8/19 podcast update – The elites need negative rates, so the goal is to suppress inflation and economic growth

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-I get asked this on a daily basis; What will it take for this current monetary policy scheme to fail? The answer is simple; Rising CPI and economic growth will destroy this monetary system.
-The goals of the elites and their central banks are antithetical to our goals. This open secret can never be revealed to the populace.
Stories like this will steer the reader in the wrong direction, while they serve the new world order agenda well.
-Central banks have succeeded by keeping CPI down. The central banks are succeeding by “Japanifying” the world. As of right now, the central banks are succeeding and are actually pulling it off right in front of the global population.
-The mainstream business and economic news needs to be grim all the time. The lower interest rates go the worse the economic news out of the mainstream and alt-financial press needs to be.
-Downbeat and dire news can become self-fulfilling, especially out of the mainstream outlets. The alt-financial dummies are always helping out with their grim “analysis.”
-The goal is negative rates and the more negative they go, the more successful the elites are in getting their new world order agenda pushed forward. If this mean destroying the economy in the process, so be it. The lower price growth and economic growth moves, the easier it is to keep the governments in business with the elites in control of the process.

A Swiss reader asks about buying U.S. Treasury zero coupon bonds

Dear Chris,
I am planning to buy some US zero [coupon] bond treasuries on the OTC market here in Switzerland. I am not so sure which maturity I should choose. Should I choose longer dated or shorter dated treasuries?

In Christo,
F, Switzerland

Here was my response (edited for grammar);

Hi Franz,
I think zeros are a good way to go to with less money up front [since longer-dated zeros are sold at sizable discounts to face value principal and reinvestment risk is not an issue]. I don’t know about tax treatment for zeros where you live, but most here in the U.S. own them in deferred accounts like retirement plans, since the accretion income is considered taxable though nothing is actually received during the tax period.

My one concern here, and this is only short term, is that bond yields have fallen really fast. We may see some sort of retracement bounce in yields (drop in prices), but the trend is clearly intact. I see a world where the government will be the main driver that will keep things moving along and massive deficit spending will work to keep the economies afloat.

I get a skewed perspective living inside the U.S. as things are doing okay here. Europe and the former commonwealth nations are really struggling and I see no way out of this trend. This is why the euro and commonwealth currencies are struggling against the dollar.

Commodity-based currencies are responding to the dynamic we discussed in the past about commodities. Namely, these global monetary policies have created massive deflationary forces around the world as the sovereign debt pile balloons. Commodity prices struggle, and as the size of the debt rises, the deflationary forces overwhelm as debt servicing burdens rise higher.

Thus, as time goes on, the nation-state governments continue to crowd out and increase their influence over the global economy. Through central bank action, the governments spend more and more over time and their deficits escalate. They can continue to spend at lower yields, because the central banks basically are allowing them.

My concern here is that we could see negative rates over the next several years that could be mind blowing to many. I see no indication that this scheme will stop and it is clear [given last year’s U.S. Fed about-face] that the central banks have chosen this route to keep all debt in force and the national governments on the hook for all of it.

The only way forward; continually lower rates over time. There is no other answer.

So, if you are confident in the CHF maintaining its value vis-a-vis the USD (as it has been since the early 2015 CHF massacre), I would buy some zeros unhedged [or a partial hedge depending on your circumstances]. Although we may see some yield spikes in the short-term, I believe that would just provide an opportunity to increase investment holdings. The yield differentials are still extraordinary.

If I were your broker, I would try to ladder the duration of your holdings. If rates rise, perhaps lengthen the duration of additional purchases. Start out with shorter-term duration and build on that. It would be like buying on dips.

BTW, I came across a zero coupon bond calculator that can help out with how much some zeros may cost. You can also see how the bond price responds to changes in yield. Just plug in the yield changes and take the differences to get a rough estimate of potential gains and losses in USD.

Regards,
Chris

A subscriber asks; I haven’t heard much about Facebook’s Libra lately; Does it still have a future?

MasterCard is moving forward with its Libra initiatives
The path to implementation is clean and green

Note to reader: Due to the potential for huge, unquantifiable liabilities, there is no way that firms like Facebook, MasterCard, Visa, and PayPal will ever use third-party, permissionless blockchain schemes like bitcoin to process payments and transfer money. These outfits may allow you to buy bitcoin; but then again, these outfits using Libra will allow you to buy just about anything on their centralized, permissioned network.

