India’s Currency Ban – Part VIII
India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI and Part-VII, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.
India’s Pride and Joy
Indians are celebrating that their economy has surpassed that of India’s former colonial master, the UK.
The Industrious Greeks Mystery
In the course of the Greek crisis, animosities between creditor countries like Germany and Greece didn’t take long to surface. They were fired up in the tabloid press, which was quick to revive various stereotypes. In Greece, Germans soon found themselves compared to their Nazi predecessors, while German tabloids inter alia complained sotto voce about those allegedly “lazy Southerners”.
The stereotype of “lazy Greeks”
Venezuela: Real Wages Collapse amid Continuing Crack-Up Boom
While the crack-up boom in Venezuela continues, real wages in the country have have utterly collapsed. The bolivar is still trading close to 700 to the US dollar on the black market, and the Caracas stock index keeps making new all time highs in nominal terms almost every day. Ironically, Venezuela’s currency is called the “bolivar fuerte” (VEF), i.e. “the strong bolivar” ever since it has been “reverse split” 1 for 1,000 in January 2008.
Image via designlimbo.com
Greek Stocks Reopen with a Thud
The Greek stock market very likely represents an emerging opportunity, as many stocks are sporting extremely low valuations these days. However, when we last discussed the Greek market, we pointed out that there was probably no hurry and more importantly, that using ETFs to play the Greek market would pose a difficulty at the current juncture.
Greek ruins – emblematic for the country’s situation.
We spent much of January on the beach at Rancho Santana in Nicaragua. The longer we stayed, the more we liked it. It was warm and dry on the Pacific coast… but we woke up to the sound of rain on the roof this morning.
“Lake Arenal has a different climate,” our overseas real estate scout, Ronan McMahon, explained. Ronan is a young Irishman with long dark hair, a sunny disposition and a thick County Cork accent. He also advises members of our family wealth advisory, Bonner & Partners Family Office, on where to find the best real estate deals.
The Arenal volcano near Lake Arenal in Costa Rica, an artificial lake at the bottom of which the two old towns of Arenal and Tonadora lie abandoned. The lake is surrounded by a rainforest that is home to an estimated 2,000 plant species, 300 bird species and 120 different mammals, including jaguars and tapirs.
Photo via vacationscostarica.com
Why Stock Markets Are Not an Indicator of the Economy
In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.
Photo credit: Prensa Presidencial
Damp Weather in England, Crashing Markets in China
London, England – Over the weekend… it rained!
As we predicted, the Greeks voted against their creditors’ conditions for further aid. When you ask a debtor if he’d prefer not to pay, what else would you expect?
And imagine what would happen if he had never gotten the money in the first place. When government elites borrow, the money rarely gets to the voters. Small wonder they don’t want to pay the bills.
So, Europe holds its breath, waiting to see what will happen next. We are sitting in the lounge at the Hilton Hotel in London, having just flown over from the U.S. An airport TV tells us “Markets Fall.”
And in China, the stock market has lost nearly 30% in the last three weeks – wiping out $3 trillion in “wealth” that never really existed.
Prediction patch, based on the logistic equation Xn+1 = k*(Xn – Xn2) with k = 3.57 … 4.00. We have been able to make amazing predictions with this one, such as inter alia “there will be damp weather in England”. There was.
Capture by PT
Editor’s Note: As you know, Bill believes the U.S. is about to experience a violent monetary shock. So today, we’re sharing with you a classic from the archives. It’s Bill’s firsthand account of Argentina’s monetary crisis. But as an American, you may eventually experience a very similar situation …
One of the things that vexes just about everyone in Argentina is money. The value of the peso changes rapidly. There is the official rate. And there is the unofficial rate.
Nobody knows what a peso is worth. Many people – including your humble editor – have to do some pretty serious calculating. The parts of his brain that do math must be swelling from overexertion.
Fixing the Dollar Drought
Say you are a socialist, and you have intervened heavily in the economy. Suddenly, things don’t work as you thought they would. Somehow, economic laws seem to refuse to bend to your will. However, you cannot really believe that since according to your convictions, wealth is a byproduct of government plans and decrees. Moreover, your predecessor (also a socialist revolutionary) had the best advice oil money can buy – even from people who are now advising socialist parties over in good old Europe. So the solution to the unintended consequences of the initial intervention is to intervene further, in an attempt to refine the plan, so to speak.
You may have heard about a certain proverb attributed to Einstein about insanity, but you can’t quite recall what it was. So you try again. And again. And again. Chances are, your name is Nicolas Maduro. But eventually, you quit trying – sort of.
Image via diyconfessions.com
Governments in Dire Straits
A number of governments find themselves in severe financial trouble – these represent the fringe of the fiat money bubble, the fraying edge of it, if you will. They will provide us with a preview of what is eventually going to happen on a global scale. It would actually be better to say: what is going to happen on a global scale unless significant monetary and economic reform is undertaken in time. Obviously, we cannot be certain what the future holds in store – however, we can certainly extrapolate the path we are currently on.
