reaches More Crucial Sectors

    16.02.2018 • FranceComments Off on French Interventionism Reaches More Crucial Sectors

    Simone Wapler – La Chronique Agora (France) –

    This government – like all its predecessors – persists in crony capitalism, interventionism and disastrous investments.

    You may remember the flamboyant minister of Holland – Arnaud Montebourg – the man with slinky sailors.

    You thought to be rid of the character, his rantings and his investments (foolish) in the name of the State  ?

    Think again. The spirit of the character is back in force in this government.

    The Echoes of Friday, February 16:

    “As France wants to defend its jewels – The Montebourg decree will be extended.


    The Prime Minister wants to extend the sectors protected by the decree known as ‘Montebourg’ to new areas. ” 

    Since 2014, the state has the right to oppose foreign investment projects in the fields of energy, water, transport, electronic communications, public health, defense.

    But that was not enough…

    We add to the list: artificial intelligence, datas, nanotechnologies, space and … financial infrastructures!

    Difficult to include shampoos for oily hair and lacquer L’Oreal. But it seems that the end of the shareholders’ pact between the Bettencourt family and Nestlé causes some nervousness in the high parasitocratic spheres.

    Get ready: yogurts (think Danone if Nestlé ever had an appetite) and cosmetics could soon become “the defense of public order and national security”.

    interventionism<img class=”wp-image-44918 alignleft” src=”http://la-chronique-agora.com/wp-content/uploads/sites/3/2018/02/shutterstock_653403244.jpg” alt=”interventionnisme” width=”275″ height=”183″ srcset=”http://la-chronique-agora.com/wp-content/uploads/sites/3/2018/02/shutterstock_653403244.jpg 1000w, http://la-chronique-agora.com/wp-content/uploads/sites/3/2018/02/shutterstock_653403244-300×200.jpg 300w” sizes=”(max-width: 275px) 100vw, 275px” />More protectionism and also more interventionism

    In the same spirit, Les Echos also teaches us:

    “The future law The Mayor should increase the intervention capacity of bpifrance Participations, armed arms of the public bank, to invest in strategic companies . The investment company ‘would be in debt to take stakes, up to several billion euros’ “ .

    Since 2008, with € 1 of State loan, France buys € 0.5 of “growth”. Any business leader who would take on 1 € to earn only € 0.5 of turnover would not survive …

    In reality, the state spends money that does not belong to it but does not invest.

    When an individual invests:

    • he decides to deprive himself of immediate enjoyment and has compelled himself to spend less than he received. This is not the case of the French State, whose deficit has been permanent for 47 years;
    • he chooses – in view of public information – carefully weighing the profitability of his investment. This is not the case of the state.
    • it undertakes. If the investment goes bad, the individual suffers financial losses. This is not the case for the government official who invests.
    • he follows his investment, because it is his money that is at stake. This is not the case of the state official who has invested and will then be transferred.
    • when he makes a mistake, he learns. This is not the case of the state official who will not see his salary amputated if Areva, Alstom, EDF, Thales, Engie, Nexter Systems … breaks the figure.

    I would like one day to create the following financial derivative: a reverse tracker of all listed companies in which the state “invests”.

    I think that such an ETF – which would bet on the fall of these companies – would reap capital gains regardless of market performance. It would make up for (a bit) the mess we pay as a taxpayer.

    -Read more at la-chronique-agora.com (French)-

    Comments Off on French Interventionism Reaches More Crucial Sectors

    Read More
  • Italy’s Coming Elections Could Mean the End of the Euro

    16.02.2018 • United KingdomComments Off on Italy’s Coming Elections Could Mean the End of the Euro

    Nick Hubble – Capital and Conflict (United Kingdom) –

    So far, Europe’s election season isn’t a complete disaster. But that could all change on 4 March. Because the Italian election could be the only election that matters.

    Italy’s financial situation is in tatters. The banking system has a bad debt problem the size of the Greek sovereign debt crisis of 2012. And the Italian debt-to-GDP is at the levels that got Greece into trouble. But with a total debt that’s ten times the amount.

    The outlook is even worse. Despite near 0% interest at the European Central Bank (ECB) and vast amounts of quantitative easing (QE) buying up vast amounts of Italian debt, the country spends about 4% of its GDP on interest for government debt. Thanks to GDP growth at about 1%, without improvement on the horizon, and a deficit above 4% of GDP, escape from the debt trap is looking mathematically impossible.

    So what’s politics going to do? Make things worse, of course.

    So far, the Italian voter is matching with the British, American, French, Dutch, German, Hungarian, Austrian, Czech and others. They’ve dumped the mainstream parties and turned to… well, anyone else. Even Silvio Berlusconi’s party, despite him being banned from office.

    In Britain, Brexit was a surprise for the EU establishment. The Czechs and Hungarians are also serving up problems. In Austria, a eurosceptic party made it into coalition. And in Germany, mainstream parties are having to form a coalition to keep the Alternative for Germany (AfD) party out. No knows quite what Donald Trump is thinking. The Dutch and the French elections didn’t serve up much trouble though.

