Let us get one thing straight – Greece

The question to be put before Greek voters is ‘whether or not the country is willing to submit to the conditions being demanded by the International Monetary Fund, European Union and European Central Bank.’

Do we all understand this position?

This is not a question on whether Greece wants to remain in the EU, it is whether Greece is prepared to accept continued (and increased) austerity measures in return for further loans.

Simple situation and on the platform that Tsipras and his Party were elected to govern, the other platform was that they remain in the EU.

A simple no vote to the question means that the EU must consider writing off the loan monies advanced to Greece, if not, then one presumes Tsipras will blackmail the EU with a further referendum on whether Greece should stay in the EU.

I can understand the Greeks position, look at this chart and that tells the whole story.

Technically bankrupt for 30 years but now – after successive stupid loans from the EU the debt situation is at ridiculous levels

image

I have had my ‘dig’ at Yanis (Finance Minister) on prior blogs and suffice to say – on the debt he is correct. One day he will look at his domestic issues.

Tsipras on the other hand is using direct democracy, as first used by the Greeks, to get a mandate on future action by the Greek government. It is risky as the uncertainty allowing deposits flee and deposit controls imposed until the result.

Mind you, this is the first step.

Whilst the EU may be blackmailing Greece to accept further austerity measures, Tsipras will now have the upper hand in all future negotiations – just threaten that second referendum – something that the EU will avoid at all costs.

As of writing this blog, Bloomberg has advised that the ‘German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece would stay in the euro for the time being if Greek voters reject austerity in a referendum scheduled this week, according to three people present.

Schaeuble also said the European Central Bank would do what’s needed to protect the euro if Greeks voted against the bailout terms in the July 5 referendum, according to the people, all of whom participated in the closed-door meeting on Tuesday. They asked not to be identified, citing the private nature of the discussion.

The German Finance Ministry declined to comment.’

http://www.bloomberg.com/news/articles/2015-06-30/schaeuble-said-to-see-greece-staying-in-euro-even-if-no-vote-ibjaov8p

Who would have thought . . .

Keep the beer cold Mike . . .

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Central Banks are clueless – Confirmed by the Masters of Banking

Bank for International Settlements, the Institution that sits at the top.

Established on 17 May 1930, the Bank for International Settlements (BIS) is the world’s oldest international financial organisation.

The BIS has 60 member central banks, representing countries from around the world that together make up about 95% of world GDP.

In their report recently released, a minefield of wrong, a brief outline covered in the Press Release by Claudio Borio, who has a nice analogy of an old favorite on the practices of sovereign Central Banks.

“In The Adventures of Tom Sawyer, Mark Twain tells us that the essence of good management is to have your friends paint the fence and pay you for the privilege. By that yardstick, some sovereigns have surpassed the master.”

He goes on to say that “In the background, the search for yield has continued and so has the markets’ dependence on central bank monetary accommodation.

The latest market jitters in the wake of a strong US payroll figure, hinting at a policy rate hike sooner rather than later, is but the latest example.

Volatility has been returning to historical averages, pointing to less aggressive risk-taking. But markets cannot remain liquid when the exit door has been narrowing for so long. There should be no illusion about this.”

Hyun Shin describes matters in relation to oil.

“The continued high rates of production and rapid accumulation of oil inventories may reflect in part the cash flow needs of producers to service their debt.

In particular, we show that hedging by producers displays a tell-tale downward-sloping supply response where declines in price are associated with increased sales of oil in the futures market.

The extent to which selling into a falling market sets off an amplifying price response depends on market liquidity and the capacity of dealers to absorb the sales.

A part of the rapid oil price decline in the recent episode could be attributed to the decreased capacity of swap dealers to absorb the sales. With this observation, we come full circle to the theme of the previous piece on market liquidity.”

I feel out of sorts, would have thought that ‘Lost in Space’ and the Class M-3 Model B9, General Utility Non-Theorizing Environmental Control Robot, which had no given name would be shouting WARNING – WARNING.

‎http://www.youtube.com/watch?v=RG0ochx16Dg

http://www.bis.org/publ/qtrpdf/r_qt1503_ontherecord.htm

Well the storyline in the report gets a lot more interesting, and the full report can be downloaded on PDF on the link below.

Spoiler alert though, shows that Central Banks ARE clueless.

Extracts:-

“Given where we are, normalisation is bound to be bumpy. Risk-taking in financial markets has gone on for too long. And the illusion that markets will remain liquid under stress has been too pervasive. ”

“… the likelihood of turbulence will increase further if current extraordinary conditions are spun out. The more one stretches an elastic band, the more violently it snaps back.”

“Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialize at some point.”

“Of what use is a gun with no bullets left?”

“Therefore, while having regard for country-specific conditions, monetary policy normalization should be pursued with a firm and steady hand.”

https://www.bis.org/publ/arpdf/ar2015_ec.pdf

Does a dinosaur really feel his tail being kicked, five minutes after you do the deed?

Always thought that if I was a carnivore, then I would get fat on feeding off their tail.

Exit stage left – all too hard

Greece

Well my favorite Finance Minister is on the outer, all because he knows more about the economy, than all the idiots behind the IMF and EU plus creditors, Germany, France …the list is endless.

I have commented in a previous thread ‘Goodbye Yanis’ – it was obvious then, that Yanis knew too much and would be forced out. The EU has effectively done this in all negotiations.

So Greece is to call a referendum, July 5th. Choppy waters until then, but bear in mind please that the Greek people do not want to leave the Euro. Neither do Brussels mind you, as then they have to deal with Portugal, Spain, Italy and now France.

The Greeks have it too good in the Euro, around one third are government employees or beneficiary recipients. A lot of votes, depends on whether the younger generation ends up voting. All in all though a volatile period for every investor.

On stock markets, Greece markets are suffering – big time.

Want to gamble – in a ‘win win’ situation, then one would look at those companies in Greece with little or no debt and a good business – and no banks are not a good business. Big phat disclaimer, but similar to the Russian markets when the oil price dropped – the Russian stock market was oversold and recouping value nicely. You have to have the money though.

Puerto Rico

Okay, read about the U.S. Legal opinion on the Bond sharks some time ago and this Country was off my radar. Most South American countries, including Brazil are having a hard time.

Commodities ain’t recovering for some time, so just pick a country.

My apologies on that one, PR – the country is bankrupt and the American hedge-funds will suffer the most – yes the piranha bond buyers will lose all their monies – real bugger … (not)

Whilst we are on South America, Brazil. Suffering through oil price collapse have actually increased the interest rates to attract capital. The currency having taking a huge deflationary hit over commodity prices and lowering interest rates are now caught between a rock and a hard place.

So which country will be next?

That is the problem with currency wars, all good until you need some other people’s money to be invested – the tide is turning – and oil prices, due to demand, will continue to decline.

China

Which I do not love to talk about.

The economy that has to suffer a depression to reawaken the powers that be, that a consumer based economy is a tough ask, the hard landing not avoided due to composite of debt and the population has a social disease.

Gambling.

Millions of mums and dads invested in the only real casino outside of Macao – stock market.
At least it is no longer copper.

The Government was fully aware of the problems associated with the stock market, intervention into this area all too little and far too late.

Government is doing its best to reignite the factories, but the debt on all levels crippling.

The history of the U.S. Great Depression being rewritten, one hopes that it will be short lived depression and that social issues will be short.

Those with money getting it out of China, in very inventive ways to avoid government restrictions, but hello real estate booms in US, Canada and Australia (east coast).

Then we have a compounding problem for coal export countries, demand for thermal coal dropping, the Government placing huge investments in renewable energy. Ke sera sera – hmm that means Australia will continue to suffer (must be hard for Stevens to work out what to do next with the Aussie dollar – as with all central bankers – clueless.)

U.S. Fed Reserve

Well appears that the Fed Reserve is playing ‘ping pong’ media.

“A September interest rate hike is “very much in play” if the U.S. economy continues to strengthen – now the quote continues but this point is interesting, as the U.S. is technically in recession. Yes the only thing moving upwards against bad economic data is the minimum wage. Oops now to continue ..”though the Federal Reserve could also wait until December to start tightening policy,” an influential Fed official William Dudley, said in a Financial Times interview.

New York Fed President William Dudley, quoted in the Financial Times, said, “It would not shock me if we decided to lift off in September, or it wouldn’t shock me if the data were a little softer and it caused us to wait.”

What they are doing is ‘testing the market’ and watching markets on this absolute hypothesis of either September or December- it is September by the way so nothing to worry about.

USD will jack up, short Euro and long USD, as nothing will stop capital departing the threat of Grexit – July 5th the referendum – then we shall see whether Tsipras can lay the blame on his constituents.

Investing in general – look someone had a go at me the other day about stock markets, they know little about bonds or capital flows – just the fact that the ASX dropped two percent and China crashing.

Well China is self explanatory- stay away – unless you read mandarin.

