lunes, mayo 02, 2016

VACACIONES MAYO 2016

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VACACIONES MAYO 2016

Jueves 28 de Abril del 2016

Queridos amigos,



Les escribo estas líneas con motivo de mi próximo viaje, el que me tendrá ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 2 hasta el lunes 23 de Mayo próximo, que me reintegro a mis labores.


Durante estos días no tendré acceso regular al Internet ni a mis correos.
  
  
En los últimos meses la situación económica y financiera internacional se ha seguido deteriorando aun mas, con el consiguiente aumento creciente de la volatilidad de los mercados financieros, según lo ya previsto en mi carta de Octubre pasado, replicada en algunos párrafos líneas más abajo para mayor abundancia, impactando duramente a los países emergentes, las monedas, el petróleo y los precios de los "commodities", el fortalecimiento notable del dólar norteamericano, típico de las épocas de crisis, y una retracción cada vez más marcada del crecimiento del producto mundial, ahora ya reconocido por todos los bancos centrales, lo que nos coloca claramente bajo la sombra del temor de una potencial deflación y de la recesión global, cada vez más inevitable.  
 
En los últimos dos meses el anuncio de una política de aumento de intereses menos agresiva que la anunciada previamente, por parte de la FED, ha debilitado ligera
y temporalmente al dólar, e impactado transitoriamente de manera positiva a los precios de las materias primas y los mercados de acciones.
 
La pregunta es cuanto tiempo puede durar esta situación en una economía global manipulada descaradamente por los bancos centrales y en franco camino de deterioro, con el continuo crecimiento de la desigualdad de los ingresos y una clase media cada vez mas disconforme, como lo reflejan las coyunturas políticas preocupantes de los últimos tiempos, tanto en los Estados Unidos de Norteamérica, como en Europa y el resto del mundo. La enorme volatilidad de los mercados financieros, que pensamos será cada vez mayor, es un síntoma de esta situación insostenible a mediano y largo plazo. 
El artículo de hace unos meses de Doug Nolan, "The Unwind", al que pueden acceder mediante el "link" anterior, describe claramente la situación precaria de la economía global, los mercados financieros, las deudas y el crecimiento económico mundial, por lo que me abstendré de mayores comentarios.  También pueden acceder al  articulo de Doug Nolan, "New World Disorder".  
 
La reciente creciente y notable volatilidad de los mercados financieros, las dudas hamletianas de la Reserva Federal sobre las tasas de interés y la reciente volatilidad de las bolsas, son solo una pequeña muestra de la descomposición de las economías y los mercados globales.

En realidad no podía ser de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos años para reparar los profundos desequilibrios estructurales en los fundamentos de la economía global, sino que más bien, por el contrario, se ha seguido "maquillando" por parte de los bancos centrales la insostenible situación económica y financiera global, profundizando los desequilibrios y la inestabilidad vía el constante crecimiento de las deudas, aumentando las ineficiencias y dilatando el necesario ajuste. El crecimiento estructural de la economía global es cada vez más frágil, dudoso e insostenible.


Hasta la crisis del 2000 y luego de la del 2008, ahora así llamada la Gran Recesión, la demanda global había sido “subvencionada” por un sistema financiero manipulado e intervenido, creando una demanda y una economía global ficticia, una recuperación así llamada "subprime", liderada por la FED mediante un crecimiento desproporcionado de las deudas, imposible de auto-sustentarse en un crecimiento de la economía real en el largo plazo. 


Deuda, deuda y más deuda, parece ser el mantra de la FED.

Desde entonces, la FED y el resto los bancos centrales de todos los países más importantes del mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el inicio de un ajuste inevitable y estructural, regresando a un nivel real de la economía global de alguna manera manejable. Aún siguen abocados al esfuerzo de una gran represión financiera, manipulando e inflando irresponsablemente los mercados financieros vía una política monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy bajas tasas de interés, o hasta tasas de interés negativas en muchos países del primer mundo. Actualmente se estima que existen aproximadamente 7 trillones de dólares de inversiones en tasas de interés negativas.

Las deudas de consumidores, empresas y gobiernos, eran y son insostenibles.

Por ello creemos que los bancos centrales no aumentarán de "motu propio" las tasas de interés de manera importante a corto plazo, salvo que este aumento provenga final y sorpresivamente de una crisis generada por la desaparición de la confianza de los inversionistas globales en los mercados financieros. Mas bien los bancos centrales seguirán, en la medida de lo necesario, con su política de seguir emitiendo e inyectando moneda sin respaldo a los mercados, bajando las tasas de interés a niveles aun mas negativos e interviniendo los mercados de capitales mediante compras de bonos y de acciones, distorsionando cada vez mas los precios de los activos financieros en todo el mundo.

Inmediatamente sus deudas se volverían obviamente impagables y la crisis que tanto han tratado de evitar reconocer, sobrevendría inevitable.

Solo para mencionar al país con la economía más importante, la deuda de los Estados Unidos de Norteamérica ha crecido por encima de los 18 trillones de dólares, a más del 100% de su PBI. Y si incluimos las deudas contingentes internas, como el Seguro Social y los Fondos de Pensiones, algunos analistas calculan que la deuda norteamericana podría llegar a sumar entre los 80 a 120 trillones de dólares, es decir, entre 5 a 7 veces el producto bruto anual. Y en aumento.

Para un análisis detallado del desarrollo de esta problemática y la verdadera situación actual, ver los artículos del blog, aquí, aquí y aquí.

Esta situación se ha seguido agravando en los últimos años y es insostenible en el mediano y largo plazo.  (ver articulo)

Para evitarlo, es que los bancos centrales han tenido que esforzarse en mantener ficticiamente una apariencia de normalidad en el "statu quo", inyectando cantidades innombrables de papel moneda sin respaldo a los mercados financieros y reducido las tasas de interés a niveles nunca vistos por largo tiempo, desde que la historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc….)

