Luca Bindi, LL.M.
Monitoring the Monetary System and the Flow of Capital for Forecasting the Business, Financial and Currency Cycle - and Investing in the Emerging Economies from the Euro Global Reserve Currency - on lucabindi.com
Posts
2017: Bitcoin’s rip from $300 to $19,600 in 3 years made it the biggest bubble ever2017: Da Vinci’s Salvator Mundi sold for $450mn (would take average American 7,500 years to earn)2017: Argentina (8 defaults in 202 years) issued a (oversubscribed) 100-year sovereign bond2017: European high yield bonds were priced as less risky than US Treasuries2017: the market cap of Facebook (25k employees) exceeded that of India (1.3bn people)2018: US, UK, German, Japanese unemployment rates are at multi-decade lows2018: the global stock of negatively-yielding global debt remains >$10tn2018: S&P 500 trailing price-to-earnings ratio >20X…a level exceeded in just 12 of past 120 years2018: S&P 500 price-to-book ratio >3X…a level exceeded in just 5 of past 70 years2018: US tax cuts of $1.5tn will coincide with US corporate bond issuance of $1.5tn and US equity buybacks of $0.9tn2018: QE “winners” (REITs, credit, EM assets) have started to underperform QE “losers” (volatility, US$, comm…
Perhaps, but never until now was Europe's biggest bank asked to quantify how the abrupt end of its banking business, with its associated €48.3 trillion in gross notional derivatives, would affect both the bank itself, and would percolate across markets.
Source: ECB Tells Deutsche Bank To Simulate A "Crisis Scenario" - Zerohedge
The threat is the decadence of the west, very much including the US — the prevalence of rent extraction as a way of economic life, the indifference to the fate of much of its citizenry, the corrupting role of money in politics, the indifference to the truth, and the sacrifice of long-term investment to private and public consumption.
It is indeed a tragedy that the best way we could find to escape from a financial crisis was via monetary policies that risked promoting new bubbles. We could be better than this.
Source: US-China rivalry will shape the 21st century - Financial Times
Assume that by 2040, China achieves a relative GDP per head of 34 per cent at market prices and 50 per cent at PPP. This would imply a dramatic slowdown of the rate it is catching up (a fall of around 70 per cent from the rate since 2000, starting in 2023). China’s economy would then be almost twice as big as that of the US at PPP and almost 30 per cent larger at market prices. (See charts.)
Source: US-China rivalry will shape the 21st century - Financial Times
Meanwhile, the countries that should be worried they are about to fall in Trump's trade war sights and resulted in a US trade deficit, included China ($34.7), European Union ($15.3), Germany ($6.7), Mexico ($6.6), Japan ($6.0), Italy ($2.8), OPEC ($2.3), India ($1.9), Taiwan ($1.5), France ($1.4), South Korea ($1.1), Saudi Arabia ($0.4), and Canada ($0.4).
More importantly, it's not just China:the deficit with Mexico increased $1.0 billion to $6.6 billion in February, while the deficit with Germany increased $0.4 billion to $6.7 billion in February. Meanwhile, the deficit with Canada decreased $1.2 billion to $0.4 billion in February.
Finally, if you want to get Trump really mad, tell him that when stripping away petroleum products - which recently saw record US exports thanks to shale -the US trade deficit has never been greater.
Source: US Reports Biggest Trade Deficit Since The Financial Crisis - Zerohedge
Source: US Reports Biggest Trade Deficit Since The Financial Crisis - Zerohedge
Trump will hardly be happy to learn that not only did the US trade deficit grow by 1.6% in February from $56.7BN to $57.6BN, missing expectations of a $56.8BN print, but was the highest monthly trade deficit going back ten years, just as the financial crisis was warming up back in 2008.
Source: US Reports Biggest Trade Deficit Since The Financial Crisis - Zerohedge
Source: US Reports Biggest Trade Deficit Since The Financial Crisis - Zerohedge
Because the dollar is the international reserve currency, 2/3 of total reserves are dollar denominated. This drives demand for the dollar up, U.S. interest rates down, and creates the conditions for a U.S. trade deficit-- not "unfair" trade practices.https://t.co/Ln0E0auAE2
— Prof. Steve Hanke (@steve_hanke) 30 marzo 2018
Monetary Reform Would Rebalance Trade - The dollar’s status as global reserve currency is as responsible as bad agreements for the deficit - WSJ
"In 1973 the world held $500 billion in foreign-exchange reserves (in 2017 dollars); last year it was $11 trillion, a 22-fold increase. About two-thirds of total reserves are now denominated in dollars. Because of high global demand, the dollar’s international position is always stronger and U.S. interest rates are lower than they would be otherwise. This, in turn, means that America’s budget and trade deficits swell in tandem, while U.S. exports are costlier and imports are cheaper, regardless of trade practices."
