Submitted by Chris Hamilton,

What do Sovereign bond interest rates represent???

If I knew nothing about the growth, the debt, the inflation, the exporters vs. importers, the serial defaulters, currency manipulators, hot-money or conversely deflation fighters, etc. etc. and simply grouped the nations of the world by interest rates paid on 1yr and 10yr sovereign debt…well I’d get a funny feeling the rates paid have a stronger correlation to the relationship of the nations to the US than any other variable.  I’d wonder if your status with the central bank cabal was more important than your ability to repay the loaned money?  Luckily I know better!

Some very notable rates…

  • PIIGS are amazing and now thanks to the EU’s LTRO are dirt cheap…(PIIGS 1yr / 10yr yields)= Portugal 0.05% / 3.75% , Ireland 0.12% / 2.18%, Italy 0.27% / 2.74%, Greece 2% / 6.3%, Spain 0.13% / 2.50%…Serial defaulters need not pay more for lending ever again!?!
  • Italy with the world’s 3rd largest aggregate debt, no growth, and no enforceable tax laws have blended rates that are ludicrous and indicative of institutional fraud…in fact, that can be said of nearly all these rates.
  • Australia and New Zealand are the only “outliers” paying up on yields and generally sitting in the wrong classifications.

1 yr interest rates

US Pals and/or “deflation-istas”:

Belgium 0.02%, France 0.024%, Netherlands 0.03%, Germany 0.036%, Switzerland 0.05%, Japan 0.055%, Czech Rep 0.09%, US 0.09%, Ireland 0.12%, Spain 0.13%, Hong Kong 0.14%, Sweden 0.25% Denmark 0.25%, Italy 0.27%, Latvia/Lithuania 0.3%, Singapore .0.35%, UK 0.41%, Portugal 0.5%, Israel 0.53%, Taiwan 0.6%, Austria 0.7%, Qatar 0.7%, Canada 1%, Saudi Arabia 1%, Bulgaria 1.26%, Norway 1.33%,

US “fence sitters”:

Hungary 1.98%, Greece 2%, Philippines 2.07%, Thailand 2.14%, Poland 2.31%, S. Korea 2.37%, Australia 2.5%

US naughty list and/or importers of US inflation:

Mexico 3%, Chile 3.1%, Malaysia 3.3%, China 3.74%, New Zealand 3.9%, Vietnam 4.6%, Colombia 5%, Iceland 5%, S. Africa 6%, Sri Lanka 6.4%, Indonesia 7.25%, Russia 8.6%, India 8.7%, Venezuela 9.7%, Turkey 9.75%, Pakistan 10.1%, Kenya 10.27%, Brazil 11.2%, Egypt 12.2%, Argentina ???, Ukraine 20%

10 yr interest rate

US Buds and/or “deflation-istas”:

Switzerland 0.44%, Japan 0.51%, Germany 1.06%, Finland 1.23%, Netherlands 1.26%, Austria 1.34%, Denmark 1.42%, Czech Rep 1.45%, France 1.46%, Belgium 1.47%, Taiwan 1.59%, Sweden 1.62%, Hong Kong 2.02%, Canada 2.09%, Ireland 2.18%, Norway 2.35%, Singapore 2.38%, US 2.43%, UK 2.49%, Spain 2.50%, Latvia/Lithuania 2.6%, Israel 2.72%, Italy 2.74%, Qatar 3.04%,  S. Korea 3.06%, Poland 3.37%, Australia 3.40%, Portugal 3.75%

US “fence sitters”:

Thailand 3.4%, Bulgaria 3.5%, Malaysia 3.89%, New Zealand 4.2%, Philippines 4.33%

US “haters” and/or importers of US inflation:

Chile 4.24%, China 4.3%, Hungary 5.07%, Peru 5.2%, Mexico 5.71%, Greece 6.3%, Colombia 6.66%, Iceland 7.28%, Sri Lanka 7.5%, S. Africa 8.14%, Vietnam 8.21%, Indonesia 8.25%, India 8.85%, Argentina 9%?, Turkey 9.32%, Russia 9.38%, Venezuela 11.7%, Brazil 11.97%, Kenya 12.1%, Pakistan 13.2%, Egypt 15.9%

*  *  *

Extra credit:

1 mo interest rates

Germany  <-0.025%>, Switzerland <-0.015%>, France 0.008%, US 0.03% (US was 5.22% in Feb ’07), UK 0.031%, Russia 9.55% – but these rates are only for central banker pals worldwide…

Consumer Rates

While consumer rates in America for non-bankers are a little higher…

  • Credit card rates are a minimum of 10.5% easily up to 30%
  • Auto loan (60mo, new car) @ 3.2%
  • Mortgage (30yr fix) @ 4.3%
  • Stafford student loan @ 4.66%

And poor, poor savers…not quite keeping up with inflation (somewhere between 2% and 10%…like the Fed you can pick the rate that suits you best)…

  • 1yr CD @ 0.6%
  • Savings accounts @ 0.1% – 0.3%

So does that mean that US savers and credit card spenders are 'friend' or 'foe'?