Todo ello nos hace presumir que todo ello se lleva a cabo por el fundamentado temor a perder el control del esquema Ponzi mundial, que es lo que son ahora la economía global y los mercados financieros, y por ende se derrumbe el castillo de naipes enfrentando de golpe un ajuste económico enorme y hasta la posibilidad de una revolución social incontenible, guerras, etc.

El hecho es que el esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría de los bancos centrales del mundo, en los últimos 15 años, más intensa y desproporcionadamente desde los últimos siete años, además, ha producido la transferencia más importante de riqueza que se recuerda en la historia, de manos de los pensionistas y los ahorristas, hacia las clases privilegiadas y los bancos. 

Mas importante todavía, se ha distorsionado y manipulado fundamentalmente las reglas de la economía del libre mercado con consecuencias funestas y aun impredecibles en el mediano y largo plazo para los consumidores e inversionistas del mundo, incrementando la locación  ineficiente de los recursos de inversión, además de multiplicar el costo de la inevitable implosión de los mercados financieros, tanto de las acciones, como de los bonos y otros instrumentos de inversión financiera.

Todo esto para no mencionar a los derivados financieros, estimados por algunos analistas en más de 1 cuatrillón de dólares (1000 trillones de dólares),  que se ciernen como una espada de Damocles, sobre todo el sistema financiero y económico internacional.

El mismo FMI ha advertido hace ya unos meses de la posibilidad que la economía global está entrando a un periodo de "stagnación" y a una probable nueva recesión, con las consecuencias que ello implicaría. (ver articulo) Y recientemente ha vuelto a reducir su estimado de crecimiento para la economía global de 3.6% a 3.2%. No nos extrañaría que estos estimados se sigan reduciendo en el futuro cercano, especialmente si tenemos noticias negativas del desarrollo de la economía China, en la que algunos analistas esta comenzando a prever un "hard landing" y de la enorme deuda interna de la economía China, influenciando negativamente de manera importante  a los mercados financieros globales.

Obviamente estos organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos mismos el adelanto inevitable del descalabro global, el caos y el ajuste sin anestesia, con resultados imprevisibles. 

La pregunta de fondo es ¿hasta cuándo se podrá o podrán mantener esta realidad bizarra?
Y eso nadie lo puede responder con seguridad. La confianza de los inversionistas en los mercados financieros es la verdadera incógnita.

Por ello ahora tenemos que seguir preguntándonos seriamente, ¿Cuál de todos los potenciales "cisnes negros", conocidos o no, que hoy se ciernen sobre la economía global ,y que son muchos, económicos, sociales y geopolíticos, podrían ser el detonante de la nueva catástrofe?

Solo la historia nos responderá a esta crucial pregunta.


Por ahora, podemos especular que las próximas elecciones norteamericanas en Noviembre próximo son y serán un factor de gran importancia para el comportamiento de la FED, manipulando los mercados lo mejor posible, para influenciar de manera  positiva a la administración saliente, o dicho de otra manera, para evitar perjudicarla lo mayor posible, con un ajuste enorme y anticipado de las grandes incoherencias en la que se encuentra la economía norteamericana y la global como consecuencia de dichas intervenciones de los bancos centrales, en especial de la FED. 

Mientras tanto, en medio de este mundo bizarro, tenemos que insistir nuevamente y más que nunca, que la experiencia y la prudencia, el análisis y la inteligencia, la vigilancia y la paciencia, son los socios más importantes en las decisiones de políticas y estrategias de inversión a corto y mediano plazo.

En un cambio importante de ciclos como en el que pensamos que estamos envueltos hoy día, y en el que más allá de lo circunstancial, el pasado y el futuro se bifurcan y se oponen, los riesgos para los inversionistas son profundos. (ver articulo)

Con estas  anotaciones y advertencias que espero les sean de utilidad, me despido de Uds. con un cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de la tercera semana de Mayo próximo, cuando estaré nuevamente a su gentil disposición.

Gonzalo

PD. Para leer los artículos pueden subscribirse directamente entrando al blog:  www.gonzaloraffoinfonews.com

The Red Line

Doug Nolan
April 25 – Financial Times (Jennifer Hughes): “Stand easy — or easier, at least. Ten basis points might not be the biggest one-day change for borrowing costs in China’s vast $7tn bond markets, but it was enough on Monday to push the country’s closely watched onshore repo rate back from an eight-month high. That offers a little breathing space for investors to ponder what next for the rising tensions in onshore bond markets. One point to look at is their own leverage as well as their fears for companies… Amid all the furore about the pain of rising rates, one so-far overlooked factor is that investors, as well as companies, appear precariously balanced. The market for pledge-style repos — short-term, bond-backed loans — is currently bigger than the stock of outstanding debt, according to Wind Info. A sharp worsening in market sentiment could force those borrowers into fire sales if their loans are called or cannot be rolled over.”

I recall an early-1998 Financial Times article highlighting the explosive growth in Russian ruble and bond derivatives. Not only had the “insurance” market for risk protection grown phenomenally, Russian banks had become become major operators in what had evolved into a major speculative Bubble in Russian debt exposures. That was never going to end well.

There was ample evidence suggesting Russia was a house of cards. Yet underpinning this Bubble was the market perception that the West would not allow a Russian collapse. With such faith and the accompanying explosion in speculative trading, leverage and a resulting massive derivatives overhang, any break in confidence was to ensure illiquidity, panic and a devastating bust. Just such an outcome unfolded in August/September 1998.

“The market for pledge-style repos — short-term, bond-backed loans — is currently bigger than the stock of outstanding debt” (from FT above). With this undramatic sentence exists the potential for a rather dramatic global financial crisis. And, to be sure, seemingly the entire world has operated under the assumption that Chinese officials (and global policymakers in general) have zero tolerance for crisis – let alone a collapse. So Credit, speculation and leverage have been accommodated – and they combined to run absolute roughshod.

