Jim’s Mailbox

Posted at 12:04 PM (CST) by & filed under Jim's Mailbox.

Jim/Bill,

Telegraphing what’s to come.

The “Golden Swan”?

“Of course, dumping US Treasuries would impede China’s economic growth if dollar assets were sold and converted back into renminbi (which would appreciate). But China could diversify its reserves by converting them into another liquid asset that is less vulnerable to US primary or secondary sanctions, namely gold.

Indeed, both China and Russia have been stockpiling gold reserves (overtly and covertly), which explains the 30% spike in gold prices since early 2019.”

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One day, out of the blue, the Golden Swan will catch us all by surprise.

CIGA Wolfgang Rech

Dr.Doom On Gold & ‘The White Swans Of 2020’
February 19, 2020

Authored by Nouriel Roubini via Project Syndicate,

In my 2010 book, Crisis Economics, I defined financial crises not as the “black swan” events that Nassim Nicholas Taleb described in his eponymous bestseller, but as “white swans.”

According to Taleb, black swans are events that emerge unpredictably, like a tornado, from a fat-tailed statistical distribution.

But I argued that financial crises, at least, are more like hurricanes: they are the predictable result of built-up economic and financial vulnerabilities and policy mistakes.

There are times when we should expect the system to reach a tipping point – the “Minsky Moment” – when a boom and a bubble turn into a crash and a bust. Such events are not about the “unknown unknowns,” but rather the “known unknowns.”

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Guys,

This narration came from one of my good friends in radio. It’s about farmers and it needs to be shared!

Denny

So God Made A Farmer: The Mike Bloomberg Edition
February 19, 2020

http://www.youtube.com/watch?v=WZvGsMN_FUw&feature=emb_title

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Jim/Bill,

There has been much talk about the soaring debt levels.

A look at the chart below makes one think of Zimbabwe or Weimer Germany.

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Yet a friend of mine stated that when push comes to shove, President Trump will simply fall back on his M.O. which is “Default on the debt”.  Then we’ll start anew.

I said, “think about that for a moment.  If we default who will feel the pain?  Pension funds own bonds, banks own bonds, funds own bonds, foreign corporations own bonds, Central Banks own bonds, etc.

If we default, it will waves of bankruptcies throughout the world and spiral us into a major global depression.  (The only survivors will those who own gold and silver).

Furthermore, all faith in the U.S. Dollar will be lost and hence, hyperinflation will come to be.

Hyperinflation on top of depression!  an event that will no doubt leave everyone speechless.

On another note, look at the period between 1980 and 1990 on the chart.  Those were the Reagan years of renewed prosperity.

His magic bullet was “print your way to prosperity”.  And eventually someone will have to pay.

Jimmy Carter lost the election to Reagan on 2 counts:  The Iran hostage crisis and an $800 billion debt!

yet when Reagan left office, it looks like we hit $3 trillion in debt.  And nobody cared.

CIGA Wolfgang Rech

Wolfgang,

As we have been saying, “one man’s debt is another man’s asset”…

Bill

Jim/Bill,

Yellen says that the FED should buy stocks.

Speaking via video conference with bankers in Kansas City, Yellen said

that the Fed would take a page out of the SNB and BOJ playbook, and might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds.”

Yes, it is illegal.  But we can simply change the law overnight.

I don’t know about you, but imagine the cost of bailing out a 20,000 point drop in the Dow!

The money needing to be printed to do this is mind boggling.  (But don’t worry, not only can we default on our bonds, we can also default on our Dollar)

Yellen also believes another financial crisis will not come in our lifetimes.

File under “Famous Last Words”.

“Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

Hey girl, take a step closer to the abyss and take a look down!

Come on now, don’t be afraid.

It will only hurt if the ledge gives way.  Which………I don’t believe it will.

CIGA Wolfgang Rech

Yellen Says Fed Should Buy Stocks In The Next Crisis
February 18, 2020

Back in June 2017, there were several odd moment of bizarre honesty coupled with schizophrenic confusion under Janet Yellen’s Fed.

First there was San Fran Fed president John Williams, who would eventually on to become the Fed’s #2 when he took over as head of the NY Fed in 2019, who said that “there seems to be a priced-to-perfection attitude out there” and that the stock market rally “still seems to be running very much on fumes.” Williams added that “we are seeing some reach for yield, and some, maybe, excess risk-taking in the financial system with very low rates. As we move interest rates back to more-normal, I think that that will, people will pull back on that.”

Then it was then-Fed vice chairman Stan Fischer’s turn, who echoed Williams in saying that “the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites…. Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels–and that fact is also a cause for concern.” Fischer then also said that the corporate sector is “notably leveraged”, that it would be foolish to think that all risks have been eliminated, and called for “close monitoring” of rising risk appetites.

Finally, none other than then-Fed Chair Janet Yellen said that some asset prices had become “somewhat rich” although like Fischer, she hedged that prices are fine… if only assumes record low rates in perpetuity: “Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates.”

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Jim/Bill,

A warning sign?

CIGA Wolfgang Rech

Yes Wolfgang,

This is the “Yogi Berra chart”…looks like De va ju all over again!

Bill

Dear Chart of the Day Fan:
Here’s my chart for today. I’ll talk about it shortly after 3:30 p.m. Eastern (12:30 p.m. Pacific) on the Bloomberg Businessweek radio show. Also, I’ll present
my Stock of the Day just after 4:05 p.m. (1:05 p.m.) on the radio and later on social media. You can hear me on Bloomberg Radio or see me at Bloomberg Global News on YouTube. Earlier charts are on my Tumblr page.

Thanks for your interest. It’s appreciated.

Untitled

Shares of U.S. regional banks are suffering just as they did two decades ago, when an Internet-driven bull market ended. A comparison between the KBW Regional Banking Index of 50 lenders and the S&P 500 Index shows as much. The industry gauge’s ratio to the S&P 500 fell Tuesday to its lowest reading since September 2000, according to data compiled by Bloomberg. Tuesday’s close was 39% lower than a peak in December 2016. “Regional banks not crashing on a relative basis” would be a reason to turn bullish about U.S. stocks, J.C. Parets, editor of the All Star Charts blog, wrote in a post Sunday.

Sincerely,
David Wilson

Jim/Bill,

Who would be hurt by a default on our debt?

Or, if your in the mindset of “America would NEVER do that”, then look at it another way: Who would be hurt by a normalization of interest rates?

Either way….scary shit! (excuse the language).

We are no longer approaching ground zero; we are AT ground zero.

The largest buyers, and those with the positive trade surpluses to invest, have left the game and are now sellers (Russia, China, Japan, Germany, Mexico). All that basically remains is the Fed, government funds such as pension and Social Security, US Banks, and other US entities (pension funds, institutions, insurance companies, corporations, and individuals).

Pulling a default is like holding a gun to your own foot and pulling the trigger. (I would have preferred to another body part but it would be too graphic).

All that is left is…drumroll please……….MONETIZATION.

Hell, even helicopter drops would be too slow.

You’d need a quicker and more massive means…..

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CIGA Wolfgang Rech

Wolfgang is on a total roll today! I want whatever vitamins he is on…

Bill

Who Bought The $1.3 Trillion In Debt The US Government Added In 2019?
February 19, 2019

Authored by Wolf Richter via WolfStreet.com,

Treasury securities are hot. The Fed backed up the truck. US banks & others bought too. But China dumped…

The US Gross National Debt spiked by $1.3 trillion over the past 12 months, to $23.3 trillion. These days, trillions fly by so fast it’s hard to see them. But these are the good times. And we don’t even want to know what this will look like during the next economic downturn:

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