Perspectives on the global economic changes

Austin · Post by **Austin** » 19 Nov 2015 15:25

Thanks Pandu and 1 Million Dollar of Gold today will fetch $62 million

Compared to david I find GG a bit more complicated to understand

Austin · Post by **Austin** » 19 Nov 2015 15:31

Why is Russia’s Central Bank planning to print 1 trillion rubles?
November 18, 2015 Anna Kuchma, RBTH

The regulator intends to inject $15 billion of cash into circulation

Russia’s Central Bank is to inject 1 trillion rubles ($15 billion) in banknotes into circulation in December, allegedly to cover a seasonal demand for cash.

The regulator’s first deputy chairman Georgy Luntovsky announced the upcoming cash issue on Nov. 12. According to the Central Bank, the amount of cash in circulation in Russia exceeded 7.7 trillion rubles ($115.7 billion) as of Oct. 1.

The head of the Bank of Russia, Elvira Nabiullina, said that the decision on the issue has been made due to the growth in the demand for cash that typically occurs at the end of the year.

Where does the shortage of cash come from?

According to Central Bank statistics, the volume of cash in open circulation grows annually in December and then falls again at the beginning of the new year. For instance, in December 2014, the amount of cash increased by 914 billion rubles ($13.7 billion) to 8.8 trillion rubles ($132.3 billion), while by the end of January 2015 it had dropped to 7.7 trillion ($115.7 billion).

"Usually in December, the budget spends up to 40 percent," said Vladimir Tikhomirov, an economist with the BKS Financial Group, who attributes the increase in cash to a growth of budgetary spending. In addition, the population starts to withdraw money from accounts more actively in anticipation of the holidays.

"The further reduction of the ruble mass can be explained by capital outflows, the transfer of rubles to the currency and the transfer to accounts," explained Sergei Grigoryan, head of the analytical department of the Association of Russian Banks (ARB).

What will the issuance influence?

According to Nabiullina, the issuance will not lead "to any other effects" associated with monetary figures, as the regulator plans to take into account the parameters of the demand for cash. Earlier, the press service of the Central Bank said that the regulator was “not talking about an increase in the money supply" (the total amount of money in the economy, both in cash and non-cash form – RBTH).

However, experts interviewed by RBTH believe that this is impossible.

"To print more money and put them into circulation, while not increasing the money supply, is possible only if to withdraw part of the notes at the same time, such as the old ones. But the Central Bank's report does not talk about this," said Grigoryan.

"This is most likely about the replacement of one trillion bank deposits for cash," said Vasily Solodkov, director of the Banking Institute at the Higher School of Economics in Moscow.

As economist Sergei Alexashenko points out, the "concept of 'printing money' or of 'increasing issuance' in relation to the Bank of Russia has a figurative meaning.”

According to him, the Central Bank always issues non-cash money first, which is allocated to bank accounts, and then banks exchange non-cash money for cash.

At the same time, Grigoryan notes that the increase in money supply (M2 is the denotation used by the Central Bank) could be beneficial for the Russian economy.

"The more money, the stronger the economy, while in Russia, the ratio of M2 to GDP is extremely low," he said.

The money supply equals almost half of GDP – 32 trillion rubles ($481 billion) against 70.9 trillion ($1.066 trillion) as of the beginning of the year. For comparison, in China, on the contrary, the money supply is twice the country’s GDP.

"The Central Bank fears increasing the money supply, believing that it will accelerate inflation. However, studies by the ARB (the Association of Russian Banks) have shown that in Russia, inflation is not monetary, it depends on the tariffs of natural monopolies," said Grigoryan.

Easing the strain on Russia’s banks?

The experts interviewed by RBTH also had other explanations. According to Alexander Abramov of the Russian Presidential Academy of National Economy and Public Administration, the reason for the issuance is not a lack of cash, but a liquidity strain for banks.

Abramov cites Central Bank statistics: At the beginning of the year, the monetary base (bank liabilities) was 11.3 trillion rubles ($169.9 billion), but by Nov. 1, it had been reduced to 9.7 trillion rubles ($145.8 billion).

"Until now, to increase their own liquidity, banks borrowed through repo transactions [transactions with a promise of repurchase or sale after a certain period of time and at a certain price – RBTH]. However, due to high interest rates (11 percent), banks have stopped using this tool," said Abramov.

"To provide banks with enough working capital for deposits and lending, the Central Bank has decided to provide funds essentially for free," he said.

In March, the Central Bank's first deputy chairwoman Ksenia Yudayeva noted that the regulator did not see risks of the acceleration of inflation through the printing press.

Austin · Post by **Austin** » 19 Nov 2015 15:34

^^ How true is when they say China Money Supply is twice of the Countrys GDP while Russia is half of their GDP

How much is India's Money Supply in comparision to size of its GDP ?