Jennifer Hughes’ FT article (noted above) included a chart worthy of color printing and thumbtacking to the wall: “China’s Use of Bonds as Loan Collateral Rises Sharply”. The pink line shows “Onshore Market Bonds” having almost doubled since mid-2011 to about 40 TN rmb ($6.17 TN). The Red Line – “Pledge-Style Repos” – has ballooned four-fold since just early 2014 to surpass 40 TN rmb. So basically, in this popular market for inter-bank borrowings, borrowing banks have pledged bond positions larger than the entire market as collateral for their (perceived safe) short-term borrowing needs.

China has an historic Credit problem. It as well suffers from an unfolding “money” fiasco of epic proportions. My analytical framework attempts to differentiate the two, as each comes with its own set of (related) issues. A Credit Bubble is a self-reinforcing but inevitably unsustainable expansion of debt. Money (the contemporary variety) is a financial claim perceived as a safe and liquid “store of nominal value.” Importantly, systemic risk expands exponentially when risky borrowings are financed by an expansion of “money-like” instruments/financial claims. This typically occurs late (“terminal phase”) in the Credit Bubble Cycle.

During the U.S.’s mortgage finance Bubble period, “Wall Street Alchemy” worked to transform increasingly risky mortgage debt into perceived safe “AAA” securities and instruments. And so long as the rapid expansion of mortgage Credit propelled home prices and economic activity, the Fallacy of Moneyness prevailed. But at some point Bubble risk intermediation processes invariably turn perilous. The disconnect becomes increasingly untenable: enormous risk has accumulated – and continues to swell – backed by a rapid expansion of perceived safe “money.” After months of festering Credit deterioration, it was the breakdown in confidence in the repo market that precipitated the devastating 2008 financial crisis.

How sound is China’s multi-Trillion repo market? In general, lending in short-term, collateralized, inter-bank markets is perceived to be very low risk. Confidence is based on the soundness of the individual institutions in the market; in the quality and liquidity of the debt collateral; and the capacity and determination of official institutions to backstop the marketplace during periods of tumult.

As for China, underpinnings are vulnerable. The banking sector has enjoyed years of explosive growth, which by definition virtually ensures latent fragilities. There are as well major cracks surfacing in China’s corporate bond market, portending serious issues with the collateral backing China’s “pledged-style repos.” And how has corruption and incompetence (not to mention state-directed lending) impacted the quality of banking system assets? At this point, faith that Beijing will backstop system Credit while ensuring uninterrupted economic expansion is fundamental to repo market confidence.

After the incredible $1.0 TN Q1 Chinese Credit expansion, there were indications this week that excess went too far and officials now seek to slow things down (see “China Bubble Watch”). Officials also moved this week to rein in commodities speculation. Efforts were made as well to tighten mortgage Credit, at least in some of the more overheated markets.

I often refer to the “global pool of speculative finance.” Well, after years of rampant Credit excess, China these days has its own unwieldy pool of speculative finance fomenting boom/bust dynamics throughout equities, housing and, more recently, in debt and commodities. And I believe it is a safe assumption that the explosive growth in short-term (“repo”) borrowings has been instrumental in financing myriad asset and speculative Bubbles. Chinese officials, of course, have been keen to avoid bursting Bubbles and all the associated negative economic, social and geopolitical consequences. Regrettably, these efforts have nurtured only greater distortions, risk misperceptions and stupendous Bubble excess.

Returning to the “China as marginal source of global Credit” theme, one can these days make clearer delineations. Today, Bubble markets and an extraordinarily maladjusted and imbalanced global economy are highly dependent upon ongoing Chinese financial and economic booms. The Chinese Bubble depends upon ongoing speculative excess and asset inflation. And Chinese asset and speculative Bubbles are sustained by cheap “repo” and other short-term “money-like” finance.

With various Bubbles either already faltering or indicating acute fragility, confidence in China’s “repo” finance has turned quite vulnerable. And as goes the Chinese “repo” market so goes China’s asset Bubbles, Credit Bubble and economic Bubble, with ominous portents for global markets and the overall global economy.

Markets were turning keen to this risk earlier in the year. More recently, with Chinese officials having seemingly stabilized their financial and economic systems, global market attention returned to anxious central bankers, zero/negative rates and a couple Trillion additional QE. 
There was a huge policy-induced short squeeze that bolstered bullishness and sucked in a significant amount of buying power. The leveraged speculating community got turned upside down, with trades going haywire throughout global markets. The return of “risk on” turned into a real pain trade for many. And just when it appeared markets had stabilized and positioning had normalized…

There were indications this week that the “risk on” spell may have been broken. Thursday saw Japan’s Nikkei sink 3.6%, while the yen jumped 2.6%, the “most since 2010.” It was a somewhat histrionic market reaction to the Bank of Japan’s decision not to immediately expand stimulus. For me, it indicated market “risk off” susceptibility. Japanese equities and the yen have been important markets for the leveraged speculating community. Both the Japanese equities rally and the yen pullback were “counter-trend” moves susceptible to hasty market reassessment.

The yen surged 4.7% this week to an 18-month high versus the dollar. Japan’s Topix Bank Index sank 8.6%, increasing 2016 losses to 29.3%. It’s worth noting that financial stocks were under pressure globally again this week. Hong Kong’s Hang Seng Financials were down 2.8% (down 11.3% y-t-d), and European bank stocks fell 2.7% (down 16.7%). The major European equity markets – having been major squeeze and “risk on” beneficiaries over recent weeks – also showed their vulnerability. Germany’s DAX index sank 3.2%, and French stocks were down 3.1%. Rallies dominated by short-squeeze dynamics often have a propensity for abrupt reversals.

Here at home, the Securities Broker/Dealer index was (ominously) slammed 5.5%. Worries, however, were not limited to financials. Having notably benefited from squeeze dynamics, an abrupt reversal saw biotech stocks slammed 5.9%. More prophetic for the general markets – and the economy overall – were further indications this week of a faltering technology Bubble. In a period of general earnings deterioration, it is worth recalling how quickly technology earnings can evaporate (recall 2000 to 2002).

