Jim Rickards: Same Currency War, New Battle Phase

by Jim Rickards

The current global currency war started in 2010. My book, Currency Wars, came out a little bit after that. One of the points that I made in the book is that the world is not always in a currency war. But when we are, they can last for a very long time. They can last for five, 10 or 15 years, sometimes longer.

And so it’s really not a surprise that here we are in 2014 talking about currency wars because it’s the same on that’s been going on. A lot of what you read or see on the TV is after some policy move by, let’s say, Japan to weaken the yen. And reporters will say: “Hey, there’s a currency war going on,” or “There’s a new currency war.”

I roll my eyes a little bit and go: “No, this is the same one, the same currency war; it’s just a new phase or new battle.”

So yes, it is going on. And it does have a lot of explanatory power. It’s one of the most important things going on in economics today. I think a year from now, I’ll be writing to you and we’ll still be talking about it.

What is a currency war, in a nutshell? They typically happen when there’s not enough growth in the world to go around for all the debt obligations. In other words, when growth is too low relative to debt burdens.

When there’s enough growth to go around does the United States really care if some country somewhere around the world tries to cheapen its exchange rate a little bit to encourage a little foreign investment? Not really. It’s almost too small to bother with, in the scheme of things. But when there’s not enough growth to go around, all of a sudden it’s like a bunch of starving people fighting over the crumbs.

“This is the same currency war; it’s just a new phase or new battle”

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Vladimir Putin vs. the Currency Markets: What to Know About the Ruble’s Collapse

The New York Times Reports:

Vladimir Putin’s biggest enemy right now may well be the currency markets.

Even as it spars with Ukraine, Russia’s government is in the midst of a full-scale war to preserve the value of the ruble as a plummeting oil price has led to billions flooding away from the country. The ruble fell 11 percent against the dollar on Monday alone.

To try to stanch the bleeding, on Monday evening (the middle of the night Moscow time), the Central Bank of Russia announced a stunning interest rate increase. Its main deposit rate is now 17 percent, up from 10.5 percent when Russian banks closed for business Monday.

It may go without saying, but an emergency interest rate increase of 6.5 percentage points announced in the middle of the night is not a sign of strength. Rather, it is the kind of thing you see only in an old-school emerging markets currency crisis. And that is very much what Mr. Putin’s Russia is now experiencing.

The strategy is straightforward enough. The central bank, led by Elvira Nabiullina, is hoping that with interest rates so high, keeping money on deposit at a Russian bank is too good an offer to refuse. Russians (and Russian companies) have been shuttling rubles out of the country as fast as they can, looking for a safe port. The continued slide of the ruble is all the more remarkable given economic sanctions imposed in retaliation for Russian aggression toward Ukraine that make Russian money unwelcome at many global banks.

Continue reading at the New York Times...

Deflation is Winning

And central banks are running scared

by Brian Pretti | Peak Prosperity

Since early 2009, central banks globally have printed more than $13 trillion. In addition, governments across the planet have increased their borrowings at historic proportions (the US just crossed $18T – another new high!), all in an effort to stimulate economies and avoid deflationary pressures. Total US Federal debt has more than doubled in five years, an increase of $9.5 trillion and counting. The objective? Generate inflation.

In addition, central bankers have not been bashful about explicitly targeting inflation rates they would like to achieve in their respective countries.  We know that in the prior cycle, the attempted reconciliation of credit excesses in the private sector was a key reason the US and global economies experienced a deflationary impulse.  Academically, an increase in inflation allows debtors to pay down debt with “inflated dollars” (assuming wages rise), clearly a motivating factor in global central bank decision making over the last half decade. And certainly “inflated dollars” would also allow governments to ease their own ever-accelerating debt burdens. Please remember depreciated currency allows the perception of inflation and “inflated dollars”.

So where do we find ourselves today?

Have the global central banks vanquished the deflationary demon? Have they “created” enough inflation via money printing to allow debt burdens to melt away? Has the Bernanke deflationary antidote been a success for the Fed and their global central banking brethren?

But Where's The Inflation?

We can start with a very simple look at the year-over-year change in the US consumer price index. What we see is that the current level of rate of change in consumer prices is pushing the lows of the current cycle from 2009 to present.  We are not seeing any meaningful inflationary pressures in consumer prices.  Yes, selective consumer goods such as food and health care costs have risen, but we have seen deflationary pressures in electronics prices and in non-essential areas of consumer spending.  We’re now seeing it in energy prices.  On balance, inflationary pressures are modest at best at the headline level.