I find it interesting that the initial sound and fury surrounding Facebook’s Libra announcement has quieted down tremendously. I noted that the globalists plastered their well-timed reporting of the Libra project all over the place to gauge sentiment and to desensitize us to the inevitable. After some time these elites will ratchet up the conversation again, and with each and every passing day, the concept will seem more and more routine to the average person. The Libra in some form will go through, as it has been presented as the only current viable alternative to the U.S. dollar for transactions.

Jim Cramer may have recommended that Facebook buy Square and abandon its Libra project, but that was already a month ago. As time wears on, the resistance to Libra will dwindle. Besides, Cramer probably had friends with large Square holdings.  If we think about it, any manufactured friction between government and tech is for show, since the sames elites control both sides. Regardless of what the government says, the large tech companies continue to grow more powerful. Next year, Cramer will probably say that Facebook worked it out well and he is excited at Libra’s prospects.

“Do you have the desire to work at the cutting-edge intersection of payments and cryptocurrencies?,” Mastercard asks in a recruitment listing. Those hired will “monitor cryptocurrency ecosystem trends” and “develop new products and solutions.”

Mastercard is doing this because “it wants to be known as more than a card company; it wants to be a technology company,” said Ted Rossman, an analyst with CreditCards.com.

Another card expert called it “a smart move.”

Bill Hardekopf, chief executive of LowCards.com, said Mastercard “sees there’s a lot of activity in this area. Even if it isn’t going to offer its own cryptocurrency, they know it’s important to have people who understand the subject.”

Many other big companies are partnered in Facebook’s Libra, too. Among them are PayPal, Uber, Coinbase, Lyft, Vodafone, eBay and Spotify. Mastercard rival Visa is also involved.

Libra intends to create “a globally, digitally native, reserve-backed cryptocurrency built on the foundation of blockchain technology.”

Mastercard is assembling its own cryptocurrency team – N.Y. Post Business, August 17th

Existing blockchains are too limited in scope to ever make them viable for transactions

I came across a Stratfor article titled, For Facebook’s Cryptocurrency, the Well May Already Be Poisoned, which presents a fairly objective analysis on the matter.

A centralized membership body lends tremendous credibility to Libra’s ability to control who is using the currency and how within the present financial frameworks. Bitcoin’s blockchain, by contrast, is considered “permissionless,” which means there is no approval process to “mine” for the coin and manage its ledger. As a result, Bitcoin’s public infrastructure is notoriously slow and inefficient because of the sheer number of people who are allowed to operate on its system at any given time, which increases the computational power needed to complete transactions. In essence, Libra is trading the conventional conception of cryptocurrencies for increased dependency, function and security, all of which on paper should create a far more accommodating regulatory environment.

For Facebook’s Cryptocurrency, the Well May Already Be Poisoned – Stratfor, August 15th

Stratfor says that Libra has a strong interest in working with governing bodies, expressed both in its white papers and Facebook’s decision to announce its currency without an actual product. Its success, hinges on ubiquitous acceptance. I agree.

Moreover, Facebook’s Libra project has leveraged the past 12 years of blockchain advancement to get to this point. While few are actually doubting the technology behind the Libra, most are concerned about privacy issues. But as I said before, Facebook’s usage continues to grow despite all its adverse publicity. Facebook is the only firm in the world that is currently capable of promulgating a private currency. So, if there is one firm that can pull it off, it will be Facebook.

August 15th Update – Profiting from the inevitable; With negative rates, we will pay the elites to buy up the world

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-Don’t believe the hype. Socialism can continue, and will continue to grow in popularity. Fully two generations have effectively rejected biblical teachings, so this new monetary and economic system is what the vast majority of people desire. The remnant can only look on now as observers.
-In a world of deflationary negative yields, wages will face growing downward pressure. Concomitantly, asset prices (housing) and costs of living (things that cannot be imported) will rise.
-Only the generated fear of catastrophe is what the elites need to keep this system going. There is no need of real crisis, and in fact, any organic crisis could set back the new world order agenda. Any true uncertainty would be a hindrance to the elites.
-The backfire effect in action; Martin Armstrong doubles down on his erroneous predictions. Ask Martin; if socialism was dead then why are bond yields falling?
-The drop in sovereign rates have little to do with impending recession. Don’t get caught up with all this talk of inverted yields and the reasons why bond prices are rising while yields fall.
-With negative rates, we are paying the elites to buy up the world
-My blog is designed to get the reader/listener to redirect his/her mindset when it comes to this new world order agenda
-Spotting opportunities to keep ahead.