 

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-08-12/how-value-sovereign-bonds-2-words-us-friend-or-foe

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Inflation is hot property today, hyperinflation is even hotter! We think we are modern, contemporary, smart and ready to deal with anything. We’ve got that seen-it-all-before, been-there-done-it attitude. But, we are not a patch on what some countries have been through in the worst cases of hyperinflation in history. Here’s the top 10 list of worst cases in history. We’ll start with the worst first…let’s think positive!

Hungary 1946

Inflation at its peak reached a staggering figure of 13.6 quadrillion % per month! That’s 13, 600, 000, 000, 000, 000%. The largest denomination bill was a 100 Quintillion note. Prices ended up doubling every 15 hours at the time.

Zimbabwe 2008

Prices doubled here every 24.7 hours in November 2008 and inflation reached levels of 79 billion-odd %. They eventually stopped using the official currency and switched to the South African Rand or the $US. A loaf of bread ended up costing $35 million. This is the most recent case. It was Mugabe’s land-redistribution program that caused this.

Yugoslavia 1994

In just the one month of January 1994 inflation rose by 313 million %. Prices doubled every 34 hours (which is nothing compared to Hungary). The currency ended up getting revalued 5 times in all between 1993 and 1995, all to no avail. The cause? A recession triggered by overseas borrowing and an on-going political struggle in the 1980s and the following decade.

Germany 1923

Adolf Hitler rose to power as a consequence of hyperinflationary pressure (at least one of the reasons). Prices doubled every 3.7 days and inflation stood at 29, 500%. Germany was crippled with the reparation payments after the Treaty of Versailles and the end of World War I.

Greece 1944

Prices started rising by 13, 800% in October 1944 and they doubled every 4.3 days. The trouble was the debt incurred by World War II.

Poland 1921

Prices rose in 1921 by 251 times in comparison with those of 1914. They doubled every 19.5 days. The Zloty was introduced as the new currency in 1924 in an attempt to start afresh. Inflation stood at 988, 233% in 1924.

Mexico 1982

Mexico had a rate of inflation of 10, 000% in 1982 (due mainly to too much social expenditure).

Brazil 1994

Inflation was 2, 075.8% at its worst in 1994. The Real was adopted in 1994 and it managed to calm inflation down.

Argentina 1981

The highest denomination bill was the one million pesos note. The Peso was revalued three times.

Taiwan 1949

This was a knock-on effect from China and the Chinese Civil War. The New Taiwan Dollar was issued in June 1949. The monthly rate of inflation stood at 399%

Inflation can be creeping (mild or moderate inflation) or galloping. We can talk of Hyperinflation and stagflation (inflation and recession). Deflation is not better. We have so many names for it.

Hyperinflation means prices doubling in such a short space of time that we can’t keep up with it all. Hyperinflation comes about at times of trouble, war, conflict, upheaval, change on unprecedented levels. It comes about because we still haven’t learnt how to control it. History repeats itself, we hear people say. Thankfully, it doesn’t repeat itself too often. Fingers crossed.

Originally posted: Hyperinflation – 10 Worst Cases

You might also enjoy: Death of the Dollar | You’re Miserable USA! | Emerging Markets: Lock, Stock and Barrel | End of the Financial World 2014 |  Kristallnacht on Wall Street? Bull! | China’s Credit Crunch | Working for the Few | USA:The Land of the Not-So-Free  

 

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/contributed/2014-02-06/hyperinflation-%E2%80%93-10-worst-cases

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Download GoldCore Outlook For 2014

CONTENTS
– Introduction
– Review of 2013
– Gold and Silver Have Torrid Year – Fall 27% and 35% Respectively
– Year Of Paper Selling But Robust Physical Demand – Especially From China
– Highlights Of Year – German Gold Repatriation, Record Highs In Yen, Huge Chinese Demand
– Lowlights Of Year – Massive Paper Sell Offs in April/June and Cypriot Deposit Confiscation
– Syria and the Middle East
– U.S. Government Shutdown and $12 Trillion Default Risk
– Continuing Central Bank Demand
– Regulatory Authorities Investigate Gold Rigging

Outlook 2014
– Geopolitical Tensions – The Middle East, Russia, China, Japan and the U.S.
– Ultra Loose Monetary Policies Set To Continue with Yellen as New Federal Reserve Chair
– Eurozone Debt Crisis Again – UK, U.S. Japan and China Also Vulnerable
– Enter The Dragon – Chinese Gold Demand Paradigm Shift To Continue
– Death Of Indian Gold Market Greatly Exaggerated
– Long Term (2014-2020) MSGM Fundamentals

Conclusion

Introduction
Happy New Year. We would like to take this opportunity to wish our clients and subscribers a prosperous, healthy and happy 2014.