RoyG · Post by **RoyG** » 19 Nov 2015 19:35

Private debt including student loans is really the killer. Family structure in the US is unwinding and the kids aren't being brought up with any sense of fiscal responsibility.

panduranghari · Post by **panduranghari** » 20 Nov 2015 13:16

Oil and shale are already in trouble. Now the retailers are in trouble too. According to Bloomberg, Macy -The biggest american retailer - is 7 billion in debt. 7 billion. How did they even let it get this high?

Austin, money supply and GDP have no direct co-relation. except when you are discussing this with Krugman. Krugman who is the best known follower of Milton Friedman, bases all his theories on Friedman. Friedman who also won a nobel, in his last days stated his theories were all wrong. Its quite telling for someone of the stature of Friedman to admit he was wrong all along.

svinayak · Post by **svinayak** » 20 Nov 2015 22:48

The replay from training call with renowned investor and trainer Jim Francis is now available.

CLICK HERE TO WATCH THE REPLAY

Block your time, watch the replay end-to-end. It will enable you to take charge of your financial future at a whole different level.

System is setup to fall down 60% They have tested the system for this

Austin · Post by **Austin** » 21 Nov 2015 13:11

^^ Thanks I have downloaded it and will watch it

Coming Currency Crisis Worse Than 2008 Financial Crisis ( Peter Schiff on CNBC )

Austin · Post by **Austin** » 22 Nov 2015 14:42

Mike Maloney-Bond Bubble Bust Will Be Devastating

Austin · Post by **Austin** » 22 Nov 2015 21:55

RBI chief bats for Yuan as international currency

BEIJING: Reserve Bank of India governor Raghuram Rajan has expressed support for China's efforts to internationalize the Yuan and make it part of the currencies favored by the International Monetary Fund.

"I do not know what the ultimate requirements of the IMF are and how much of these China has met. But the IMF does need to accommodate currencies of large economies with strong positions in global trade and finance, and clearly China has made a lot of progress on both counts", he said in an interview with the Hong Kong-based South China Sea.

China has been seeking the support of major countries in its efforts to internationalize its currency and persuade the IMF to admit the Yuan in its favored basket of currencies for special drawing rights.

The RBI chief's backing is expected to further its cause.

Rajan also defended China against criticism that it had indulged in competitive depreciation of its currency.

"Currencies elsewhere were already depreciating in a large way even before the Chinese move because of the unconventional monetary policies adopted by some countries.

"It is not reasonable to say the Chinese move precipitated the trend. Second, given the small scale of the Chinese devaluation, it cannot be blamed for a currency war," Rajan said.

The RBI chief also said that the present economic slowdown in China is affecting the Indian economy.

"But India being a commodity importer, has been helped a bit by cheaper commodities. So the impact has not been as bad as it could have been. Still, on the whole, we have been adversely affected by the Chinese slowdown because China's slowdown has impacted global growth and India is very well integrated into the global economy," he said.

panduranghari · Post by **panduranghari** » 26 Nov 2015 01:12

svinayak wrote: System is setup to fall down 60% They have tested the system for this

60%! You are kidding right? Its going to be worse than that mate. Lets bet a bottle of 21 year old Glenfiddich.

I suspect Dollar will continue to be the top of the pile of all the currencies left after the crash. The only thing it will loose is its reserve status. People and sovereign nations will in the phase of unwinding will give up the storage of dollars as a safe asset for the future purposes.

What was the 2008 crash all about?

I have come to a conclusion, it was to save the Eurodollar market (the dollars which reside overseas i.e. US treasury market). Upto a finite point, they(Bernanke) succeeded in that.

Based on the above diagram, there is outflow of funds happening. From the top to the bottom. Slowly.

2008 screwed up the derivative market. SO they solved that problem, by making the monster even bigger. :thumbup:

The commodity rout continues. Corporate debt yeilds are high and rising. Even Gundlach does not know what to do.

The stock buy backs, have increased the stock prices, so its internal demand. Unlike retail demand which suggests the sheeple is not in the market.

The circle is almost complete for the Fed to fire up another round of QE. Unlike earlier rounds, there is no internal or external demand for T Bills. Jim Sinclair has said watch for the rising yield in the 10 year Treasury. Its not moving much at the moment. But look at the sovereign debt problems for the Emerging economies. Its quite bad.

If you hear the talking heads, most are overwhelmingly in cash. One stop away from paper dollar. Even with negative interest rates, they are still staying in cash instead of risking it in markets. Jim Puplava , has been in cash from Jan this year. 11 months!!

Its the sheeple like me who are in physical gold and a bit in cash.

We are a hair trigger away from the complete break down. When will it happen? Dont know. But how long will the unwind carry on for?

Austin · Post by **Austin** » 28 Nov 2015 15:19

mohanty · Post by **mohanty** » 02 Dec 2015 09:43

This is great! Austin, you seem to be a fan of Mr. Schiff and of course with good reason as I can see. Not sure if anyone will remember but I was in forum in 2006 and went away for personal reasons and good to be back and nice to see same people like Singha, Shiv etc still around.

And yes things are getting worse and worse everyday. The recession of 2008 was bandaid-ed by Fed and it is falls apart everytime they stop the QE.