Wall Street darling Apple sank 11% this week on weak earnings. Fear of a rapid slowdown in smart phones also saw the semiconductors (SOX) slide 3.5%. On the back of declines in Apple, Microsoft (down 3.7%) and Netflix (down 6.1%), the Nasdaq100 dropped 3.0%. Tech indices – and the general market - benefited from players crowding further into the big winners (Amazon and Facebook up 6.3%). It’s worth noting that the VIX ended the week at 15.70, up from the week ago 13.95.
Commodities are on fire. The GSCI Commodities index jumped 3.6% this week to a six-month high (up 15.6% y-t-d). Crude gained another $2.27 to $46.01. More interestingly, Gold surged $61 (4.9%) to 14-month highs (HUI up 15.4%!). Silver jumped 5.4% to a 15-month high. Curiously, the dollar index fell 2.2% this week to a one-year low.

From my vantage point, global market vulnerability has reemerged. Sentiment has begun to shift back in the direction of central banks having largely expended their ammunition. This becomes a more pressing issue when market players sense heighted deleveraging risk. Dan Loeb’s (Third Point Capital) comment, “There is no doubt that we are in the first innings of a washout in hedge funds,” provided a timely reminder that the market recovery did little to erase levered player woes. Indeed, market convulsions over recent months have only compounded problems.

It’s during bouts of “risk off” that the true underlying liquidity backdrop is illuminated. Combine short squeezes and the unwind of hedges with QE - and global markets seemingly luxuriate in liquidity abundance. “Risk off” exposes the liquidity illusion. Risk aversion would see longs liquidated and leverage unwound, with a rush to reestablish shorts and risk hedges. 
And rather quickly de-risking/de-leveraging would overwhelm QE. And if “risk off” is accompanied by Chinese Credit, banking and “repo” problems, well, global crisis dynamics would gather momentum in a hurry.

It’s almost as if gold, silver and crude prices are now shouting they win either way. If the China Bubble perseveres along with global QE, inflation has a decent shot of taking root (an ugly scenario for global bond Bubbles). But if the ominous China “repo” Red Line foretells a harsh Chinese and global crisis - crude and the precious metals, in particular, offer rather enticing wealth preservation potential. It’s time again to be especially vigilant.


How Long Before Global Financial System Fails?

By Egon von Greyerz


The global economy turned down in earnest already in 2006 but with a massive worldwide printing and lending programme, the world has had a temporary stay of execution. But the effect of this fabricated money has now come to an end. And what else would you expect. To print money that has no value or to lend money that doesn’t exist can never create wealth or save anybody.

The downturn will soon start to accelerate and eventually lead to a total failure of the financial system and sovereign defaults. But no one must believe that there will be a sudden implosion or a “reset” that solves or changes everything. Instead, what we will experience is a process with things deteriorating at a fast pace but without one single event that overnight changes everything.

 
Screen Shot 2016-04-05 at 21.59.35
 
 
It is actually happening all around us right now. Let’s just look at some examples of the stresses within the system. The ECB is facing bank failures in almost every member country. An Austrian bank just had to be bailed-in and the whole Italian banking system is on the verge of collapse. The Greek banks are already bankrupt although no one dares to declare it officially.
 
The ECB knows that they only have one tool left to temporarily postpone a breakdown of the European banking system and that is to further increase its money printing programme. Only in the last 15 months, the balance sheet of the ECB has exploded by 45% to Euro 3 trillion. The Bundesbank, the German central bank, is totally aware of the predicament of the European banks. But they also know that they will be on the hook for the majority of the money printed by the ECB and therefore they have indicated that they will sue the ECB if it accelerates money printing.
 
The Fed is not printing money currently but in my view it is only a matter of time before we see a major QE programme in the US due to a deteriorating economy and a financial system under pressure. US outstanding derivatives are at least $500 trillion and most of that will just implode as counter-party fails. The Fed and the FDIC are concerned about this and that is why they just issued a warning to US banks. They told JP Morgan for example that the bank is unprepared for a crisis and that they have no plans for winding down their derivatives. JP Morgan’s derivatives exposure, properly valued, is probably in excess of $100 trillion.
 

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Another major US problem is the Treasury market. There is a total of $19 trillion debt owed by the US government. Of this amount $6.2 trillion is owned by foreigners. China and Japan hold around $4.5 trillion in total. The third largest holder is Saudi Arabia with $750 billion. And Saudi Arabia has now threatened to liquidate their holdings if the US probes Saudi Arabia’s role in the September 11 attacks. But Saudi Arabia is not the only country that could cause chaos in the US treasury market.
 
Japan will soon need to sell its US treasuries to survive temporarily. And China is also under pressure to reduce the over $30 trillion in outstanding debt, a debt which was only $2 trillion in 2000. Many observers will say that these countries will shoot themselves in the foot if they dump US treasuries since that will start a massive collapse of the treasury market. It is perfectly true that US treasuries is one of the biggest bubbles in markets today especially since the US will never repay this debt.

The big foreign holders are of course aware that they will never be repaid with real money.

They also know that the dollar is massively overvalued and likely to decline substantially. So whether they sell their holdings today, thus depressing the price, or wait until both treasuries and the dollar are worthless is one of these choices that will always be LOSE – LOSE. There could be a first mover advantage, especially since the only buyer is the US government and they would clearly try to accommodate the first selling country by just printing more money. But thereafter all hell will break loose and it will be too late to run for cover.
 
Japan is in a total mess too. The Bank of Japan will in 2017 own a staggering 50% of all Japanese government bonds and that will increase to 60% in 2018. How can this country ever believe that their economy will survive? They are printing unlimited amounts of worthless paper and it is having no beneficial effect on the economy. I have said it before and I will say it again, that the Japanese economy will sink into the Pacific in the most gigantic bankruptcy.
 