    What makes Italy’s elections so remarkable is that the mainstream parties could disappear altogether. Instead, four newcomers have surged into the running. Despite the fact that even the current government’s policies are extreme.

    The governing Democratic Party has less than a quarter of the vote in the polls. After the election, it wants to abolish the EU’s rules on budget deficits and raise the budget deficit to 3% of GDP for five years as a stimulus. That would mean a spike in the dangerously high debt-to-GDP level.

    From here on in, it gets even wilder.

    The 5-Star Movement is in the lead with just over a quarter of the vote. This upstart party is full of colourful personalities and disjointed policy proposals. It wants to renegotiate the EU rules restricting budget deficits and spend far more to stimulate the economy. If it doesn’t get what it wants from the EU, it’s in favour of a referendum on euro membership. Is it a negotiation tactic or a genuine threat? It’s topping polls, so we may find out.

    Berlusconi’s Forza Italia doesn’t seem troubled by the fact that its leader is banned from office. His reinvented party could still take power in a coalition deal. He’s steadily made his policies more and more moderate to attract voters.

    Berlusconi’s latest pitch is to introduce a parallel currency for domestic use to boost the economy, but keep the euro for international trade and tourism. That defeats the purpose of leaving the euro – the sort of pointless compromise you expect from a British politician. Berlusconi now also wants to respect EU limits on deficits and debts. But his proposed fiscal policies don’t back this.

    The Northern League and its cousin in the south, the Brothers of Italy party, hold just under 20% in the polls. They want to leave the euro and its deficit rules in a non-disruptive way. Good luck with that.

    Despite recently making their policies far more moderate, keep in mind that the selection of new parties surged into the running largely by rejecting the euro. Just over a year ago, the leader of the party currently leading in the polls was calling for a default on Italian debt and a return to the lira. And the Northern League leader called the euro “a crime against humanity”.

    They’ve since softened their stance. But the anti-euro sentiment is of course still there. In fact, Italians are among the most eurosceptic members of the EU.

    But could Italy really cause trouble for the entire euro system?

    The Italian election could sink the euro

    There’s a particular reason the election in Italy is so important to the euro.

    The political parties all have plans to worsen the government budget even more. This would violate EU rules, leading to a political standoff.

    And so the Italians are holding a gun to their own as a means to threaten the EU into approving their crazy schemes. If the EU doesn’t approve the Italian government’s plan to spend even more money, Italy will leave the euro or default.

    One potential prime minister or economic minister is already talking about restructuring Italy’s debts. He knows the EU will “come to the table” to negotiate because the alternative is an exit from the euro – a political embarrassment that would make Brexit look rather clever – and a default.

    Unfortunately, Deutsche Bank analysts recently wrote that even a negotiated restructuring “obviously leading to a financial crisis.” Not a surprise given the turbulence Greece caused with its restructuring.

    The bluster of Italian politicians tells you they know the most important political fact of the eurozone. Italy is too big to fail and too big to save, but the EU is desperate to keep it inside the eurozone. Threatening self-harm is a viable strategy for Italian politicians to get what they want.

    But what they want is not even a mildly credible fiscal plan. It will only worsen Italy’s financial situation, deferring the crash at best.

    Once the market realises Italy is on a downward spiral with politicians who know they can get away with anything, Italian debt will be repriced. And with the ECB’s QE policy ending this year, there’ll be no to support Italian bonds.

    This is the domino that ends the euro.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

    Comments Off on Italy’s Coming Elections Could Mean the End of the Euro

    Read More
  • This Synthetic “Cuddle Hormone” Could Beat the U.S. Opioid Crisis

    16.02.2018 • United KingdomComments Off on This Synthetic “Cuddle Hormone” Could Beat the U.S. Opioid Crisis

    Harry Hamburg – Exponential Investor (United Kingdom) –

    Here’s a situation that doesn’t really add up.

    If you asked someone what the most developed country in the world is, they’d likely reply “America”. It’s certainly the richest (by GDP) and most powerful.

    So how is it that US life expectancy is falling?

    In 2016 it was down for the second year in a row, which hasn’t happened for more than 50 years.

    And according to Robert Anderson, chief of the Mortality Statistics Branch with the National Center for Health Statistics, early data on 2017’s figures doesn’t look any better.

    It’s very likely life expectancy in the US is down for the third year in a row.

    “We haven’t seen more than two years in a row in declining life expectancy since the Spanish flu – 100 years ago. We would be entering that sort of territory, which is extremely concerning,” says Anderson.

    What’s going on?

    In short, drugs. But not the kind you probably think.

    Preion drugs are the problem

    Most people, when they picture an addict, think of someone like this.

    Source: royalty free

    But it turns out, most drug addicts are ordinary people, going about ordinary lives.

    The worst and most destructive drugs aren’t the illegal ones. They are the ones prescribed by medical professionals and advertised on TV.

    Like heroin, they are opioids, or synthetic opioids, and have the same effects.