It will be an event of multi generation that people will read about in books, yet so many people are unprepared. Most don't even believe if you talk to them, too busy watching the latest 57th Star Parivar awards on it's 9th replay. Sad.

chanakyaa · Post by **chanakyaa** » 03 Dec 2015 06:27

RBI chief bats for Yuan as international currency

Yuan's inclusion in the eye-mf basket is being promoted as being a positive thing for all, including BRICS' alternative system. Is it possible that it is bribe to convince Chinese not to proceed with alternative systems to eye-mf/wb?? Couple this news with dethroning of Dilma Rousoff of Brasil, a big supporter of BRICS, using impeachment. Dilma's opposition is very friendly with well wishers of eye-mf.

BRICS Bank’s Kazbekov welcomes yuan’s inclusion in IMF reserve currency basket

Launch Of Impeachment Proceedings Against President Rouseff

chanakyaa · Post by **chanakyaa** » 03 Dec 2015 07:45

Planetary Resources Applauds Recognition of Asteroid Resource Property Rights

Now everything that fall from the sky that I can get my hands on is mine....YeeeeHaaaa!!

panduranghari · Post by **panduranghari** » 06 Dec 2015 00:39

UdayM, welcome back.

Yes. Do you remember the helicopter ben meme?

panduranghari · Post by **panduranghari** » 06 Dec 2015 00:47

Just my 2 paisa worth of opinion.

The perils of gold monetisation scheme

I believe government has no business to do business. The focus should be on Minimum Government but Maximum Governance.
- Narendra Modi

All the policies implemented in the various spheres have clearly shown Prime Minister Narendra Modi knows what the common man problems are. The efficacy of the various economic programs like 'Pradhan Mantri Jan-Dhan Yojana' or 'Mudra Bank Project' will be noticeable within a reasonable time frame. And unlike many, on either side of the political divide, who would like to proclaim its success or failure, this write up is not to prove one side is correct or not. The earlier governments being profligate ensured the hand-to-mouth conditions of the majority of the population persisted. Implicit threats like 'Garibi Hatao' made no inroads into the poverty trap that the poor Indian found himself in. And with an implicit agenda of improving the life of the common Indian, Mr Modi got the mandate the nation desired to ensure the years of neglect were reversed.

The Modi led government has inherited multitude of problems but I would like to concentrate on the economic aspect of these problems. Modi being a shrewd Gujarati understands business perhaps a bit more than many of us. He understands the sustainability of any economic reforms depends on the solid foundations on which these reforms are based. And among many new policies implemented is the old wine in a new bottle – The Gold Monetisation Scheme

The objectives of this scheme are three-fold

1. To mobilize the gold held by households and institutions in the country.
2. To provide a fillip to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks.
3. To be able to reduce reliance on import of gold over time to meet the domestic demand

With the huge current account deficit, it has always been tempting for any government to blame gold imports as fundamental cause of the problem. And they are partially accurate. In India, gold demand and the petroleum demand is price in-elastic. To circumvent the deficit in the current account multitude of schemes, ideas, plans have been floated which selectively target the gold market in India. Needless to say most have failed. And there is a very good reason why they have failed. The rampant inflation, unavailability of credit, under-developed banking sector could be a few causes. But among many things Gold is a bell-weather of the trust deficit of the populace with regards to the government.

We are already in a international economic turmoil which was until 2008 restricted to the Anglo-Saxon world. We are staring at it's the final collapse which is being brought about a quantitatively eased, qualitatively poor fiat money generated asset boom . And in such an environment, desperate investors are seeking monetary returns to compensate for the risks they face. But this problem has a solution. The solution is not gold standard or a gold backed currency or a Gold plus Special Drawing Right (SDR). The solution is GOLD. Or more specifically gold which is demonetised. The wish to monetise gold scheme is the main reason why this gold monetisation scheme is going to fail.

The concept of Money

Money broadly is a mental concept. I get a cow from you and I pay back in milk over time. You get a brood of chickens from me, I hope to get a few eggs regularly. In the past, on a ledger somewhere this transaction may have been recorded, not as a cow or a chicken. But as gold. No gold was exchanged but to prevent the double coincidence of wants we recorded it as gold i.e. 1 gold coin for 20 chickens or 1 gold coin for a cow. This permitted a trader to not rely on barter exclusively and still get goods that he wanted without having something in return.

Money concept is further sub-divided into 3 aspects -
1. Its a unit of account
2. Its a medium of exchange
3. Its a store of value

Over centuries money has lubricated the trade. Modern money has served the 3 functions fairly well. However, we cannot fail to notice the store of value function of money is failing. As inflation reduces the purchasing power of the rupee note, we are forced to risk our hard earned money in the stock or bond market, without being aware of the enormity of risks. We are mainly savers. We want to save our hard earned money without risking it through inflation or via a money manager in stocks or bonds. We have been conditioned by the media to believe we are investors or speculators. We would want our money to remain honest. If you follow some talking heads, usually of the left bent they will say that money should remain honest. But what exactly does that mean?

