Despite Years of ECB’s QE (Ending Soon), Italy’s “Doom Loop” Still Threatens Eurozone Financial System

Even banks outside Italy have an absurdly out-sized exposure to Italian sovereign debt.

The dreaded "Doom Loop" — when shaky banks hold too much shaky government debt, raising the fear of contagion across the financial system if one of them stumbles — is still very much alive in Italy despite Mario Draghi's best efforts to transfer ownership of Italian debt from banks to the ECB, according to Eric Dor, the director of Economic Studies at IESEG School of Management, who has collated the full extent of individual bank exposures to Italian sovereign debt.

The doom loop is a particular problem in the Eurozone since a member state doesn't control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

The Bank of Italy, on behalf of the ECB, has bought up more than €350 billion of multiyear Treasury bonds (BTPs) in recent years. The scale of its holdings overtook those of Italian banks, which have been shedding BTPs since mid-2016, making the central bank the second-largest holder of Italian bonds after insurance companies, pension funds and other financials.

But Italian banks are still big owners of Italian debt. According to a study by the Bank for International Settlements, government debt represents nearly 20% of banks' assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign debt holdings that represent over 100% of their tier 1 capital (or CET1), according to Dor's research. The list includes Italy's two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier 1 capital. Also listed are Italy's third largest bank, Banco BPM (327%), MPS (206%), BPER Banca (176%) and Banca Carige (151%).

Banks that hold such large, concentrated portfolios of their own government's bonds can pose a serious threat to financial stability. The Bank of International Settlements (BIS) imagines a scenario in which sovereign exposures worth up to 100 percent of required capital would maintain their zero risk-weight, while holdings over that limit would require more capital. But every attempt to put an end to the doom loop by removing the risk-free status of certain sovereign bonds has, for obvious reasons, encountered stiff resistance from banking lobbies and politicians from countries like Spain, France and Italy.

Dor's research shows that even beyond Italy's borders many banks have an absurdly out-sized exposure to Italian sovereign debt. They include Belgium's publicly owned too-big-to-fail and already twice collapsed and bailed-out Dexia whose holdings of Italian public debt represent a staggering 320% of its tier 1 capital. That is dwarfed by the holdings of the French public bank Société de Financement Local, SFIL, which was set up following the last bailout of Dexia. Its total holdings of Italian sovereign debt instruments reach a mind-watering 480% of its tier 1 capital.

Two other foreign banks that are dangerously exposed to Italian sovereign debt are Portugal's Caixa Central de Crédito Agrícola Mútuo, with holdings worth almost double its Tier-1 capital and Spain's Banco de Sabadell (102%). Deutsche Pfandbriefbank AG, a German lender that specializes in real estate and public sector financing, has 82% exposure, Commerzbank, 42%, BNP Paribas, 25% and Spain's BBVA, 25%.

Clearly, the threat of contagion from a banking crisis in Italy remains a problem, thanks in no small part to the ECB's tireless efforts to underpin both Europe's biggest banks (by providing them with an endless supply of free money) and its bond markets (by acquiring corporate and sovereign bonds).

This has helped preserve a dangerous relationship of mutual dependence between governments and banks. When banks invest heavily in government debt, they become dependent on the government's good performance, which is clearly not a given, especially in the Eurozone. Meanwhile, the governments depend on the banks to continue purchasing their debt despite the massive boost to sovereign bond demand provided by the ECB's quantitative easing program.

The only thing that has really changed in this equation is that the "doom loop" now contains three, instead of two, main players, as both governments and banks have also become dangerously dependent on the largesse of the ECB, which, through its affiliated national central banks, now holds 18% of all Italian treasury bonds. In the fourth quarter of 2017 Italian banks sold an unprecedented €40 billion worth of Italian sovereign bonds (10.5% of outstanding stock) to the ECB, in what bears all the hallmarks of a mass rush to the exits as the ECB ponders ending its bond purchase program.

The problem here is that the ECB is now the only net buyer of Italian bonds left standing. In fact, in October last year the central bank was buying seven times more Eurozone sovereign bonds than the euro-area governments added to the market, according to calculations by Deutsche Bank economist Torsten Slok. Even today, the ECB's tapered QE program is three times larger than total net issuances, whereas the Federal Reserve's QE program at its peak was never more than 90% of total issuance of Treasuries. As the Spanish economist Daniel La Calle points out, in such an environment it's impossible for the ECB to know what the real demand for bonds is once the central bank steps away.

Blain: "US Stocks Look Cosmetically Strong" But Something Is Going On With High Yield

Sloppy Markets, but a new investment thesis: buy Macron's Europe?

"Roll up that map, it will not be wanted these 50 years.…"

Its been a "sloppy" week in markets. Although the US stock market looks cosmetically strong, it's largely on the back of Tech and Fangs – its not broadly spread. European markets are still languishing. Credit markets don't feel they are going anywhere – it feels like they are already closed for the Easter Break. New deals have been underperforming, there's a distinct sogginess in HY and Financials particularly.

I've attached a chart from our HY bond team showing the divergence between HY and Stock Sentiment this year – that is worth considering.

