Global Currencies Showing Strain

We are starting to see the countries run into currency problems.  I have written for years how this should start between 2013-2017 culminating probably around 2017.  I have been amazed how well the system has been able to hold itself together despite the challenges the global banking system has had.

Greece would have lead the world on this front, but since it is part of the Euro, instead of currency problems they have been rewarded for years on end high unemployment and low wages.  With 45% below poverty line, its a powder keg.

Venezuela is having severe issues, with reports of toilet paper shortages,   The antics of the government are amazing.  Many of the knee jerk reactions of price control and government annexing merchants who refuse to sell goods at a loss is par for the course.  What amazes me more is this tactic never works, so it must be good to do yet again.

Argentina is also having currency problems, with yet again many government antics taking place.  Argentina has had their currency collapse quite a few times in the last 70 years.  You'd think that they would have figured out how to handle it better by now.  Government BANNING imports and IRON FIST for merchants who refuse to sell goods at a loss.   50% internet tax, food price fixing, etc. Good luck with that!

Ukraine has imposed a 6 day waiting period for foreign currency purchases with additional capitol controls instituted.    When I read this what I see is the super rich in that country will continue to drain their wealth out of the country while the common person remains TRAPPED with their devaluing money.  This gives the rich more time to exit with more of their wealth preserved.  When such actions are taken, everyone in that country should apply to exchange money since they have no clue what 6 days will look like.

Brazil and Russia are having their interest rates rise for cost of government bonds and they don't like it.  The solution? Don't hold bond auctions!   While in some aspects this is reasonable, if you don't issue debt over time the debt should become scarce, lowering the premium.  But without me doing any research, I am going to take a wild guess those countries did not unilaterally cut spending to match this action.  Assuming I am correct, they are going to need to auction off bonds to pay people at some point.  Or they can follow USA central bank and simply have their central bank buy their bonds.  In any event, I hardly think world opinion for bond games like america can do will go over well for those currencies.  Rising rates = potential currency run.

Turkey currency the lira has been devaluing quickly under currency fears.  That has in turn lead to yet again, capital flight.  Imagine that, those who can move wealth out to safety, do.  This has sparked a real estate sale in Turkey.  Once these things light, its pretty hard to put out.

Europe Union under the Euro has been and continues to be a challenge.  Spain, Portugal, and Italy have very challenged economies.  Greece's debt is NOT the worst as a percent of GDP in Europe, I put a nice graph at end of this post to show how the debt monster is starting to turn it's head.

China bank HSBC for a short period was instituting capital controls to restrict money flow.  That was quickly overturned once it hit mainstream media to avoid a panic.  This is a tell.  Why did they do this? Because there are issues that people are trying to 'help' by slowing the flow of money.  It doesn't matter they overturned it, there is something not right.

Bottom line people is this is not normal, we are entering the phase I stated in Global Currency Shakedown, Round 4 begins in October that things continue to move along nicely for the next phase of this now 5 1/2 year crisis.  I believe gold will fare well early, but I am starting to realize the end game is we all go to crypto currencies like Bitcoin.  I have started to open accounts and move money as an experiment into Bitcoin and Litecoin and start familiarizing myself with crypto currencies.  I stated back in Jan 2011 in post 'power to the people' that the best thing for the world is to go to crypto currencies.  There are now 83 crypto currencies and growing, there will be winners and losers.  I can't see how Bitcoin loses in the near term so for the short term one of the safer places. I'll do a post on this in more detail later, I highly recommend you listen to this podcast.  Thanks to Mike C for the link!

The Great Unwinding is starting in 2014

In Sept 2008-March 2009 the world decided to double down on all problems and have the world banks and governments go all in to prevent an epic economic collapse.  For now, I'll steer clear of political debate if this should have occurred, lets assume the world was better off to act.

What I can say for certainty is what brought the economic catastrophe was NOT corrected, and this is the greatest sin since March 2009.  The world pissed away about 5 years that could have been used to fix the social economic order, instead we doubled, tripled down.     In hindsight, maybe thats all the world is capable of doing, keeping the same dance a moving until the song must change.

