Steve Bull's Blog, page 1274
October 27, 2017
Necessity is the Mother of Invention–Retirees Desperate Reach for Yield
Ben Bernanke’s creativity inspired a generation of economists and central bankers. QE, ZIRP and NIRP established a new class of economics that is mathematically sound but practically disastrous. Billions of dollars were transferred from savers to investors to boost the economy, but the wizards of quant forgot that something has to give. In this case, it was the formation of a pension crisis that threatens the golden years of millions of retirees across the world. None of the econometrics models provide a solution for the growing gap in pension funding, other than unsustainable debt accumulation.
Creativity cascaded to the less sophisticated pension fund managers. In a desperate reach for yields they increased exposure to project finance. Perceived higher returns, long-term investment horizon and inflation protection made it the perfect match for pension funds. However, like their central banker peers, pension fund managers were completely mistaken. Actual risks were largely underestimated. The binary nature of cashflow risks makes conventional risk measures meaningless. This is best illustrated by looking at the cumulative default rates of project finance (1991-2011) in North America, which exceeded the default rate of the non-investment grade Ba bonds in the first 6 years and is more than triple that of investment grade default rates.
The European Investment Bank (EIB) decided to ride the wave of project finance and waste taxpayers’ money by providing loans and insurance on risks that EIB cannot remotely comprehend. They ignored the fact that mono-liners in the US did the same a decade ago and paid a hefty price when the bubble burst where almost all bond insurers went out of the market.
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Do You Really Think Politicians Can Stop Climate Change?
COMMENT: Mr. Armstrong; It appears that politicians are attributing any change in the climate to human activity. They have simply either gone mad or just insane, seriously distorting everything to gain more power and taxes. Now Christine Lagarde said: “As I’ve said before if we don’t do anything about climate change now, in 50 years’ time we will be toasted, roasted and grilled.” She is not even elected by anyone yet is dictating the trend globally.
PD
REPLY: Yes, the phrase “climate change” has come to mean “blaming humans for changing the climate by using oil and gas and coal.” They act as if the climate should be linear and always the same from one year to the next. They fail to even account for the historical record of ice ages and warming periods long before we started using oil, gas, or coal. There is no doubt that the climate is changing for that is the cyclical nature of all things. The only thing more absurd than blaming humans for “climate change” is assuming politicians can stop it from changing. They cannot find the missing $3 trillion+ from the defense budget no less manage the economy and prevent the business cycle from booms and busts.
DOD Exercise to Simulate Nationwide Power Grid Blackout From Solar Storm During Antifa Protests in November
According to The National Association for Amateur Radio (ARRL), elements of the US Department of Defense (DOD) will simulate a “communications interoperability” training exercise across the United States on November 04-06. The announcement released on October 24 has not been widely distributed to the media, because the drill is simulating a total grid collapse and could spark public fear.
Explained by Army MARS Program Manager Paul English,
“This exercise will begin with a national massive coronal mass ejectionevent which will impact the national power grid as well as all forms of traditional communication, including landline telephone, cellphone, satellite, and Internet connectivity,”
In July, we warned about the US government quietly preparing for a massive coronal mass ejection with the passage of an Executive Order— “Coordinating Efforts to Prepare the Nation for Space Weather Events”.
Here is snippet of section 1 of the executive order:
Space weather events, in the form of solar flares, solar energetic particles, and geomagnetic disturbances, occur regularly, some with measurable effects on critical infrastructure systems and technologies, such as the Global Positioning System (GPS), satellite operations and communication, aviation, and the electrical power grid. Extreme space weather events — those that could significantly degrade critical infrastructure — could disable large portions of the electrical power grid, resulting in cascading failures that would affect key services such as water supply, healthcare, and transportation. Space weather has the potential to simultaneously affect and disrupt health and safety across entire continents. Successfully preparing for space weather events is an all-of-nation endeavor that requires partnerships across governments, emergency managers, academia, the media, the insurance industry, non-profits, and the private sector.
…click on the above link to read the rest of the article…
October 26, 2017
Kyle Bass Warns: Xi Has “Built The Chinese Economy On A Foundation Of Sand”
Earlier this week, Chinese leader Xi Jinping became the third ruler in the communist country’s history to have his named enshrined in its constitution – and the first to receive this honor while still alive. But as China celebrates its most popular, and most powerful, leader since at least Deng Xiaoping, Kyle Bass, hedge fund manager and noted China bear, told Bloomberg the Communist Party will one day regret standing idly by as Xi consolidated his power.
“Today Xi is celebrated in media reports, but when future historians look back, he will be blamed for recklessly building the Chinese economy on a foundation of sand,” Bass, founder of Hayman Capital Management, said in an email Wednesday.
“Xi desperately seeks credibility, but true developed economies do not impose severe capital controls or move short-term rates hundreds of basis points overnight in attempts to manipulate their own currency.”