Why the lacklustre performance? Its not just the comings, but mainly goings, at the White House, Trump wanting a trade war (actually he doesn't), or the Russians, or the host of other things.. It's just that markets are suffering a distinct lack of empathy at the moment. No one feels particularly inclined to do anything… and if the whole market is sitting on its hands waiting… then I suspect we'll be waiting a while longer.. 

Meanwhile, its Friday, so traditionally I go off on a rant about something outrageously stupid and downright daft.

How about this one as an investment thesis for the next few years: "Invest in Europe – Post Brexit it might just Work!"

My first clue to this apparently hatstand investment thesis is Angela Merkel in Paris today to "celebrate" her fourth term in office with her French counterpart. Interesting…. the first thing the German Chancellor does in office is to fly to the side of the new Emperor of Europe.

My second input is my own opinion that we Brits are terrible Europeans. We don't dance to the same tunes. We simply don't have a common history with the continent – in fact we're the literally other side of the story when it comes to the last 1000 years. While we obeyed all the Common Market and EU rules, and played the game according to the rules we'd read, we never saw Europe or understood it from the same perspectives as Core Europe. By trying to play a game the rules of which we couldn't possibly understand, Britain became a break on further advancing the European cause.

With the UK out of the equation, core Europe can get on with the long-term project. They are more likely to succeed without us. Cynics might suggest the "long-term project" hasn't changed over the past 500 years – the goal is German or French hegemony over the continent. On the other hand, a stronger Europe can't be a bad thing in terms of global opportunities – can it? 

With Weidmann looking increasingly unlikely to ascend to the ECB throne when Draghi retires, some think its worth gaming through scenarios on the likely alternatives. While ECB Chair is a critical position – and without Draghi's deft handling of the Eurozone crisis over the last 8 years I doubt the project would have survived - it doesn't actually matter who gets the job.

What's more important is going to be the agenda for the ECB going forward – and it's being set from Macron's desk in the Elysee Palace. Sooner than we think we're likely to see a coordinated ECB and closer Union approach to Europe – driven by Macro and Micro fiscal policy and closer Union to ensure growth deliverables. European ministers and budgets may infuriate the Brexiteers as clear evidence of the pernicious power grab of European Bureaucrats, but its going to happen.

We've all seen what's been occurring in Berlin – a desperate marriage of convenience between the Centre Left and Centre Right that will leave both squirming for relevance among their core supporters as each trades away core principals. They may have power – at the cost of fuelling a long term surge in Extreme Right. Germany remains the economic powerhouse of Europe, but I suspect its going to be politically muted in the new Europe. 

That gives Macron the time and opportunity to push his ideas and agenda to the responsive SFP. Merkel is taking her new finance minister Olaf Scholz to the Paris festivities. Macron will get a positive response from Scholtz when he proposes a single European Finance Minister, a massive investment boost and a host of other macro and micro initiatives – Merkel has little choice to accept. If she objects, the Grand German coalition is likely to fall apart.

The policy mix Macron and his cronies propose for Europe are wide ranging, and typically French. However, a solid mix of macro and micro fiscal policies plus clear direction and investment should work. Macron is not only in the driving seat, but he's got a map that may just lead to the right place…

However, it might be worth considering why the last European experiment to achieve a unified European economy failed. I'm thinking of the 1800s when the "Continental System" Napoleon enforced across Europe failed. It failed because everyone wanted to trade with the UK. Even Napoleon's own brothers (whom he'd elevated to European thrones) were dealing with pernicious Albion behind his back!

It might be a lesson for Modern Europe to consider as they factor in the post Brexit relationship with the UK. (OK – in 1807 the UK was a far more significant global economic power than today – but we still buy more German cars than anyone else!)

Paulson Fires Heads Of Equity And Credit Trading As Slump Deepens

Having watched over his AUM plunge 70% in two years, to just $9 billion, John Paulson hasaxed several key employees, according to NYPost. After reaching a peak of $38 billion in AUM in 2011, of which roughly 50% was contributed by outside clients, Paulson now runs about $9 billion, 80% of which is his own money. And it appears this slump has finally forced him to make across the board cuts in staff, including several very senior personnel (who have been with the fund for more than 10 years).

Among the senior level hedgies being shown the door were:

Keith Hannan, head of trading;

Brad Rosenberg, head credit trader; and

partners Victor Flores and Allen Puwalski.

Of course, as we noted previously, just last summer Paulson was also forced to shutdown a $500 million long-short equity fund focused on healthcare after a series of bad bets resulted in massive losses. 

All of this obviously bodes ill for Paulson's fund, unless that is he is making room in his costs to be able to afford a new hire... someone who just came on the market - Gary Cohn?

Yield Curve Turns Threatening... Again

For a while there it looked like the blow-off top of this expansion was somewhere in the future. Now it's starting to look like 2017 was as good as it's going to get – with serious implications for stocks, bonds and real estate.

At least that's what interest rates now seem to imply. From today's Wall Street Journal:

Yield Curve Once Again Sends Dour Signal on Economy

A bond market barometer that briefly suggested growth was perking up has reversed course.