    Let’s not forget, heroin was originally marketed as a cough syrup by Bayer. Its medical name is diamorphine. It’s basically just a stronger form of morphine.

    From Wikipedia:

    From 1898 through to 1910, diamorphine was marketed under the trademark name Heroin as a non-addictive morphine substitute and cough suppressant.[78] In the 11th edition of Encyclopædia Britannica (1910), the article on morphine states: “In the cough of phthisis minute doses [of morphine] are of service, but in this particular disease morphine is frequently better replaced by codeine or by heroin, which checks irritable coughs without the narcotism following upon the administration of morphine.”

    And it is still prescribed in almost every hospital, the world over.

    Still, according to drugbase.gov, preion painkillers kill more people in the US than illegal heroin and cocaine combined.

    The Guardian sums up the situation very well in just a few paragraphs.

    Why is there an opioid crisis in America?

    Almost 100 people are dying every day across America from opioid overdoses – more than car crashes and shootings combined. The majority of these fatalities reveal widespread addiction to powerful preion painkillers.

    The crisis unfolded in the mid-90s when the US pharmaceutical industry began marketing legal narcotics, particularly OxyContin, to treat everyday pain.

    This slow-release opioid was vigorously promoted to doctors and, amid lax regulation and slick sales tactics, people were assured it was safe. But the drug was akin to luxury morphine, doled out like super aspirin, and highly addictive.

    What resulted was a commercial triumph and a public health tragedy. Belated efforts to rein in distribution fueled a resurgence of heroin and the emergence of a deadly, black market version of the synthetic opioid fentanyl. The crisis is so deep because it affects all races, regions and incomes

    Here’s another crazy statistic: overdoses from opioids in the US were up 50% in 2016, according to Sky News.

    You would have thought by now that drug treatment and policy would have found a solution to this problem.

    But then, you have to remember that drug policy is made up by politicians not by scientists.

    Logic and politicians don’t mix

    The US’ “war on drugs” policy isn’t helping, and arguably has never helped. You can’t really tell people to “just say no” to preions.

    Other countries, like Portugal, have effectively solved their drugs problems through decriminalisation.

    In 2001, Portugal decriminalised all drugs, to worldwide media outcry.

    You don’t hear much about that decision any more, because it worked. And that doesn’t sit well with most other countries, most politicians, or most of the mainstream media.

    Portugal now only has three overdose deaths per million people. The US drug overdose rate is over 6,000% higher.

    And let’s not forget the reason Portugal enacted this policy was because of its huge problems with drug overdoses and HIV. It’s not like it had few drug deaths to start with and it remained low.

    From 2001 to 2012, overdoses in Portugal dropped by 80%.

    Whether you hate and oppose drugs or not, it’s hard to argue with that success story.

    Still, the US (also the UK, for that matter) is extremely opposed to the decriminalisation approach for hard drugs.

    Logic and politicians don’t really mix.

    So if the US isn’t going to change its “war on drugs” policy anytime soon – although hopefully it will see sense eventually, as it has with legal marijuana – that leaves treatment.

    And it just so happens we could be on the verge of the biggest breakthrough in addiction treatment, well, ever.

    A “silver bullet” for addiction

    Treatment for addiction hasn’t changed much in decades, if ever. It revolves around rehab.

    There aren’t really any medications you can take that help cure your addition. For heroin, there is methadone, but it’s still a synthetic opioid in itself and not exactly ideal.

    “Although addictive substances claim as many lives as cancer each year, no cures are available and few drug companies are interested in developing them,” says New Scientist.

    Current treatments aren’t so great. In fact, 40% to 60% of people leaving rehab will relapse within a year.

    That’s why one scientist, Iain McGregor, working out of the University of Sydney, decided to look at treatments for addiction in a different way.

    As New Scientist states:

    One of the hallmarks of addiction is a waning interest in human contact and a growing fixation on seeking vice.

    A decade ago, this observation gave McGregor an idea. Would it be possible to reverse substance addiction by switching the brain back from drug-chasing mode to social mode?

    If McGregor’s hunch was right, this could be a silver bullet – a universal treatment for all addictions at once.

    So, how did he go about it?

    Hugs not drugs

    I used to go to a lot of festivals when I was younger. And there were always a good number of people dolling out “hugs not drugs”.

    It sounds stupid, but those people, who, to be honest really did not come across well, may have been on to something.

    The secret to curing addiction may actually lie in that annoying, mawkish phrase: hugs not drugs.

    Oxytocin, also known as “the cuddle hormone”, is released during sex, childbirth and most close physical contact. It plays a major role in human bonding.

    As Psychology Today states:

    Oxytocin is a powerful hormone that acts as a neurotransmitter in the brain. It regulates social interaction and sexual reproduction, playing a role in behaviors from maternal-infant bonding and milk release to empathy, generosity, and orgasm.

    When we hug or kiss a loved one, oxytocin levels increase; hence, oxytocin is often called “the love hormone.” In fact, the hormone plays a huge role in all pair bonding.

    The hormone is greatly stimulated during sex, birth, and breastfeeding. Oxytocin is the hormone that underlies trust. It is also an antidote to depressive feelings.

