Category Archives: Financial markets

Japan Is Perhaps the Most Important Risk in the World, an Interview with Jim Grant and Christoph Gisiger

Posted on January 18, 2023 | Leave a comment

The Japanese bond market is a financial time bomb whose fuse has been lit. From Christoph Gisiger and Jim Grant at themarket.ch:

Speculation is mounting that the Bank of Japan is losing control of the bond market. Jim Grant, editor of «Grant’s Interest Rate Observer», believes this could trigger a shock to the global financial system. He also explains why he expects further surges in inflation and why gold should be part of your portfolio.

The news caught markets off guard: On December 20th, the Bank of Japan surprisingly extended the target range for the yield on ten-year government bonds to plus/minus 0.5%. A move that not a single economist had expected.

This week, the Bank of Japan could announce a major policy shift amid rising government bond yields and a strengthening yen. Although barely a month has passed since the BoJ’s last meeting, the bond market is already testing the new upper limit of the yield curve control regime.

«To us, Japanese interest rate policy resembles the Berlin Wall of the late Cold War era, a stale anachronism that must sooner or later fall,» says Jim Grant. For the editor of the iconic investment bulletin «Grants’ Interest Rate Observer,» recent developments in Japan pose an underestimated risk to global financial markets. Not least because virtually no one is talking about it.

In an in-depth interview with The Market NZZ, which has been slightly edited for clarity, Mr. Grant explains what it means for financial markets if the Bank of Japan is forced to scrap its yield curve control policy. But first, he says why he doesn’t believe inflation will end soon, why bonds may be at the start of a long bear market, and why he believes gold is the best choice as a store of value.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

«If the past is prologue and if the great bond bull market is over, then on form, we are looking at what could be a very prolonged and perhaps gradual move higher in interest rates»: Jim Grant.

What do you observe when you look at the financial world today?

Well, it’s always the same, and – here’s the catch – it’s always a little different. The trick is to identify the unique or unusual feature of a familiar cycle. In this regard, it helps to know a little bit of financial history, and to just that extent it helps to be a little old. But what is not helpful is to mistake the past for a certain roadmap to the future.

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Posted in Banking, Debt, Economics, Economy, Financial markets, Governments, History, Investing, Money

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The Great Decentralization, Part II, by Joel Bowman

Posted on January 15, 2023 | Leave a comment

A centuries-long trend towards ever-greater centralization has run its course. From Joel Bowman at bonnerprivateresearch.com:

(Newton’s Cradle. Source: Getty Images)

Joel Bowman, appraising the situation from Buenos Aires, Argentina…

Welcome to another Sunday Session, dear reader… that time of the week when we step away from the Monday-Friday war of attrition and take a moment to contemplate the bigger picture, such as we can… all with the animating assistance of a glass of two of high-altitude Malbec…

When we left you this time last week, we were ruminating over a theory of cycles, large and small. This is not a novel musing. In fact, greater thinkers have been puzzling over the subject for millennia, at least as far back as the ancient Greeks.

It was that clever ol’ Ephesian, Heraclitus, who believed in the universal concept of enantiodromia (later taken up by Nietzsche and Jung) – the idea that everything is at all times in the process of becoming its opposite; hot things cool, wet things dry, etc. One might consider this with regards to centralization vs. decentralization, top down control by the few vs. bottom up “spontaneous order” of the many, growth vs. value, life giving way to death…

The pendulum swings from one extreme to another, the emergent membrane between the two akin to that undefinable moment where one thing morphs into the other, when an edgy band becomes mainstream, when the politics of liberation becomes the politics of oppression, or when a young man looks in the mirror one day and sees an old man staring back at him.

In political terms, we think of peace giving way to war… then, once the parched earth is soaked in the blood of young men, yielding to peace once again.

“Great armies rise,” as Bill observed during the week, “and then – under the weight of their own booty, bureaucracy and brass – they fall.”

Today we continue our series on the nature of cycles with a look at how we view history itself. Please enjoy…

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It’s the Fed, Stupid! By Bill Bonner and Joel Bowman

Posted on January 12, 2023 | Leave a comment

Oligopolies don’t have printing presses. From Bill Bonner and Joel Bowman at bonnerprivateresearch.com:

Plus, a year of “I told you so’s” and plenty more to come…

(Source: Getty Images)

Bill Bonner, reckoning today from Normandy, France…

Last year was such a hoot we are reluctant to say goodbye to it. It was one ‘I-told-you-so’ moment after another.