The so-called yield curve, typically calculated by measuring the differential between short- and long-term Treasury yields, has been flattening in the last few weeks. Long-term yields have fallen in response to tempered expectations for growth and inflation, even as short-term rates extend their months-long rise.

The differential between the two-year yield and 10-year yield on Thursday shrank to 0.54 percentage point, the smallest since Jan. 26, coincidentally the day of the S&P 500′s last record high, Tradeweb data show. That was near its January low, which had been the lowest in a decade.

The yield curve flattened this week as long-term yields fell after a slew of lackluster economic data. Retail sales slipped 0.1% in February, their third straight monthly decline, data showed Wednesday. And data on consumer and business prices showed inflation pressures remain modest.

Investors watch the yield curve because it can signal that the economy is speeding up when it steepens. It can show the opposite when it flattens. And when short-term Treasurys yield more than their long-term counterparts, it signals that a recession is coming.

The yield curve also influences portions of the stock market — lifting banks and financial firms when it steepens and pushing up utilities when it flattens. On Wednesday as the curve flattened, the S&P 500 utilities sectors outperformed the benchmark, while the financial sector underperformed.

Rising yields this year had made the yield curve steeper throughout parts of the winter, but recent economic data has dampened those expectations. At the beginning of this month, the Federal Reserve Bank of Atlanta's real-time GDP tracker projected the U.S. growing at a 3.5% annual pace in the first three months of the year, but by Wednesday, it had fallen to 1.9%.

Though some have recently questioned the curve's forecasting power, many say it still offers a reliable signal. "Periods with an inverted yield curve are reliably followed by economic slowdowns and almost always by a recession," said Federal Reserve Bank of San Francisco economists, in a research note earlier this month.

Definitively an ominous trend, this, and one that's consistent with a long-in-the-tooth expansion like today's. But nothing in this hyper-complicated world is ever simple, so before assuming that a recession is neigh, be sure to note that US home prices jumped 9% in February, import prices rose more than expected, and labor markets continue to tighten. And who knows what the nascent trade war will evolve into.

The take-away? There are even more than the usual number of moving parts to consider this time around. Which means the party can end suddenly via some kind of discreet inflation/geopolitics/stock crash event or very slowly via an accumulation of Fed rate hikes, moderating growth, and rising trade barriers. Either way, "messy" is likely to be 2018's dominant theme.

BofA Stunned By Record "Wall Of Money" Inflows To Equities, Has Three Warnings

One week after US stocks suffered "massive" outflows despite a net inflow into global equity funds while the S&P jumped, everyone is back in the pool as a "wall of money" returned with a vengeance" this week, driving record inflows into both global and US-focused equity funds as concerns around trade dissipated, while billions more were plowed into tech stocks according to the latest weekly fund flow report from Bank of America.

According to BofA CIO Michael Hartnett, a record $43.3 billion was put into equities this week as investors shrugged off trade war risks that had initially sent stocks reeling, even as those very risks returned in the subsequent week and have pressured the S&P lower on four consecutive days.

There was no good news for active investors, however, as more than all of the inflows ($43.9BN, also a record) went to ETFs, with mutual funds suffering another weekly outflow of $0.6 billion). On a YTD basis, a record $131BN has been allocated to ETFs, or 3.6% of AUM, with just $21BN going to "long onlies"

Meanwhile, bond funds saw a "more humble" $2.4 billion in inflows.

Looking at recent trends, BofA calculates that equity inflows are outpacing bond inflows for the first time since 2013, with annualized flows of $717 billion. Bond funds managed relatively minute inflows of $2.4 billion this week.

To Hartnett, these "Flows indicate clients positioned for higher EPS, higher short rates, higher bond yields, lower US dollar."

And yet, something odd has emerged: the record inflows are out of step with more muted returns from equities: "chart-topping inflows not coinciding with headline returns...check out $25tn NYSE index (NYA Index) down YTD." All major European stock indices are still in the red since the start of 2018, while the S&P 500 is only one that is slightly up.

Looking at a sector breakdown, investors just can't get enough of tech stocks, and another record was broken in the last week when $2.6 billion went into tech stocks this week, an all time high, putting the excesses of the dot come era to shame. So far, a total of $9.8 billion has gone into tech funds YTD, making the annualized flow figure a massive $46.5 billion.

Hot on tech's heels, financials drew in $1.6 billion, and are the second most popular sector after tech, with $7.3 billion of inflows year-to-date. Separately, U.S. large-cap funds, which saw $10.1 billion in redemptions last week, drew in more than double that amount this week, enjoying their fourth highest ever inflows at $22 billion.

But wait, there's more: there was also a record inflow into US growth ($5.8bn), US small cap ($5.4bn), and US value ($4.1bn) funds.

Meanwhile, European stocks saw modest outflows of $1.3 billion, even as emerging market equities continued to draw in cash ($2.7 billion) and Japanese equity funds enjoyed their 15th straight week of inflows as the popularity of the asset class proved resilient.

* * *

Still, despite the return of raging euphoria, BofA had three warnings:

First, despite massive inflows into stocks, BAML's Bull & Bear index of investor sentiment fell from 6.8 to 6.5 on "accelerating EM debt/ HY corp outflows & placid equity returns."