    McGregor decided to see what positive effects oxytocin may have on addicts. His idea was to change them from substance-seeking loners, to sociable content people.

    And to cut a long story short, his oxytocin experiments proved wildly successful – in rats.

    He first tried injecting oxytocin into methamphetamine addicted rats, and basically cured them.

    Initially they were so addicted they would push a lever hundreds of times to get one hit. After oxytocin they almost completely stopped pressing it.

    He got the same miraculous results with alcoholic, cocaine and heroin addicted rats.

    When he wanted to test it out on people, the injecting route was out of the question, so he had to develop an oral treatment instead.

    This treatment is called SOC-1, which stands for synthetic oxytocin-like compound. It’s basically a precursor to a full oxytocin molecule.

    It was just as successful on the rats, and even worked on the old psychologist favourite, rhesus monkeys, too.

    Not only that, but SOC-1 can even help prevent relapses.

    In one experiment meth addicted rats were weened off meth and then later given a very small amount of meth to make them relapse. They went back to pushing the lever that used to give them a hit frantically. Hitting it 120 times over two hours.

    The meth rats that that were previously treated with SOC-1 barely touched the lever.

    McGregor says lasting effects are due to the “state of change” oxytocin brings about.

    “For example, in child birth, mothers don’t want to be in love with their babies for just a few minutes. The initial oxytocin surge needs to have an enduring effect,” he says.

    In another test, he says alcoholic rats treated with a single dose of SOC-1 halved their consumption of raspberry flavoured vodka (why he chose to get rats hooked on raspberry flavoured vodka specifically is anyone’s guess) over the full six-week experiment.

    And SOC-1 may even be useful on other types of addiction, like gambling. And in social anxiety disorders.

    McGregor’s colleague, Michael Bowen, sums up the prospects for SOC-1 well: “For millions of people who are really struggling with these disorders, I hold great hope that SOC-1 will provide the breakthrough they are waiting for.”

    Will the cuddle hormone be a silver bullet for addiction and social anxiety? The results so far look very promising.

    In the meantime, other countries could probably take a leaf out of Portugal’s book.

    Until next time,

    Harry Hamburg
    Editor, Exponential Investor

    PS, remember, you can get Exponential Investor updates straight to your phone with our new messenger bot. Click here to give it a try.

    -Read more at www.exponentialinvestor.com-

    Comments Off on This Synthetic “Cuddle Hormone” Could Beat the U.S. Opioid Crisis

    Read More
  • What Pumping Asset Prices Has Done for the Everyman

    16.02.2018 • United StatesComments Off on What Pumping Asset Prices Has Done for the Everyman

    Bill Bonner – Bill Bonner’s Diary (United States) –

    PORTLAW, IRELAND – Vignettes from Ireland:

    ** We walked into the tourist office in Youghal (pronounced “Yall”) in County Cork. Two young men were there. Curly hair. Cute. Something odd about them. Too carefully groomed and well dressed for the town.

    “How do we get to Sir Walter Raleigh’s house?” we asked.

    “I don’t know. I’ll look it up for you.”

    Something was amiss. The accents were wrong. And how could they not know where the famous house was located? It is the only tourist attraction in the small, depressed town.

    When asked, they gave us the full story.

    “We’re Italian. We’re here on an exchange program to learn English. We don’t know anything about this area.”

    ** We walked through Portlaw in nearby County Waterford yesterday. The town was almost deserted. But one man came towards us. Disheveled. Unkempt.

    “Good morning,” we said.

    “Agghh… I don’t talk to no,” he snarled.

    ** The only café in town had café women behind the counter yesterday morning, but no customers. We sat down and were soon enjoying the “small Irish breakfast” – coffee, soda bread, sausage, ham, tomato, egg, and black pudding. We listened while we ate.

    First girl: “I’m not going to pay any attention to her.”

    Second girl: “She doesn’t know what she’s talking about.”

    Third girl: “She’s just not from here… How could she know? She knows nothing about the area.”

    Fourth girl: “Yeah… she’s from Kilmeaden.”

    Kilmeaden is about five miles away.

    BS Big Picture

    Meanwhile… back to the world of money.

    As you no doubt remember, average numbers – and government statistics – have created a phony picture of the real condition of the country.

    According to the Fed, the White House, and the press, we are at the beginning of a period of strong, synchronized growth around the world.

    The bigger the picture, the more likely it is to be fraudulent. You can stand at a podium and say whatever BS about macro trends and theories you want. But don’t try it at home.

    People do not live in “the world.” They do not work in “the world economy.” They live in Columbus, Ohio, or Poughkeepsie, New York. And they take the jobs that are available to them there.

    Even if it were true that the macro picture is bright (which we very much doubt), the micro picture surely is not.

    Tale of Two Countries

    Some areas of the country have done very well – boosted by the “financialization” of the economy and the pumping up of asset prices that has been going on for the last 30 years.