The Fed raised rates…trying to recover from the embarrassment of failing to see the approaching inflation.  The higher rates caused stocks to go down. The biggest losers were those that had just made the biggest gains – especially the big techs and cryptos.

It all happened pretty much as it should have happened. See, ‘I told you so.’

People try to complicate it. Disguise it. They aim to distract your attention from what is right before your eyes. They claim ‘capitalism failed’ or ‘corporate greed’ suddenly imposed itself or, for those with no ax to grind, simply that there were ‘supply chain interruptions.’ Here’s the hopeless Robert Reich, former US Labor Secretary, in The Guardian. He says corporate monopolies are to blame:

Worried about sky-high airline fares and lousy service? That’s largely because airlines have merged from 12 carriers in 1980 to four today.

Concerned about drug prices? A handful of drug companies control the pharmaceutical industry.

Upset about food costs? Four giants now control over 80% of meat processing, 66% of the pork market, and 54% of the poultry market.

Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Combined, they would control almost 22% of the US grocery market. Add in Walmart, and the three brands would control 70% of the grocery market in 167 cities across the country.

And so on. The evidence of corporate concentration is everywhere.

Put the responsibility where it belongs – on big corporations with power to raise their prices.

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Ominous Military & Financial ‘Nuclear Threats’ Could Erupt in 2023, by Egon von Greyerz

Posted on January 11, 2023 | Leave a comment

The financial threat looks like a sure thing, and the military threat is not far behind. From Egon von Greyerz at goldswitzerland.com:

The world is today confronted with two nuclear threats of a proportion never previously seen in history. These threats are facing us at a time when the world economy is about to turn and decline precipitously not just for years but probably decades.

The obvious nuclear threat is the war between the US and Russia which currently is playing out in Ukraine.

The other nuclear threat is the financial weapons of mass destruction in the form of debt and derivatives amounting to probably US$ 2.5 quadrillion.

If we are lucky, the geopolitical event can be avoided but I doubt that the explosion/implosion of the Western financial timebomb can be stopped.

More about these risks later in the article.

There is also a summary of my market views for 2023 and onwards at the end of the article.

CURIOSITY AND RISK

With a business life of over 52 years in banking, commerce and investments, I am fortunate to still learn every day and learning is really the joy of life. But the more you learn, the more you realise how little you really know.

Being a constant and curious learner means that life is never dull.

As Einstein said:

“The important thing is not to stop questioning.

Curiosity has its own reason for existing.”

There has been another important constancy in my life which is understanding and protecting RISK.

I learnt early on in my commercial life that it is critical to identify risk and endeavour to protect the downside. If you can achieve that, the upside normally takes care of itself.

Sometimes the risk is so clear that you want to stand on the barricades and shout. But sadly most investors are driven by greed and seldom see when markets become high risk.

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Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Governments, Investing, Politics, War

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What if the “Black Swan” of 2023 Is the Fed Succeeds? by Charles Hugh Smith

Posted on January 10, 2023 | 1 comment

Higher interest rates may end up hurting and helping all the right people. From Charles Hugh Smith at oftwominds.com:

If the Fed succeeding is a “Black Swan,” bring it on.

What if the “Black Swan” of 2023 is the Federal Reserve succeeds? Two stipulations here:

1. “Black Swan” is in quotes because the common usage has widened to include events that don’t match Nassim Taleb’s original criteria / definition of black swan; the term now includes events considered unlikely or that are off the radar screens of both the media and the alt-media.

2. The definition of “Fed success” is not as simple as the media and the alt-media present it.

In the conventional telling, the Fed made a policy mistake in keeping interest rates and quantitative easing (QE) in place for too long, and now it’s made a policy mistake in reversing those policies. Huh? So ZIRP/QE was a policy mistake, OK, we get that. But reversing those policy mistakes is also a policy mistake? Then what isn’t a policy mistake? Doing nothing? But wait, isn’t “doing nothing” maintaining ZIRP/QE or ZIRP/QE Lite?