Except for gold, the deflationary pressures from monetary policy are beating up the commodity complex

Gold is rising, but the other commodities continue to fade
Gold is rising for its own reasons. These reasons are not commodity complex supportive.

As we predicted, investing in commodities over the past year has been a sad endeavor. Despite all the talk this year about rising commodities prices from weather related catastrophes, animal-borne diseases, and tariff battles, gold has been the best performer out of all the major commodities. Gold is up 27.2% over the past 52 weeks, which was much better than the second best performer, lean hogs.

Although I believe that global central bank policy will be able to force interest rates continually lower over time, many out there are scared at the prospect of what negative rates mean to the world’s economy and financial markets. This fear of the unknown is what is driving gold higher.

Looking at the chart, we can see that lean hogs are down big since the swine fever scare, which goes to show that the best time to sell away hog futures would have been the same time the Economic Collapse Blog was writing about catastrophe in the livestock sector. The rest of the news continues to be grim for those bullish on commodities.

According to the above chart data, here are the following one-year percentage price changes for the following commodities:

-Corn: +4.2%
-Soybeans: +2.3%
-Wheat: -12.1%
-Lean hogs: +20.5%
-Live cattle: -4.1%
-Gold: +27.1%
-Lumber: -20.1% (not shown)

It only gets worse for copper and energy

Look at these one-year returns:

-WTI Crude: -18.7%
-Nat Gas: -27.9%
-Copper: -5.5%

My thesis with respect to investing in the commodity complex is fairly straightforward at this point. For some time now, I have been pointing potential investors away from commodities, except gold, for the following reasons:

  1. The central banks are in control, because they are guiding all interest rates lower: despite all the sound and fury to the contrary, the central banks are in control of this process. Thus, the monetary system will continue to evolve under their guidance. The nation-states desperately need lower interest rates to finance their ballooning deficit spending. So, in order to keep this going, the central banks have been effectively coordinating all their monetary policy programmes to make this a certainty. I think they are doing an effective job.
  2. Deflationary drags grow: All this debt servicing, regardless of prevailing interest rates, will create deflationary pressures, which serve to offset the massive currency debasement. These pernicious monetary policies will continue to suck the life force out of economic growth.
  3. Lower rates lowers producer cost of capital: Producers, manufacturers, and miners will tend to oversupply the market when their costs of capital fall. These manufactured lower rates are deflationary, by definition.
  4. The dollar will remain firm: Since the USD is the reserve currency, it benefits the most from this current monetary policy regime. The central banks are encouraging consumers and investors to take on debt. As long as there are no repudiations, the higher the debt burden grows, the more the dollar is supported. The amount of global dollarized debt grows and that, by definition, creates demand for the dollar from those needing to service their dollar-based debts. In addition, the U.S. economy has been holding up better than the other developed nations.
  5. Gold is rising for its own reasons: Gold’s price increase has more to do with the uncertainty that these global monetary policies have created than from inflation worries. I am concerned, however, that gold is having a similar setup like in 2009-2011, when global investors doubted the ability of the central banks to execute on their QE programmes the first time around. We shall see if this time is different. Since I knew that the central banks needed to commence on another massive round of QE and stimulus, and that many would be worried of failure, I had been recommending gold.
  6. The manufactured global political friction only benefits gold:  This ostensible chaos provides the necessary cover for the central banks to ramp up QE and such. While it has been gold supportive, it has worked to weaken worldwide economic growth. This weakness only serves to undermine commodity prices.
What will it take for commodities to rise in price?

This answer is simple. If monetary policy loses its effectiveness and interest rates rise, I would be bullish on commodities. Any prolonged sharp spike in interest rates would work to restrict commodity supply, and would cause commodity prices to rise.