Gold was demonetised globally in 1971 by the closure of the gold exchange standard by US president Nixon. As the economic troubles worsen, there will be even shriller cries to back currency with gold. Or even a SDR – Special Drawing Right. As they say – once bitten but twice shy.

The concept of Marginal Utility

Karl Marx proposed the Labour Theory of Value. According to this theory the value of a particular good depends on the cost of labour required to produce it rather than the utility of the good. This theory permeates mainstream thinking in economics today. Karl Marx's ideas have been consigned to the dustbin but his economic theories are considered sacrosanct by the right (and left) wing parties in the Anglo-Saxon west ergo to the rest of the world too. Most of the Marxian ideas were in synergy with the economic ideas of Adam Smith. The problems with this theory were constructively challenged by a lawyer called Carl Menger who came up with an elegant Theory of Marginal Utility. According to this theory, every good has a value independent of its usage and the value can differ depending on the usage.

Let me explain. If I own a very expensive German car, I can use it to go to work or play in comfort, style, elegance. It will give me all the enjoyment that a modern car could/should give. I can use this car for 30 days of the month and derive the same enjoyment. According to the Labour Theory of Value (LTV) the cost of this fine German car is Rupees 2 crore. After all its one of the fine pieces of German engineering! They have used some fine things and skills to make this machine! Now if I buy another identical car and use it exactly like the first one, the marginal utility of the first one has reduced by half. If I buy 1 of these cars for every day of the month, the marginal utility of each one decreases proportionately. However, the cost will still be Rupees 2 crore for each car.

Now look at gold from the same perspective. Gold is and has historically been the most effective store of value. For rich or poor, for a king or a pauper, gold acted like the best money. And in the earlier era, when lifespans were short, those who came into gold used to trade it for something useful. Gold being easily acceptable to everyone, attracted the easiest trade.

If I buy 1 ounce gold coin for rupees 28000 and put it in my personal locker, it stays there acting like a store of value. If I buy a second gold coin and put it next to the 1st gold coin, it still acts like the same store of value like the 1st coin. According to Marxian LTV, I have wasted rupees 28000 on the 2nd gold coin. After all that gold is lying idle. However, according to Mengerian marginal utility theory, I am adding to my purchasing power. Adding another 28 gold coins to the earlier coins does not reduce the marginal utility of the 1st gold coin. As the main function of the gold coin is to just sit the 'idle' and act like a 'timeless' store of value.

The relevance of the Marginal utility to Gold Monetisation Scheme

The 2013 report https://rbidocs.rbi.org.in/rdocs/Public ... 012013.pdf by RBI titled 'Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs' sum up their finding as follows;

“There is a need to moderate the demand for gold imports, as ensuring external sector’s stability is critical. But, it is necessary to recognise that demand for gold is not strictly amenable to policy changes and also is price inelastic due to varied reasons. What is critical is to ensure provision of real returns to investors through various financial savings products. What is also relevant is the need for banks to introduce new gold-backed financial products that may reduce or postpone the demand for gold imports. The Working Group believes that providing real rate of return to investors through alternative instruments holds the key to reducing the excessive demand for gold. Meanwhile, there is also a need to increase monetisation of idle gold stocks in the economy for productive purposes. As of now, there appears to be no close substitute to wean away investors’ attention from gold. Investors’ awareness and education is important, in this context, to channel the investment to gold-backed financial products. Banks and NBFCs may continue to deliver gold jewellery loans, which monetises the idle gold in the country. The gold loan market has grown well in recent years. It is time for consolidation of the operations of the gold loan NBFCs. The gold loans NBFCs need to transform themselves into institutions free of complaints, have proper documentation and auction procedures, with rationalised interest rate structure and have a branch network that is fully safe and secure. Gold loans NBFCs’ linkage with formal financial institutions may be reduced gradually. Such transformation ensures the gold loans NBFCs’ future growth more robust, besides making them a contributing segment to the financial inclusion process.”

As we can elicit from the above paragraph the government through the gold monetisation scheme wishes to officially enter into the gold loan business by trying to eliminate the non bank financial companies. NFBC's currently offer loans with gold as a collateral. It might be not as well regulated as it could be, but its very efficient. They wish to monetise the so called idle gold that most Indian families and temple institutions own. As stated early, the gold demand in India is price in-elastic. Raise the price of gold from 28000 per ounce to 56000 per ounce, the average Indian will still buy it.

The general public knows if they deposit their gold jewellery (usually stree-dhan), it will be melted, assayed and added to a general pool. The government has not informed the true cost of assaying gold that is deposited, as assaying costs are quite high irrespective of the quantity of gold. Opening multiple assaying centres is mooted as a solution, but it still does not address the problem of the idea that gold will be melted and added to the general pool. It's given that the interest rate payable will drop substantially after assaying costs are added. The government has also not explained how it is sensible to pool gold which is currently held by many families independently into a large single bar. If these families want to redeem their deposits, even after taking into account substantial premature exit fees, a big bar cannot be melted that easily. And in case of severe economic turmoil where the banking activity ceases, what guarantees does it provide that gold will be available. If the main purpose of the gold monetisation scheme is to reduce gold imports thus reduce the Current Account Deficit, does the government wish to provide the gold deposited by gullible folks to the jewellers so they can sell it back to the same people?