Source: Monetary Reform Would Rebalance Trade - The dollar’s status as global reserve currency is as responsible as bad agreements for the deficit - WSJ
Source: Monetary Reform Would Rebalance Trade - The dollar’s status as global reserve currency is as responsible as bad agreements for the deficit - WSJ
Whatever one thinks of Trump, love him, loathe him, mock him or respect him, he's managed to do one thing - in the one year that he's been president, his ad hoc, haphazard, chaotic, irrational and unpredictable style of governance may have thrown the country, its institutions, its "establishment", and certainly the press for loop, but it has also achieved one other thing:it has made the "globalists" conclude that the "liberal world order"which they created- which has resulted in the greatest accumulation of wealth by the fewest number of people; in the greatest political, social, ethnic, economic and financial polarization in recent history; in a global debt load that has put the world on the verge of financial catastrophe (only offset by constant central bank "confidence" injections); and which the "Trump vote" was a protest against -is almost over.
Source: Council On Foreign Relations President: "Goodbye, LIberal World O…
Source: Council On Foreign Relations President: "Goodbye, LIberal World O…
Market "Earthquake Is Coming" - Icahn Warns "A Lot Of People Will Pay The Price Like In 1929" - Zerohedge
"There isgoing to be a major, major, major correction."
"This is amanifestation of a real deep problem we have in our markets."
"There is a huge bubble of passive money flowing in...a sort of euphoria and a lot of people are going to pay the price just like in 1929."
Source: Market "Earthquake Is Coming" - Icahn Warns "A Lot Of People Will Pay The Price Like In 1929"
What should already be clear will be obvious for everyone...the federal "debt" being created isn't actually "debt" at all. It is being created and spent with no intention of ever repaying itand the move back to zero % interest rates (or more likely NIRP) on that "debt" will make clear that it is simply centrally created and centrally directed monetization.
Source: The Current US Economic Divide Is "The Founding Fathers' Worst Nightmare Come True"
Source: The Current US Economic Divide Is "The Founding Fathers' Worst Nightmare Come True"
Simply, when deficit spending accelerates and interest rates are declining, America builds new housing and the broader economy hums. However, debt grows far faster than the resultant economic activity, and debt to GDP soars (yellow line). Conversely, when deficit spending is decelerating and rates are rising (as they are now), new housing creation decelerates/declines and economic recession is imminent.
Source: The Current US Economic Divide Is "The Founding Fathers' Worst Nightmare Come True"
Source: The Current US Economic Divide Is "The Founding Fathers' Worst Nightmare Come True"
As the chart below shows, the evidence fails to support the idea that currency depreciations boost growth. Indeed, he found just the opposite: currency appreciations are associated with stronger growth.
Source: U.S. Treasury Secretary Mnuchin on Exchange Rates: Clueless - Forbes
Source: U.S. Treasury Secretary Mnuchin on Exchange Rates: Clueless - Forbes
'Perfect storm': Global financial system showing danger signs, says senior OECD economist - Brisbane Times
This time central banks are holding a particularly ferocious tiger by the tail. Global debt ratios have surged by a further 51 percentage points of GDP since the Lehman crisis, reaching a record 327 per cent (IIF data).
This is a new phenomenon in economic history and can be tracked to QE liquidity leakage from the West, which flooded East Asia, Latin America, and other emerging markets, with a huge push from China pursuing its own venture.
It has the makings of a perfect storm. At best, the implication is that yields on 10-year Treasuries - the world's benchmark price of money - will spike enough to send tremors through credit markets. The edifice of inflated equity and asset markets is built on the premise that interest rates will remain pinned to the floor. The latest stability report by the US Treasury's Office of Financial Research warned that a 100 basis point rate rise would slash $US1.2 trillion of value from the Barclays US Aggregate Bond Index, with further losses o…
It has the makings of a perfect storm. At best, the implication is that yields on 10-year Treasuries - the world's benchmark price of money - will spike enough to send tremors through credit markets. The edifice of inflated equity and asset markets is built on the premise that interest rates will remain pinned to the floor. The latest stability report by the US Treasury's Office of Financial Research warned that a 100 basis point rate rise would slash $US1.2 trillion of value from the Barclays US Aggregate Bond Index, with further losses o…
Also, in many parts of Europe interest rates are still negative. Will that leave permanent damages to the economy?
I think that’s nonsense. There isn’t any particular evidence that negative interest rates are leading to permanent damages or that the risk of a crisis are higher. But eventually, we’re going to have another deep recession or financial crisis. Not tomorrow, not soon I hope, but it’s going to happen.And if countries don’t prepare for it it’s going to be much worse than the last time because interest rates are already near zero, quantitative easing is ineffective and helicopter money is a silly idea.That’s why I think thatin the future we will see the major central banks and Treasuries of the world all prepare for having much deeper negative interest rates the next time we have a financial crisis. It’s a much, much more elegant solution than anything that’s been proposed. So I think many countries will prepare for negative interest rates and I would say within the next decad…
I think that’s nonsense. There isn’t any particular evidence that negative interest rates are leading to permanent damages or that the risk of a crisis are higher. But eventually, we’re going to have another deep recession or financial crisis. Not tomorrow, not soon I hope, but it’s going to happen.And if countries don’t prepare for it it’s going to be much worse than the last time because interest rates are already near zero, quantitative easing is ineffective and helicopter money is a silly idea.That’s why I think thatin the future we will see the major central banks and Treasuries of the world all prepare for having much deeper negative interest rates the next time we have a financial crisis. It’s a much, much more elegant solution than anything that’s been proposed. So I think many countries will prepare for negative interest rates and I would say within the next decad…