Any intimation that global monetary policy is failing would cause the dollar to fall. This happened last decade when the global financial markets almost collapsed. Furthermore, any prospect of debt repudiation or haircuts would result in the same outcome. The dollar is being supported, because it is clear as of now that all sovereign debt will remain in force. If this changes, capital costs will rise and the resulting loss of confidence in currencies could make everything rise on the consumer price side.

As we predicted; Australia’s housing market is beginning to turn up again

Early this year, we recommended preparing for the next upturn in Australia’s housing market; That time is now.
Since we discussed the problems with Australian house prices, the RBA has cut the cash rate twice to a record low of 1.00%. Of course, there will be more to come.
It’s impossible to remain bearish on housing prices over the long-term when we are confronted with historically low bond yields

Earlier this year, we theorized that the “growing calamity” in Australia’s  housing markets would prove to be only a lull. Since Australia desperately needed much lower rates going forward, and in the wake of the U.S. Fed policy changes, the RBA came through as expected, and cut the cash rate twice – down to a historic low of 1.00%.

Dwelling values in Sydney, the nation’s largest property market, have risen in each of the past two months, according to CoreLogic Inc. That ended a near two-year slide that saw prices tumble 15% from their July 2017 peak, and foreshortened a slump economists had forecast to extend into next year.

When I analyzed the Australian housing markets earlier this year, I received some grief from some who told me I was wrong on this case. But according to the latest numbers, Australian house prices are creeping back up again.

“A lot more people now are getting concerned that things are going to go up in the next six to 12 months so they’re trying to buy now,” said real estate agent Phil Allison, who handled the sale. As recently as six months ago, it was difficult to elicit a single bid at an auction for a house just around the corner, he said.

The sudden turnaround in sentiment can be traced to three factors: the central bank’s back-to-back interest rate cuts which have pushed mortgage rates to record lows; the regulator’s loosening of mortgage stress tests; and the surprise re-election of Scott Morrison’s government in May, which killed off the opposition Labor party’s plans to wind back tax breaks for property investors.

Australia’s Housing Market Is Suddenly Heating Up Again Bloomberg Economics, August 7th

Keep in mind, I am not telling you that there is any real value in most of the real estate markets around the world. The United States is the only nation that still possesses any real value when analyzed through mathematical ratios. Unfortunately, when it comes to Australia, as expensive as housing in Sydney and Melbourne may be to the local residents, there are many other cities around the world that make Australia housing look dirt cheap. This shows that we could see house prices move even further out of reach in the top areas of Australia. View the sortable table below to see where many of the Australian cities compare. I think you will see what I mean.

According to the above chart, Sydney ranks down at 43, while Melbourne comes in at 56. The other cities in Australia rank much lower. Although the median house price in Sydney may be A$864,993, in USD, that amount is about $587,000. All those U.S. dollars are washing up on the shores outside the United States, and for me, house prices in Sydney don’t seem so expensive anymore when priced in the greenback.

I still have a difficult time comprehending how expensive housing in all areas of the world have become to the average resident. But this astonishment won’t make prices drop. The central banks are doing everything it takes to keep the governments in business and there is plenty more to come. You and I mean nothing in the equation and will always be the victims of the collateral damage… unless we invest accordingly.

A subscriber asks, how will bond yields fall from here? What’s in store?

Where the world is heading, lower rates are needed now

Chris,

Is this move to zero [percent yield] going to just be a churning inside a trading range?

My treasury zeros and bullion look awesome. The indexes are going nowhere.

Regards
Dave

The central banks are in control and the world desperately needs lower rates. All this global political friction seems to be auspiciously timed to coincide with collapsing yields.

That is great news for your holdings and I am glad you are long bonds. It seems that we have had good predictive accuracy over the past few years, because we were able to determine the direction of bond yields. It’s easy once one knows the agenda. We discuss it all the time, so this all comes as no surprise.

First, let’s preface this discussion, so the answer becomes obvious.

Virtually all of the alt-financial media have been wrong on the bond yield directions over the past few years, because they refuse to repent of their transgressions and admit that the owners of the central banks are in control. Their advice has been antithetical to the actual outcome.