With 2013 having come to a close, it is important to take stock and review how various assets have performed in 2013, assess the outlook in 2014, and even more importantly, the outlook for the coming years.

2013 was the year of the speculator and the year of the risk asset, such as equities, with global stocks doing well in the sea of liquidity and cheap money created by central banks.
Surprisingly to many gold bulls, these favourable monetary conditions did not lead to higher precious metal prices. Gold and particularly silver had a torrid year and significantly underperformed the vast majority of equity and bond markets.

The MSCI World Index was up 23% and the S&P 500, the Nasdaq and the FTSE were up 32%, 35% and 14% respectively.

MSCI World Index – 1970 to January 3, 2014 – Bloomberg

Bond investors did not fare as well as interest rates began to rise from all-time record lows. As bond prices fell, interest rates rose. The bellwether 10-year Treasury note closed the year at 3.028%, which was up from 1.76% at the start of 2013 and the highest since July 2011.

US 10 Year Note – 1964 to January 3, 2014 – Bloomberg

The Barclays US Aggregate bond index, which is dominated by Treasury, mortgage and corporate bonds and is the leading benchmark followed by institutional money, is set to record its first negative year of total returns since 1999. The bond market’s major benchmark registered a total return of minus 2.1% for 2013. It is only the benchmark’s third annual negative total return since 1976, according to Barclays.

REVIEW OF 2013

Gold and Silver Have a Torrid Year – Fall 28% and 36% Respectively
Gold fell in all major currencies in 2013 and fell 28% in dollar terms for its first annual price fall since 2000. Gold fell 40% in pound terms, 45% in euro terms. Gold fell much less in Japanese yen terms and was 16% lower in yen as the yen continued to be devalued and debased.

Silver was down by 36% in dollar terms and by more in the other currencies; silver had its poorest annual performance since 1984.

Gold came under pressure in the first half of 2013 and saw falls from near $1,700/oz at the start of the year to $1,180/oz by mid-year. Indeed, gold’s low for the year took place on June 28th, which was the last day of trading in Q2, and an important time frame for those evaluating gold’s longer term performance.

The price falls in the first half took place despite a positive fundamental backdrop and despite the risk of contagion in the Eurozone – especially from Spain, Italy and Greece. This risk was so great in the early part of the year that it led George Soros to warn in February that the Eurozone could collapse as the U.S.S.R. had.

In March, Cyprus was the first country to experience a bank bail-in of depositors, where both individual and corporate account holders, experienced capital controls and a confiscation of nearly 50% of their deposits. In June and then again two weeks ago, the EU confirmed that depositors will be bailed in when banks are insolvent.

International monetary and financial authorities globally, including the ECB, the Bank of England and the Federal Deposit Insurance Corporation (FDIC), have put in place the regulatory and legal framework for bail-in regimes in the event of banks failing again.

Are Your Savings Safe From Bail-Ins

Gold saw a bit of a recovery in the third quarter with gains in July and August as gold interest rates went negative, bullion premiums in Asia surged and COMEX inventories continued to fall. Silver surged 12% in 5 trading days in mid August due to record silver eagle coin demand and ETF demand.

UK gold ‘exports’ to Switzerland increased greatly during the year due to demand for allocated gold in Switzerland due to Switzerland’s tradition of respecting private property throughout the centuries and its strong economy. However, more importantly, UK gold exports to Switzerland were due to the significant increase in store-of-wealth demand from China and many countries in Asia.

Institutional gold in the form of London gold delivery bars (400 oz) was exported to Swiss refineries in order to be recast into one kilogramme, 0.9999 gold bars used on the Shanghai Gold Exchange and in the Chinese market.

However, this was not enough to prevent further falls in the final quarter and in recent days when gold has again tested support at $1,200/oz.

Year Of Technical, Paper Selling But Robust Physical Demand

German Gold Repatriation
The year began with a bang, when news broke on January 17 that the German central bank was attempting to repatriate Germany’s gold reserves. The Bundesbank announced that they will repatriate 674 metric tons of their total 3,391 metric ton gold reserves from vaults in Paris and New York to restore public confidence in the safety of Germany’s gold reserves.