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The Collapsing Periphery: The Collapsing Periphery Takes Aim at the Core

by Doug Noland | December 12, 2014


U.S. equities bulls are clinging to a sanguine view of collapsing oil and commodities prices. A well-known strategist was on CNBC late Friday afternoon espousing the bullish thesis, comparing the current backdrop to 1997, when the U.S. expansion soldiered on impervious to EM debacles and sinking commodities. Yet EM debt was miniscule then compared to now. Global debt was a fraction of today’s level. U.S. debt was about a third the current level. And, importantly, the amount of global leveraged speculation was a small fraction of that which surely inflates speculative markets these days. That said, the Russian collapse and LTCM debacle almost brought the global financial system down in October 1998.

Especially these days, “Core vs Periphery” analysis is as fascinating as it is challenging. As always, it’s as much an “art” as it is a “science.” Importantly, initial stress at the Periphery only tends to spur financial flows to the Core. Serious unfolding issues can go so far as to rejuvenate Core Bubble Dynamics. At some point, however, a profoundly consequential transformation begins to unfold: De-risking/de-leveraging (liquidity “vaporization”) actually begins to suck liquidity from even Core markets. Progressively more powerful contagion momentum at the Periphery is apt to jump what had seemed an impermeable fire wall (between Periphery and Core). This will manifest first, often subtly, at the Core’s periphery. Still, with bullishness having become so engrained throughout the Core marketplace, critical warning signals will be readily dismissed.

I believe Collapsing Bubbles at the Periphery have at this point attained irreversible momentum. And the further that crude, commodities and EM currencies fall, the less likely EM countries, corporations and financial institutions will have the wherewithal to service huge amounts of dollar-denominated debt. A critical issue to ponder today is to what extent higher-yielding dollar-denominated debt has been used as fodder for leveraged speculation – for so-called “carry trades” as well as in the proliferation of high-return derivative structures and products. This debt has also found a home in scores of funds that ballooned in size courtesy of central bank measures and an unmatched global yield chase. The amount of dollar-denominated EM debt and its widespread distribution are unprecedented. The associated risks (especially Credit and liquidity) seemed this week to begin resonating.

Back in the late-nineties, the emerging markets were referred to as “roach motels.” It’s always the case that funds flow so smoothly into EM markets and economies. And as long as flows spur domestic lending, booming securities markets, generally loose financial conditions and economic expansion, the dream can persist that EM policymakers and economic players have learned from previous fiascos. At the same time, I do sympathize with EM. Developed world policy ineptness helped to really, really bury them this time around.... 

Continue reading at Prudent Bear.com

Jim Kunstler: Crash-O-Matic Finance

“Oil prices have dropped $50 a barrel. That may not sound like much. But when you take $107 and you take $57, that’s almost a 47 percent decline…!”
– James Puplava, The Financial Sense News Network

May not sound like much? I guess when you hunker down in the lab with the old slide rule and do the math, wow! Those numbers really pop!

This, of course, is the representative thinking out there. But then, these are the very same people who have carried pompoms and megaphones for “the shale revolution” the past couple of years. Being finance professionals they apparently failed to notice the financial side of the business, for instance the fact that so much of the day-to-day shale operation was being run on junk bond financing.

It all seemed to work so well in the eerie matrix of zero interest rate policy (ZIRP) where investors desperate for “yield” — i.e. some return more-than-zilch on their money — ended up in the bond market’s junkyard. These investors, by the way, were the big institutional ones, the pension funds, the insurance companies, the mixed bond smorgasbord funds. They were getting killed on ZIRP. In the good old days of the late 20th century, before Federal Reserve omnipotence, they could depend on a regular annual interest rate churn of between 5 and 10 percent and do what they had do — write pension checks, pay insurance claims, and pay clients, with a little left over for company salaries.

ZIRP ruined all that. In fact, ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. In doing so, it twerked and torqued the concept of “risk” so badly that risk no longer had any meaning. In “risk-on” financial weather, there was no longer any risk. Imagine that? It also destroyed the entire relationship between borrowed money and the cost-structure of the endeavors it was borrowed for. Take shale oil, for instance.