Second, the bank also warned that "Credit is creaking", and echoed Bill Blain's comments from this morning, that there is now a "clear negative inflection point in HY flows" while the broader "yield trade" (IG+HY+EM) inflows & returns are peaking", which makes it a headwind for equity return.

To this point, Hartnett also warned that Treasuries funds drew in $0.3 billion in their eighth straight week of inflows, and as such Treasuries & bunds are hinting at a "growth scare" which makes stocks vulnerable.

Third, Hartnett warned that the recent surge in Libor was likely to lead to tighter financial conditions; as we have reported almost daily, short-term borrowing costs have surged in the past weeks to levels last seen in the 2008 global financial crisis, while both LIBOR-OIS and FRA-OIS have exploded to levels suggesting an acute funding crisis is imminent.

And tied to this, should the U.S. dollar spike once the funding crisis finally manifests itself in trades, it could ding tech and emerging market stocks.

Job Opening Soar By 645,000 To All Time High 6.3 Million

Two months after the number of US job openings reported by the JOLTS dropped to a six month low amid a slowdown in hiring and quitting, all it took was one comprehensive data revision to set the seasonally-adjusted, statistically inferred US labor market back on track, and according to the latest JOLTS report, in January, the number of job openings soared from a downward revised 5.667 million to 6.312 million, a 645,000 increase, the second biggest monthly jump on record.

The job openings level increased for total private (+608,000) and edged up for government. The job openings rate increased to 4.1 percent in January. The number of job openings increased in professional and business services (+215,000), transportation, warehousing, and utilities (+113,000) construction (+101,000), and several other industries. The number of job openings increased in the South, Midwest, and West regions.

It wasn't just job openings that jumped: total hires rose as well, increasing from a revised 5.524 million in December to 5.583 million in January, the second highest on record after October's 5.609 million. While the number of hires was little changed for total private, it rose for federal government (+10,000).

The other closely watched category, the level of quits - which indicates workers' confidence they can leverage their existing skills and find a better paying job - reversed last month's increase, and in January declined modestly from 3.340MM to 3.271MM, suggesting workers were feeling just a little less confident about demand for their job skills than the previous month. Quits increased in arts, entertainment, and recreation (+13,000) but decreased in professional and business services (-71,000). The number of quits decreased in the West region.

And with a total 5.4 million separations (a 3.7% rate), this means that there were 1.8 million layoffs and discharges in November, virtually unchanged from December. The layoffs and discharges rate was 1.2 percent in January, same as December. The number of layoffs and discharges was little changed for total private and for government. The layoffs and discharges level increased in health care and social assistance (+52,000). Layoffs and discharges were little changed in all four regions.

Putting all this in in context

Job openings have increased since a low in July 2009. They returned to the prerecession level in March 2014 and surpassed the prerecession peak in August 2014. There were 6.3 million open jobs on the last business day of January 2018, a new series high.

Hires have increased since a low in June 2009 and have surpassed prerecession levels. In January 2018, there were 5.6 million hires.

Quits have increased since a low in September 2009 and have surpassed prerecession levels. In January 2018, there were 3.3 million quits.

For most of JOLTS history, the number of hires (measured throughout the month) has exceeded the number of job openings (measured only on the last business day of the month). Since January 2015, however, this relationship has reversed with job openings outnumbering hires in most months.

At the end of the most recent recession in June 2009, there were 1.2 million more hires throughout the month than there were job openings on the last business day of the month. In January 2018, there were 729,000 fewer hires than job openings.

Finally, and perhaps most notably, the Beveridge Curve (job openings rate vs unemployment rate), continues to gradually normalize after a nearly decade-long "drift" from its conventional pattern. From the start of the most recent recession in December 2007 through the end of 2009, the series trended lower and further to the right as the job openings rate declined and the unemployment rate rose. In January 2018, the unemployment rate was 4.1 percent and the job openings rate was 4.1 percent.

Zero hour

That's the economy your kids and grandkids will live in. And it will be dominated by the emerging countries.

You may retire while this revolution unfolds, and at Dent Research we're here to help you preserve and expand your wealth through it all. To retire well!

But your kids are going to be the ones that become part of this great shift and the potential recipients of the massive opportunities to follow. There's a caveat though.

There'll be money to make during the next stock market crash, but the global boom that follows will be nothing like what we experienced between 1983 and 2017.

Everything will not boom largely together as it occurred since World War II. Rather, you'll need to understand our unique demographic and globalization forecasting tools to know where to set your sites for the groundbreaking opportunities. 

Drums Along The Potomac

The amateur psychologist in me suspects that the more the USA heaps Russia with censorious opprobrium and punishments, the closer this floundering polity actually is to completely losing its shit. Friday morning's front-page headline in The New York Times appears to have been written by Pee Wee Herman:

I can just hear Vlad Putin blowing a raspberry out of the Kremlin: "Nyah, nyah, nyah… I know you are, but what am I…?" We're also informed today by that august journal that U.S. Accuses Russia in Cyberattacks on Power Plants. (Oh, wait a second, they changed the headline at 8:02 to Russia Wormed Its Way Into Access at Power Plants, U.S. Says.)