Our large bets have been correct if for only one reason; we know that the global financial system desperately needs much lower rates now, and given that there will be no debt repudiations, and that the central banks are in control, the only conclusion is that lower rates will come.

My guess is that we will continue to see more of the same, as the bond yield curve continues its massive downward shift, while bonds move up in price. I doubt we will see more than a few months of churn and that the best credit nations that offer up the best yields (e.g. Australia, Canada, New Zealand, and the U.S.) will respond the best. We are already seeing this unfold as we predicted and Australia is the first to go sub-1%. New Zealand and Canada will follow, with the U.S. hitting that magic number soon.

Under the current global scenario, the global investor is being conditioned as we speak to accept the inevitable; a regime of negative rates throughout the developed world. It may be hell on earth for the average person, but for those positioned correctly (hopefully we will continue to profit here), the profits should continue to roll in. I say, let the scenario roll out as planned and our assets should rise over the intermediate term.

Keep in mind that the same owners of the central banks control the mainstream business media (and by the Delphi technique, the alt-financial narrative of economic collapse). This media manipulation has allowed the central banks to continue these unprecedented and remarkable monetary policies virtually uncontested. The mainstream media say that falling bond yields are from a saving glut and economic slowdown, while the alt-financial dummies continue to pound the table about economic collapse, which was caused by a failure of monetary policy. I see nothing stopping the timeline at this point. All have drunken the Kool-Aid and have been redirected into the wrong conclusions.

My conclusion; rates will fall harder than what most think and the globalist agenda will move forward.  Why is this? Both, the mainstream and alt-financial media have been conditioning us to the inevitability of negative rates, while the world desperately needs much lower rates now.

From what I observe, Donald Trump has been very useful to the elites, as he is carefully carrying out his orders to create the manufactured chaos that will provide all the excuses to crash interest rates further.

But we know the dark reality. If the central banks stopped buying sovereign debt, cutting rates, and pumping up asset prices, the nation-states would all go insolvent. And that doesn’t seem to be on the elites’ docket.

 

Bloomberg says negative rates are totally normal

The propaganda to accept negative rates as normal accelerates

Note: The referenced Bloomberg article may be behind a paywall, so I have provided a pdf version below. The original link is here.

Didn’t you know that negative interest rates were always normal? Bloomberg says we are saving too much. This illustration comes from the article.

…It seems crazy that anyone would voluntarily part with their money, only to end up with less of it.

But what if negative rates are totally normal?

Here’s a thought experiment: Imagine, for a moment, a time before the existence of a financial system. Rather than people accumulating wealth in pieces of paper (cash, bonds, stocks, etc.), the main way to build up wealth is to buy lots of physical things. Mansions, art, stores of grain, and so on. It should be obvious that this kind of wealth costs money to maintain. It degrades. You have to pay security guards. It can all go up in smoke in a fire. You can keep your wealth in physical things, but you’ll constantly pay a price for that—a negative interest rate, if you will.

But this is money we’re talking about! Why are we even talking about a storage fee? We all know that money in the modern era is just an entry in some digital ledger on the servers of a bank. Why should that cost anyone anything?

Well, it’s important to remember that money in the bank isn’t really something you have. It’s something that you are owed. When you log into your bank and see that you have $10,000 in your savings account, what that means is that your bank owes you $10,000.

And where does the bank get the money to pay you? From the entities that owe the bank money. Maybe the bank holds government bonds (in which case, the state owes it money) or it holds its money in loans to households and businesses (in which case, the private sector owes it money). You get the idea.

In other words, to store money at a bank requires the existence of some other borrower who will pay the bank.

The Non-Weirdness of Negative Interest Rates – Bloomberg August 8th

This Bloomberg article says that savers in Europe are having to pay to store their wealth, because saving is all too plentiful, and that this phenomenon will spread around the world. However, this propaganda diverts us from the real cause. The problem is that saving isn’t too plentiful; the central bank bond buying is only creating the illusion of excess savings.

This central bank bond buying is required to keep the system moving forward. These central bank bond buying programs have created artificial asset market demand as these banks scoop up trillions in sovereign debt and other securities. This excess bond “demand” has been the only real reason behind the collapsing bond yields. Furthermore, these manufactured lower rates have stimulated virtually all asset values and have allowed the governments to borrow with little thought of the ramifications to lost future economic growth and increasing deflationary pressures.

