IMF Wants Massive Illegal Immigration to Save Pension Funds

[image: AP/Gregory Bull, file]

(The Real Agenda News) In Europe alone, the IMF promotes the arrival of over 5 million illegals to sustain the decaying pension funds.

The governments of Latin America, North America, and Europe have mishandled, not to say stolen, the money saved by workers for decades.

Most of the public and private savings accounts and pension funds were looted by governments to pay for political promises and an insurmountable public debt.

Government handled pension funds are some of the biggest scams ever perpetrated on the working classes in the history of humanity. Consider this: The average person begins working at 18 years of age and contributes to a public fund for over 40 years.

Once it is time to retire, the worker files the paperwork to receive proportionally the average salary he or she earned 40 years earlier. What happened to the earnings that his pension contributions earned over 4 decades?

Did they help pay for other people’s pensions? The answer is a decisive No. The profits made by governments on the monies provided by the working class over decades of hard work was stolen to pay for never-ending entitlement programs, skyrocketing interests from debt accumulated by governments over dozens of years.

Many of these payments are made to international banking institutions like the IMF itself, the World Bank and so-called partner states that lend money at a large profit.

What will happen to the pensioners of the future? In a recent analysis, the International Monetary Fund outlines a way to reform the system.

To do this, it draws up projections with all the variables that condition the Social Security accounts: the number of retirees that is expected, the number of workers, immigration, contributions or generosity with pensioners.

The IMF concludes that it is possible to articulate a financially sustainable system that is socially acceptable at the same time.

But yes: you have to touch many elements, make reforms in depth and, in any case, pensions will be reduced compared to the average salary.

“A public pension is not intended to cover the full income that the retiree would need to retire”, explains the IMF.

If there is such an expectation, it must be made clear that it cannot be fulfilled,“the report stresses. Hence, it asks governments to establish complementary plans.

On the one hand, the Fund collects the projection of retirements that will be in the coming years.

Given that the contributors of today are the pensioners of the future, the only certainty is that the number of benefits will grow.

On the contrary, the rest of factors can vary much more: the number of people working, immigration, contributions made by contributions or other sources of income and the generosity of the system with pensioners.

Adding all these variables and with the intention of giving an idea of the challenge, the IMF outlines various scenarios by 2050.

One is based on the premise that the current generosity is maintained: now the average pension represents almost 50% of the average salary.

To preserve this status, according to the estimates of the Fund, contributors would go from contributing 21% of the salary to 47.8% in 2050. And spending on pensions would be at 22% of GDP, twice the current rate.

In another scenario, the IMF freezes contributions at the levels they are now. Then the expenditure on GDP remain the same.

But in this case the funding of the system collapses during the next 30 years, and the relationship between pension and the average salary is cut by more than half to 22.6%.

In the Fund’s opinion, neither scenario is acceptable. Neither workers can bear a pressure for contributions as in the first case. Neither can a pensioner live with dignity with only 22% of the average salary as in the second.

So the Fund draws an intermediate horizon. In this third hypothesis, spending on GDP would be at 12.9% and the contribution for contributions would rise to 27.3% of their salary, a very high level.

Income would have to increase by raising the ceiling of maximum contributions while leaving the ceiling of the maximum pension the same.

That is, those who earn more would contribute more but would not receive more, penalizing contributivity, the Fund admits.

In addition, some 5.5 million immigrants would need to arrive in countries like Spain. That represents 12% of the current population and a similar proportion to the number of people that entered the country between 2000 and 2007.

And the rate of people working would have to climb from 59.7% to 79%, a very demanding milestone and more difficult to achieve if prices rise.

“This could be achieved through parametric reforms of pensions that lead to greater participation in the labor force, longer working lives and structural reforms that lower the natural rate of unemployment,” it says.

Even so, the pension would end at 35% of the salary. And that, in the opinion of the IMF, does not seem acceptable either. Therefore, consider that you need to save around 5% of the annual salary.

So the IMF recommends that governments adopt the alternative of “automatically enlisting workers in a second private fund backed by the State”.

It also suggests, as another option, private business plans that fatten the savings by taking a part of the future salary increases, in the style of the British system inspired by the Nobel laureate Richard H. Thaler.

Finally, given that there is a lot of savings in housing, the IMF urges that mechanisms be encouraged to sign reverse mortgages.

In the opinion of the men in black, this scenario would be “plausible, financially viable and possibly socially acceptable”.

As you can see, the size of the figures means that you cannot face the challenge with a solution taken from the hat.

You have to touch many things and none by itself fixes it. And, above all, “there is no room to reverse the reforms”, says the Fund.

The post IMF Wants Massive Illegal Immigration to Save Pension Funds appeared first on The Sleuth Journal.