    The number of multimillionaires, for example, has surged. CNBC:

    The number of American households worth $25 million or more has grown 73% since 2008, compared with growth of 54% for millionaire households. There are now 145,000 U.S. households worth $25 million or more, up from 142,000 in 2014.

    The average man, however, has not gained a penny. The latest figures show that a man over the age of 25 earns an average of 2.5 cents per hour less than he did in 1999 (in constant 1982 dollars).

    Since real (inflation-adjusted) income growth has been negative, and only a few people are getting so much wealthier, there must be a lot of people who are getting much poorer.

    This was our reasoning when our of research, Joe Withrow, decided to have a look, county by county. He concluded that 73% of U.S. counties are depressed.

    And now comes further evidence, using an entirely different approach. Science news website Live Science reports:

    Last year was not a good one for Americans’ happiness – a record number of states saw declines in their residents’ well-being, according to a new poll.

    The poll, from Gallup-Sharecare, found that residents’ well-being declined in 21 states in 2017, compared with the levels in 2016. That’s the largest number of states to see a drop in well-being over a single year since Gallup-Sharecare began the poll 10 years ago.

    For comparison, during the Great Recession in 2009, 15 states saw declines in their residents’ well-being, compared with the year before, Gallup said in a statement.

    Often have we wondered how such a technologically advanced, capitalist nation in the 21st century could make so little economic progress.

    It seems almost impossible. And yet, the evidence is there. What went wrong?

    We don’t know for sure. But it appears that a combination of fake money, fake interest rates, excessive borrowing, and too much government has brought the capitalist machine almost to a standstill.

    Knaves and Fools

    Another way to look at it:

    Progress and prosperity depend on win-win deals. And win-win deals depend on a few things – reliable money, safety, liberty, and property rights.

    Take away any one of those things and the machine goes on the fritz.

    Beginning in the 1960s and 1970s, a handful of academics – backed by a small group of political, Wall Street, and crony insiders (aka the Deep State) – got control over the economy, the government, and the Fed.

    That group found that it could get a by imposing win-lose deals on the nation, paid for largely with the funny money made available by the Fed.

    Since then, this group of insiders has managed to bamboozle more than 300 million people and stifle what should be the most dynamic economy in history.

    We have portrayed former fed chief Janet Yellen and her predecessors as stupid, bumbling, and incompetent. But a Dear Reader sets us straight:

    The behavior that you ascribe to Bernanke, Yellen, Powell, and other Fed governors is that of bumbling nincompoops… I have an alternate hypothesis: The Fed governors have an agenda consisting of three objectives.

    Objective No. 1 is to protect and enhance the wealth of their masters: the big banks that own the Fed. Objective No. 2 is to convince the American public that they have their best interests at heart, and that they are doing their utmost to maintain full employment while containing inflation within a very challenging environment. Objective No. 3 is to conceal Objective No. 1 from the public.

    Yes… he’s right. They’re more knaves than fools.

    Remarkably, but still predictably, Ms. Yellen is now being widely congratulated for her role in this travesty. And her replacement as Fed chief, Jerome Powell, has pledged to continue in her footsteps.

    “While the challenges we face are always evolving,” he recently assured investors, “the Fed’s approach will remain the same.”

    Too bad.





    By Chris Lowe, Editor at Large, Bonner & Partners

    It’s been a straight shot higher for bond yields in 2018.

    Today’s chart tracks the yield on the 10-year Treasury note – an important benchmark for borrowing costs throughout the economy.

    The 10-year T-note yield is up 48 basis points so far this year.


    That’s a 20% move higher in just over a month and a half.

    (A basis point is one one-hundredth of a percentage point.)

    Chris Lowe

    -Read more at bonnerandpartners.com-

    Comments Off on What Pumping Asset Prices Has Done for the Everyman

    Read More
  • Stocks Tumble Today, Property Tomorrow

    16.02.2018 • United KingdomComments Off on Stocks Tumble Today, Property Tomorrow

    Nick Hubble – Capital and Conflict (United Kingdom) –

    Last year, Capital & Conflict sent you an inflation alert. Yes, ten months is a bit of an early warning. But there’s some vindication playing out at last.

    Inflation has gone from being persistently low to persistently high in the UK since 2017. In fact, it’s a global phenomenon.

    An Australian newspaper recently posted this chart showing inflation rates for the world’s major economies. It calls it the Inflation Sensation Heat Map. Years in red have unusually high inflation, years in blue have low inflation.

    Source: Deutsche Bank and Business Day

    As you can see, Norway and Australia are the outliers. Most of the world, and the world as a whole, are experiencing rising inflation since I issued the inflation alert in 2017.

    And January confirmed the trend is hitting the troubling levels I warned about.

    Both the US and the UK posted higher than expected monthly inflation in the last few days. If the chart was updated now, a red tinge would be added on the ends.

    In the UK, the cost of clothing pushed the rate of inflation to 3%. In the US, a similar figure was blamed on the rising cost of energy.

    US senior economist Michael Pearce from Capital Economics told the Financial Times, “The most striking thing is that almost every category saw rising prices in January, which is pretty much indicative of across-the-board strengthening of inflation pressures.”