Bundesbank – Goldbarren

The repatriation of only some 20% of Germany’s gold reserves from the Federal Reserve Bank of New York and the Banque of Paris back to Frankfurt was meant to allay increasing German concerns about their gold reserves. But the fact that the transfer from the Federal Reserve is set to take place slowly over a seven year period and will only be completed in 2020 actually led to increased concerns. It also fueled concerns that the unaudited U.S. gold reserves may be less than what is officially recorded.

What was quite bullish news for the gold market, saw gold quickly rise by some $30 to challenge $1,700/oz. The news was expected to help contribute to higher prices but determined selling saw gold capped at $1,700/oz prior to falls in price in February.

Paper Selling On COMEX
Gold’s falls in 2013 can be attributed in large part to paper selling by more speculative players on the COMEX. This was graphically seen in April when there was a selling raid on the COMEX which led to a huge price fall of nearly 15% in two days prior to the emergence of “extraordinary” demand for gold internationally.

The sell off came as demand in Europe began to pick up due to concerns that the Cypriot deposit confiscation may be a precedent that could be seen in other EU countries.

The speed and scale of the sell off was incredible and even some of the bears were surprised by it. Many questioned the catalysts for the $150 two day sell off. The sell off was initially attributed to an unfounded rumour regarding Cyprus gold reserve sales – this was soon seen to be a non-story. The Cyprus rumour did not justify the scale of the unprecedented sell off.
Reports suggested that a single futures sell order worth $6 billion, equal to 4 million ounces or 124.4 tonnes of gold, by a large investment bank sent prices plummeting. The futures market then saw a further wave of selling of contracts worth some $15 billion, equivalent to 10 million ounces of selling or 300 tonnes, in just 35 minutes.
Gold futures with a value of over 400 tonnes were sold in a handful of trades in minutes. This was equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.

Investment banks and hedge fund speculators can manipulate the paper or futures gold price in whichever direction they want in the short term due to the massive leverage they can utilise. The events in April further bolstered the allegations of manipulation by the Gold Anti-Trust Action Committee (GATA).

Significant Demand For Physical Gold Globally
Gold prices fell very sharply despite very high demand. However, the gold price decline was arrested by the scale of physical demand globally. This demand was particularly strong in the Middle East and in Asia, particularly China but was also seen in western markets with government mints reporting a surge in demand in 2013.

This demand for physical gold was seen in western markets throughout the year. In April, the US Mint had to suspend sales of small gold coins; premiums for coins and bars surged in western markets due to high demand.

Mints, refineries and bullion brokerages were quickly cleared out of stock in April and COMEX gold inventories plummeted. There were gold and silver coin and bar shortages globally.

This continued into May as investors and savers globally digested the ramifications of the Cypriot deposit confiscation. The crash of the Nikkei in May also added to physical demand in Japan and by nervous investors internationally.

This led to all time record gold transactions being reported by the LBMA at the end of May.

Chinese demand remained very robust and Shanghai Gold Exchange volumes surged 55% in one day at the end of May – from 10,094 kilograms to 15,641 kilograms. There were “supply constraints” for gold bars in Singapore and bullion brokers in Singapore and India became sold out of bullion product at the end of May.

This, and concerns about a very poor current account deficit and a possible run on the Indian rupee, prompted the Indian government to bring in quasi capital controls and punitive taxes on gold in June. Ironically, this led to even higher demand for gold in the short term and much higher premiums in India. Longer term, it has led to a massive surge in black market gold buying with thousands of Indians smuggling in gold from Bangkok, Dubai and elsewhere in Asia.

June saw another peculiar sudden 6% price fall in less than 24 hours. This again contributed to increased and very robust physical demand. U.S. Mint sales of silver coins reached a record in the first half of 2013 at 4,651,429 ounces and the UK’s Royal Mint saw a demand surge continuing in June after demand had trebled in April.
Asian markets continued to see elevated levels of gold buying. Gold demand in Vietnam was so high that buyers were paying a $217 premium over spot gold at $1,390/oz. Premiums surged again in China as the wise Chinese ‘aunties’ and wealthy Chinese continued to buy gold as a store of wealth.

Despite very high levels of demand for gold, in Asia especially, gold languished and sentiment in western markets continued to be very poor with gold falling to the lows of the year on June 28th.

July saw continuing strong demand for gold internationally as volumes surged to records on the Shanghai Gold Exchange (SGE). Premiums rose and feverish buying left many of Hong Kong’s banks, jewellers and even its gold exchange without enough gold bullion to meet demand.