So here we are, lets take a look of signs of the Great Unwinding is starting to happen.

1) Countries currencies are destabilizing, with Argentina and Venezuela leading the way, Turkey looking to follow.
2) Greece after years of oppression is ready for fundamental change its only a matter of demographics as 45% hit below poverty line.
3) Various stock markets are hitting into trouble as Brazil plummets, US market hitting resistance,
4) HSBC, a very large Chinese Bank, is restricting withdrawals, not a sign of financial confidence for what is supposedly a global economic leading country....
5) US is bracing for a fundamental shift in retail, to last for potentially a decade of employment decline.
6) Banks in Germany, France, Spain, and others face a 1 trillion dollar reserve shortfall.
7) Back in 2008 I posted how China and India would squeeze USA of resources, with Oil as a key concern.  China is positioning to secure oil globally while USA uses local, temporary, fraking to cover the shortfall.
8) Global tensions are mounting, with various points of contention that could cause a catalyst for global tensions to flare, right now Japan and China are key contenders for sparking escalation.
9) In general, currency volatility is higher so far in 2014, with it expected to continue....
10) Gold on verge of possible break out, while not a sign of doom, it may be an indicator of economic sentiment change.


So while none of above really proves anything, we are opening 2014 with a heck of a bang!

Greece, Ireland, Portugal, Spain, what is wrong

The Euro is a way for the 'richer' countries to extract value from the poorer countries.
It isn't a normal fiat currency.

Nigel Farage gives a nice speech to describe the situation that has been created.

Euro Enslavement of Europe by Germany

I have been delaying quite a rant about Germany.  Mostly I needed the time, and the fire in my belly to take the time to do this topic justice.

If you have been paying attention, Greece, Spain, Portugal, and other countries in the Euro are hurting bad.
On a collision course to the potential epic explosion of the Euro is France vs Germany.
To learn more about the state of these countries, click on the links above.

At the heart of all these problems is the Euro.
The Euro is NOT a pure fiat currency.  It is a currency that has strings attached, set by the dominant members of the Euro, with Germany at the heart of this debate.

Lets examine Greece as a case example.  We'll bypass how Greece could never have entered the Euro without bogus off-the-book tricks to make their balance sheets look good enabled by large financial companies.    The Euro (Germany) sets the rules that to be a member of the Euro you must have your finances in order.  Countries cannot run deficits of 250% of GDP like Japan does.  Such recklessness is at the expense of saving nations, like Germany.

Germany looks like the victim, a saving nation bailing out its neighbors, and enforcing tough love.  This tough love of course is causing Greece to experience about 60% youth unemployment, 27% for general population,  and 10% of all children at risk for insufficient food.  A tough person would look at this and say "hey, Greece dug this hole, let them dig themselves out for the next 50 years".  That in itself has issues for anyone born since 1980, hardly fair price to pay.

So the question is, why did Germany enter into such a disastrous marriage with countries with less than stellar financial histories?  It is simple, it benefited Germany.  How  you may ask?  It is a slight of hand that must be followed carefully.

Lets assume there was NEVER a Euro.  Every country would have independent autonomy on their currency and finances.  Greece could continue to (over) spend  on their economy without having to cut back on their finances.  You may say, that's illogical, they couldn't do that forever.  True, there may be consequences but the likely net result is a currency that continually loses value compared to saving nations, like Germany.

So in 1990, 1 Drakma could buy 1 German Mark.  By 2013, 5 Drakma buy 1 German Mark.
This of course, looks bad for Greece, their currency slides lower while Germany acts responsible.

So say you live in Greece and buy a BMW car for 30K in 1990.  Car runs great and in 2013 time to buy another car.  Now that same car will cost you 150K in 2013 in Drakmas'.

All things being relative, this will likely result in LESS German goods being purchased by Greeks.  Now expand that thinking to every country 'not as fiscally' responsible as Germany.