"The World Is Criminally Corrupt & Broken" - A Surprising Dinner Conversation With The Younger Generation

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Dressed in red velvet, she trampled under her reckless feet the stray flowers fallen from other heads, and held out a salver to the two friends, with careless hands. The white arms stood out in bold relief against the velvet. Proud of her beauty; proud (who knows?) of her corruption, she stood like a queen of pleasure, like an incarnation of enjoyment; the enjoyment that comes of squandering the accumulations of three generations; that scoffs at its progenitors, and makes merry over a corpse; that will dissolve pearls and wreck thrones, turn old men into boys, and make young men prematurely old; enjoyment only possible to giants weary of their power, tormented by reflection, or for whom strife has become a plaything.

 

– Honore De Balzac, The Magic Skin

I don’t get out all that much these days, but last evening I had a really engaging and illuminating dinner conversation. In attendance was a 47-year old commercial real estate investor and fellow Boulder resident who I’ve become friends with, a 32-year old professional poker player looking to move here, and 28-year old tech startup founder. Although I hadn’t met the younger attendees before, it became immediately apparent that everyone in attendance was highly intelligent and very engaged with the world around them.

We discussed religion, philosophy, crypto assets, the importance of nature to humans, travel and more. That said, the reason I’m writing this post is due to some of the generational observations I came upon. It confirmed the overall thesis I discussed in detail within last month’s post, The Generational Wheels Are Turning.

Here are a couple of passages from that piece to refresh your memory:

The Baby Boomer generation, which has dominated so many aspects of our country for so many decades — including the overall narrative of everything — is finally heading off into the sunset.

 

It’s not so much that they’re physically expiring, but their influence is beginning to wane significantly. It’s not completely obvious just yet since our world continues to be defined by the institutions and ideals they championed, but in the hearts and minds of so many, particularly the younger generations, the world they left us is hopelessly corrupt, archaic and can’t be displaced quickly enough.

While at dinner last night, I tried to listen as closely as possible to how the younger guys saw the world and where it was headed.

I wouldn’t say their views of the future were wildly optimistic, but there wasn’t a sense of dread or pessimism either. There was a vibe of, yeah our generation was screwed, the government sucks and so do all these corrupt institutions, but we’re gonna get out there and do our best. I’ve noticed this worldview consistently over the years from people roughly tens years younger than me, i.e., the heart of millennial generation. Not only is my wife in that age group, but so are many of my close friends at this point, and this ethos has been pretty consistent from my experience.

They don’t trust government, corporations or anyone with power to do the right thing. This is why they didn’t enthusiastically buy the Hillary Clinton kool-aid, despite not liking Donald Trump either.

It seems being thrust into adulthood with terrible employment and wage prospects resulted in a very healthy dose of cynicism about how things work. There’s a very clear appreciation that the world as is functions today is criminally corrupt and broken.

When I go out and chat with people my age and older, I notice a completely different tone compared to when I engage with younger generations. One thing is crystal clear. Older friends of mine not only think the status quo will strike back against extremely disruptive forces like Bitcoin and crypto assets, they also think the status quo will win. They expect a return to the gold standard, or some IMF-globalist one world digital currency to provide a framework for the post-dollar reserve currency system. Generally speaking, the biggest difference between the two groups is that one expects the current power structure to cunningly survive this current period, while younger people think the world can, and will, be fundamentally changed for the better. You know which camp I’m in.

Generally speaking, older people tend to be strongly anchored to the world paradigm as it exists, while those who are younger are naturally more open to massive disruption and upheaval. I’d argue that the current younger generation is even more willing to flip the table over and build entirely new structures than most people realize. The popularity of crypto assets amongst this generation is just one manifestation of this desire. That’s not to say us optimists are naive and expect this to be a smooth transition without a fight, but it’s to say we believe paradigm level, positive change is not only possible, but likely. Which is precisely the attitude you must have if you want to win. If you go into a battle expecting to lose, the result is obvious.

Most interesting to me was how the youngest member at the table responded when the subject of gold came up. He said something like, “I get the investment thesis, I get the concept of it, but it’s just not something I’m interested in.” He went on to describe why.

He likened it to buying an asset, holding it tight, and then waiting for the world to burn around him to profit. This blew my mind because I’ve heard this exact same sentiment, virtually word for word, from other people his age previously. They get gold and they understand the investment thesis, but they simply aren’t interested in it for very specific and interesting reasons. Many older people think millennials are just acting stupid and naive with their interest in crypto assets. They think these kids don’t know anything about gold or monetary history, which is why they’re attracted to these new digital forms of value, but if you actually talk to them, you’ll see that’s not the case. I’ve had too many experiences like the one described above with intelligent and aware millennials to be increasingly confident of this conclusion.