In August, demand remained elevated and gold forward offered rates (GOFO) remained negative and became more negative. This showed that physical demand was leading to supply issues in the highly leveraged LBMA gold market or the institutional gold bar market.

Today, as we enter the New Year gold, forward offered rates (GOFO) remain negative, meaning banks, which had lent their customers gold to obtain a positive return, and therefore increase the “paper” gold supply, will take the gold back. This should limit the amount of gold on the market and increase the gold price.

Chinese buyers are of increasing importance but it is important to note that physical demand rose significantly throughout the world in 2013 despite falling prices. This is seen in the levels of demand experienced by leading bullion dealers, refiners and government mints. This is clearly seen in the data released by the Perth Mint and the U.S. Mint which both saw increased demand for physical gold coins and bars in 2013. Other mints have yet to report their numbers.

The Perth Mint of Western Australia reported yesterday that they saw a very significant increase in sales in 2013 despite the falling prices. Gold sales from the Perth Mint, which refines most of the bullion from the world’s second-biggest producer Australia, climbed 41% last year.

Sales of gold coins and minted bars totalled 754,635 ounces in 2013 from 533,333 ounces a year earlier, according to data from the mint.

Silver coin sales surged 33% to about 8.6 million ounces from 6.5 million ounces in 2012, according to the Perth Mint.

Gold bullion sales expanded 12% to 58,944 ounces in December from 52,700 in November and about 51,778 ounces in December 2012, according to data from the mint. Gold sales fell to as low as 30,430 ounces in August and peaked at about 112,575 in April, when gold was hammered 14% lower on the COMEX in just two days.

Silver coin sales were 845,941 ounces last month from 807,246 in November and 452,389 a year earlier, it said.

The U.S. Mint also saw an increase in physical gold sales and sold 14% more American Eagle gold coins last year and sales climbed 17% to 56,000 ounces in December from November, according to data on the mint’s website as reported by Bloomberg.

Syria and the Middle East
Even bullish developments such as the prospect of war in Syria at the end of August, only led to small, short term price gains. War in Syria and in the Middle East, pitching the U.S. and western allies against China and Russia was expected by many to lead to “market panic” and to propel gold “much, much higher,” in the words of astute investor Jim Rogers.

Only the fact that President Obama and the U.S. were confronted with opposition by people internationally against another war and were outmaneuvered diplomatically, prevented the war with Syria.

The war had the potential to destabilise the region with ramifications for oil prices and the global economy.

U.S. Government Shutdown and $12 Trillion Default Risk
Another very bullish development for gold came in late September and early October with the U.S. budget negotiations and government shutdown.

They highlighted the dire U.S. fiscal position and the complete failure of the American political and economic class to deal with their extremely precarious financial position in any meaningful way. The U.S. government is essentially bankrupt with a national debt of over $17 trillion and unfunded liabilities of between $100 trillion and $200 trillion.

In the coming months and years, it will lead to a lower dollar and much higher gold and silver prices.

However, in the year of paper gold selling that was 2013, even this did not lead to higher gold prices.

Continuing Central Bank Gold Demand 
All year, central banks continued to accumulate gold with Russia, Kazakhstan, Azerbaijan, Kyrgyz Republic, Turkey and other central banks continuing to diversify their foreign exchange reserves.


U.S. Federal Reserve employees in underground vault holding monetary gold

Central banks continued to be strong buyers of gold in 2013, albeit the full year data may show demand was at a slightly slower rate than the record levels seen in recent years. Q4 2013 will be the 12th consecutive quarter of net purchases of gold by central banks.

Total official central bank demand continued at roughly 100 tonnes every single quarter. However, this does not include the ongoing clandestine and undeclared purchases of gold by the People’s Bank of China. Conservative estimates put PBOC demand at 100 tonnes a quarter or at over 400 tonnes for the year. More radical projections are of demand of over 1,000 tonnes from the PBOC in 2013.

Regulatory Authorities Investigate Gold Rigging
Peculiar, single trade or handful of trades leading to sudden gold price falls were common in 2013 and contributed to the 28% price fall.

Therefore, those who have diversified into physical gold will welcome the move by the German financial regulator BaFin to widen their investigation into manipulation by banks of benchmark gold and silver prices. In December, the German banking regulator BaFin demanded documents from Germany’s largest bank, Deutsche Bank, as part of a probe into suspected manipulation of the gold and silver markets.

The German regulator has been interrogating the bank’s staff over the past several months. Since November, when the probe was first mentioned, similar audits in the U.S. and UK are also commencing.