The net result is for Germany to keep its exports healthy, it would REQUIRE to cut it's standard of living to it's citizens to bring down that car to say, 70K from 150K.  Sure its not 30K, but something that may strike a balance of economics vs standard of living.

Now, which sounds better to you, have a customer base that sees your BMW as a 30K car in 2013, or 150K?  The consequence of course is what Greece is experiencing today.

The only victim in Germany and Greeks citizens who believed their politicians.
Now the real victims is the youth of all countries, as they have near zero prospects for work. What we are building now is a European revolution, as the young get older, disgruntled and angry.  Once we have a majority that are angry, this farce will end in a spectacular event.

Euro Doomed

The Euro was doomed to fail the instant it was created.
It is not a true fiat currency.  A true fiat currency can be printed, at will, for whatever reason.  Need more cash, just issue more!

The euro requires memebers to try to keep a fiscal order.  If you have high debts, then get it under control.  The US has no such limitation.

So countries like Greece, Spain, Italy get slammed while the savers of Europe, such as Germany scream they must get their lons repaid.

The result is a currency at odds with itself.  If countries like Greece had their own currency, they would print more money - answering to no one - and continue on their merry way.  Their currency would likey trend lower vs German currency.  The local Greeks would be appeased and not rioting.  However, rest assured, german exports would be too expensive for most greeks and not buy german products.

So one side benefit of the Euro is to ensure everyone keeps currency relatively flat to each other.  This DRAMATICALLY favors the sellers and puts the debtors at great disadvantage.

Niral Firage has a nice speech about recent step being done.  Announcing to the world taking money from EVERYONE's savings as a tax, over-night, no wardning.    The message is: dont keep money in banks, keep them in mattresses.

It is stuff like this that WILL create a crisis, and assets keep value, some like gold may explode up.
People still don't get it.  Printing money doesn't cause currency problems, faith in the stability of the finance does.  And what message does it send to announce taking people who have money to pay off some of other people's debt......

Nigel Farage and the Fall of Europe

I have posted on Nigel Farage before, a shrewd politician who speaks directly on the weakness of European Financial positions.

This interview is a good one on Nigel.  My only hesitation with Mr. Farage is I am unsure of what his long term objectives are.  The stereo typical politician panders to the fundraisers, explaining why Nigel stands out so much.  A good watch none the less.  at 25 minutes in, a good commentary from Jamie Diamond and purchase of Bear Sterns with Government encouragement.

In Europe news, Greece unemployment 25% and climbing, French Economy taking a hard turn down, Spanish bonds being dumped abroad, and European union secession support gains in Belgium.

Market Cycles

My friend John, a professional securities trader, has recently become bearish enough to put a toe into shorting the market, for near term.  He views the market movements after QE1, QE2, different than current after QE3.  The market movement difference now has encouraged him to take a bearish stance on the market.

If you read the news, there is plenty of bearish news to back up this view.  Fedex shipping is down, which can be compared to GDP forecasting, California sales tax revenue declined 20% YOY in August,  IMF chief warns of US financial issues in short, medium, and long term, Eurozone is seeing steepest contraction since 2009, Japan exports contract 3rd month in a row and China PMI contracts, Toronto home sales decline 64 percent (due to law change).
Pile on the Euro news with Greece, France, and Spain seeing Neo-Nazi fractions rising threatening those countries status quo.

Now lets look at the opposite view, there is plenty to find, but I am quoting the top two from my perspective. The Federal Reserve bank believes QE3 will help the US economy, as QE1 and QE2 did in the marketplace.

My favorite market watcher Gary of Smart Money tracker is calling for a "near term" bottom with market reversal.  Gary isn't the sort to make super long term predictions like the year ahead, he watches cycles to see next move.

So what is next?  A market fall of significance is always in the cards, especially if you look at history now or in the Great Depression.  (currency wars occurred back then too)  I am mixed, while I don't think in the year ahead we will see 30% market gains, it is possible the market finds a dead range of +10% and -10%.  My inner voice tells me the market is very weak and going to implode, but then again, I have heard that voice a few times in the last few years.

A conservative stance is probably in order, and on any strength, I may continue to lighten to be nimble.