This narrative makes no sense.

The other conventional narrative has the Fed’s policy mistake as tightening financial conditions, a.k.a. reversing ZIRP/QE, too much too quickly, as this will cause a recession. OK, we get the avoidance of recession is considered “a good thing,” but aren’t recessions an essential cleansing of excessive debt and speculation, i.e. an essential part of the business cycle without with bad debt, zombies and malinvestments build up to levels that threaten the stability of the entire system?

Yes, recessions are an essential part of the business cycle. So avoiding recessions is systemically disastrous. So according to this narrative, the Fed should “do whatever it takes” to avoid recession, even though a long-overdue recession is desperately needed to cleanse the deadwood, bad debt, zombie enterprises and speculative excesses from the system.

So this narrative is also nonsense.

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Posted in Banking, Business, Currencies, Debt, Economics, Economy, Financial markets, Government, Investing, Politics

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The Great Decentralization, by Joel Bowman

Posted on January 8, 2023 | Leave a comment

Decentralization is the growing counter-force to centralization and tyranny. From Joel Bowman at bonnerprivateresearch.com:

(Source: Getty Images)

May the forces of history be with you

Joel Bowman, appraising the situation from Buenos Aires, Argentina…

Welcome, dear reader, to a new year and another Sunday Session… that time of the week where we pull back from the granular and ponder the grander, all with the abiding help of a glass or two of Bonarda. Today, we widen the lens even further…

Inflation and deflation… tyranny and liberty… bulls and bears… Betty and Veronica.

History is full of epic matchups. Apparently equal, yet wholly opposing forces wrench at the heart… the brain… the wallet… and other vital organs… tearing us in impossible-to-reconcile directions.

The story is the same in markets, in politics, in love and in life…

Take, for example, the economy, our primary area of concern in these here pages.

On the one side, innovation and competition tend to exert downward pressure on prices over time. It is the natural outcome of competition, of creative destruction, where weaker hands and lesser ideas are weeded out over time. Lessons are learned… skills acquired… processes bettered. The resulting price deflation should deliver, as Jim Grant once phrased it, a kind of “dividend for the working man.”

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Are You Prepared for a Hard Landing? By MN Gordon

Posted on January 6, 2023 | Leave a comment

Hard landing is the smart money bet. From MN Gordon at economicprism.com:

The New Year brings both optimism and hope.  A chance to start fresh.  To turn over a new leaf.

The sentiment is welcome.  The outcome, however, can be a grave disappointment.

If you recall, 2022 was supposed to be a year of redemption and prosperity.  After the ugly coronavirus fiasco, the economy was finally reopening.  The general belief was that the resurgence of economic activity was going to bring a new boom and a new cycle of prosperity.

But then something unexpected happened.  On the first day of market trading, January 3, 2022, the S&P 500 hit a closing peak of 4,796.  Yesterday, just over a year later, the S&P 500 closed at 3,808.  Down over 20 percent.

Over this duration, the yield on the 10-Year Treasury note spiked from 1.66 percent to 3.70 percent.  In other words, Uncle Sam’s borrowing costs have more than doubled.

At the same time, transitory inflation proved to be enduring.  And gross domestic product (GDP) went negative for the first two quarters of 2022.

What happened?

The calendar year may have started anew.  But past actions remained.  And there was plenty of wreckage from the past to be reconciled.

Much of this wreckage was created by the central planners at the U.S. Treasury Department and the Federal Reserve.  Decades of money printing are not without consequences.  And, unfortunately, the consequences dramatically impact your life and your livelihood.

The wreckage doesn’t magically disappear when the calendar hits January 1.  Rather, it piles up from one year to the next like rotting refuse at a municipal landfill.

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On the Cusp of a Global Liquidity Crisis, by James Rickards

Posted on January 5, 2023 | Leave a comment

Recessions and liquidity crises are different animals, and you can have one without the other, although they often occur together. From James Rickards a dailyreckoning.com:

Is there a financial calamity worse than a severe recession in early 2023? Unfortunately, the answer is “yes” and it’s coming quickly.

That greater calamity is a global liquidity crisis. Before considering the dynamics of a global liquidity crisis, it’s critical to distinguish between a liquidity crisis and a recession. A recession is part of the business cycle.