Precious metal investors live in hope but their experience of such investigations is that they are often very lengthy affairs with little in the way of outcome, disclosure or sanction. The forces of global supply and demand, one anemic, the other very high, are likely to be more important and a valuable aid to gold and silver owners in 2014 and in the coming years. As ultimately, the price of all commodities, currencies and assets is determined by supply and demand.

Janet Yellen Becomes Fed Chair

At year end came confirmation that cheap money uber dove Janet Yellen was set to take over from Ben Bernanke as Chair of the Federal Reserve. Gold bulls cheered loudly at her appointment thinking that Yellen’s appointment would lead to a recovery in oversold gold prices. However, even this bullish development did not help embattled gold prices.

OUTLOOK FOR 2014

Introduction

2013 was a year of calm in the world of finance. 2014 may not be so calm and there is a risk of renewed turbulence on global financial markets. There are many unresolved risks which were present in 2013 but did not come to the fore and impact markets as they could have.

The Eurozone debt crisis is far from resolved and there remains an underappreciated risk of sovereign crises in other major industrial nations.

There are far more positives for gold than negatives and the positives include ultra-loose monetary policies, risk of sovereign and banking debt crises and systemic or contagion risk, the increasingly uncertain political and military situation globally and of course increased demand for gold from the Middle East, much of Asia and particularly China.

Download GoldCore Outlook For 2014

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/contributed/2014-01-04/good-bad-and-ugly-gold-2013-and-outlook-2014

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Worries of a Lehman-like financial crisis spreading through Europe and the world has made Greece talk of the market lately. Not to let Greece dominate the spotlight, the U.S. debt ceiling debate is also getting to be as traumatic since a failure to raise the debt ceiling could mean imminent default and credit downgrades for the United States sovereign debt.

In the midst of all these different crises, global markets rise and fall in lockstep with news coming out of Europe and the U.S. The U.S. stock market, after suffering a correction phase since April, snapped back last week, scored the best week in two years, but only to retreat again after the long July 4th weekend. The commodity and currency markets are not immune either, with investors switching back and forth between risk-on and risk-off trades.

In this environment, one has to ask … are there other indicators signaling a global market doomsday?

According to Oxford Analytica, there are 15 “Global Stress Points” ranging from medium to extreme high impact to the entire world. These are listed below ranked by their potential impact by Oxford (see graph). Around 60% of the “stress points” are related to geopolitics, war or unrest, while only about five events could be classified as financial crises.

  1. Dollar Collapse
  2. Taiwan / China Armed Hostility
  3. Israel / Iran Armed Conflict
  4. Mexico State Hollowing
  5. Global Protectionism
  6. Latin America Hydrocarbon Disruption
  7. Iraq State Institutions Collapse
  8. Russia Military Aggression
  9. End of Euro
  10. India / Pakistan War
  11. Pakistan State Collapse
  12. Argentina Sovereign Default 2.0
  13. North Korea Military Conflict
  14. War in North Africa
  15. Lebanon Civil War


(Click to enlarge) Chart Source: Oxford Analytica

For all the rage in the press, the euro’s demise is surprisingly not as big a deal as, for instance, China making good on its 60-year threat to Taiwan, or even a much more mundane “global protectionism.” And I hate to disappoint China Bears, but it looks whatever problems China has, it is not the one that will tank the world like the dollar and the euro.

Since a U.S. dollar collapse is ranked as the greatest risk to the world, and dollar’s fate is largely dependent on if the bond market has faith in Uncle Sam, it might be helpful to add five additional warning signs that the bond market is freaking out (see chart):

  • Prices of bonds maturing start falling (i.e., investors start to demand higher interest rates to hold U.S. government debt).
  • A narrower spread between rates on Treasury bills and other short-term credit or near substitutes, e.g. LIBOR – This would be a sign of waning faith in the U.S. government.
  • A narrower spread between Treasuries and near substitutes – A sign of falling creditworthiness of Uncle Sam.
  • Price spikes in U.S. CDS (credit default swaps, insuring against a U.S. debt default) – According to Markit, the most noticeable movement has occurred in 1-year spreads, which have converged closer to 5-year spreads, and is up about 430% since early April, while 5-year CDS also has risen about 46%.
  • Higher volatility in the U.S. bond market – Another sign of lost confidence from bond investors.


(Click to enlarge) Chart Source: The Washington Post

So far, out of the 20 signs, there’s one that’s sending up a red signal flare – U.S. sovereign debt CDS, which is directly linked to the dollar (see chart above).

The U.S. does not have control over many of the indicators listed here, but at least the No. 1 risk factor — the U.S. dollar — is influenced by the national debt and by the monetary and fiscal policies set by the U.S. government and the Federal Reserve.