Easy Money Ahead, Invest in Precious metals

Let me repeat for readers who are not long term followers.  I am NOT a Gold Bug.  I do not believe Gold is money, or that the federal reserve bank printing of cash is entirely responsible for rising resource prices.

With that said, today the ECB will announce details around a new save the Euro plan, which is being hinted at to include bond buying.  Once the ECB institutionalizes buying boys (aka Quantitative easing), the euro may be on a path to stability.  For all issues can be simply responded to by buying bonds issued to prevent risk rates to rise.

In effect, simply print money.

In principle, I think this is a good thing, in practice it will likely lead to some very unexpected adverse effects.

One of the effects is the western (and to some degree eastern) economies have now established.

1) Large companies are not permitted to go bankrupt
2) Fix income based on risk assessment will be short-circuited for governments and companies that politics deem safe havens.
3) Governments are not permitted to go bankrupt (until it costs more to prevent then let it happen)

These will have repercussions, one of which is net "easy money".   The only question is can easy money over-come credit deflation.  It may not now, but some day (month, year, decade) it will, and when it does, it isn't going to be pretty.  Look how long the ECB has taken to get to the point of agreeing to buy bonds and "save" the euro.  Can you imagine when easy money has to stop? Lag times of years will be devastating.

So onto investing.  We may be at another "bottom" for gold miners.  Then again today the investment world may rally on easy money, and collapse next week.

UPDATE 9-7-12: ECB Unlimited Bond buying announced.  Friday gold and assets rally.  Will this be a new bounce or a head fake?

Now isn't this fun?  I am still in GDX & GDXJ 33%

Economics Degrading, what is up with Oil?

This post shows links to other blog posts news items as a basis for this view presented.
I encourage readers to click on links for detail on each macro item presented.

Trouble in the Eurozone as more countries come under citizen pressures.

Spain and Italy are both experiencing protests and a growing call to leave the Euro.

China unemployment higher than their government is reporting, china trade plunging.
Japans trade surplus drops a whopping sixty three percent.
Australia  real estate market collapse has begun.  Their collapse may be similar to US sub-prime repeat.
Euro-zone PMI steep rate of contraction, Germany signals steep slow down.
There are hints of a global collapse in auto-sales has begun.
The Germany is entering a legal gridlock in moving to a true fiat currency or participating in larger bail outs.
Twenty six states in US in severe drought, killing massive amount of food crops, a probable signal to higher prices.  Farmers slaughter cows in droves to avoid food price increase.
Oil prices are going parabolic, increased input costs in a slowing economy does not bode well.
France has increased their top tax rate up to 75% federal tax rate, rich flee in droves.  With the rich gone, finally France can prosper?

All of the above and more point to a global economic slow down and we are in a global recession.
I for one believe that we are.  Food and Oil may continue to rally, but I wait to see what precious metals do.
In a deflationary collapse any rally could overnight turn into a full out collapse, so any longs are riskier than normal.

The main question is will global central banks plan a monetary assault in an attempt to stop the deflationary collapse.  Even that is not a solution, for our debt based government system as a built in time bomb called bonds.

As for Oil, it is disturbing AS The economy slows down, the price is leaping higher.  If it collapses shortly, then not a big deal, just a short term rally.  If it is rising due to politics, or supply, we may have a real issue at hand.

For now, its wait and see.

Europe failure could trigger global depression

The Euro is not a true currency, but is a currency peg.

The euro was doomed to fail in it's current state the moment it was created.

Will Germany agree to debase the Euro and therefore Germany helps pay the tab.

A great video with Chris Martenson making the call Europe will print and Germany forced into this path.

The only question is will this happen before a true global crisis or will 2008 repeat?
Chris Martenson is author of crash course I have featured before.

Well worth the watch, first 15 minutes of each video,

Martenson on Fiat Currencies, exponential functions, and energy crisis

Europe is a Giant Ponzi Scheme

Good watch on Euro is not a proper currency, and the government debt bomb.