Hmmmm… well, the amateur detective in me suspects that A) this is exactly the kind of bullshit that US intel excels at making up; plus B) the public was actually told last year that our intel has the ability to place any kind of cyber-footprint and time-stamp it wants on digital information, so that C) this assertion can be neither proved nor disproved.

The amateur international relations analyst in me sees in these shenanigans a desperate search for a casus belli, an excuse to go to war. But that only brings me back to amateur psychology: the US apparently wants to commit suicide. Wouldn't war be a great idea a week after Russia announced it had new hypersonic missiles that the US can't defend itself against?  Hmmmm. Maybe the Russians made that shit up. And maybe they didn't. Perhaps we'd like to test that, say, by bombing a bunch of Russian military personnel in Syria, just to see what happens.

There is also the matter of the poisoning in Salisbury, UK, of the Russian Sergei Skripal and his daughter Yulia with a suspected nerve toxin, Novichok, first developed by the old Soviet military. The two remain in critical condition. A nasty bit of business. Skripal was a Russian-to-British double agent who was exchanged some years back in one of the infrequent swaps of captured intel "assets" by the so-called great powers. British Prime Minister Theresa May had a whack attack over the Skripal hit, reeling out new sanctions and booting a boat-load of Russian diplomats off-island.

Forgive me for seeming callous, but it's a little hard, in the first place, to give a fuck one way or the other about the poor Skripals. Being a double agent carries some serious occupational hazards. This is generally understood among observers older than age six. Mr. Skripal came to an unhappy fate, and his daughter is apparently what we like to call collateral damage — of the sort, say, when one of our drones in a foreign land blows up a wedding party by some targeting error. Whoops! Our bad. One lesson here is that people with ambitions in the intel sector should consider sticking with one side or the other.

Interestingly, and secondarily, the accusation itself is unaccompanied by evidence. The Brits will not release samples of this Novichok for analysis. But are we also to believe that the Brits (or one of their close allies, say) could not concoct a bit of this poison themselves in a lab? After all, when you're in the world of double-agentry, you're in a hall of mirrors, and who, really, is to be trusted? Least of all in a matter such as this, would you start banging war drums.

But that, alas, is where things rest for the moment. War drums beating and war cries wafting across America's spacious skies. The hysteria is palpable and we are making ourselves ridiculous — if not getting ready to blow up the world. Oh, I might also add that it is impossible to believe that there is not some room in the giant NSA facilities full of computer jocks trying sedulously to worm their way into every computer system in every foreign land the world over. The question you'd have to ask is: why would we not be doing that?

The amateur theologian in me thinks: when the Shining City is at hand, will someone please hitch Rachel Maddow to the back bumper of a Toyota Landcruiser and drag her over six miles of broken lightbulbs? Of course, I can't say that because it would by misogynistic.

Final Preparations Being Made Now: Global Reset WITHIN MONTHS

 Jim Willie tells Silver Doctors China and Russia are making final preparations for the global reset. Here's the details…

In this interview, Jim Willie answers viewer questions!

– When the stock market crashes sufficiently do you think we'll see panic buying of gold, silver, and cryptos?
– I'm an american expat who's made China his home. I own $150 K worth of gold and silver and have a decent holding of CNY. After the USD loses its global reserve status, how do you see China's economy being affected?
– How did Jim immigrate to Costa Rica and how hard was it? Does Jim feel safe there?
– If Venezuela, Qatar, Iran, China, Russia…have decided not to use the dollar,how is it the dollar hasn't crashed yet and the interest rate gone thru the roof?
– How long before the interest rates catch up to the lag in the default of debt in the private sector, causing the cascade of defaults throughout the banking sector?
– Who is buying the bonds? Is the U.S. financing their own debt?
– How do you think it is going with the flipping of Germany to the east in a economic sense if not political. Do you still think this will happen?
– Please ask Jim what he thinks about JP Morgan stashing so much physical silver. Are they doing it to profit from higher prices or to cover their naked shorts when they short the paper market?

L. Zang Doubles Down: Listen To The IMF & Central Banks Because There WILL BE A Monetary Reset

 

L. Zang says if we just listen to and watch the central banks then we can understand what's coming to the global financial system. Here's more....

Eric sources questions from Lynette's viewers and Lynette responds with organic and unrehearsed answers:

Question 1. Dennis S: Can you give us what percentage of our assets we should hold in gold? It is costly to take money out of our IRA's, are you saying we will lose it anyway and are you suggesting to take all of our retirement and convert to gold.  Or are there other ways to diversify retirement that would protect it during and after a crash or intense down turn?

Question 2. Boyd A: Dr. Stephen Leeb observes that the Chinese appear to have pegged the Chinese Yuan to Gold for the last 8-12 months (https://kingworldnews.com/dr-stephen-leeb-2-10-18/). Does this mean on March 26, 2018 when the petro yuan is launched that we can consider the yuan is pegged to oil, and oil pegged to gold?  Should we expect a drop in the US Dollar (and rise in gold) following the launch, or will this have no or little effect for years to come?