Xi, who launched the twice-a-decade National Party Congress last week with a three-hour speech where he laid out his vision for “communism with Chinese characteristics in a new era,” the philosophy that was enshrined in the country’s constitution by a unanimous vote. In a move that seemingly confirms suspicions that Xi plans to break with precedent and seek a third term after his second ends in 22, Xi appointed five new members to the Politburo,
China’s most powerful body, all of whom are too old to be viewed as credible heirs. Typically, Chinese leaders have pointed to a successor or possible successors by the time they begin their second term, ensuring that there’s a clear path of leadership transition.
…click on the above link to read the rest of the article…
China’s rise, America’s fall
Will the rise of China mean the fall of America? In a word, yes. Although decline might be more accurate.
Why do I think this? Because China is about to launch the PetroYuan and when it does the demand for dollars and for dollar denominated debt will shrink. When it does, I question whether the world will be so sanguine about the level of debt that America carries. If that happens then the value of the dollar is in question.
At the moment no matter what level of debt America carries, other countries need dollars. Dollars to pay for oil, since oil is traded in dollars. Dollars for their financial system so their banks can settle contracts for goods and services traded in dollars.
But over the last few years China has been systematically putting in place everything it needs to launch the Yuan as not only a rival to the dollar in trading and settling oil contracts but as a rival to the dollar as the world’s reserve currency. At the moment the only rival to the dollar is the Euro. I think it fair to say the relationship between the two currencies and their issuing powers, has been… ‘delicate’. The news that Sadam Hussein was going to start trading his oil in Euros came just a few months before America and its lap dog GB, decided Sadam was a threat to world peace and went to war with him. Something similar happened to Colonel Qaddafi.
Under Qaddafi Libya’s currency was backed by the country’s large holdings of gold and silver. This had allowed Qaddafi to finance, for example, the entire construction of the Great Man Made River without going to Western banks for a single loan. Libya was debt free and owned its own resources and infrastructure.
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The EU Just Did the Big Banks a Massive Favor
“Testimony to the iron grip the financial industry’s lobby still exerts on governments and legislators.”
The European Union’s executive arm, the European Commission, made a lot of bank executives very happy this Tuesday by abandoning its multi-year pledge to break-up too-big-to-fail lenders. Despite the huge risk they still pose to Europe’s rickety financial system, big European banks like Deutsche Bank, BNP Paribas, ING, and Santander can breathe a large sigh of relief this week in the knowledge that they will not have to split their retail units from their riskier investment banking arms.
Breaking up the banks would remove much of the risk from today’s government-backed banks, such as derivatives and other instruments that were heavily involved in the Financial Crisis. Without these hedge-fund and investment-banking activities, even large banks would be smaller, less interconnected, and could be allowed to fail without jeopardizing the entire global financial system.
According to the Commission, such a drastic measure is no longer necessary since the main rationale behind ring-fencing core banking services from investment banking divisions — i.e. to make Europe’s financial system less disaster prone — has “already been addressed by other regulatory measures in the banking sector.” That’s right: Europe’s banking system is already safe, stable and secure. Bloomberg:
The proposal, which hasn’t progressed since 2015, was made to boost financial stability and safeguard taxpayers from the risk of future bailouts. While the commission and the conservative lead lawmaker on the file said this goal had been achieved by other laws on supervision and resolution, the socialist lawmakers backing the “Bank Structural Reform” bill disagreed.
“The too-big-to-fail financial behemoths still pose a danger to financial stability, to the taxpayer and to clients,” German Social Democrat Jakob von Weizsaecker said in a statement. “The withdrawal of the BSR file marks an unfortunate turning point in the European agenda on regulating large banks.”
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Associated Press Associates Itself With War
Robert Burns and Matthew Pennington of the Associated Press tell us:
“U.S. Defense Secretary Jim Mattis is visiting the Korean Peninsula at a momentous juncture in the faltering effort to persuade Pyongyang to halt and dismantle its nuclear weapons program. Ominous questions hang in the air.”
Why momentous? North Korea has in the past been successfully so persuaded. And it’s subsequently been antagonized and threatened until it recommenced. This has gone on for decades, while it’s been 64 years since a peace treaty should have been signed that never has been. It’s been 14 years since North Korea resumed building nukes. It’s been ten grueling months of Trump’s regime during which nasty comments and threats have been passed back and forth across the Pacific schoolyard. What makes this moment momentous? Stay tuned. AP will explain.
“Is diplomacy failing? Is war approaching?”
Is the wind blowing? Are you kidding? Are diplomacy and war external forces that impose themselves on humanity? North Korea has been very clear and reasonable in its demands, even while screaming its threats and defiance. If the United States will stop moving missiles and planes and ships close to a country it once destroyed, and stop threatening to destroy it again, North Korea will discuss doing what Iraq and Libya did before they were attacked: disarming. The question is not “Is war approaching?” “Ominously!” The question is: will Trump and his subordinates continue to refuse to negotiate? Will they insist on war?