The fundamental limiting factor for shale oil was that the wells were only good for about two years, and then they were pretty much shot. So, if you were in that business, and held a bunch of leases, you had to constantly drill and re-drill and then drill some more just to keep production up. The drilling cost between $6 and $12-million per well. What happened the past seven years is that the drillers and their playmates on Wall Street hyped the hoo-hah out of the business — it was a shale revolution! In a few short years they drilled to beat the band and the results seemed so impressive that investment money poured into the sector like honey, so they drilled some more. It was going to save the American way of life. We were going to be “energy independent,” the “new Saudi America.” We would be able to drive to Wal-Mart forever!

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Mike Maloney: Federal Reserve Trying to Reinflate Real Estate Bubble

Michael Maloney is a precious metals investment expert and historian and the author of the highest selling precious metals investment book of all time, Rich Dad’s Advisors: Guide to Investing In Gold and Silver. Mr. Maloney has been a precious metals investor advisor to “Rich Dad” founder Robert Kiyosaki. A student of economics, Mike is regarded as an expert on economic cycles and capitalizing on the opportunities they afford.


Ready for the Second Great Depression?

The Second Great Depression is upon us, being skillfully hidden by government and media powers that be.

There is a long term structural shift in the economy, with multiple feedback loops:

Technology is moving forward ever faster, and will not cease its relentless march during during the Second Great Depression.  Spectacular advances continue, but mostly under the radar and without much fanfare, even as our world is reordered.

The Economy, the realm of personal economics, businesses, markets, macroeconomics, currency wars, fiduciary instruments and the larger universe they inhabit, is shaped by technology. Both of these have profound impacts on…

Society & Social Phenomenon The Second Great Depression shows up in unusual and unexpected ways as society is reordered in revolutionary ways. Ultimately, these uncomfortable changes put pressure on how society is ordered, which brings us to…

Politics and Government Government is the ultimate crowd: The last to catch on, and the one left holding the bag at the end. Don't be caught off guard. Keep abreast of events as they unfold. The Second Great Depression will not be televised. It will be brought to you live.

Paul Craig Roberts: Fed Laundering Treasury Purchases to Disguise What’s Happening

By Greg Hunter’s USAWatchdog.com

In his latest article, former Assistant Treasury Secretary Dr. Paul Craig Roberts says, “The Fed is the great deceiver.

Why is he making this shocking accusation? The reason is tiny Belgium’s whopping purchase of $141 billion in Treasury bonds earlier this year.

 Dr. Roberts explains, “We know that Belgium didn’t have any money to buy $141 billion worth of bonds over a three month period. That sum comes to 29% of the Belgium GDP. So, they don’t have a surplus in their budget that is 29% of their GDP, and they don’t have trade or current account surplus in that amount. In fact, everything is in the red. Their budget deficit is in the red, and their trade and current accounts are in the red. So, Belgium didn’t have the money, and yet, they managed to pick up $141.2 billion in U.S. Treasuries over a three month period.

 So, where did they get the money?”


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Ralph Acampora: I have 'sick feeling' 25% crash is ahead

Ralph Acampora, who is often known as the godfather of technical analysis, tends to be bullish on stocks. But on Thursday, as the major averages all dropped more than 1 percent, he expressed a massively bearish view on U.S. equities.

 On "Futures Now," Acampora predicted that the S&P 500 would drop "10, maybe 15 percent between now and maybe October," but said it would be much worse for small caps, mid-caps and tech stocks. "If you ask me about the Russell and the Nasdaq Composite and the S&P MidCap, I think you're talking about 20, 25 percent. And I call it a stealth bear market going on."


More: www.cnbc.com/id/101677465

Snapchat and the Disappearing Bears in the Stock Market

Bear Market Alert!
See what happens in the financial markets when the bears vanish

By Elliott Wave International

If Inspector Gadget or Maxwell Smart had lived in the digital age, their bosses would have used the smartphone app Snapchat to deliver their secret missions.

Snapchat is a popular app with about 8 million users that lets your smartphone send a photo that self-destructs seconds after your recipient views it. As of September 2013, users were sending about 350-400 million vanishing messages a day -- which compares with the 127.5 million shares that changed hands in the Dow on Jan. 27, 2014.

But when Evan Spiegel, the Stanford student who came up with the idea, unveiled it to his product design class in 2011, his classmates gave it a thumbs-down. Disappearing photos? Who will use it? Little did his classmates know how the app, originally called Picaboo, would go on to capture the attention of teenagers and young adults. And even a few older folks who want to connect with them, such as 51-year-old Senator Rand Paul, who recently signed up to woo younger voters.

