"Baked In The Cake" - Why LIBOR's Blowout Has Already Done Its Damage

The global funding market crisis is getting worse and its contagion is starting to show up in assets that 'mom and pop' care about. Bank stocks are being battered...

Following bank credit risk's spike...

And European High Yield risk has exploded to one-year highs...

European stress is worse than US for now, as Charlie Diebel, head of rates at Aviva Investors, notes:

"The longer it [LIBOR-OIS increase] goes on, the more pronounced the effects are going to be...

It complicates the efforts of policymakers because in Europe we still have QE (quantitative easing), but we have some sort of tightening coming at the same time."

And Investment Grade credit risk is soaring to six-month wides in EU and US...

Simply put, LIBOR doesn't need to blow out any more for the pain to emerge...

As one veteran credit-trader exclaimed: the bank credit pain "is baked in the cake" as the lagged reaction to short-term funding needs (and soaring costs) creeps into those so-called fortress balance sheets.

TREND CHANGE EVIDENT, STOCKS HAVE PEAKED

Precious metals expert David Morgan tells: "The stock market has peaked, and the gold market is starting the next leg up."

In this week's SD Metals & Markets:

The Federal Reserve raised interest rates by a quarter percent, leading to the Dow and S&P500 breaking their trend line supports. Internet and social media stocks continue to lead the technology sector lower.

Precious metals market has started its next leg up, Morgan says, with gold leading.

Morgan also comments on the latest trade war with China. It's only going to get worse from here, he says. "This is just the beginning."

By purchasing gold, China and Russia are well prepared for a currency reset, says co-host Eric Dubin.

Here It Comes: China About To Launch "Tens Of Billions" More In Tariffs

This morning the market has been on edge over, and traders are obssessed with just one question: how will China retaliate to Trump's trade war and tariffs... further. After all, the initial response of a modest 15-25% tariff on $3 billion in 128, mostly agricultural, products, seemed laughably small and appeared to be more of a warning shot than a real response to Trump's $50BN in Section 301 tariffs.

One answer was revealed moments ago when as we reported that China's ambassador to the US Cui Tiankai did not rule out the possibility of scaling back purchases of Treasuries in response to Trump's tariffs.

"We are looking at all options," he said, when asked whether China would consider reduced purchases of Treasuries. "That's why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets."

But the more likely reaction is that China will simply escalate with a "brute force" tit-for-tat retaliation, and as Citi notes, the editor-in-chief of the state-controlled Chinese newspaper Global Times, Hu Xijin, confirmed precisely that when he tweeted: "I learned that Chinese govt is determined to strike back."

More importantly, he explained the confusion over the "disproportionate" $3 billion response, noting that "Friday's plan to impose $3b tariffs is simply to retaliate to tariffs on steel and aluminum products", i.e. a response to the previous, Section 232 round of tariffs, and has nothing to do with the latest round of $50 billion in Section 301 tariffs.

Instead, Hu warns that "China's retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making."


Hu Xijin 胡锡进@HuXijin_GT


I learned that Chinese govt is determined to strike back. Friday's plan to impose $3b tariffs is to retaliate tariffs on steel and aluminum products. China's retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.

4:49 PM - Mar 23, 2018
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Or, in other words, China's real retaliation - one which is guaranteed to infuriate Trump with its proportionality and lead to further tit-for-tat responses - is about to hit.

As a reminder, here is a list of the main US exports to China, which - if this warning is accurate - are about to be crushed.

Peter Schiff: There's A Big Problem With The Economy, "Americans Are Broke"

Financial analyst Peter Schiff says there's a big problem with the economy even though the mainstream media is reporting that rising interest rates are a good thing. The problem, however, is that Americans are broke, and those interest rates could have a major impact on some of our wallets.

"The bad news is, we are going to live through another Great Depression and it's going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression," Schiff says.

"This is going to be a dollar crisis."

"When you are talking about the magnitude of the debt we have, that extra money [raising interest rates] is big. That's going to be a big drain on the economy to the extent that we have to pay higher interest to international creditors...

...a lot of this phony GDP is coming from consumption, while the average American who is consuming is deeply in debt and they are going to impacted dramatically in the increase in the cost of servicing that debt...

...given how much debt we have, and how much debt is going to be marketed the massive increase in supply will argue for interest rates that are higher." –Peter Schiff

Retail sales "unexpectedly" fell again in February even though most media outlets are touting a booming economy that can support raising the interest rates. It was the third straight monthly drop and the first time the US economy has seen three straight months of declining retail sales since 2012.

Sales fell 0.1% in February even though analysts had expected an uptick of 0.3%. According to CNBC, households cut back on purchases of motor vehicles and other big-ticket items, pointing to a slowdown in economic growth in the first quarter. But Peter Schiff won't sugarcoat this one for us: Americans are broke.

And the worse things get, the less investors seem to notice.

What makes matters even worse is two Fridays ago, we got the "too good to be true" and "just what the doctor ordered" Goldilocks jobs report that said 1 million people got jobs. Schiff said this "good news" report doesn't make any sense, actually.

"So why didn't any of those million people take their paychecks and spend them at a retailer? I mean, Trump is talking about all the great jobs, and all the raises that people have, and all the tax cuts. Why are retail sales down for three months in a row?" –Peter Schiff

Unfortunately, we also saw Americans running up record high levels of debt at the same time that the government is running massive deficits.

Last month, the New York Fed released the latest data on US household debt, revealing it has grown to a record $13 trillion. So yes, Americans have been spending, but they've been putting a lot of it on plastic. Credit card balances grew by $24 billion in the last quarter of 2017 alone. Could it be that Americans have maxed out the plastic?

At some point, a house of credit cards will collapse.

Schiff is hard on Donald Trump too, and rightfully so. Lower taxes are always a good thing, the lower the better, in fact. But Republicans refused to cut any government spending while instead, increasing it to the point of running massive deficits, making them worse than Democrats when it comes to being fiscally conservative.

The cold truth is that a backup plan is needed, and most Americans don't have that. Many would be in some serious trouble during a financial downturn, and the country is most definitely headed that way.