The longer the debt ceiling debate lingers, the more likely the bond market would start reacting and demanding higher interest rates. A sovereign credit downgrade as a result of missing the debt ceiling deadline would just translate into billions more in interest payments, piling on to the existing debt.

The United States is not like Iceland or Argentina, resorting to default as retorted by some could mean calamity not only to its citizens, but also to the rest of the world. Unless the government and this Congress get their act together, there will be no bailout, and instead of one lost generation to the Great Recession, there could be multi-generation missed in the next Grand Depression.

EconMatters.com

 

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/article/20-warning-signs-global-doomsday

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georgesoros

George Soros said at a panel discussion in Vienna today that “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread.”

The billionaire hedge fund manager whose huge bet on the collapse of the British pound earned him one billion dollars warned about the severity of the Euro crisis, saying, “The financial system remains extremely vulnerable.”

He also explained how the crisis will probably end, according to Bloomberg: it’s “probably inevitable” that a mechanism will have to be put in place to allow weaker euro-region economies to exit the Euro.

“I think most of us actually agree that [Europe’s crisis] is actually centered around the euro… It’s a kind of financial crisis that is really developing. It’s foreseen. Most people realize it. It’s still developing. The authorities are actually engaged in buying time. And yet time is working against them.”

Of course he’s talking about authorities’ efforts to prevent a Greek default by offering help contingent on a budget overhaul. Preventing a Greek default is important because people worry that it would set off much larger and more damaging defaults in Spain, Portugal, and Ireland.

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Original source at: Money Game | http://feedproxy.google.com/~r/TheMoneyGame/~3/dpA9aSmZqx8/george-soros-explains-how-the-crisis-in-europe-will-end-weaker-economies-will-probably-exit-the-euro-2011-6

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How to Kill a Dollar 

Courtesy of Phil of Phil’s Stock World 

How do you kill the Dollar?

That’s the question that was on everyone’s mind last week. The smallest indication of Dollar strength caused a Global equity meltdown. As Stock World Weekly has been pointing out all year, and as evidenced by this 2-year chart of the Dow relative to UUP (Dollar index), essentially our entire 40% rally since last summer was at least augmented by QE2’s 20% weakening of Dollar buying power. 

If we give the market the benefit of the doubt and say there should be a 1:1 relationship between the Dollar losing buying power and the price of equities (which are priced in Dollars) rising, then we could assume that 20% of the rise in the market was “natural” while the other 20% was inflated due to the weak Dollar.  BUT – you have to take into account the double boost that is given to commodity companies who get paid more for what they sell. That’s tremendous over- PRICING of the energy, mining and agricultural sectors.  Our exporters also greatly benefited from the strong Dollar and that benefit will reverse itself should the Dollar reassert it’s strength.  (You can review our Billions of Dollars of profitable trade ideas in the Weekly Wrap-Up, many of which will be useful again this week if we keep falling!) 

Obviously, no one is ready for this. The weak Dollar was pretty much the only reason we had the pretense of a global recovery.  It made it look like there was a demand for commodities (there was not), it made it look like there was a demand for American goods (there was not) and it made it look like we were paying our debts, which we were – but with discounted Dollars that were being created by the Federal reserve at a rate of over $50Bn per month.  

In fact, the Fed has expanded its balance sheet (ie. printed money) by $2Tn since October of 2008.  As you can see from the chart on the left (from the Cleveland Fed), there have been huge increases this year in “Long-Term Security Purchase” (T-Bills) as QE2’s primary purpose was to keep our lending rate artificially low by faking a demand for the $140Bn a month of debt paper that is being issued by the Treasury.

This chart just covers the first four months of the year and you can see Long-Term Security Purchases (in Red) grow from $700Bn to $1.3Tn in 5 months of QE2 (beginning in December).  This has not been an issue of the Fed putting training wheels on the bike for us – this is the Fed drugging us, sitting us on the floor, playing a video of a bike ride and pretending we are ready to go on our own.  

Clearly we are not ready at all!  Just the threat of the removal of QE2 has caused the global economy to begin to wobble and we’ve fallen 7.5% in 30 days and we can’t get up.  The Dollar hasn’t actually gone anywhere – it has simply stopped going down.  We spiked to a low of 72.95 at the beginning of May and are now back to the 75 line, that’s up 2.5% from where we called a market top due, in fact, to the Dollar bottom call we made at the same time.  Now we are, hopefully, about halfway through a correction IF they can get the Dollar to stop at the 77.50 line, which is the falling 200 dma.  We discussed this last night in Member Chat so I won’t go back over it, but it’s all very dependent on whether or not we can slow this descent of the Global Markets and stop them from breaking critical technical support (as I mentioned last Tuesday, S&P 1,266 is the single most important line that needs to hold).  