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So most central banks and sovereign governments are virtually bankrupt but so are commercial banks. Their share prices are definitively telling us that. Most major banks’ shares are down between 75% and 90% since 2007. Deutsche is down 87% and Citi 92% whilst Credit Suisse and Barclays are “only” down 78%! The massive falls in all major banks’ share prices are clearly telling us that these banks are unlikely to survive.
 
If we look at global company profits, they are down 20% in mature markets and 25% in emerging markets since 2014. And so far we have seen global corporate defaults of $50 billion in 2016 which is the biggest since 2009.
 
It is all happening in front of our eyes right now. No one should wait for a major event because it will be a series of events as I have described and it has already started. It is time to take protective measures right now.
 
The need for insurance against these risks is greater than any time in history. Physical gold can still be bought at a bargain price but not for much longer.


INTRODUCTION

THE LAUDER GLOBAL BUSINESS INSIGHT REPORT 2016

GROWTH STRATEGIES IN A GLOBAL ECONOMY


As nations continue to emerge from the Great Recession, they face similar challenges in the effort to rebuild and strengthen their economies. But successful transformation does not come without growing pains: As they look to what worked in the past, businesses and governments face the future knowing that some things must change — whether that means embracing new technologies, shoring up inadequate infrastructure or borrowing ideas from different cultures.

In this special report, students from the Joseph H. Lauder Institute of Management &
International Studies offer unique perspectives gleaned from interviews, observation and research into the struggle for self-improvement by nations.

In Tunisia, government officials and business owners are trying to draw a new kind of tourist who is willing to wander away from the all-inclusive beach resorts to explore the country’s rich history and culture. In Brazil, the world’s second-largest producer of ethanol, significant technological advances present an opportunity to adapt new, more efficient production methods. Japan is pushing itself away from traditional attitudes about money to develop a stronger private equity market. And in Colombia, high fashion is rapidly rising as a star of the economy, ready to give Paris and Milan a run for the money.

From a small shift to a sea change, transformation is taking place around the world. Some countries will win; others won’t be so successful. But for those who persevere, the payoff will be big.


CLICK HERE


Speculative Silver Positions Blowing Out To Extremes. Is This Time Different?

by: Hebba Investments

 

- Speculative gold positions were subdued for the week but the change didn't include the late week surge in PM prices.

- Speculative silver positions hit an all-time high above last week's record level and that didn't even include the late week silver price surge.

- Investors need to be careful here as investing when speculative positions blow out is usually not a recipe for success.

 
In the latest Commitment of Traders report (COT), we saw a slight decrease in both speculative long and short gold positions BUT this report closed on Tuesday when the gold price was $1241.70 - about $50 less than Friday's closing price. That means that the data we have for gold positions is pretty stagnant (don't get us started on why the COT doesn't publish more recent data) and it suggests that speculators are significantly longer than the report shows.

More interesting though is what is going on with speculative silver positions, which have completely blown up! Despite silver closing at $16.95 at London's close on Tuesday, which is around a dollar less than its current price, speculative silver longs surged to a new all-time high.

We will get a little more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.

About the COT Report

The COT report is issued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.

Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position themselves accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.

The big disadvantage to the COT report is that it is issued on Friday but only contains Tuesday's data - so there is a three day lag between the report and the actual positioning of traders. This is an eternity by short-term investing standards, and by the time the new report is issued it has already missed a large amount of trading activity.

There are many different ways to read the COT report, and there are many analysts that focus specifically on this report (we are not one of them) so we won't claim to be the exports on it. What we focus on in this report is the "Managed Money" positions and total open interest as it gives us an idea of how much interest there is in the gold market and how the short-term players are positioned.

This Week's Gold COT Report

This week's report shows minor decreases in both speculative long and short interest.



While the report shows a minor change in speculative gold positions, as we stated earlier it is a bit deceptive as it doesn't include any of gold's surge on Wednesday, Thursday, or Friday. The fact that gold is $50 higher than the value as of the COT close suggests a much higher gold position.

The net position of all gold traders can be seen below:


Source: Sharelynx Gold Charts

The net speculative gold positions (money managers represented by the red line above) are moving closer to all-time highs despite a flat week as of the report's close. In fact, we are at a net speculative position last seen in late 2012 - when gold was over $1700 per ounce.

But the real blow-up is what we are seeing in the silver market:


Source: Sharelynx Gold Charts


That red line is the net speculative positions of money managers which have surged past 70,000 contracts net long to a new all-time high above last week's high. COT report money managers have never been more bullish on silver and we are way above levels we saw in 2011 when silver was close to $50 per ounce.

Not only that, but this report closed on Tuesday when silver was under $17 per ounce and it is now a tad below $18 an ounce as of Friday's close. Thus a great chunk of position changes were not included in this report - we're probably significantly higher than the 70,000 net long positions shown in this report.

Our Take and What This Means For Investors

We sound like a broken record as we think investors need to be EXTREMELY cautious here as historically it is usually a bad move to buy when animal spirits are so excited - and they certainly are based on these positions.

But we always like questioning our positions and think of why we may be wrong here - what could continue to make gold and silver surge?
  • There is a physical shortage of silver and this is the start of a rebalancing of the market at much higher prices to facilitate new silver production or investor sales.
  • Investors are tiring of central bank jawboning and are seeing the handwriting on the wall suggesting that central bankers simply cannot raise rates.
  • The massive amount of money printing has resulted in a ton of money sloshing around in the financial system, and it is now commodities' turn to spike as they are the new "in vogue" financial asset.
  • We are seeing the first signs of inflation as commodities sense a true exit from the deflation of the past decade.
  • Demand for commodities is returning as the economy recovers and after the cuts in production over the past few years that demand is being reflected in improved pricing.
We would love to hear other thoughts in reader comments below, so feel free to share your opinions on why gold and silver are spiking.