    The inflation rate is of course important to your financial wellbeing. It erodes your purchasing power – a nightmare for retirement savings.

    But there are even more dangerous effects to point out than inflation itself.

    Pressure on the property market

    For most retirees, their home is their most important financial asset. And they probably went through hell to acquire it. Reading about interest rates above 15%, house price crashes and questionable bank practices are enough to put me off buying a home.

    And it’s not just me. The UK and US are both seeing mortgage applications tumble. The bond market sell-offs, triggered by higher inflation rates, are already generating higher mortgage interest rates. And people can’t afford them.

    The Guardian:

    Mortgage lending dropped in December to a near three-year low as the appetite fell among buyers for expensive properties in London and the south-east.

    The Bank of England said new mortgages for house purchases were the weakest since January 2015 at 61,039, down by almost 6%, and remortgaging approvals fell by 14% to 46,475.


    U.S. mortgage application activity fell to its lowest in five weeks as interest rates on 30-year fixed-rate home loans jumped to their highest in four years, the Mortgage Bankers Association said on Wednesday.

    Keep in mind, this is before the interest rate increases kick in properly. In three different ways.

    The bond market volatility of the last weeks will damage mortgage affordability. Mortgage rates are not just tied to central bank interest rates, but to free floating rates.

    In the US, the ten-year Treasury yield can heavily impact borrowing. And the Treasury market is only indirectly under the control of the central banks. In fact, given central banks are trying to unwind quantitative easing (QE), they’re likely to put upward pressure on mortgage rates too.

    Then there’s the coming central bank interest rate reaction to the high inflation rates. The UK and US central banks have yet to act on their promised interest rate increases.

    The Federal Reserve is expected to hike rates three or four times in 2018. Odds are the Bank of England will raise rates in March and continue thereafter.

    Even though the worst is yet to come, the effect is already playing out on mortgages and house prices. The Guardian reported on heavy discounting to secure a sale in the UK property market, including 10% in London.

    Even if you think property is not overvalued, a cycle of rising interest rates makes property steadily less affordable. If the pending rate hikes are enough to sink the stockmarket, consider the property market is far more susceptible. The prospect of buying a house is looking downright dangerous.

    Can you imagine what a property price crash would do to retirees in the UK? How much would a 20% drop in the value of your home set you back?

    Suddenly inflation is a good thing?

    If you’ve been reading Capital & Conflict as diligently as I have, you’ll be wondering how inflation suddenly became a good thing this week.

    Last week, stockmarkets tumbled heavily. The reason was supposedly the prospect for inflation and the effect it would have on the bond market. If you’re going to be paid back the money you lent to the government in ten years, then you won’t be very happy if ten years of 3% inflation tore into the value in the meantime. That’s why bonds sold off.

    But this time around, the actual inflation figure, despite coming in high in the UK and US, did not cause a stockmarket rout. In fact, the opposite happened. Stocks rose despite US bonds selling off to a new four-year high in their yield.

    Even more strange is that the US stockmarket did initially drop. S&P 500 futures were down heavily before trading in actual stocks started, but surged to finish the day up more than a per cent.

    It’s likely that last week’s sell-off was simply too far too fast. If inflation and interest rates continue to rise, you can expect more trouble. In the stockmarket and the property market.

    History’s rhyme is only getting started

    Analysts at Deutsche Bank compared the recent bond market trouble to previous episodes of a similar nature. That is, when rising interest rates in the bond market triggered volatility in other financial markets. The 1994 rate hikes and the 2013 Taper Tantrum were singled out as comparable.

    The charts are a little obscure thanks to some alphabet soup. But the conclusions stand. 2018’s sell-off barely registers as a blip in terms of how much interest rates actually rose compared to 1994 and 2013. And yet, the crash in stocks already compares.

    If rates continue to go up, it could be a real bloodbath.

    Until next time,

    Nick Hubble
    Capital & Conflict

    -Read more at www.capitalandconflict.com-

    Comments Off on Stocks Tumble Today, Property Tomorrow

    Read More
  • Economic Data Sends Investors Scurrying

    16.02.2018 • United StatesComments Off on Economic Data Sends Investors Scurrying

    Bill Bonner – Bill Bonner’s Diary (United States) –

    Turning and turning in the widening gyre

    The falcon cannot hear the falconer;

    Things fall apart; the centre cannot hold;

    Mere anarchy is loosed upon the world,

    The blood-dimmed tide is loosed, and everywhere

    The ceremony of innocence is drowned;

    The best lack all conviction, while the worst

    Are full of passionate intensity.

    – W.B. Yeats, “The Second Coming”

    PORTLAW, IRELAND – Yesterday, investors didn’t know what to do.

    Incoming data left the falcons confused.

    On the one hand, they heard that inflation was ticking up.

    On the other, they heard that retail sales growth had slowed.

    Sell Button

    Consumer price inflation, as measured by the government’s bean counters, surprised to the upside with a 2.1% reading for the last 12 months.