Question 3. Eric Mcvey3: You say not the best to own gold ETFs? I have moved most of my IRA into gold based positions? You can't own physical gold through your IRA as far as I know.

Question 4. Ben L: I buy MS70 silver eagles. Are those considered numismatics and will they be protected from future confiscations?

Question 5. Walter B: My gut knows there will be a reset but my brain refuses to believe. Why?

Bill Holter: Gold Price To Be Reset MUCH HIGHER To Keep Those Without It From Catching Up

B. Holter says we're right at the point of the transition and the reset. Here's what it means for the U.S. dollar, gold and silver…

Bill Holter interviewed on the Report Spotlight

In this important, timely interview, Bill Holter says that China and Russia are ready to make their moves away from the U.S. Dollar.

When this happens, Bill says, everybody's standard of living is going to drop dramatically. Bill says the credit system will freeze-up and the United States will be thrust into Banana Republic status. Bill says it's even going to be hard to get food from a grocery store because of how dependent the systems are on credit.

Gold and silver are playing a big role in this transition.

Something BIG Going On In Russia RIGHT NOW: Imminent Launch Of The Russian Silver Rouble?

This was going to be about "helicopter money" because a ton of precious metal literally fell out of a Russian plane. But now its way more than that...

Please connect the dots below, but first, please do this math:1+1+1+1=? (Answer: 4, every day of the week).

While it has been known that China and Russia are relentlessly stacking gold, a recent turn of events point to something big going on under the surface with silver.

First the background (and the first "1" in our mathematical equation):

Two summers ago, Hugo Salinas Price gave a presentation in St Petersburg, Russia about silver.

Here's some of what he said:

The Russian silver coin to be monetized would contain 1/2 ounce of pure silver, alloyed to .900 or .916 purity, for durability.

The silver coin would be minted and monetized in Russian roubles by the Treasury of the Russian Federation, by a monetary quote issued by the Treasury. The coin would bear no stamped monetary value.

The monetized silver coin would become a parallel currency, which would circulate in parallel with the rouble currency issued by the Russian Central Bank. The Silver Rouble coins would form part of "M-0" ("M-zero") which is the narrowest gauge of money supply. Thus M-0 would be made up of Russian Silver Rouble coins, along with the banknotes and base-metal coins issued by the Central Bank.

For the Russian Silver Rouble coin to remain in circulation as money, and form part of M-0 indefinitely, it would be indispensable that the coin receive its monetary value in roubles by means of a "monetary quote" which would be issued by the Treasury. This quote would be communicated to the population daily by the Media. Otherwise, a traditional stamped value on the coin in roubles would soon be surpassed by rises in the price of silver and the coin would be demonetized, as were all its predecessors in the last century.

The creation of the Silver Rouble coin would mark an important precedent, because at present, no government in the world issues currency: all governments have abdicated from that right, in favor of their respective Central Banks, each of which belongs to the world-embracing syndicate of Central Banks headed by the Federal Reserve of the USA.

The present worldwide system of Central Banking has exhausted its possibilities, as is evident in the fact that 17 countries in the world are now suffering "negative interest rates", that is to say, interest rates below zero for large depositors in banks, which amount to a punishment on savers. The "negative interest rate policy" is a logical aberration and serves to demonstrate the intellectual bankruptcy of the world's Central Banking System.

The economies of the world are in a slump and there is not one country in the world that is enjoying a worry-free prosperity.

It is time for a change, and the Silver Rouble coin would mark a necessary change, because a) The creation of the Silver Rouble coin by the Treasury of the Russian Federation would signify that Russia affirms its sovereign right to create money, a right which has been usurped by the Central Banks of the world, and b) because its monetary value in Russian roubles would reside in the value of the silver it contains.

His whole speech can be found by following that link. I just wanted to present enough to make the point.

Now on to the second "1" (1+1):

Tie Hugo's presentation in to those sweet pics we saw of Russia's stack, and what was there to notice?

That's right: The Russians have been busy stacking mad amounts of silver:

That's a lot of silver.

Why is Russia stacking silver?

The United States used to have a silver stack, called a "strategic stockpile", but that has since been depleted. Yesterday in an interview with Greg Hunter, David Morgan talked a little about that.

Back on track.

Two summers ago, Hugo Salinas Price told the Russians how to introduce a Silver Rouble.

This is important to understand – not a silver-backed rouble, but an actual silver coin!

For lack of a better term since its still unofficial, we'll call it the Russian Silver Rouble.

He told them how to make the coin, and what did he tell them? Think of our pre-1965 coinage. Hugo told the Russians to use a 90% silver alloy.

Which brings me to the third "1" (1+1+1):

What did break just on Tuesday and why does it all now make sense?

Refiners are making more money by melting down U.S. 90% coinage and selling it as melt bars than selling the U.S. 90% silver coins.

Why on earth would they do that and what purpose does that serve?

Well now, it makes perfect sense doesn't it?

The Russians, either directly or through some type of "agent buyer" are just being efficient and getting prepped silver bars.

Buying the melt bars instead of bags of 90% coins also serves the purpose of not having an accident which could turn into a geo-political blunder at best or a powder-keg nightmare at worse by giving the perception that the Russians are removing pre-1965 silver coinage from the United States.