The entire financial sector threw a temper tantrum starting with JPM’s Jaimie Dimon, who whined almost as much as Bernanke as he spun his little tale of banking woe if Uncle Ben should cut off his QE2 money and leave him at the hands of the evil regulators and their “rules” that might stop him and his pals from destroying the Global Economy (again).  That sent XLF down to new lows and the financials are down over 10% since early April. We’re now playing them for a bounce this week in to option expiration day on Friday.  What Dr. Bernanke and Mr. Dimon both seem to forget is we used to regulate banks just fine under the Glass-Steagall, which worked well for almost 70 years until it was repealed and replaced by the Gramm-Leach-Bliley Act that paved the way for a decade of Bankers Gone Wild.  

So here we are, 11 years after Gramm-Leach-Bliley began the destruction of the Global Economy, and what are we going to do about it?  We’ve created a monster and that monster is the heart of our economy – we can’t kill it.  We could have/should have let it die back in 2008 when the whole system was collapsing but, instead of spending $8Tn on unemployment and infrastructure (enough to give 150M US workers $53,333 each!), we gave it to the Banksters so that they could get back on their feet and, hopefully, eventually, trickle down some of their wealth on the rest of us.  

Of course it’s stupid.  It’s also stupid that we have the World’s lowest EFFECTIVE Corporate Tax Rate and that our top 400 households (who average $300M a year in income) pay an average of 16.6% in taxes while the average family earning over $1M a year pays an average of 22.8% in taxes – 33% LESS than families earning $50,000-250,000 a year!  Our ENTIRE deficit is right there – in our lack of collections, not our excess of spending, which is in-line as a percentage of GDP with the rest of the World.    

Keep in mind that the 11.2% per Million ($112,000) that a wealthy family doesn’t pay, represents 11.2% MORE that 10 families earning $100,000 have to pay ($11,200) to balance out the revenues. This does not even take into account regressive taxes like Social Security, Medicare, Sales Taxes and Property Taxes – all of which disproportionately tax the poor as a percentage of their income.  For people with fixed mortgages, rising property taxes are the number one reason families can no longer afford their “mortgage payment“. 

This was a very clever offshoot of the Reagan Revolution, where home ownership was encouraged under the Tax Reform Act of 1986 while, at the same time, the Government “de-centralized” and shoved a huge portion of the tax burden away from the Federal Government (where income is taxed progressively) and down to the Local Level, where regressive taxes were the norm.  Over the past 24 years, this has shifted over $2Tn worth of tax payments from the top 1% to the bottom 90%.

Well, no use crying over spilled middle-class dreams, is there.  What we have now is an economy that is almost entirely driven by Banking Interests so, if we want our markets to be strong, we need to do what is good for the banks.  At the moment, that means keeping the Dollar as weak as possible. All the stops were pulled out this weekend, beginning with Jean-Clade Junker on Saturday, who lashed out at the US – calling our debt levels “disastrous.”  That managed to knock the Dollar down from Friday’s 75.30 level back to the 75 mark in early EU trading and at 9:30 this morning we hear from the Fed’s Fred Lacker and then, at 7 pm, it’s Fred Fisher’s turn to give us an Economic Update.  

On the other side of the pond, Bundesbank’s Jens Weidmann says a Greek default would not destabilize the Euro saying:  “If the commitments are not met, that cancels the basis for further funds from the aid package.  This would be Greece’s decision, and the country then would have to bear the surely dramatic economic consequences of a default. I don’t think this would be sensible, and it would surely put partner countries in a difficult situation. But the euro would even in this case remain stable.”  Weidmann’s depiction of a default as a liveable outcome contrasts with warnings from fellow ECB officials Lorenzo Bini Smaghi and Christian Noyer, as well as European Union Economic and Monetary Affairs Commissioner Olli Rehn, who described it as a “Lehman Brothers catastrophe” last week – causing the Euro to hit new lows for the month.  

Meanwhile, heading a little further East, China’s June CPI will not hit a record high of 5%. According to the China Securities Journal, it is now likely to hit 6%. Meanwhile, our friends at the IBanks have boosted their bullish bets on Agriculture for the third consecutive week. If all goes “well”, maybe we can shove China’s food inflation high enough to push the CPI over 7% in July! It doesn’t do any good to burst the oil bubble if all the money just moves into a food bubble. We made great money betting that just 369,000 oil futures contracts were unsustainable at $101+, now there are 759,974 net long Ag positions. This can get really, really ugly if they can’t find some way to knock the Dollar back down.  

Let’s be careful out there.  

 

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/article/how-kill-dollar

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