The idea of the disappearing photo applies beautifully to the situation in the stock market today. Pessimists on stocks are disappearing quickly. And so are bearish analysts. Not in 10 seconds, but they are still doing a version of a Snapchat disappearing act. Here's how The Elliott Wave Financial Forecast describes it (emphasis added) in this excerpt from our just-released 2014 State of the Global Markets report:
Investor Psychology
From The Elliott Wave Financial Forecast, December 2013
Our list of rare optimistic extremes is growing. This chart shows that advisors are now more optimistic about the stock market than they've been in 26 years. The middle graph displays the bull/bear ratio from the Investors Intelligence weekly advisors' survey (InvestorsIntelligence.com). Bullish advisors outnumber bearish ones by a four-to-one margin for the first time in over 2½ decades...
And it's not just advisors. Assets invested in bull funds in the Rydex family of mutual funds is 5.3 times the assets in bear funds, an all-time record ratio. The bottom graph shows the total assets in Rydex's government money market fund, which just dropped to a new all-time low on a daily and 5-day basis. This record low in money fund assets indicates a record desire to own stocks and bonds and a record disinterest in investment conservatism. These measures are as bell-ringingly bearish as any we have shown in the 14-year history of this newsletter.
But what does it mean for the markets when most of the bears capitulate to bullish optimism? Not exactly what you might think. Here's how the article continues:
The Nov. 11 issue of The Wall Street Journal delivered another key piece:
Stocks Regain Broad Appeal
Mom-and-Pop Investors Are Back
The buyers, many with investment portfolios that were scorched during the market meltdown, are climbing aboard a ride to new highs in the Dow Jones Industrial Average.
The article cites several "propelling" forces behind individuals' re-entry that are actually classic by-products of a terminating mania. The main one is that a heightened state of optimism causes people to buy simply because prices are high and rising. The WSJ article cites the case of a 65-year old real estate appraiser who returned to stocks "when he saw a market pundit predict the Dow, up 167.80 on Friday, could hit 20,000 this year. 'I still think there's huge upside in the stock market,' he said. 'I don't want to miss out.'"... A Citigroup corporate finance expert illustrates that professionals are not immune to the bullish vibes: "This year feels like it did earlier in my career, when I had the optimism to say, 'I'm really going to have a retirement.' It feels a lot better now."
Of course it does; that's what happens near a top. The former remorse and inexplicable negative feelings have completely vanished, which means the uptrend that started five years ago should be exhausted.
Is that what you expected to read?

Elliott Wave International has been sending out pictures (that is, charts) of a bearish market for a while now -- and they do not self-destruct in 10 seconds, a month or a year. No Snapchats of a bear about to turn bullish here. And if you want to get EWI's take on Snapchat itself, read on:
From The Elliott Wave Financial Forecast, December 2013
With the share price of mainstream technology companies such as Google, Netflix and Priceline hitting new all-time highs in November, the dot-com revival is closing in on its original late-'90s insanity. Among the many resurfacing symptoms of the old fever are reports of "eye-popping" "vanity metrics." The term vanity metrics refers to late 1999 and early 2000 valuation methods under which the standard devolved from price/earnings to price/sales to price/click ratios.
Reuters reports that "valuations for high-flying startups" are once again "hitting nosebleed levels," as "the obsession with 'eyeballs,' or raw numbers of website visitors that defined the dot-com boom of the late 1990s," is back. Reuters cites Snapchat as a prototypical example. Snapchat is a startup company based on an app that allows smartphone users to send pictures that vanish after a few seconds. The company claims users are sending 400 million "snaps" a day, but it refuses to explain exactly what constitutes a snap. It also has no profits or revenues. Nevertheless, the company's 23-year-old founder turned down a $3 billion buyout offer from Facebook "based on hypothetical revenue." Financial writers said the decision made sense because Snapchat can get more from a Chinese e-commerce company or in an IPO.
We disagree and think this kid will be kicking himself for the rest of his life. The company may indeed get lucky, but we've been down this road before. The vanishing picture app may someday become a metaphor for Silicon Valley's last hurrah.

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This article was syndicated by Elliott Wave International and was originally published under the headline Snapchat and the Disappearing Bears in the Stock Market. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.