If the Russian plan is to launch a Russian Silver Rouble, and if the formula for this Russian Silver Rouble launch is to use a 90% silver alloy, well heck, those melt bars are exactly what the Dr (Hugo Salinas Price) ordered!

And this brings us to the fourth "1" (1+1+1+1):

Take a good look at this bar:

That's not a 1000 oz .999 fine COMEX silver bar. Oh no.

That looks like a dore bar, which would be a type of crude quick cast bar of lower purity, as in perhaps a 90% melt bar from the United States?

Scroll back up and look at those silver bars in Russia's stack – they have Russian writing on them.

That dore bar directly above, on the other hand, has what looks like an English "A" as well as some English numbers.

Now, this article was originally going to be a "Helicopter Money Russian Edition" Thursday Humor post, because a cargo plane in Russia literally dropped a bunch of gold by accident on take-off.

Here's more from RT:

Gold bars and gems worth millions of dollars have fallen out of a plane taking off in the Russian region of Yakutia, famous for its rich natural resources and diamond deposits, local media report citing witnesses.

Photos circulating on social media appear to show gold bars wrapped in material scattered on the runway at Yakutsk Airport, in the country's major diamond-producing region. The precious metals fell from the Nimbus Airlines An-12 plane when its cargo hatch accidentally flew open upon takeoff, Russia's Investigative Committee confirmed on Thursday. 

Here's a picture of some of the gold that dropped upon take-off:

 

Here's more (red bold for emphasis) from the same RT article:

The plane was carrying more than 9 tons of "concentrate containing precious metal" that belonged to the Mining and Geological Company in the neighboring Chukotka region, the committee said, without naming the metals. The ill-fated hatch fell on the local auto market, causing no injuries. 

Now, anybody who reads this site knows that the "official" story most likely is not the real story.

We only get bits and pieces of information which may or may not tell the accurate, complete, or true story. In other words, we get information dumps from time to time (pun and no pun intended) like this one which on the surface is a story about precious metals falling from a Russian plane upon take-off, but under the surface this story could be a whole lot more than that.

So let's bring it back to our original mathematical equation: 1+1+1+1=4

• Hugo Salinas Price tells the Russians how to make a Silver Rouble
• The Russians have been stacking mad silver
• U.S. Refiners are making money by melting down 90% pre-1965 U.S. Coinage and selling it to somebody as melt bars
• Russian cargo plane accidentally drops "precious metals" of which a close-up of one appears to be a silver dore bar with English lettering/numbers

What do we get when we add it up?

We get the Russian Silver Rouble!

Now I'm no mathematician, so I could be off on the calculation.

And before you say "Half Dollar, you've definitely fallen off your rocker now", at least connect the dots and think about it a little before arriving at that conclusion.

After all, we keep hearing "global reset", "monetary reset", and "financial system reset" everywhere we turn, whether it's from precious metals advocates, central bankers, governments, or whomever.

And then there's that Rothschild owned 1988 Economist Magazine telling us to get ready for a world currency.

So this seems odd:

The world, especially the U.S. and the U.K., are absolutely heck-bent on either holding Russia back at best, or completely annihilating them off the face of the map at worse, which is the perfect cover as they quietly (and possibly by working together) go about their plans to launch the Russian Silver Rouble as the U.S. Dollar bursts into a ball of flames.

I have said before that the black swan everybody is looking for could actually be silver.

And after connecting these dots and doing the math on this page, especially considering the events over the last 2+ years and especially of late with the downright nasty sentiment in silver right now, it's surely starting to look like silver is the black swan.

In summary:

If China is all about the gold, and if clues keep coming in that Russia is all about the silver, and if both are ditching the U.S. dollar because it's going to burst into a ball of flames, and considering that Russia has been sanction bound for years anyway, well then, it is all lining up and making perfect sense.

The Russian Silver Rouble.

Stack accordingly…

Albert Edwards: "Trump Will Soon Turn His Protectionist Fire On Germany. That Will Be Messy"

We were wondering how long before one of our favorite "perma-skeptics", Socgen's Albert Edwards, would chime in on the global trade war that broke out in the past few weeks, especially since trade protectionism, tariffs and subsidies are the opposite side of the same "strategic" coin of currency devaluation which we have observed for the past decade, and both of which have one purpose: to make one nation's goods and service (and stocks) cheaper to the outside world (curiously, in recent years, it has emerged that "soft" protectionism i.e. currency devaluation, is far more acceptable to the establishment than direct or targeted trade intervention via tariffs and trade protectionism).

We got the answer today when in a note, what else, warning what comes next, Edwards writes that whereas "a trade war and competitive currency devaluation was always going to be the end game in our Ice Age thesis as a global deflationary bust destroyed wealth, profits and jobs" and it now looks that this endgame "might be arriving  sooner than we had anticipated."

The reason: central banks. The catalyst: Donald Trump.