I am starting to think pure fiat and no bonds is the only way out....but of course it wont be done right and will lead to worse things.

Pending European Union Failure

The European Union in it's current state was doom to fail the moment it was created for one simple reason.
The Euro which it is based on, is NOT a fiat currency.  It is a fiat currency tied to economic shackles on countries.  I say shackles for countries like Greece could simply print more money to pay their debts.  Granted, their currency would devalue, and their interest rates to borrow abroad rise.  But that would be the 'gentle' and to force Greece to improve their economic imbalances.   One way that would happen is in a currency devaluation is to NOT increase the salaries and payments to bankrupt social services.

They would in effect re-balance their budget through currency debasement.  Granted it is a very ugly way to do so. The right way would to get some adults in the room and balance a budget.  But since that is no longer possible, then currency debasement is next way to get there.

Spain, Greece, Ireland, Portugal, and others are all insolvent, unable to keep their debt ratio in line to belong to the Euro currency PEG.

A great rant by Nigel Farage once again about the reality and pending failure of the Euro.   There is an out, give up on balanced budgets and print print print.  But Germany in effect will be looted, the question is, are the German citizens going to allow it to happen?

CNBC Rant by Rick Santelli

This is one aggressive rant from a major news source, CNBC by Rick Santelli.
But then again, who cares, summer is here, time to think happy things.  For those who want to ignore the negative, click here for funny videos.

Skip to 3:30 into video.

Capitalism and Austerity

In Capitalism, there are suppose to be winners and losers, in a sort of evolutionary game of business.   In business if a company can't hold up it's end of an obligation, it defaults, and the lender takes the hit as well as the borrower getting a black eye on credit worthiness.

That is how it used to work.  As it is well known now, most larger institutions are allowed to avoid taking losses, through changing of accounting rules in place since the great depression. (mark to market).   Also by quasi government institutions setting up special funds and funding. (Federal Reserve Bank).

What we are seeing in Europe is similar, but since there version of Federal Reserve bank and their governments can't just print money at will, they are shifting in the other direction.  Asking debtor nations to cut back.   What this really is the lenders wanting to avoid taking hits from the borrows inability to pay back.

So instead of taking the hit, they want everyone to take the hit...for decades...or however long it takes to get their payment back.


Below is great video to explain all of this.  I don't agree with every sentence here, but 90% is on the mark.  Well worth the watch.

Hitler's take on the European Financial Issues

I enjoy the use of this video for so many different topics, enjoy.

Europe Stick Save

Looks like we got a market near-term bottom Friday, as Germany and France announces a "stick save" for the crisis.  It can't work, but that doesn't matter.  The market has sold off hard, and on any good news, a relief rally should happen.

So I'll hold off this week in charts until the close Monday, to show the "bottom" depicted.

I may move harder into cash in a week or 3, when a relief rally looks ending.

European Crisis ahead

I am continually amazed at how incredibly irresponsible people are at their jobs and responsibilities.  The European situation was obvious to me and many other bloggers years ago that they where sitting on a pile of lies.  A pile that makes the USA lies look not that bad.

And here we are, day after day, month after month of the European political drama of denial and patchwork promises to stabilize the union.   What have Europeans gotten for all this effort? Their (and US) tax dollars thrown at bankrupt countries, banks, and other financial institution with NOTHING done to address the root cause, excessive debt, lack of transparency, and mark to fantasy accounting.

Greece's bond rates I have published before soared.  Now its spreading to Italy, Spain, Portugal, Ireland, Belgium and even France!

The leader for being the next Greece fiasco is Portugal, with soon to follow Ireland, Spain, or Italy.
Once one of these countries become the next Greece, I predict we won't have a 3rd, but a 3rd, 4th, 5th, and 6th at the same time.

Prediction: Europe is incapable of doing the right thing, as America has proven it isn't either.  So we must have a European crisis.  And Germany WILL buckle and print the euro just like America.

Next its a coin toss on who goes down next, China, US, or a long list of other countries.
But for those who think the US is untouchable, your just like most Europeans 1 year ago.

