Jim Sinclair’s Commentary
The latest from John Williams’ www.ShadowStats.com.
- Net of Inflation, Headline Real June Retail Sales Likely Contracted
- Although Real Retail Sales Appear to Have Gained in Second Quarter; Contracting Second-Quarter GDP Outlook Remains Intact
"No. 640: June Retail Sales"
Emerging nations plan their own World Bank, IMF
By PAUL WISEMAN
Jul. 14, 2014 5:44 PM EDT
WASHINGTON (AP) — Fed up with U.S. dominance of the global financial system, five emerging market powers this week will launch their own versions of the World Bank and the International Monetary Fund.
Brazil, Russia, India, China and South Africa —the so-called BRICS countries — are seeking "alternatives to the existing world order," said Harold Trinkunas, director of the Latin America Initiative at the Brookings Institution.
At a summit Tuesday through Thursday in Brazil, the five countries will unveil a $100 billion fund to fight financial crises, their version of the IMF. They will also launch a World Bank alternative, a new bank that will make loans for infrastructure projects across the developing world.
The five countries will invest equally in the lender, tentatively called the New Development Bank. Other countries may join later.
The BRICS powers are still jousting over the location of the bank’s headquarters — Shanghai, Moscow, New Delhi or Johannesburg. The headquarters skirmish is part of a larger struggle to keep China, the world’s second-biggest economy, from dominating the new bank the way the United States has dominated the World Bank.
The Next Domino: Espirito Santo Holding Company Preparing To File Bankruptcy
Tyler Durden on 07/15/2014 10:49 -0400
While Banco Espirito Santo continues to exist on fumes and life support (that last ditch equity injection by Baupost a week ago may not have been Seth Klarman’s wisest investment), a key link in the Espirito Santo Holding Company structure is preparing to default. According to Reuters:
ESPÍRITO SANTO GROUPS HOLDING COMPANY RIOFORTE PREPARING TO FILE FOR CREDITOR PROTECTION IN LUXEMBOURG – SOURCES
For those confused, "creditor protection" = bankruptcy.
Which one is RioForte again? We showed this handy org chart a few days ago, here it is again.
The good news: as every single European bank "expert" predicted last week when scrambling to avoid a panic, there is no fear of contagion. Aside from this one of course. Remember: there is always only one cockroach.
The full report from Reuters:
Rioforte, a holding company of Portugal’s troubled Espirito Santo banking clan, is preparing to file for creditor protection, sources familiar with the matter said on Tuesday, hours before Rioforte was due to repay over $1 billion in debt to Portugal Telecom. The filing will be made with a court in Luxembourg, where Rioforte is registered, one source close to the process said, adding that the filing is aimed at preventing insolvency that would entail uncontrolled asset sales at any price.
Rioforte declined to comment. The sources would not comment
The timing of the filing depends on lawyers working on it in Luxembourg, the sources said.
Gold found a bottom a year ago at $1180 on June 30 at precisely 10:00 AM EST, the final London fix of the quarter. This price was tested again on the last day of 2013, clearly being driven by predatory speculators.
Since then, the gold market has changed markedly. During the two-and-a-half year decline, price tended to fall during Western hours, as speculators sold and shorted, and to rise in Eastern hours as Asia exploited soft prices to buy physical metal. That pattern has reversed, with gold tending to be strong in the West, as speculators re-enter the market, and soft in the East, as credit troubles in China and elsewhere slow purchases.
Bank analysts, such as at Societe Generale, have seized on weak physical markets – meaning the flow of gold to Asia has slowed marginally – to repeat bearish prognostications. But the story is once again Western speculators and the fact that the massive transfers of gold to the East over the past two years have left a lot less gold in the West to speculate on.
Western speculators have re-entered the market in part because, as argued in the attached report, there has been a shift in perception such that inflation has become the primary risk to the debt markets, not deflation.
Myrmikan’s investment thesis (Click here to view the report…) is based on the premise that interest rates have been artificially low, debt levels too high, and that gold is the antithesis of debt. Debt bubbles burst either through inflation or deflation, and either way benefits gold as against all other financial assets – investing in gold and unlevered gold mining stocks permits agnosticism as to the method of debt default.
Looking back some time hence, it may well be that the shift from a deflationary to inflationary mindset helped cause gold’s huge correction. But, whereas gold does well in real terms in a deflationary debt default, it really flies in nominal terms during inflationary defaults. This is the prospect before us.