Concluding remarks
Over generations, the Indian housewife has understood the role of gold and she has subconsciously imbibed the concept of marginal utility. She might be well educated or might not have attended much of schooling, but she understands what gold is. The west describes Indian attraction of gold as 'tradition'. That’s inaccurate. It is the consequence of generations of empirical research. Gold is best if its owned and held in possession rather than sold or leased for the sake of interest. The gold monetisation scheme is in my humble opinion a scheme which could impoverish people. Though it intends to address an essential economic issue which plagues the national exchequer, the unseen consequences of this scheme could lead to some serious legacy issues for the current Modi led government potentially making this government unelectable in the future elections.

Ludwig Von Mises sums up my argument well-
We are told relentlessly by the mainstream media that politics is the most important thing in the world. We must constantly decide which politicians to support, which government programs to debate, and how to vote. In fact, real change is brought to society not through participation in the regime's tightly-controlled political games, but through radical decentralization, and the building up of non-state institutions such as families and markets. One of the state's greatest triumphs in the 20th century was the politicization of everything from education to employment to marriage.
To undo this, we must seek to de-politicize our culture, and we do this not through elections and political pageantry, but by building up our businesses and communities where our actions make a real difference, where participation is truly voluntary, and where real wealth can be built and preserved.

The only realistic way to preserve inter-generational wealth is by leaving the gold lying in the lockers or around necks and wrists idle. For gold is never idle. Its traversing time. Alas the neo-Keynesian advisers who dominate the advisory panel of the government do not see this or they choose to not see it. At our peril.

--x--

chanakyaa · Post by **chanakyaa** » 06 Dec 2015 00:54

Panduranghari, you were spot on in terms of expected lack of interest of the common citijens on govt gold scheme..

Indian Government Shifts Focus to Temple Stash After Failing To Get Citizens' Gold

panduranghari · Post by **panduranghari** » 06 Dec 2015 06:02

I have written why it is a bad idea. I wont change my mind, even if it is over subscribed.

In Aug 2014 link I wrote

When the EU decides to MAKE the EU bond holders undertake restructuring of the bonds at better terms - thats when I think the game will be truly up.

This is how I see it.

Bond holders take a pay cut. This will buy ECB some time. I feel they will then devalue Euro v/s Dollar. 1 euro is 0.75 Dollars. The ECB could devalue it to say 0.50 per dollar.

The deflation is avoided and it puts the ball into US F reserves court. I doubt if US can match this devaluation as quite a lot of money will flow into USD making USD even stronger.
.

And here is an update-

The great policy divergence by Mohamed A. El-Erian (Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO and co-Chief Investment Officer of PIMCO. He was named one of Foreign Policy's Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. His book When Markets Collide was the Financial Times/Goldman Sachs Book of the Year and was named a best book of 2008 by The Economist. )

Over the next few weeks, the US Federal Reserve and the European Central Bank are likely to put in place notably different policies. The Fed is set to raise interest rates for the first time in almost ten years. Meanwhile, the ECB is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward pressure on some government bonds that are already trading at negative nominal yields.

In implementing these policies, both central banks are pursuing domestic objectives mandated by their governing legislation. The problem is that there may be few, if any, orderly mechanisms to manage the international repercussions of this growing divergence. ........

Also conscious of the risk to financial stability if interest rates remain at artificially low levels, the Fed is expected to increase them when its policy-setting Federal Open Market Committee meets on December 15-16..........

the ECB is facing a very different set of economic conditions, including generally sluggish growth, the risk of deflation, and worries about the impact of the terrorist attacks in Paris on business and consumer confidence. As a result, the bank’s decision-makers are giving serious consideration to pushing the discount rate further into negative territory and extending its large-scale asset-purchase program (otherwise known as quantitative easing). In other words, the ECB is likely to expand and extend experimental measures that will press even harder on the financial-stimulus accelerator. ...........

As the Fed normalizes its monetary policy and the ECB doubles down on extraordinary measures, we certainly should hope for the best. But we should also be planning for a substantial rise in financial and economic uncertainty.

This is it. The end game. Well and truly.

Ha dont need to have fancy economic degrees, though having them would have given me too much money which I could never spend enough of.

chanakyaa · Post by **chanakyaa** » 09 Dec 2015 06:34

End game in which ways?

Separately, well articulated thoughts in the article by El-Erian, as always. The three areas he has highlighted are good thoughts, but why are they big concerns? (depending on who you ask of course).

The first claim about currency appreciation is legit, as capital flight would force emerging countries to respond with higher rates at home. Depreciating currencies of the emerging world has always been there as the never-ending desire to import medicines and technologies from abroad has always forced them to let foreigners have increasingly higher claim on their economies in the form of depreciated currency. Unless India produces something that foreigners desperately want, things India needs from foreigners can only be obtained by depreciating the currency.