If China stuffed and puts out misinformation on manufacturing and exports, how can anyone trust anything else coming out of China?

On stock markets generally, a correction is around ten percent, a crash is around twenty percent plus.

What is two percent?

A hiccup – but that does not condone investing in stocks – why would anyone invest in Banks when on ASX, four of the top 6 companies are Banks?

In Oz, remember that majority of lending is to real estate, what happens when values collapse?

Fed up with hearing that real estate prices double every ten years, good in lower interest rate environment (post 1987) but this is 2015 – review history (1976 through to 1984) them the fucked up years.

Gold miners?

Well from my point of view researched the lot, a collapse in the gold price below a US$ 1,000 would be great for the industry – as it will get rid of the chaff – those left standing with little or no debts, good mineral assays and low cost mineable deposits will be the winners.

Then you have mining companies, like duh….. all raw materials are dropping due to lack of demand – which country on the globe has a demand for commodities?

Oil, get real and accept the new norm for oil prices may just be US $60 per barrel and below (hazard a guess at US $35 as the low ;0) – not saying that in 2017 there will not be some froth in the market, but a long bloody wait for any return.

If anyone says China, they have rocks in their head and know very little about the current state of play. China is even reducing thermal coal imports, as they switch to renewable energy – so with manufacturing declining rapidly, this means less energy production through lower demand.

Japan’s demographics plus Abe’s economics – nothing meaningful, in fact will lead to a further f@cked up economy and lower Yen.

America?

Europe?

England?

So if one looks at stocks, at least pick companies that have manageable debts, local (or US) markets and good management, do not overlook an inelastic product.

As I have said before all Countries stock markets will rise when governments deflate currencies. Quite a normal reaction, those with cash trying to preserve value.

Remember that the world is to reset financially, volatility is the name of the game. Everything that you think will happen won’t when you want it to, will when you won’t.

In the U.S. companies export sales will be affected by the higher currency value.

Yes all too hard… With exception of currencies – capital flows dictate values.

Commonality in all volatility – human nature

The underlying commonality to all the Bond market scenarios being played out around the world is all due to liquidity, lack thereof.

Liquidity preference, as decision-making under conditions of uncertainty.

Severe levels of economic inequality is actually a toxic symptom of liquidity preference under extreme conditions.

These extreme conditions are now with Europe, all bonds throughout Europe (now add Sweden to this mix) are in a flux, no buyers hence forcing those bonds and bunds; which were tendered originally at low or negative rates; into far higher yields for those prepared to part with capital.

Basically, the decision-makers in such a situation would have highly pessimistic expectations, and choose to hoard cash instead of taking the time to invest (and create new wealth).

This is the problem, human nature.

I am racist – President Obama told me so

Yes I am, I am white

His remarks about racism being in the genes of white Americans is proof par excellence.

White – me

Who would doubt the President of the United States?

http://www.wsj.com/articles/obama-mentions-racial-slur-in-describing-fight-against-racism-1435016996

Mr President,

Just so you know, I’m NOT “white”. In fact I an pink, currently tan and have been known to bright pink, red and have a few black spots.

“White”, as it’s usually used, refers to Anglo-Saxon Protestant. For example, considering Spaniards “white” is foolish.

I also find it funny how people tend to mistake “white” and Caucasian.

Caucasian refers to the region being from the Caucasus mountains, where the peoples in the region are usually Turkic/Slavish, not “white”.

Aryan doesn’t actually refer to blond hair, blue-eye people of a certain race. The Aryan races are a set of races supposedly to include Persians, Germans, Indians, and other Indo-European peoples. Actually, the word Aryan itself is Sanskrit for noble. There’s many other misnomers involving skin color or “race”.

Just so you know, color of skin has nothing to do with race. Color of skin has more to do with climate and exposure to sunlight than it does to do with race.

Pity that intelligent ‘people of color’ did not see the racist person, that presides at the White House and actually inflames bigotry and racial tension.

The fact of the matter is that racial tension is overblown bullshit from the media. The real issue is not race, is not black or white.

The issue is class!

The problem is that politicians (including you Mr Obama) have created a permanent underclass in society unable to get out.

In terms of the issues of class, Asians (more Asians immigrate to the US, UK, Australia) than do ‘blacks’ and Asians are basically in line with “whites”.

In terms of the way you view race, this is just as primitive as the people (Mr Obama) that you so quickly accuse.

If whites have your attitude Mr Obama, we’ll just run everything into the ground.

And special thanks to Suvvy

Trap is set – Don’t trust the Government

I cannot stress enough what is happening and fully aware from the emails, that people think that I am just doom and gloom.