The controlled mainstream press can tell you that economic weakness and a savings glut are the two primary causes of falling interest rates, but the truth is much darker. The owners of the central banks have placed the entire world on a permanent IV drip of lower rates, which can easily accommodate a ballooning sovereign debt pile.

Take this to the bank; if it weren’t for these central bank asset buying programs, interest rates would be many times higher and the nation-states would have already gone insolvent. The controlled mainstream press can tell you that economic weakness and a savings glut are the two primary causes of falling interest rates, but the truth is much darker. The owners of the central banks have placed the entire world on a permanent IV drip of lower rates, which can easily accommodate a ballooning sovereign debt pile. This growing debt pile, by definition, is deflationary as all this past borrowing must be serviced in the future. Regardless of the rate of interest paid, the principal balance swells and drags down economic potential as the economy has to contend with the growing debt balance.

Indeed, negative rates are not weird when the central banks stand ready to vacuum up all the debt required to move bond yields lower, while they encourage elevated asset values. Elevated asset values also accommodate the growing debt pile, so the central banks will work to move asset prices higher over time.

Like I have been saying for a few years; we will look back and think that receiving interest on money is an anachronism.

August 7th Update – Answers to emails with more macroeconomic analysis; Where the world is heading and what I plan to do

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-I received about a dozen emails regarding yesterday’s podcast. I attempt to answer their concerns.
-My plans for a post economically-collapsed world. How I intend to survive.
-My macro-investment thesis. How to make money going forward. How I am preparing for a world of negative bond yields. The Fed will eventually have to cut to zero and below.

-Bond yields continue to fall in anticipation of what is to come; not from any upcoming recession. Australia is the first former Commonwealth to have their 10-year yield drop below 1%.
-If the central banks stopped buying debt, the governments would go bankrupt in 3-4 months. Yields would skyrocket.
-The U.S. may not be the best country in the world, but at least it is probably the cheapest when compared to a person’s income.
-As a saved man for about 18 years I have seen many articles written about the demise of the U.S. and Western culture. Articles written today could have a 2005 timestamp. I recall the dozens of hours of Bill Cooper’s shows from the late 80s-early 90s speaking of the same thing.
-The Christian obsession with the Satanic NWO agenda only works to externalize the hierarchy. Don’t get too caught up with it. I notice much of this discussion comes from non-Christian websites.
-Yuri Bezminov’s 30-year old interview discussed the demoralization of the West, not just the United States. Of course, the KGB didn’t cause that, but it is clear that the agenda was implemented.
-Trump is single-handedly causing this ongoing global financial market volatility. If Trump kept his mouth shut, the Fed wouldn’t have raised late last year and would have already cut 50-75 bps. The cuts have little to do with the U.S. economy and all to do with propping up the global financial system.
-Indeed, I am beginning to loathe Trump, and it has nothing to do with the Democrat philosophy. He drove ALL his former companies into bankruptcy and is now working his “art of the deal” mindset on the rest of the world.  I believe his disingenuous enablers are telling him what to do, which will work to disgrace those the mainstream media have conflated with his agenda (e.g. patriot media).

August 6th Update – Macroeconomics and the reality of monetary and fiscal policies; Why the U.S. enjoys a lower cost of living

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-A response to an email asking me if the relatively low house prices in most areas of the U.S. will persist.
-How the United States exports inflation and imports deflation. An explanation of this dynamic in action and how the U.S. trading partners are impacted.
-Why housing costs are so astronomical in the poorer nations. The numbers don’t lie; Americans have it easy when compared to the rest of the world (See how your city stacks up and try not to cry). The poorer the nation, the more costly housing becomes for the locals.
-Nothing is free. Social programs come with terrible, hidden costs
-Why grocery prices in the U.S. are much lower (with respect to local wages) than in virtually all other nations.
-An explanation of why the percentage of households that become rental dwellings will rise over time. Since many items cannot be imported, the growth in house prices and professional services reflect true monetary inflation. These will rise higher than wages over time. Property taxes rise higher and the costs of house services, which cannot be imported, escalate and make the prospect of home ownership more remote for a higher number of people. Tax policies punish owner-occupied real estate holders to the benefit of investment housing.