The second claim is also legit, but it could be advantage or disadvantage depends on who you ask. Thollars/euro seeking emerging country borrower has more pain in the future if business is slow and foreign currency debt needs to be made. So, higher chances of default, which could be a good thing MNCs who are well positioned (and eagerly waiting) to buy distress emerging economy companies for cheap. Brazilian Petrobras’ liquidation of oil wells from few months ago is a perfect example. In fact, this strategy was the cornerstone of post-WWII as European economies struggled to acquire new thollars to meet debt payments; which eventually sunk their imperial status.

And, the third claim of “volatility” is great news for bankers and derivatives traders.

panduranghari · Post by **panduranghari** » 09 Dec 2015 18:26

Sir, Volatility is the friend of the day traders. But will it carry on?

End game- in many ways sir. The biggest end game is- dollars wont be used as reserves by many many nations. Dollar will still be an important currency, but not that much used internationally. The eurodollar market will ensure that dollar falls out of reserve usage. Eurodollars are the dollars which reside overseas. Do you sincerely believe, the eurodollars will ever reach back to the US shores? No way. The flood will turn into a deluge at the first sign of trouble. The 2008 bailouts should be seen in that light. The reason why the USG bailed out the Fed was to support the eurodollar market- which is predominantly derivative based. BNP Paribas could not find buyer for its debt. Its an interesting read.

I see a big wave of rise of nationalisation of industries to prevent foreigners buying them up. And the nationalisation wont be happening in the east, but in the west. There will be a lot of technology available to be bought for cheap for those with deep pockets. I think that is why Chinese are buying so much gold. Koos Jansen claims that China owns at least 8000 tons. Thats a staggering number.

chanakyaa · Post by **chanakyaa** » 11 Dec 2015 06:59

...Its an interesting read.

Which article/book are you referring to?

I see a big wave of rise of nationalisation of industries to prevent foreigners buying them up. And the nationalisation wont be happening in the east, but in the west. There will be a lot of technology available to be bought for cheap for those with deep pockets.....

Yes it is possible, but I would argue against its happening. Here is why. During colonial times, it was fairly easy for wyest to acquire assets in India and other turd world places simply by force and have a first priority claim on the cashflow (i.e. tax the hell out of it). Today the economic assets are in private or public hands. Stock markets and other mechanism are making it easy to transfer the ownership between individuals and large institutional investors. Best way for outsiders to acquire economic activity in India is by encouraging non-nationalization model. For example, Hindustan Unilever has decent market share of consumer products in India while 67% ownership (according to wikipedia) is retained by Anglo-Dutch company Unilever. If Unilever is nationalized in Netherlands or UK, how do you convince a public ownership model for India and others (no just for Unilever but future Indian companies). Ever depreciating rupee makes it easy for MNCs to throw boat load of printed money and scoop up assets, while keeping part ownership with the local population so they can invest either directly or through some fund format, and feel great with "I'm getting rich". Online business Flipkart's part ownership is with YooS based private equity funds. Amazzon can issue a boat load of low interest debt overseas and buy Indian online business anytime, under the guise of all countries must keep financial markets open and free. Will amazzon be able to do it if it is nationalized?

TSJones · Post by **TSJones** » 11 Dec 2015 18:50

Brazil slowly sinking, impeaching leadership.....

http://www.thestreet.com/story/13387543 ... _ven=YAHOO

This year's plunge in Brazilian stocks is set to resume as investors lose hope that an impeachment of President Dilma Rousseff will lead to a quick economic turnaround and Goldman Sachs warns the country could be headed into a depression.

panduranghari · Post by **panduranghari** » 13 Dec 2015 00:36

udaym wrote:
...Its an interesting read.
Which article/book are you referring to?

This > BNP Paribas

BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.

The funds had about 1.6 billion euros ($2.2 billion) of assets on Aug. 7, after declining 20 percent in less than two weeks, spokesman Jonathan Mullen said today. The bank will stop calculating a net asset value for the funds, which have about a third of their money in subprime securities rated AA or higher.

panduranghari · Post by **panduranghari** » 15 Dec 2015 19:51

A blast from the past; Feb 14

http://forums.bharat-rakshak.com/viewto ... 8#p1597038

TS Jones - ^^^^^Evidently, you don't understand the bond market or the fact there is a huge private, market for the bonds. In fact, nobody is stuck holding the bonds, because the demand is so large for them.

