Having been early socials media adopters we’ve now moved to overload blackout mode, if not claimed and somebody wishes to adopt the above tag, you may, but you may not claim #kamikazenomics. We like that one.
Zero Interest Rates are now moving to negative (yep, pay to have it stored) in many economies around the world. Why? Force of nature? Maybe. The lower rates go signal the more worry around return OF capital as oppose to return ON capital. Big difference. Some argue this will lead to further capital flight into equities/shares.
Realistically, from an economic perspective, where ever we seem to look at the moment, things are changing rapidly. Socially and financially, the pressure is building.
Unfortunately, we’re in the final stages of a massive credit cycle and things are unlikely to change without a bang. That opportunity was lost in 2009. We just hope the bang does not morph into military conflict. History is not on our side in this hope.
Here we are, 12 trillion dollars of bail out and stimulus later and what do we have? Some tidbits we see.
- Greece, 11 million people, on the verge of blowing up our global financial system, again. Why? Even a 40% “haircut” or debt forgiveness for Greece (whatever you do don’t mention default, it may trigger a test of the daisy chain derivative swap), will drain most of the flimsy capital base of Euro Financial Institutions, let alone what happens on the dreaded “Grexit”. Complete exit. And you think Spain, Italy, Portugal, Ireland and, lets face it, France, aren’t going to want want similar terms of debt forgiveness? Exit or restructure, both cases are dire.
- At the behest of their political masters, the Central Bank of Japan, in its desperate pursuit of mere survival, currently pursues a new chapter in economic theory, “kamikazeconomics”. The data on this situation requires its own note, which we may produce over the next couple of weeks. It does not make for good reading and many analysts we follow are calling Japan as the fulcrum as they’re the most advanced down the “all in” alley.
- And then there is the USA, which can best be summed up by this, Reference to the Q3 OCC report, shows Citigroup, or rather its FDIC-insuredCitibank National Association entity, just surpassed JPM and is now the biggest single holder of total derivatives in the US. Furthermore, while some banks were derisking their balance sheets, Citi not only increased its total derivative holdings by $1 trillion in Q2, but by a whopping, and perhaps even record, $9 trillion in the just concluded third quarter to $70.2 trillion! Yep, a lazy 9 trill.
- And finally, the geopolitical wash through of a 50% (yes, there are many entities on the other side of this) reduction in oil prices over the last 4 months. WOW. The geopolitical ramifications of this are enormous, let alone the financial fall out, which we’ll find out about over the next few months.
We raise the above 4 not in any order but to point out that all of them are bigger stories than the system has collateral to cope with. No margin for error, as we’ve said on many occasions. Hedge accordingly.
So, now to some pictures for those that the written word may not resonate effectively.
US Spending. We love this one, in Australias case, just reduce military and replace with some other beaurocratic madness. And yes, it deserves to be a big chart! All in billon$,
For good measure!
The People’s Bank of China is almost certainly continuing to quietly accumulate gold bullion reserves.
As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices. They also do not wish to create a run on the dollar – thereby devaluing their sizeable reserves.
Oh, and really, WTF happened here. We thought global growth was tickety boo.
Seems to fit with chart below.
Like we said, not sure how this will play so make sure sure you know what you own!
Aurum Echo 
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