I am – I am believe me, but I know some don’t – so I have included other people’s emails with far greater following than my humble blog.

These people can now see through the fog of financial woes that will beset us.

You are not immune, procrastinate at your peril.

an extract from Bill Bonners email, received this morning.

Yesterday, came a report that the prime minister of Poland, Ewa Kopacz, has urged Poles traveling to Greece to take “a larger amount of cash” with them.

Why?

Because the situation could be “very dynamic,” she says.

“Please do not count only on your ATM cards and on ATMs, but take a larger amount of cash with you.”

It’s not the dynamic situation that would worry us. It’s the dynamite that lies beneath the whole world’s money system.

It is a system that is fundamentally flawed. It depends on the intelligence and integrity of its custodians. Not that we think Madame Yellen is dumb. Nor do we doubt her honesty.

But she is, after all, only human.

And centrally planning an $18 trillion economy – by manipulating asset prices and interest rates – is a super-human undertaking.

The odds that something will go wrong?

100%…

Controls on Cash

A reader asks a good question:

I have a question about the recommendation to hold cash.

If countries are putting controls on real cash and banking, in what form should a person hold cash? U.S. dollars or some other currency. If we truly go to a “cashless society” what good would having a hoard of cash do?

We would like to have a better answer, but we only have the one we have.

Money is always a convention. It is an understanding. People recognize money as a stand-in for wealth.

Since the beginning of civilization, people have experimented with different kinds of money. They ended up – almost always and almost everywhere – with gold and silver.

Why?

Because they were handy. And because they were hard to produce. They were cash that governments could not easily control. No super-humans were needed to manage them.

Governments – the people who are able to boss other people around – always want to control money. They put their faces on it. They mint it. They clip coins. And they print pieces of paper and call it money.

But they could never completely control cash. People hoarded gold. They hid it. They ran away with it. They used it to make trades between themselves… regardless of what the feds said. And when the feds’ money went kaput – which it always did – they turned back to gold, because they knew they could trust it.

And now, the feds are making a new attempt to bring money totally under their control.

For example, under the pretext of cutting funding for terrorists, the French government already has a law in the pipeline banning cash transactions of over €1,000 ($1,120).

There’s nothing stopping governments from banning cash transactions altogether… and ending the usage of paper money.

Economists pretend it is a matter of convenience to the consumer (no more waiting for the clerk to make change for the fellow in front of you).

…or they try to sell it as a useful macro tool for central planners (they will be able to stimulate demand by imposing negative interest rates)…

…or they say a cashless world will be safer – you won’t be held up at gunpoint, and terrorists will find it harder to get financing.

But the real reason is control. If governments can eliminate cash, they can easily track, tax, and confiscate your money.

When You Need a Stash of Cash

And if the feds can control your money, they will be able to control you.

Do you voice an opinion they don’t want to hear? Do you belong to a group they want to get rid of? Do you want to know what happened to your tax money?

Watch out… With a keystroke, you could be “disappeared.”

“Sometimes, when the government tells you to do something, it’s best to do the opposite,” says a French neighbor.

In 1944, her father was the adjutant mayor of a small town in southwestern France. The Allies had landed in Normandy and the Germans were pulling their forces back to the Rhine.

Our friend tells the story:

Someone had blown up a German truck as it went through town. People were doing that. Taking pot shots at the Germans. The SS didn’t like it. They would gather up the mayor and a few other people. If they didn’t turn over the guilty person, they would kill the mayor. Or sometimes the whole town.

My father got a message that told him he was supposed to go to the town square. Instead, he went into the woods. It’s a good thing he did. Otherwise, I wouldn’t be here.

When do you need a stash of cash? When the feds try to outlaw it.

Hold some dollars. And some gold.

We realize that our answer to the reader’s question is insufficient. After all, what good will cash be after it is declared illegal?

We’re not sure. Maybe we’ve spent too much time in Argentina, where people have more supple and more subtle attitudes to monetary regulations.

Trading pesos for dollars, on the black market, is illegal. Do it and they take you for a scofflaw. Don’t do it and they take you for a fool.

More to come on this in future updates. Stay tuned…

Regards,

Bill
Paris, France

Further Reading: We’ve been getting a lot of questions from readers about the monetary catastrophe Bill sees coming. So, we’ve decided to unlock an issue of The Bill Bonner Letter and make it available – for free – to all Diary readers. It deals specifically with the crisis Bill sees coming… and what he recommends you do to prepare.