Once those countries buckles, then its time for the global currency crisis.  I still think 2013-2018.  It takes quite a while for this to play out.

Where is the bull market?

The US stock market has been fairly resilient during the European debt crisis.  The US dollar has risen during this crisis and held it's gains.

But so far, the US stock market has not clearly entered into a bull market, and has been trading in a range.
But there has been one area that has been resilient, price of gold, price of gas at the pump, and the price of food.  The common thread of course is natural resources.  Granted, all have come off their highs, but their prices have not collapsed.  Sure, copper collapsed, and so did corn, but those bubbles are reflections of how strong the overall commodity market is.

I am cautiously optimistic that during the European drama, that gold maintains relative strength.  This is a stark contrast to 2008, when oil hit a high and started to collapse, the entire commodity market swooned AHEAD of the market collapse.

To be clear, gold is not money, and there are no guarantees of it doing well in a Euro collapse, if that transpires.  But in 2008 people looking for safety ran to USD and euro.  Then when US decided to openly devalue it's currency, some  ran to the Euro, driving it up significantly against the USD.

If the Euro does enter a crisis, people that got burned may not be so quick to run back to the USD, but instead into gold.   And I am also following Gary of the Smart Money tracker into Gold Miners (ETF's GDX and GDXJ).

The hope being that money MUST flow somewhere in a crisis.   With the US Dollar not clearly going to soar for years to come, and no one trusting China's currency there isn't many options.

Japanese Yen and USD will continue to do well I believe in the short term.  Many people will flow into them, as they have done for 30 years, when looking for saftey.   But the key is to look at what happens once all the people run from Euro and other currencies into USD and Yen?

Maybe, if we have a global currency collapse.  But I doubt that.  It is more likely when the dust settles in the Euro, the USD will have seen it's final rally, as there are no buyers left.  Similar to what happened in the US stock market in 2009.  But the time the S and P 500 hit 666, there where no more sellers left, only one way left is up.

By the time the USD hits the high at the Euro crisis, whenever that is (next week, next year?), there will be no more surge of buyers.  Then there is only one way, down.

With gold I want a foothold BEFORE the USD hits a high, to be positioned for the finale.
Good luck.

Greece destabilizing fast, time for European meltdown?

Greece is destabilizing fast.  Greek prime minister George Papandreou replaced the top brass in Army, Navy, and Air Force in a surprise move.   This is following another surprise move by announcing holding a public vote on  EU bailout agreements, as soon as next week.

Government Greek 1 year bonds now pay a return of 205%!!!
If you bought 10,000 euros of Greek government 1 year bonds, in 1 year, the bond will be worth 30,000 Euros!

The current proposed plan is to cut bond debt by 50%.  So if the 10,000 euros turned to 5,000 Euros, in 1 year it would be worth 15,000!  Still a 50% gain for 1 year in bonds.

It should be obvious that this is not risk free.  There is a reason why the rates are so high.
Because the government is destabilizing and you may get ZERO return on your bonds.

And if Greece falls, expect Spain, Portugal, Italy, and Ireland to  be not too far behind.
If Europe enters into a classic deflationary collapse, which is once again it is looking to be, the entire market could get a big flush.

Good luck.  We live in truly historic times.

European Union, the 20th Deadline to resolve is Wednesday

Wednesday's deadline for the Eurpean union to resolve their sovereign debt, after a string of deadlines for over a year to resolve, is now in focus this week for the markets.

I haven't commented much since I was so confident zero would get done, and I was right.
But this week, there may be a peep, I doubt final answer on the European crisis.   But we may actually get some foothold of the new reality out of Europe this week.

We could hear it Wednesday, but I suspect just one more kick the can into Friday for an announcement.
In any event, this is a crucial decision of Europe that will shape all of western countries next couple of years.   I just don't believe the right thing will be done.  Instead I expect more paper games to cover the crisis, until the crisis gets so big, no European country can avoid the vortex created.

It just boils down to take your medicine now, or wait until Europe is on the hospital operating room with a massive near fatal heart attack to see the outcome.