Looking at efforts that have been undertaken in this respect thus far, they are partly insufficient and partly extremely wrong-headed. For instance, the euro zone received a rather clear wake-up call in the sovereign debt crisis of 2009-2012. The effort to create a “fiscal compact” that forces governments to limit their deficits and public debt to specific percentages of economic output is a laudable attempt to bring the problem under control. However, the effort is lacking in many respects. For one thing, the accord will likely prove unenforceable when push really comes to shove. It is already meeting with considerable resistance, and one suspects that enforcement against core countries like France will continue to be lax.
Secondly, there are many ways in which such fiscal targets can be achieved, and we can be certain that in many cases European politicians will opt for the worst methods. Simply hiking taxes and bleeding the private sector dry is not a workable or sustainable policy. What is required are massive cuts in government spending, combined with economic liberalization on a vast scale. In other words, the kind of reforms that the ruling classes of the European socialist super-state project are most unlikely to consider. Even if they were considering them, they would have to overcome a plethora of vested interests to implement them.
Thirdly, one of the methods chosen to get a grip on government finances is financial repression, aided and abetted by the central bank’s ultra-loose monetary policies. This is certain to lead to capital consumption and impoverishment, thus making the long term success of the fiscal compact strategy even less likely.
Empty shelves in a supermarket in Caracas. The government has tried to counter spiraling inflation with price controls – this is the inevitable result.
Photo credit: Getty Images
$5 Billion Down the Drain
Russia’s Gazprom has finally thrown the towel on the South Stream pipeline, after spending $5 billion on it. This follows repeated attempts by the EU to shoot itself in the foot using its “competition rules” as a pretext. These nonsensical rules are employed as a pretext for a great many things, but the protection of consumers ranges most definitely at the very bottom of priorities. South Stream would have circumvented the Ukraine and brought Russian natural gas to a number of countries (many in the Balkans, plus Austria and Italy) which are nearly 100% dependent on Russian gas already. Germany presumably doesn’t care because, tada! – it gets its gas via “North Stream”. For unknown reasons the “competition commission” had nothing against that pipeline. One wonders why? We think the only European newspaper that came closest to the truth was the Italian paper La Republicca. While it (wrongly) blamed the decline in energy prices for the decision, it wrote in an aside:
“The latest jolt sweeps away South Stream. The maxi-pipeline – dear to Vladimir Putin, supported by the former Berlusconi government, opposed by the United States – will not be built”
The truth is, the EU’s “competition commission” rigmarole was a pretext for what is at its core a political, not an economic decision. The US opposes South Stream solely for geopolitical reasons, as it has zero commercial importance for it. The EU has neither valid commercial and nor indeed valid political reasons to oppose the pipeline. Europe has been buying energy from Russia even back when it was still part of the evil Soviet Union, the communist empire that was an actual enemy. And yet, as German vice chancellor Sigmar Gabriel remarked in an address (in which he admitted that German subsidies for various “alternative energy” nonsense needed to end), Russia has never reneged on its energy deliveries, not even in the most tense moments of the cold war.
A piece of South Stream in Bulgaria, now a memento of a missed opportunity
Photo credit: Gazprom
A Brief Technical Update
This is a brief addendum to our recent update on the gold sector. Since then, a few interesting things have happened. Initially, gold stocks bounced from the 61.8% retracement level of the preceding rally in spite of the fact that gold and silver weakened further. The action reversed however on Thursday, with gold and silver bouncing, while precious metals shares lost some ground again. The HUI failed at the 200 day moving average, and it remains to be seen if it once again turns into an impenetrable barrier (we believe it won't). The HUI-gold ratio has strengthened a bit recently. Note also the divergence between the HUI and the ratio that has developed at the most recent low.
HUI and HUI-gold ratio – divergence at the recent lows – click to enlarge.
HUI with Fibonacci retracement levels of the December-March rally – click to enlarge.
Most read in the last 20 days:
- India: The World’s Fastest Growing Large Economy?
Popular Narrative India has been the world’s favorite country for the last three years. It is believed to have superseded China as the world’s fastest growing large economy. India is expected to grow at 7.5%. Compare that to the mere 6.3% growth that China has “fallen” to. India's quarterly annualized GDP growth rate since 2008, according to MOSPI (statistics ministry) - click to enlarge. The IMF, the World Bank, and the international media have celebrated...
- Gold Sector Update – What Stance is Appropriate?
The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
- Don’t Blame Trump When the World Ends
Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook. One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
- What is the Best Time to Buy Stocks?
Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity? Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
- Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
- Trump and the Draining of the Swamp
Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
- Gold and Silver Divergence – Precious Metals Supply and Demand
Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
- Making America Great Again – How to Judge Policy
A Simple Formula MIAMI – How do we know if new programs will make the economy better... or worse? Here’s a simple formula: W = rv (w-w – w-l) That is, wealth is equal to the real value of win-win exchanges minus the loss from win-lose exchanges. Yes, dear reader, it’s as simple as that. Like a whittler working on a piece of wood, we’ve shaved so much off, there is nothing left of it... except the essential heartwood. When devising a win-win,...
- When Trumponomics Meets Abenomics
Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway] Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
- The Great Wailing
Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations. Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any... You’d think Washington had been invaded by Goths, now...
- Receive a One Percent Gift When Buying or Selling a Home
How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine. Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell. The people who took this photograph probably want to...
- Silver Futures Market Assistance – Precious Metals Supply and Demand
Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday. Taking off for real or not? Photo credit: NASA Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...