    (In financial industry jargon, it’s called a “2.1% print.”)

    If the inflation growth rate from January alone continues, the CPI “print” at the end of the year will be 6.7%.

    And this attack on investors’ nerves was aggravated by data from the real estate sector. Bloomberg:

    Home prices jumped to all-time highs in almost two-thirds of U.S. cities in the fourth quarter as buyers battled for a record-low supply of listings.

    Traders knew what to do: They hit the sell button.

    Rising inflation will mean lower bond prices… and it will leave stretched consumers with less money.

    But just as the Dow began to collapse, more data came in. This time, it was the report on retail spending.

    Hand to Mouth

    As we reported last month, consumers were credited with having rescued the fourth-quarter GDP by digging into their piggybanks and emptying them to buy gewgaws and thingamajigs.

    That bit of data should have caused investors to fly to safety, too.

    Instead of the 10% savings rate that was customary in the 1970s, 1980s, and 1990s, household savings dropped to a near-record low of 2.4% last year.

    We pause here to remind readers that savings are the key to economic growth and prosperity. Without savings, you live hand to mouth… consuming all that you produce.

    Gradually, your machines, fields, and roads degrade. They must be continually renewed… with new factories and new businesses to offer jobs, compete in the market, and create wealth.

    Without savings, progress stops… and then reverses.

    The difference between a rich country and a poor one is the level of savings – stored up capital – that is available for business and consumer use.

    Savings are also important as insurance. You never know when mere anarchy will be loosed upon the land. You save money so you will have something to spend when it comes.

    Of course, no one seems to think times will ever get rough again. And with the geniuses at the Fed, the saints in Washington, and the magicians on Wall Street – maybe, they’re right!

    In any event, when the data started coming in from retail sales, it revealed that households seem to be running a little short.

    “Skint,” they say on this side of the Atlantic.

    Rotten Structure

    First, December’s retail sales numbers were revised down. Then, January showed retail sales growth at a little more than half the expected 0.5% rate.

    This was not good news, either. But when translated to modern trader talk, it came out as this: “Hey, the Fed ain’t gonna continue raising rates… not with this kind of retail sales report.”

    Traders – conditioned by many years of Fed meddling to “buy the dip” – took the bad news as good news and bought more overpriced stocks. The Dow ended up up 1%.

    But markets are discovering new things every day.

    Yesterday, they discovered that bond prices should be lower (taking into consideration a probable, but not certain, new “quantitative tightening” program from the Fed… as well as the latest print on inflation).

    As prices fell, the yield on the benchmark 10-year Treasury note hit 2.92% – a four-year high.

    Investors will discover that stock prices should be lower, too. That much is a certainty, though the timing is always unpredictable.

    More broadly, they will discover that the whole shebang – the entire capital structure – is rotten.

    Passionate Intensity

    For 30 years, the Fed has systematically discouraged savings…

    …while the federal government’s appetite for spending the nation’s savings has greatly increased.

    You can do the math.

    In January 2017, there was about $8.8 trillion in savings stashed away in depository institutions in the U.S. (some of it belongs to foreigners). Today, there is $9.09 trillion… or an increase of less than $300 billion over the year.

    Even if 100% of these savings were taken this year, it would only cover a quarter of the feds’ projected $1.2 trillion deficit.

    We used to count on the Republicans to push back on deficits. They believed in small government and balanced budgets. But now, most of them lack all conviction – except in getting re-elected!

    And the worst are full of passionate intensity…

    …eager to snatch away every penny of other people’s savings.





    By Chris Lowe, Editor at Large, Bonner & Partners

    Americans are more loaded with debt than ever before…

    Today’s chart looks at the growth in consumer debt, excluding mortgages and other home loans.


    Much of this debt pile has financed credit card spending and auto loans.

    Going back to 1971 – when Nixon took the dollar off gold and ushered in the “fiat money era” – Americans have never taken on so much non-housing debt.

    That pile now stands at $3.8 trillion.

    That’s almost double what it was a decade ago.

    And it’s nearly triple what it was two decades ago.

    Chris Lowe

    -Read more at bonnerandpartners.com-

    Comments Off on Economic Data Sends Investors Scurrying

    Read More
  • Yellen Left the Markets More Vulnerable Than Ever Before

    14.02.2018 • United StatesComments Off on Yellen Left the Markets More Vulnerable Than Ever Before

    Bill Bonner – Bill Bonner’s Diary (United States) –

    I’ve got so much honey

    You know the bees envy me

    I’ve got a sweeter song

    Oh, than the birds in the trees

    Oh and I know, I know,

    I know what you’re gonna say

    What, what could make me feel this way?

    My love, my love, my love,

    Talkin’ about my love, my love

    – “My Girl,” The Temptations

    YOUGHAL, IRELAND – The future seems to be coming faster than we thought.

    And it is largely thanks to “My Girl,” as former chief White House strategist Steve Bannon called Janet Louise Yellen.

    Ms. Yellen left her post as Fed chief earlier this month, sent on her way with wide smiles and enthusiastic felicitations.