Me- Bond market arose to service the need of the debt money I.e. To sterilise its effect. Even Bill Gross- the king of bond market- has thrown in the towel. If he sees the decline, you or me are just amoeba in the water infested with giant sharks.

link

April 2015, Pacific Alternative, Ross associate director, "Although ‘bank-run’ risk exists in all mutual fund structures because the investors in them have daily liquidity, the risk is heightened with liquid alts due to the relative novelty of the strategy to the retail investor"
July 2015, Apollo, "ETFs and similar vehicles increase ease of access to the high yield market, leading to the potential for a quick ‘hot money’ exit"
July 2015, Maglan Capital, Tawil President, "They (the funds holding hard-to-sell assets) are going to be toast“ “It will be one of our first levels of shorting the moment we start to see cracks, because it’s ripe with retail, emotional investors"
8 December 2015, DoubleLine, Gundlach co-founder, "We’re looking at some real carnage in the junkbond market" "This is a little bit disconcerting that we’re talking about raising interest rates with the credit markets in corporate credit absolutely tanking. They’re falling apart"
December 2015, Legal & General Investment Management, Roe head of multi asset funds, "The problem dates back to the financial crisis, as there is not the liquidity in the market to cope with a wave of redemptions and investors know this" "We saw this kind of thing before in 2008-09 in the property market, when a number of funds had to be closed because of liquidity problems"
December 2015, USAA Mutual Funds, Freund CIO and portfolio manager, "A precursor of a period of substantial defaults"
December 2015, Lehmann Livian Fridson Advisors, Fridson money manager, "It’s significantly bad news for the market, and another straw on the camel’s back" "It’s not typical, but it raises the question: Can this happen to the next-worst fund? You just don’t know. It certainly doesn’t encourage people to put money in, and that just exacerbates the liquidity problem there"
10 December 2015, Carl Icahn, "The meltdown in High Yield is just beginning"

These chaps are talking about just high yeild bonds. While my opinion extends to the AAA+ rated 10 year Treasury too. FWIW.

From Feb 2015

Tell me what do you think gold, the stock market, fine art and houses all have in common?

Their value is inversely related to the value of a dollar. If the dollar tumbles in value all of the above rise in their dollar price in response. This is the opposite of the relation between debt/bond instruments and the dollar.

And this **THIS** is the concept we must all assimilate into the core of our being.

On one side there is the transactional currency and the debt markets, and on the other side is everything else. And the transactional currency does not depend on a high valuation to perform its primary function. It can do its job as a medium of exchange with literally ANY valuation. So why is the global debt market, which is tied inseparably to this symbolic unit so damn big? i.e. THE DOLLAR

With regards to Idev and Nandakumar's posts;

With a whole planet-full of paper debt wealth, how long are the savers going to sit there waiting for their value to disappear? But the fact is that it doesn't matter how long they sit there. The only difference that will make is how much value they are going to lose. You see the system can no longer support their value on its own. This is clear from the housing crisis, Iceland and now Greece. But the system must go on so the very unit their value is fixed to must be diluted to infinity just to keep the system running.

And infinity is truly the limit. Don't expect austerity or a deflationary collapse. Don't expect them "to do the right thing" and let the bad debt fail like they bailed out the banks in 2008. They will do it AGAIN. Occupy wall street or not. There is simply too much of debt out there. It is our entire global monetary system, not just the bond investors. There is no political will anywhere in the world to let the people's wealth simply vanish in order to maintain the value of a silly little physical dollar. This **THIS** is the big Catch-22!

In order to save the people's "money" it will be destroyed!

Buy gold. And save your arses. Truly its the wealth of nations.

Suraj · Post by **Suraj** » 17 Dec 2015 00:21

Fed FINALLY raises rates by 0.25% after leaving it untouched for 9 years.

TSJones · Post by **TSJones** » 17 Dec 2015 01:01

Where is Austinji ?

Please sir, we need another Schiff video to explain what went wrong and when QE is coming back. It has been a while and I am starting to get worried. We need his expert guidance.

Suraj · Post by **Suraj** » 17 Dec 2015 01:16

Market is responding strongly to Yellen's talk. Remains to be seen if it has legs.

member_29247 · Post by **member_29247** » 18 Dec 2015 07:29

Normal economic theory or classical modeling of economic theory especially macro economic theory is useless, in world where there is only one trading currency and one giant printing machine to churn out currency to which everything is pegged and also sought after.

So the choice to store wealth is between commodity and paper, the commodity is also traded in the same printed currency so the computations of debt , GDP productivity, is all out dated...

Commodities don't have the mobility of paper, hence till,such time a new paper currency emerges, it all right mama to print, no amount of yelling will change the course

Gyan · Post by **Gyan** » 18 Dec 2015 15:23

I think that US is paramount world power and will remain so for at-least another 50 years. The dooms-day predictions are that USD shall/can go into free fall and crush US economy. My take is that USA itself will not be crushed but some pain may come its way. If USD ever falls massively, it shall revive manufacturing USA. Only when the manufacturing ability in USD completely decays away, then the downfall may start. Democracy in USA can wash away many problems and even mass dis-satisfaction by regular regime change. On the other hand, China is like delicate glassware, very strong under slow pressure but even a tiny crack and it will shatter.

chanakyaa · Post by **chanakyaa** » 20 Dec 2015 19:55

U.S. Eases 35-Year-Old Real Estate Tax on Foreign Investors

...signed into law a measure easing a 35-year-old tax on foreign investment in U.S. real estate, potentially opening the door to greater purchases by overseas investors, a major source of capital since the financial crisis..

any insights into limitations/openness of foreign buying of real estate in the UK?