“Mattis’ second trip as Pentagon boss to Seoul will take place Friday, following his consultations with Asian partners on a unified approach to resolve the North Korea crisis. In the Philippines, his Japanese counterpart spoke darkly of an ‘unprecedented, critical and imminent’ threat posed by the North’s repeated demonstrations of its ability to launch an intercontinental-range missile, potentially armed with a nuclear warhead.”
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Why GDP Is Fake
Why GDP Is Fake
Gross Domestic Product, or GDP, is the most commonly used measure and ranking of a nation’s economy. According to the OECD and Wikipedia, its definition is: “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” No subtractions are included in it for debts that were undertaken in order to generate the given “gross values added.” A trillion dollars of increased assets (additional “gross values” of “production”) adds a trillion dollars to GDP, even if all of it was produced by increasing the debts by a trillion dollars: only the assets-side of the balance-sheet is relevant to GDP.
However, wealth is assets minus liabilities; it is assets minus debts; it is not assets alone. Therefore, a nation’s wealth has no necessary relationship at all to a nation’s GDP, because the nation’s wealth is its assets minus its liabilities, not its assets regardless of its liabilities (such as GDP is).
Britannica provides this definition of “GDP”: “Gross domestic product (GDP), total market value of the goods and services produced by a country’s economy during a specified period of time. It includes all final goods and services — that is, those that are produced by the economic agents located in that country regardless of their ownership and that are not resold in any form. It is used throughout the world as the main measure of output and economic activity.” In this definition, too, no subtractions are included in it for the debts. Britannica then goes on to state:
GDP = Consumption + Investment + Government Spending + Net Exports
or more succinctly
GDP = C + I + G + NX
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Catalan Government Said To Back Off Independence Push, Will Seek Elections; Spanish Stocks Soar, Yields Tumble
Yesterday Catalonia’s government was preparing to declare independence, as we discussed. Just hours after Puigdemont snubbed Madrid, canceling his visit to The Senate to discuss their imposition of Article 155, Catalan Deputy First Minister Oriol Junqueras told AP that the Spanish government had left Catalonia “no other option” but to proclaim a new republic. Mr. Junqueras told the AP he was commenting as leader of his party, Republican Catalan Left, not as a member of the regional government. Additionally, Puigdemont posted a defiant Instagram message: “We will not lose time with those who have already decided to crush Catalan self-government. Onwards!”
However, just a few hours later, the Catalonia leadership seems to have backed down, and instead is opting for elections, reportedly just before Christmas.
According to Bloomberg, Catalan President Carlos Puigdemont may call regional elections this week, rather than declaring independence from Spain, as authorities in Madrid finalize plans to oust his rebel administration, according to two people familiar with his thinking.
After defying the Spanish courts for weeks, Puigdemont decision could either ease tensions or deepen the biggest constitutional crisis in western Europe’s fifth-largest country since an attempted coup in 1981. Spain’s chief prosecutor has warned he faces up to 30 years in jail if he goes ahead with the declaration.
“The scenario of independence is one that we cannot allow and which will not happen,” Economy Minister Luis de Guindos told Spanish radio on Thursday. He said there was already a “significant slowdown” in economic activity in the region. “They’re caught in a mousetrap. It seems their own decisions are producing vertigo.”
Bloomberg’s also reports that this could take place on 20 December 2017.
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A world made by hand
Only a few generations ago we made many things by hand. Over the last 50 years store bought products have replaced handmade goods. Few people still work with their hands, and I often wonder what we have lost in this process? 
What have we lost when we no longer enjoy or even know how to make things with our hands?
Humans prehistory is described by the tools and artifacts left behind. Tools were both functional as well as art. I love handling a kitchen tool that belonged to my grandmother. Human development is attributed to our opposable thumb and ability to make and use tools. So how have we changed now that we seldom use hand tools, and our hands are most often busy using a computer or phone? Are these the same kind of tools as a wood lathe, a knife and cutting board, or a needle and thread?
I love making pottery, bread, and cooking from scratch. My grandmother taught me to knit and sew and I’ve made several articles of clothes and scarves. I taught myself to carve wooden spoons and often think I should spend more time doing that…but don’t. Like many people in their 50’s I often think, I’ll do that after I retire. We are drawn to the beauty of artisan crafts and desire to explore making them ourselves, but don’t. Perhaps life is too busy, it would take too much time to make things by hand.
In a world that has less energy available, a world that cannot afford to burn more fossil fuels, we need to move away from machines and back towards things made by hand. That probably seems unimaginable if you didn’t grow up with a parent or grandparent that made things by hand. But I think the reality of living like this will be more satisfying than you can imagine.
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