    Fed Comedy Team

    Yes, it is Valentine’s Day. Love is in the air. And here at the Diary, we love the comedy team at the Fed that has given us so many hours of entertainment.

    Last week, we set out a series of future lines – guessing what might be coming.

    Recall where they led: a monumental blow up of the U.S. economy and its financial system.

    This week, the Trump administration, Republicans, and Democrats seem to be doing their best to make our mock lines come true.

    Our general theory is that Congress and the White House will pick up where the Fed Team left off.

    Like a tag team wraslin’ duo, the Fed has pummeled the economy badly. Now, the Blond Bombshell enters the ring… intent on delivering a slam.

    “On the Lookout”

    Since 2009, the Fed has added about $3.6 trillion in QE “honey” to the nation’s finances (by buying government bonds with newly created cash).

    And it slashed interest rates until it hit the “zero bound.”

    That is what boosted stock and bond prices – and debt – to the highest levels ever seen.

    And from the incoming Fed chief, Jerome Powell, came the kind of reassurance you’d expect.

    “Powell says Fed alert to developing risks,” reported Bloomberg.

    Later in the day, it added:

    Federal Reserve Chairman Jerome Powell suggested that the U.S. central bank would push a with gradual interest-rate increases… even as it remains on the lookout for threats to the financial system in the wake of the recent stock market rout.

    We almost doubled over in laughter. Powell really is out of it. Just like Yellen. And Bernanke. The clear and present danger to the financial system is him.

    And what’s the point of being “on the lookout” if you can’t do anything?

    Day of Reckoning

    When stocks sold off in 2000 amid the dot-com bust, the Fed had 650 basis points (a short-term interest rate of 6.5%) to work with.

    It used all but 100 of them (short-term rates fell to 1%) trying to get the economy back into full retard/borrow-your-way-to-bankruptcy mode.

    Then, in 2007, when the last credit crisis began, the Fed had 527 basis points it could cut. It used almost every one of them. And it barely got the job done.

    Cutting rates by 500 basis points in less than a year… and adding $3.6 trillion in QE cash… it still produced the weakest recovery ever.

    Today, it has only 142 basis points available to cut. And thanks to the aforementioned “My Girl” and her predecessors, the economy, and the markets are more vulnerable than ever.

    There’s more debt. Stock and bond prices are higher than ever before. In the next crisis, the puny reserves now available to the Fed will not be nearly enough.

    So the Fed is busily trying to stockpile interest rates – hiking them to a more “normal” level so it will have some room to maneuver in the next crisis.

    But the more it pushes up rates… the sooner the day of reckoning will arrive.

    Trillion-Dollar Deficits

    Come the next financial crisis, Americans might just as well call the fire department as Jerome Powell. Neither will have any idea what caused the problem or how to fix it.

    But don’t worry, if the central bankers can’t supply more monetary stimulus… here come the politicians with their fiscal fire hose!

    The latest budget proposal from the White House would add $7.1 trillion to the 10-year deficit outlook, roughly doubling the previous projection.

    Here is The Wall Street Journal with more detail:

    President Donald Trump’s budget request, an annual document that outlines an administration’s priorities, would widen the federal budget deficit to $984 billion in the next fiscal year, nearly double what last year’s budget estimated for 2019. And it projects the government will collect less federal revenue over the next decade than it forecast last year, a result of the $1.5 trillion tax cut enacted in December.

    One big difference from last year’s budget proposal is that Mr. Trump has given up, for now, on balancing the budget over the next decade, following the tax overhaul and a two-year budget deal that analysts estimate will push the deficit above $1 trillion next year.

    But it is not just the amounts that are breathtaking; it’s the context, too.

    This budget proposal comes from a Republican president, faced with neither war, nor recession, nor financial emergency.

    It comes also at the late stage of a business cycle… with unemployment about as low as it ever gets, stock and bond prices near record highs, and inflation already making a comeback.

    And it is being considered by a Congress in which Republicans control both houses.

    You’d think Republicans would want to take advantage of this economic and political sweet spot to finally fulfill their long-standing campaign promises to cut the budget, “drain the Swamp,” and eliminate the deficits.

    Instead, the cronies are popping champagne corks in Northern Virginia… and raising a glass to “My Girl” coast to coast.

    More to come…




    Economic Insight: Deficit Spending Climbs

    By Chris Lowe, Editor at Large, Bonner & Partners

    As Bill reports, Washington is on its way to trillion-dollar deficits…

    Today’s chart puts that rise in context.

    It tracks annual federal budget deficits going back to 1971, when President Nixon took the dollar off gold.


    As you can see, the only other time the budget deficit got this high was during the 2007–08 crisis, when it peaked at $1.4 trillion.

    The only other time we even came close was in the wake of the dot-com bust.

    Back then, the annual budget deficit hit $413 billion – 38% less than where it stands today at $666 billion.

    Chris Lowe

    -Read more at bonnerandpartners.com-

    Comments Off on Yellen Left the Markets More Vulnerable Than Ever Before

    Read More