chanakyaa · Post by **chanakyaa** » 21 Dec 2015 04:37

The Bank of Japan's $2.5 Billion Plan to Buy Non-Existent ETFs

Haruhiko Kuroda has a new plan. He’s going to buy $2.5 billion of something that doesn’t exist.
BOJ to purchase ETFs that pick companies based on capex
No such funds have been listed yet in Japanese market

chanakyaa · Post by **chanakyaa** » 21 Dec 2015 04:43

IMF Change in Favor of Emerging Markets

China to jump to third-biggest IMF shareholder under changes
Vote clears way for giving even more voice to emerging markets

member_29247 · Post by **member_29247** » 22 Dec 2015 01:02

Even if the US dollar really loses value, as the largest consumer of products and services, it will not help revive local manufacture or gain export market, because all other countries will slide down relatively to prop,dollar...

This will lead to real erosion of the values aka deflation, even then the developing and less developed than north will be impacted.

It will eccentuate the differential, most hit will be agriculture and commodity exporting countries.

This will only change if a country of equal consumption and with capacity to pay either by printing or real currency that carries value portability and above all acceptability of the dollar

TSJones · Post by **TSJones** » 22 Dec 2015 02:38

the euro is about as widely accepted as the dollar is.

they are in the middle of a QE program and printing money like mad in order to jump start their economy.

we told them way back they were being stupid by delaying their stimulus program but no, they held off.

now they are playing catch up.

they misread the whole speculative commodities bubble bonanza back a few years ago and obsessed over inflation.

gold should have never hit $1800 an ounce and oil should have never hit $140 a bbl.

it was ridiculous and caused by the Chinese who were gonna take over the economic world by creating ever increasing straight line graphs and speculative hedge funds who wanted to ride along for the play.

Lord Keynes still rules and Von Mises is a poopy snooty.

Christopher Sidor · Post by **Christopher Sidor** » 23 Dec 2015 13:41

The Fed has increased its interest rates. This means that all the cheap money that is flowing into the unicorns and yahoos of Silicon valley is slowly and steadily going to dry up. The 2nd DOT Com bubble or the so called social bubble is going to burst. That is the conventional thinking.

The wild card is what BoJ and ECB do. If they start easing up then the monetary flow will continue and there is a possibility that some of the unicorns and Yahoos may survive. Their easing might also allow the commodities to survive.

With Oil & Gas the situation is different. OPEC no longer has the capability to swing the prices up not alteast for the next 5-7 years. It is generally estimated that on an average a Shale oil field will last 5-7 years. The low price of Oil & Gas may drive the Shale Oil & Gas producing companies out of business, but once the price goes up Shale oil & gas again becomes economically viable thus driving the production up again and the price of oil & gas down again. In addition renewable will play a more direct role in production of electricity compared to earlier. Consider the case of Germany which produces some 40% of its entire electricity using renewable. If India manages to do something similar then Oil & Gas price will go down even more. We are after all the 3rd largest consumer of Oil & Gas and growing the most.

TSJones · Post by **TSJones** » 23 Dec 2015 14:33

from zero to .25 per cent, it's still cheap.

Christopher Sidor · Post by **Christopher Sidor** » 23 Dec 2015 15:18

0.25% might not seem much. But we have to factor in two more items
1) This is not going to be the final rise, more are expected down the line.
2) We have to consider the case of risk-vs-return too. Most of the unicorns are not making profits some of them are making outright losses. Consider the following companies and their losses, please note that this data is 6 months old and the source is here

Salesforce.com = -161.7 Million USD
LinkedIn= -44.8 Million USD
Amazon = -406 Million USD
Twitter = -607.9 Million USD
Telsa = -398.4 Million USD
Workday = -250.2 Million USD

If we think that this is restricted to only US of A, then think of flipkart, snapdeal or all the other startups that have been setting up in Bangalore, India. Most if not all of these companies funding comes from US based funds like Tiger Capital. None of them have made a profit only the promise of a future profit.

Christopher Sidor · Post by **Christopher Sidor** » 23 Dec 2015 15:32

^^^^
Another collateral is going to be the high wages that these companies have been paying IT Developers. When these companies go bust they will unleash torrent of developers, architects and managers onto the market. This will depress wages for quite some time thus improving the position of major IT firms operating in India, but will be very very bad for the people as many of them will have to take a pay cut or worse take up positions which might be one level or two levels down their existing pay grade. IT industry will shatter a lot of dreams this time.

TSJones · Post by **TSJones** » 23 Dec 2015 20:00

the rate is going to have to move up over 2% or so to start having serious cut backs.

if you can't successfully make loans to the public when your money is only costing 2% or less then one must begin to question one's business acumen.

Suraj · Post by **Suraj** » 23 Dec 2015 22:16

I don't think businesses are so heavily leveraged that a 25bps hike will be catastrophic . Even a 100bps increase is fine . Yellen has already telegraphed that rate hikes will be very gradual, so I'm skeptical it will add up to 100bps even by end of 2016 . Some carry trades will unwind but that will probably be contained .