Regarding yesterday’s $30 decline in gold prices, it is worthy of note that 10% of yesterday’s volume occurred in the span of just 11 trading minutes. As the chart below shows, it produced little damage to the chart of the gold miners.
CIGA Bill Holter
Santelli Goes Berserk, Slams Fed Which Was "Not Created To Be A Feel-Good Institution"
Submitted by Tyler Durden on 07/14/2014 21:04 -0400
It started as a discussion about the reality of inflation versus propagandized "noise" and devolved into what is possibly Rick Santelli’s most epic rant. First,Santelli says the Fed has done enough (and it hasn’t worked "but to get the market higher") to which Liesman’s "but higher interest rates won’t help" argument is backed up by more counterfactuals of "just think how bad it would have been" without the Fed. Santelli’s screamfest rightly attests that we do not know – we might have been well on our way to recovery by now… and adds that – despite Liesman’s imploring, "the Fed was not created to be a feel-good institution."
Finally, slamming the herd of zombified analysts and talking-heads that follow sheep-like the Fed’s every word off the inevitable cliff, Santelli blasts (unafraid to stand up for the jobless Americans not driving their new Rolls-Royce on the back of levered ‘wealth creation’ in stocks), "This is America! We don’t follow consensus, we set it!"
This is what Santelli is upset about… Who is the Fed working for? Main Street or Wall Street?
The "people" never caused the crisis that the Fed bailed the banks out of… Liesman cannot let "low rates" go and Santelli explains how capital will come out if it can get a decent return and the status quo thinkers have it backwards… "The Fed was not created to be a feel good instituion"
“Where should I go?" -Alice. "That depends on where you want to end up." – The Cheshire Cat.”
― Lewis Carroll, Alice’s Adventures in Wonderland & Through the Looking-Glass
US Fed expects to retain ‘unusually accommodative’ monetary policies
July 14, 2014
The Federal Reserve will still need to deliver "unusually accommodative" monetary policy even once the U.S. economy returns to "where we want it to be," Fed Chair Janet Yellen was quoted as saying in a magazine article.
Jim Sinclair’s Commentary
This is the strangest global economic recovery in history.
Puerto Rico Utility May Default on January Interest Payment
By Michelle Kaske Jul 14, 2014 5:55 PM GMT-0300
The Puerto Rico Electric Power Authority may miss a January interest payment to investors, according to Municipal Market Advisors, potentially triggering the largest restructuring ever of state and local debt.
The agency, called Prepa, used $41.6 million of reserve funds to help make a $417.6 million payment to bondholders on July 1. With the reserve now depleted by about 10 percent, “we expect the bond trustee is unlikely to make any more distributions to bondholders, reserving cash for likely litigation expenses,” Matt Fabian, a managing director at Concord, Massachusetts-based MMA wrote today in a report.
The next payment is due Jan. 1, according to Fabian. Unless the utility replenishes the reserve, investors in uninsured Prepa bonds “have likely seen their last cash in awhile,” wrote Fabian, who’s been analyzing the municipal-debt market for 18 years.
While a new law aims to restructure some Puerto Rico public-corporation debt outside of a bankruptcy filing, Prepa’s $8.6 billion alone exceeds the $8 billion of general obligations and water-and-sewer debt in Detroit’s record bankruptcy and Jefferson County, Alabama’s $4.2 billion failure.
Portugal Contagion Spreads: Espirito Santo To Default On Portugal Telecom Loan, Business Lending Drops Most On Record
Tyler Durden on 07/15/2014 08:27 -0400
Despite reassurances from US asset-gatherers and TV ‘personalities’ that Portugal must be fixed (because US equities are up), it is anything but. Today’s triple whammy from the ‘recovered’ Portugal starts with Banco Espirito Santo bonds and stocks hitting new record lows (down over 10% more on the day). The contagion has rippled across to Rioforte, which controls Grupo Espirito Santo’s non-financial arm – and is likely to default on a EUR 847 million payment to Portugal Telecom. And just to add further salt to that wound, Portuguese business lending in May collapsed at a record pace (down 8.23%). But apart from that, yeash Portugal is all fixed and their sovereign bonds are worth every penny…
Step 1 – Banco Espirito Santo bonds and stocks continue to collapse…