It’s characterized by higher unemployment, declining GDP growth, inventory liquidation, business failures, reduced discretionary spending by consumers, reduced business investment, higher savings rates (for those still employed), larger loan losses, and declining asset prices in stocks and real estate.

The length and depth of a recession can vary widely. And although recessions have certain common characteristics, they also have diverse causes. Sometimes the Federal Reserve blunders in monetary policy and holds interest rates too high for too long (that seems to be happening now).

Sometimes an external supply shock occurs which causes a recessionary reaction. This happened after the Arab Oil Embargo of 1973, which caused a severe recession from November 1973 to March 1975. Recessions can also arise when asset bubbles pop such as the stock market crash in 1929 or the bursting of a real estate bubble caused by the Savings & Loan crisis in 1990.

Whatever the cause, the course of a recession is somewhat standard. Eventually asset prices bottom, those with cash go shopping for bargains in stocks, inventory liquidations end, and consumers resume some discretionary spending. These tentative steps eventually lead to a recovery and new expansion often with help from fiscal policy.

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Rough Seas Ahead, by Bill Bonner

Posted on January 3, 2023 | Leave a comment

Falling stock and bond prices may set off a financial crisis this year. From Bill Bonner at bonnerprivateresearch.com:

A precarious Channel crossing and a look at the forecast for 2023…

Bill Bonner, reckoning today from Youghal, Ireland…

We are on our way to France. Checking the maritime forecast, we expected the sea to be so rough. We didn’t want to be seasick for a 17-hour voyage. So, we’re taking the short route to Wales, thence across England to the southeast coast, where we will board the Eurotunnel and cross to Calais.

This leaves us little time to read or write. So, we begin with a quick market update…and tomorrow…leave you with our memoire of our first Christmas in Ireland.

Here’s the headline from the Financial Times:

Markets lose more than $30 trillion in worst year since financial crisis

“The end of cheap money,” begins an editorial.

The BBC adds more bad news:

A third of the global economy will be in recession this year, the head of the International Monetary Fund (IMF) has warned.

Kristalina Georgieva said 2023 will be “tougher” than last year as the US, EU and China see their economies slow .

“Even countries that are not in recession, it would feel like recession for hundreds of millions of people,” she added.

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Happy New Year 2023: Technocommunism, Pandemics, Climate Change & The Great Reset, by 2nd Smartest Guy in the World

Posted on January 1, 2023 | Leave a comment

It is important to realize that the dysfunctional mayhem happening now has antecedents stretching back many decades. From 2nd Smartest Guy in the World at 2ndsmartestguyintheworld.substack.com:

Interconnecting some of this substack’s greatest hits of 2022.

What’s past is certainly prologue, and to see the revolution of the future means that we must look into these transhumanist seeds of recent times.

Nearly three decades after funding the NAZI eugenics program, the very same Rockefeller crime syndicate established their Club of Rome organization under the false pretense of “climate change” alarmism. Club of Rome’s slogan was, “The common enemy of humanity is man.”

Two decades prior to the founding of Club of Rome, Major George R. Jordan testified in front of Congress and exposed the One World Government. He detailed his role in the unconstitutional and anti-American wartime Lend-Lease program. As the Lend-Lease control officer with the rank of captain in the U.S. Army Air Corps, Major Jordan had been responsible for the shipments of plates, inks and paper to the Soviet Union two full years before WW2 ended. The Russians promptly printed up hundreds of millions of US dollars that had served to not only rebuild the Soviet empire, but had deliberately further devalued the dollar, and thus further impoverished the average American through the stealth tax of inflation. Those very same American communists that had funded Hitler and then the Soviets were by then entrenched in the all of the various American governmental agencies as well as within the highest echelons of the military.

Having had finally started to make the connections in realizing that there had been a silent communist takeover of America, Major Jordan to his great horror began to keep a detailed diary itemizing the wholesale transfer of nuclear technology and materials, weapons, and top secret military patents to the Soviets.

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Posted in Banking, Business, Civil Liberties, Crime, Cronyism, Education, Financial markets, Foreign Policy, Geopolitics, Governments, Media, Politics, Propaganda, Science, Technology, Tyranny, War

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