As for us, despite these potential explanations and our long-term gold bullish expectations, we believe that this is not the time to be buying gold and silver despite the spike. Of course we may be wrong, but we hold that this spike is all about speculative cash joining the hot new momentum trade of the past few months.

That is why despite the all-time highs in the net speculative position we are not seeing new all-time highs in the gold and silver prices - because the physical side of the market isn't strong enough to support the prices. In 2011 we had a convergence of both speculative and physical investors buying gold and silver, but now we simply aren't having the physical side jumping into gold or silver with full force. Until we have that (or a financial event that causes that), we don't think this surge will continue.

As we have stated before, we recommend investors deal with this investment environment by lowering risk and taking profits while waiting for speculative long liquidations, more chaos in the financial markets, or a drop in gold and silver prices. Thus we are holding off on increasing gold positions in ETFs and miners such as the SPDR Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ETFS Physical Swiss Gold Trust ETF (NYSEARCA:SGOL), Tahoe Resources (TAHO) and Randgold (GOLD) - we are waiting for a better entry point that we think will come over the next few months.

We may be wrong here but we think it is not a good time to jump into the gold and silver market - the reversal could be sudden and extremely vicious.


Gold And Silver Are Spiking - What Do Gold Investors Do Now?

by: Hebba Investments




Gold has risen almost 20% YTD while silver has risen close to 30%.

A lot of the flows are speculative as physical demand has been weak and investors need to be cautious.

The upcoming Fed meeting next week may have a "rising rates" bias and that may hurt some of the speculative froth in the gold markets.
 
Investors in the precious metals, who have had a rough time over the past five years, have been extremely happy as all the precious metals have jumped in 2016. As we write this piece on 4/21/2016, gold and silver are once again spiking.
 
As of yesterday's close, GLD is up close to 20%:
 
 
While SLV, which had been significantly lagging gold, is now up close to 30% YTD:
 
 
Certainly a tremendous start to 2016!
 
Though the spiking precious metals have gotten us very nervous because there really has not been any significant financial events to "scare" investors into precious metals, with some of the news from Asia suggesting physical gold demand has been weak. Additionally, speculative gold longs are at extremely high levels which are matching the levels last seen in 2011 - the previous gold peak.
 
Despite all this gold and silver are spiking - so what comes next for gold investors?
 
An interesting note today from Macquarie also brings up another factor that investors may be overlooking.
 
 
That is right - the Fed meets next week to discuss rates and Macquarie thinks that the probability of a rate hike in June is more likely than not. We firmly agree as we believe the Fed is very conscious of markets, and with the Dow approaching all-time highs above 18,000 and employment strong (at least according to the BLS), now is the time to prime markets for hiking rates. While we don't think they will hike in April, we certainly think they will ready markets for a June hike - which means that markets will begin to price it in immediately.
 
 
Conclusion for Investors
 
We do have to stress that despite our belief that interest rates will rise, that may not be bad for the gold market as historically gold has done well in both rising (think 1970's or mid 2000's) or falling interest rate environments. But of course the initial reaction for investors may not be positive because the current story is that rising rates are bad for gold, thus if the upcoming Fed meeting has a raising interest rate bias, that would probably be bearish for gold in the short-term.
 
Pair that with the fact that much of the gold buying has been speculative, fast-money traders, and you have a very dangerous environment for precious metals in the short-term. As we stated before, this doesn't change our long-term picture on the metals, but investors need to be really careful here.


The Case Against Helicopter Money

Michael Heise
. 



MUNICH – Despite years of expansionary monetary policy, the European Central Bank has failed to push inflation back up to its target of “below but close to 2%.” The latest measures – a zero interest rate on the ECB’s main refinancing operations, an increase in monthly asset purchases from €60 billion ($67 billion) to €80 billion, and an even lower deposit rate of -0.40% – are unlikely to change this. That is why some economists are urging the ECB to go even further, with so-called “helicopter drops” – that is, financing private consumption by printing money.
 
The idea of helicopter money dates back to the monetarism debates of the 1960s. A central bank, it was argued, never runs out of options for stimulating aggregate demand and stoking inflation, provided it is willing to resort to radical measures. But what was once a theoretical notion now seems to be a concrete possibility.
 
In practice, helicopter drops would arrive in the form of lump-sum payments to households or consumption vouchers for everybody, funded exclusively by central banks. Governments or commercial banks distributing the money would be credited with a deposit or be given cash, but no claim would be created on the left-hand side of the central bank’s balance sheet.
 
This type of single accounting would reduce the central bank’s equity capital, unless it realized (sold) valuation reserves on its balance sheet. Proponents defend this approach by claiming that central banks are subject to special accounting rules that could be adjusted as needed.
 
The proponents of helicopter drops today include some eminent figures, including former US Federal Reserve Chair Ben Bernanke and Adair Turner, former head of the United Kingdom’s Financial Services Authority. And while ECB President Mario Draghi has highlighted the technical, legal, and accounting obstacles that stand in the way of helicopter drops by his institution, he has not ruled them out.
 
The question now is: Is such an extreme step really justified?
 
The answer is no. While helicopter drops are a viable policy option if deflation is spiraling downward, as it was in the late 1920s and early 1930s, that is not the case today – neither in the eurozone nor in the global economy.
 
True, demand growth is subdued, reflecting the lingering fallout from the global financial crisis that erupted in 2008. Banks, firms, and households are still cleaning up their balance sheets and working off the heaps of debt they amassed during the credit boom that preceded the bust. But they have already made significant progress, meaning that the drag on growth is set to diminish.
 
Consumers today are not holding back on spending because they expect goods and services to become cheaper, as one would expect during a period of deflation. Instead, they are gradually increasing their spending, taking advantage of restored income growth and large gains in purchasing power caused by collapsing oil and commodity prices. As a result, most advanced economies are once again producing at close to capacity.
 