As Edwards explains, while the world is all too quick to point the finger at Trump for daring to expose that the trading emperor is naked, the real culprit behind massive trade imbalances is elsewhere, usually inside a central bank building:

"Increasing trade tensions are an inevitable consequence of the side-effects of QE pursued by central banks - especially the ECB. In the near term, there are a couple of trade issues rankling the US Administration far more than steel and aluminium that could easily trigger a full-scale trade war. More immediate is the impending result of a US probe into China's alleged theft of intellectual property. And boiling away in the background are Germany's, and now too the eurozone's, outsized trade surpluses."

Edwards begins his analysis by pointing out something trivial: politicians lie.

In this context, Edwards claims that President Trump "is a most unusual politician. Like him or loath him, he seems to be doing something politicians seldom ever do: namely, attempting to fulfill his election promises. This is most unusual!" 

However, "Internationally, the US is by no means the laggard when it comes to broken political promises." On the opposite end of the spectrum from Trump is Italy, which "easily wins the award of lying politicians" and which Edwards says is "perhaps the one reason electorate has turned its back on mainstream political parties" As a reminder, in the dramatic election outcome two weeks ago, euroskeptic, anti-establishment parties win a nominal majority, an unprecedented result for modern Europe.

And, as Edwards correctly points out, "economic stagnation has coupled with political disappointment to turn a disillusioned and angry electorate away from the mainstream. To a greater or lesser extent, you can see this sort of electoral revolt in almost every single European country as well as in the US."

The SocGen strategist notes that Italians have more reasons to be angry:

since the inception of the euro at the start of 1999, Italian GDP has increased a paltry 8%. Contrast that with the UK and US, which have both grown around 45%, France and Germany at around 30%, and even Japan, which has grown around 20%! And Spain, despite seeing a gut-wrenching 10% decline in GDP between 2008 and 2013, has still enjoyed a massive 42% GDP rise since the euro's inception. Italy's economic performance is a disgrace for a G7 country and frankly intolerable. Against this backdrop, I'm amazed the vote for Italian radical parties wasn't even higher!

Italy's semi-permanent stagnation is also one of the main reasons why he remains confident that the eurozone will eventually fragment. "Italy will never grow on a sustainable basis within the eurozone straitjacket."

But before the inevitable collapse, there are a few additional steps. 

First, what will emerge is that the next trade war - after US-China - will be Washington-Brussels - and almost exclusively due to Mario Draghi.

The incredible yield suppression in the eurozone has seen capital flows haemorrhage out of the region in search of yield. This is why the ECB is largely responsible for placing the eurozone in the crosshairs of Trump's newly aggressive protectionist measures. (Actually asReuters reports, although Trump's rhetoric may have attracted the headlines, a recent study shows protectionism has been on the rise for some time now. The world has racked up 7,000 protectionist measures since the 2008 crisis, with the US and EU implementing around 1,000 each, followed some way behind by India at 400).

What happens next, according to Edwards, is troubling as it will be a recreation of World War II, initially in the trade arena: a trade war between the US and Germany.

I believe Germany's gargantuan trade and current account surplus will soon attract Trump's full attention. The US has not been alone in criticising Germany's outsized external surplus - so too have the European Commission, the IMF and the OECD. To be sure, other countries have a bigger surplus as a % of GDP, like Switzerland, Holland and Singapore, but these countries are relatively small. Germany's surplus is now, in dollar terms, the biggest in the world. The eurozone surplus has also been rising in recent years to stand at 4% of GDP.

Making matters worse, everyone knows that it is Germany's FX subsidy courtesy of the EUR - which replaced the far stronger Deutsche Mark - that makes Berlin one of the biggest currency riggers in the world. In fact, "a Chinese official commented a few years back that Germany, not China, was actually the world's biggest currency manipulator - in tying its currency to far weaker economies, the real DM is massively undervalued."

Ironically, Germany is aware of what is coming, and as Edwards writes, he agrees with former German Finance Minister Schäuble, who correctly pointed out that it was the ECB's QE policies that exacerbated the trade situation, in stimulating capital flight from the eurozone that (by identity) has increased the overall trade surplus by depressing the euro.

As a result, Edwards expects Trump to "soon turn his protectionist fire on both Germany and the EU. That will be messy."

But first there's China.

And as explained, as a result of the ongoing Section 301 investigation which will culminate soon in dramatic a trade confrontation, "this is likely to be a far more explosive issue for China than recent tariffs on steel and aluminium" according to Edwards.

Watch this space. President Trump looks as if he wants to be a politician who is remembered for fulfilling his promises!

So what happens next? Using Japan as a template for the "economic and financial Ice Age unfolding in the west" Edwards made one major contrarian prediction: "to those in the noughties who said a bust in the US and Europe would be nothing like the 90s bust in Japan, I agreed. I thought it would be much worse because the west did not enjoy Japan's high levels of equality and social cohesion."

Looking at recent events, it appears that when confronted with Japanese-style pain, he's been right: western electorates' anger is boiling over... the only thing keeping social sanity in check are near record high stock prices. That, too, will go soon one central banks finally end their daily manipulation some time over the next year. 

In that context, Edwards concludes, he has "always viewed competitive devaluation and trade war as a likely endgame of the predicament we find ourselves in. It's just coming sooner than I expected!"