Germany

Insider

Olaf Naami/Shutterstock

Everything Is Suddenly Deteriorating, Fast

Is this "it?" It's sure looking like it may be.
Friday, March 30, 2018, 8:37 PM

Executive Summary

  • Geopolitical unity is fracturing as countries are forced to compete more
  • LIBOR is signaling a credit emergency in Europe
  • The market is sending signs a major war and/or a major recession may be imminent
  • The last remaining heroes for risk-on capital, the FANG stocks, are quickly becoming villains

If you have not yet read Part 1: The Future Ain't What It Used To Be, available free to all readers, please click here to read it first.

The central banks of the world have failed: colossally, completely and dangerously.  Yes, they will try to rescue the “markets” once again, as they did in 2011 and 2016 when things similarly looked to be falling apart.

The reason they might not be able to succeed this time?

They are out of maneuvering room. 

Nothing will happen if interest rates are clubbed back down a percent or two.  To do that, though, would require the same sort of lock-step coordination as prior times.  The ECB, BoJ and Fed would all have to operate seamlessly again. 

The most immediate of my concerns, even more than the tech-wreck that began a few weeks ago, is the rise in the LIBOR interest rate.  Why?  Because trouble always moves from the outside in.

Let’s do the math  With $350 trillion worth of assets tied to LIBOR, that means each 1% rise in the LIBOR rate translates into $3.5 trillion dollars of increased interest costs.

LIBOR is now at its highest rate since 2009, and it's spiking for reasons nobody can fully explain. In my mind, higher LIBOR means that there’s less trust and/or liquidity in the system.  It also means borrowing costs are heading up for... » Read more

Insider

Shutterstock

Off The Cuff: The Fed May Be Less Worried Of A Stock Plunge Than We Think

As long as credit flows, it's OK with lower stock prices
Tuesday, March 27, 2018, 2:53 PM

In this week's Off The Cuff podcast, Chris and Axel Merk discuss:

  • Dissecting Last Week's FOMC Meeting
    • Powell definitely seems different from his predecessors
  • Why The Fed May Not Worry About Stock Prices
    • All it really cares about are functioning credit markets
  • How Sick Is Europe?
    • Very, but it can linger a long time
  • The Prospects For Gold
    • Well-poised to outperform other assets this year

In the wake of last week's FMOC meeting, the first one for new Fed Chairman Jerome Powell, our site's central banking expert Axel returns to the podcast to share his assessment of the banking world's newest sheriff. Axel believes, as a lawyer (unlike his academic predecessors), Powell is fairly unconcerned with economic theory or asset prices. What he cares most about is regulation and the continued functioning of markets. So as long as credit -- the lifeblood of the global economy -- is flowing, he may not care much where prices end up...

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio and other premium content today.
Podcast

alphaspirit/Shuttestock

David Stockman: The Global Economy Has Entered The Crack-Up Phase

And will be characterized by these 4 developments
Sunday, February 15, 2015, 3:42 PM

Few people understand the global economy and its (mis)management better than David Stockman -- former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier.

David is now loudly warning that events have entered the crack-up phase, which he predicts will be defined by the following 4 developments: » Read more

Insider

swissmacky/Shutterstock

Why The Strengthening Dollar Is A Sign Of The Next Global Crisis

It causes the weaker parts of the system to fail faster
Wednesday, November 12, 2014, 11:21 AM

Executive Summary

  • Understanding the two different ways money flows into the US dollar
  • How currency crises elsewhere can send the dollar skyrocketing
  • Why yen, yuan and euro printing are not the same as dollar printing
  • How these accelerating money flows are creating the next global crisis

If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.

In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.

The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.

Two Kinds of Dollar Flows

Let’s start by differentiating between the two kinds of money flows into the dollar:

  1. Money converted from periphery currencies into dollars to pay back loans denominated in dollars
     
  2. Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.

Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.

In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.

This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.

The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to... » Read more

Blog

Denis Rozhnovsky/Shutterstock

Ukraine: A Perspective from Europe

The West's power & influence is on the wane
Wednesday, August 20, 2014, 11:54 AM

It is still a mystery to many historians as to how and why this World War I led to the slaughter of nine million people. But analysis of different parties to the original event, pursuing their own vested interests without a grasp of the bigger picture, certainly rings true of the Ukrainian situation today with regards to the West, embodied in a disparate committee called NATO. The similarity with the chaotic diplomacy that led to WW1 stops there: Russia under Vladimir Putin’s leadership appears to have a good grasp of its objective. » Read more

Blog

Cvijun/Shutterstock

On the Path To War

Putin plays chess, the "markets" play Tic-Tac-Toe
Monday, August 11, 2014, 7:25 PM

The US is clearly now pushing Russia towards war. But if you read the signs correctly, Russia has been preparing for exactly this outcome for many years.

Out of several reasons that US power brokers specifically -- but western power brokers more generally -- are deeply unhappy with Russia right now is that Russia is committing a cardinal sin: it is openly, brazenly calling for an end to dollar dominance and has moved aggressively with China to achieve that aim. » Read more

Featured Discussion

German 'Demonstrations For Peace'

German 'Demonstrations For Peace'

A populist uprising in the making? We'd like to hear from our German readers.

Blog

Lucas Photo/Shuttstock

What If Nations Were Less Dependent on One Another?

The Case for Autarky
Wednesday, January 15, 2014, 4:13 PM

Autarky is more than a ten-dollar word for self-sufficiency, as it implies a number of questions that “self-sufficiency” alone might not.

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, 'self-sufficiency' in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise. » Read more

Podcast

Alasdair Macleod: Europe is a Hot Mess

Its banks are the weak point in the global financial system
Sunday, July 28, 2013, 10:42 AM

It's almost August, the month everyone in Europe takes off on holiday to forget their troubles. This year may be different, though, as not only can many not afford a vacation, but Europe's troubles loom so large that forgetting them won't be easy... » Read more

Featured Discussion

Attention Readers from Germany

Attention Readers from Germany

Wanted: your "boots on the ground" perspective. How tired are Germans becoming of funding the bailouts for the Eurozone?