Data on corporate profits also contradict the view that we are mired in deflation. Price stability has not put profit margins under pressure. On the contrary, in many advanced economies, profits are high – even reaching record levels – owing partly to lower input costs.
 
In this environment, distributing largesse financed by the central bank would have dangerous systemic consequences in the long run, because it would create perverse incentives for everyone involved. Policymakers would be tempted to resort to helicopter money whenever growth was not as strong as they would like, instead of implementing difficult structural reforms that address the underlying causes of weak economic performance.
 
All of this would raise expectations among financial-market actors that central banks and governments would always step in to smooth out credit bubbles and mitigate their consequences, even if that meant accumulating more debt. These actors’ risk perception would thus be distorted, and the role of risk premiums would be diminished.
 
Add to that the impact of the depletion of valuation reserves and the risk of negative equity –developments that could undermine the credibility of central banks and thus of currencies – and it seems clear that helicopter drops should, at least for now, remain firmly in the realm of academic debate.
 
 
 


Cast in Concrete: China’s Problem With Excess

A new cement plant shows why economic pickup may be temporary.

By Andrew Browne

In just two years, 2011 and 2012, China churned out as much cement as the U.S. in the entire 20th century. Now, about a quarter of its cement capacity is idle. Photo: Associated Press


YUQUAN, China—Just about the last thing China needs right now is another cement plant.
Unused stocks have been piling up since the massively overbuilt real-estate market cratered in 2014.

Demand will likely never fully recover; city skylines are dotted with cranes swinging idly atop half-finished apartment blocks. Alarmed, Beijing has declared that reducing overcapacity in industries like steel and cement is a national priority. There’s even a slogan for it: “supply-side reform.”

Yet here in the industrial northeast, Tangshan Jidong Cement, a state enterprise with domestically listed shares, has begun work on a giant 7,200-ton-a-day facility. Bulldozers have ripped a wide gash across low hills to make way for a factory that is likely to exacerbate an already epic glut of cement used to make concrete.

This project—and others like it—helps to explain why signs of an economic pickup in China this year are unlikely to last.

The rebound is supported by struggling local governments desperate for a short-term lift to growth, even if that means encouraging investment in industries linked to construction that are all in monumental surplus.

Their recklessness defies the central government’s efforts to rebalance the economy toward services and consumption. Local officials are masterful at subverting edicts from mandarins in the capital. In the case of cement, new capacity must be justified by closing outdated plants, but the process is full of loopholes.

Construction of the Jidong plant in Heilongjiang province is a windfall for the local community. Restaurants are serving up platters of sizzling sausages, a local delicacy, to Jidong contractors in hard hats. A plant this size will bring prestige, tax revenue and employment.

The cement industry, however, is in despair at the new arrival. “It’s totally unreasonable,” laments an executive at the China Cement Association. Jidong, which reported losses of $260 million last year as cement prices plunged, didn’t respond to questions.

Why would a money-losing enterprise expand capacity in a rapidly shrinking market? The association executive explains a possible rationale: The company may figure that its technologically advanced plant will become the most efficient—and lowest-cost—producer in the region, stealing market share from rivals. It may also calculate that by the time the plant is up and running, some competitors will have gone out of business.

“This is a kind of gambling,” says the association executive.

The assured outcome will be further downward pressure on cement prices, and mounting financial distress across the industry. That’s a familiar story in the depressed northeast, China’s industrial heartland.

But Beijing must bear some of the blame as it continues to rely on bureaucratic engineering rather than market forces and sends mixed signals about its commitment to reducing industrial capacity.

Ultimately, a credit-fueled race to the bottom is the product of a political system that demands rapid growth regardless of the ups and downs of the business cycle. Communist Party legitimacy depends upon it. And although President Xi Jinping has pledged to give market forces a “decisive role,” his administration has just unveiled an economic blueprint that leaves the basic logic of the system untouched.

To achieve the requisite level of GDP growth under the 13th Five-Year Plan—at least 6.5% a year—China will push semiconductors rather than steel, cloud computing over cement, clean-energy vehicles before polluting glass works. As in the past, though, the state will guide the way.

Scott Kennedy, an expert on Chinese industrial policy at the Center for Strategic and International Studies, a Washington think tank, warns that these new areas of focus will become just as prone to overcapacity as the old ones, adding to the problems of economies that compete against Chinese manufacturers.

“The problem will spread,” says Mr. Kennedy. “What we will get is growth with volatility.”

Chinese liberal reformers had been arguing for a wholesale retreat of the state from industry and more corporate bankruptcies in loss-making sectors. But state planners have largely ignored their counsel. A stock-market rout last year, as well as a currency scare, seems to have made Mr. Xi even more wary about relinquishing state control to the markets.

Meanwhile, the cement industry lurches deeper into trouble. China accounted for 57% of global production last year. In just two years, 2011 and 2012, China churned out as much cement as the U.S. in the entire 20th century.

Yet, a recent report by the European Chamber of Commerce in China said that despite efforts by the central government to reduce cement overcapacity, the measures “have so far only managed to slow down the rate at which the problem is expanding.” About one quarter of China’s cement capacity is idle.

The levels of waste aren’t likely to shrink. As long as China clings to its old growth playbook, today’s cement problem will be tomorrow’s computer-chip crisis.



The Shocking Reason for FATCA... and What Comes Next

by Nick Giambruno



 
 
 
 

If you’ve never heard of the Foreign Account Tax Compliance Act (FATCA), you’re not alone.
 
Few people have, and even fewer fully grasp the terrible things it foreshadows.
 
FATCA is a U.S. law that forces every financial institution in the world to give the IRS information about its American clients. Complying with it is a huge financial and administrative burden, measured in hundreds of billions of dollars. It’s a paper shuffler’s dream come true.
 
FATCA is the reason the vast majority of banks, brokerages, and other financial institutions outside of the U.S. shun American clients.
 
I was just in Singapore, which has one of the soundest banking systems in the world. I can personally attest that banks there treat potential American clients as radioactive liabilities to be avoided.
 
This is how FATCA makes it much more difficult to move money outside of the U.S. Combined with other costly, extraterritorial U.S. regulations, the law amounts to de facto capital controls.
 
It’s no surprise so few people understand FATCA. Governments and institutions often give their most dangerous laws and schemes dull and opaque names to cloud their true purposes.
 
The Federal Reserve is an excellent example of this. After two central banking experiments failed to take root in the 1800s, anything associated with a central bank became deeply unpopular with the public. So, central bank advocates tried a fresh branding strategy.
 
Rather than call their new central bank the Third Bank of the United States (the previous two were named the First and Second Bank of the United States, respectively), they gave it a vague and boring name to hide it in plain sight from the average person. They named it the Federal Reserve.
 
Unfortunately, these smoke and mirrors worked pretty well. Nearly 100 years later, most Americans don’t have the slightest clue what the Federal Reserve is, what it does, or how it affects them.
 
I think the same dynamic is at work with FATCA.
 
Ostensibly, FATCA is about cracking down on offshore tax evasion. But I think the U.S. government has another, more sinister motive.
 
Let’s peel back the layers of this onion…
 
FATCA should bring in around $900 million per year, on average, and that’s an optimistic estimate. However, $900 million would only be a drop in the bucket (around 0.2%) next to the federal government’s $438 billion deficit.
 
Even if the U.S. moderately reduces the federal deficit, FATCA revenue would still be a small pittance in comparison.
 
This begs the question: Why would the U.S. government go to the enormous cost and trouble of implementing FATCA for such a relatively meager amount of money?

FATCA on Steroids

FATCA’s real purpose is not to collect money. It’s to pave the way for a global FATCA, informally known as GATCA.
 
You see, complying with FATCA often breaks privacy laws in other countries.

To get around this, the U.S. government has negotiated bilateral agreements with pretty much every country in the world. But it’s not practical for each and every country to create its own version of FATCA and accompanying web of bilateral agreements. That would be slow and tedious.
 
So, the central economic planners at the G20 and OECD have devised a new “global standard” for the automatic exchange of financial information between governments. It’s called GATCA, and it’s modeled on FATCA.
 
In other words, bureaucrats from these supranational institutions are foisting a “FATCA on steroids” on the world.
 
This would have been impossible if the U.S. hadn’t cleared the path with FATCA. The G20 and OECD needed the U.S.—the sole financial superpower (for now at least)—to cram its privacy-killing measures down the throats of the rest of the world. No other country could have done it.
 
FATCA is only possible because the U.S. carries a big stick: the ability to refuse access to its financial system and the world’s premier reserve currency.

Don’t sign up for FATCA, and your country can forget about the vast majority of international trade.
 
It didn’t take long for most of the world to fall in line.
 
When Russia and China signed on to FATCA, it became a fait accompli.
 
There are no other meaningful countries left to resist it.
 
This set the stage for GATCA.
 
Unfortunately, GATCA will likely be an irreversible reality in the not-so-distant future. It’s also highly probably that the OECD, the G20, and other organizations will sanction or otherwise blackmail countries that don’t comply.

That pressure would likely be too enormous for the vast majority of countries to bear.
 
In the end, this means a permanent record of every penny you have ever earned, saved, borrowed, or spent anywhere in the world will be instantly available for analysis and scrutiny by countless government agencies, regardless of any actual or suspected wrongdoing.
 
But wait, there’s more!
 
If FATCA wasn’t the end game, don’t expect GATCA to be either.
 
Let’s peel back the next layer of the onion. --

What Comes Next

Did you really think all these governments would go through all the trouble of creating the architecture to gather all this financial data… and then just sit on it?
 
Of course not.
 
They’re going to leverage the data as much as possible. This will have terrifying consequences for the individual.
 
It’s no secret that advocates of big government have long fantasized about creating a global tax. Whether it’s the global carbon tax, a worldwide tax on financial transactions, or a UN tax on air and sea travel, all prior attempts haven’t really worked. The infrastructure wasn’t in place.
 
However, that could all change with GATCA, which could ultimately make the disturbing dream of a global tax a reality.
 
Bankrupt governments, like France and the UK, are also on board with GATCA.

It would allow them to fleece and control their citizens more efficiently.
 
Strangely, you never hear financially sound countries, like Switzerland, Singapore, or Hong Kong, advocating for FATCA, GATCA, or a global tax. It’s only the failed welfare states drowning in debt. And that’s no coincidence.

Old Wine in New Bottles

The government is selling FATCA the same way it originally sold the income tax to Americans: as a measure targeted only at the “rich.”
 
Of course, once you give politicians an inch, they take a mile.
 
When the federal income tax was introduced in 1913, individuals making up to $20,000 (around $475,000 today) were only taxed at 1%. The top bracket kicked in at $500,000 (around $12 million today) with a tax rate of only 7%.
 
Of course, once the infrastructure was in place for the federal income tax, politicians naturally couldn’t resist ramping it up. Eventually, it snowballed into the monster we have today, which thoughtless Americans passively accept as “normal.”
 
Expect a similar dynamic and gradualism with FATCA, GATCA, and a global tax.

What You Can Do

The government used obscure and boring wording to conceal the true purpose of the Federal Reserve from the average American. It’s done the same thing with FATCA.
 
In reality, FATCA is all about setting up the architecture for a global tax.
 
Politicians around the world see citizens as milk cows… They merely exist to be squeezed to the last drop.
 
That’s why they’re so eager to kill financial privacy with FATCA and GATCA. They’re building a giant tax farm and erecting electric fences to keep the cows—and their milk—from escaping.
 
Welcome to the new feudalism.
 
Unfortunately, there’s little any individual can do to change the trajectory of this trend. You can only try to save yourself from the consequences of this stupidity.
 
Politicians around the world are working hard to build this emerging prison planet. But it’s still possible to escape.
 
We recently released a video to show you how. Click here to watch it now.