It reminded me of what I wrote last month:

This is where many older people who understand how fraudulent and terminal the current system is seem to get sidetracked. To them, the next logical step as we enter a new financial system has to be to go through gold. Far more ridiculously, some people even push the spectacularly idiotic idea that an SDR will become the accepted global currency of the future. While I don’t profess to know exactly how things will play out, I try to keep an open mind as others arrogantly dismiss Bitcoin completely.

 

It’s no coincidence that many of those who are particularly condescending toward Bitcoin are from older generations. They’re doing what humans tend to do, which is take their own understanding of the world and life experiences and extrapolate them into the future. Someone who lived 30 years or more before the internet came to dominate everything will naturally possess a radically different perspective of the world and where it’s headed than someone who never knew life without it. This is precisely why a younger person will inherently understand the value and utility proposition of something like Bitcoin far more easily than someone much older.

The only person at the table who owned no crypto assets was the oldest one in attendance (although he’s totally supportive of the space). This pattern is repeated over and over again in my experience. When I go out with friends my age or older they’re almost never involved, but when I go out with younger generations they almost always are. Some people will write the whole thing off as a fad, but my observations point me in an entirely different direction. The evolution and success of Bitcoin and crypto assets is not just a function of revolutionary technology being introduced into the world. Its blistering adoption rate is a reflection of a global consciousness developing amongst younger generations. It’s reflection of a burning desire for a more dynamic, trustless and decentralized world, and it will be up to them to ensure that it happens.

None of us know exactly how the future will unfold, but I’m going to take my cues from younger generations. Their values and desires will be what shapes the world as older generations retire and die off. If you aren’t talking to them and studying the way they see things, you’re going to be completely blindsided by the next 10-20 years.

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Retired Green Beret Rages "We Are Long Past The Tipping Point"

Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces) via SHTFplan.com,

So, let’s cite a few passages from President Trump’s National Security Speech:

“Throughout our history, the American people have always been the true source of American greatness. Our people have promoted our culture and promoted our values. Americans have fought and sacrificed on the battlefields all over the world. We have liberated captive nations, transformed former enemies into the best of friends, and lifted entire regions of the planet from poverty to prosperity. Because of our people, America has been among the greatest forces for peace and justice in the history of the world. The American people are generous. You are determined, you are brave, you are strong, and you are wise.”

Determined, brave, strong, and wise. Certainly, the President wasn’t referring to most of the population? Maybe he was in Wal-Mart, looking at these determined, brave, strong, and wise citizens:

But the generosity? Here is the “generosity” in a nutshell, for those can see it for what it is, just after that section:

“Fourth and finally, our strategy is to advance American influence in the world, but this begins with building up our wealth and power at home. America will lead again. We do not seek to impose our way of life on anyone, but we will champion the values without apology. We want strong alliances and partnerships based on cooperation and reciprocity. We will make new partnerships with those who share our goals, and make common interests into a common cause.”

Here’s some more generosity, of the “Black Friday” type…with the determined, brave, strong, and wise, once more:

Yes, it sounds very similar to the imperial hubris we have heard parroted for the past half a century and more.  Look at this oxymoronic sentence:

“We will not allow inflexible ideology to become an obsolete and obstacle to peace.”

Not allow inflexible ideology? And if our government is the unbiased “factor” to determine what ideology is inflexible, perhaps it should examine itself, first, as we are the ones not to compromise. Just the statement “we will not allow inflexible ideology,” is an inflexible statement; ergo, perhaps the government should fold.

We are at a very important juncture right now. The President made this speech to galvanize public opinion and support with ratings at about 60% disapproval. There is no clearly defined (let alone productive) foreign policy, with gross inconsistencies throughout this first year of the President’s term. Praising Russia for cooperation and sharing of intelligence to thwart a terrorist attack, just months after we expelled all Russian diplomats from the Russian embassy in California, as well as forcing them to vacate properties…in under a week.

Granted, all embassies (American and foreign nations) are full of spies, however, such a forced eviction has not improved relations with the Russians. The North Korean situation takes center stage:  as mentioned before, North Korea only has two options. They can either relinquish their nuclear weapons and submit to western hegemony as another IMF and World Bank vassal, or they can continue in their present course.

The punch line: they possess nuclear missiles with the capabilities of delivering an EMP (Electromagnetic Pulse) attack, or a nuclear strike against American cities. The President of the United States just stated (as printed above) “America will lead again.” What better leadership example than to do a 180-degree turn, and try…make the attempt…to extend full diplomatic courtesy to North Korean leader Kim Jong Un? What better strategy than to roll out the red carpet, and treat him with the courtesy of a leader of another nation…one with nuclear missiles…and show yourself to extend the hand of diplomacy?

The President owes that much: owes a legitimate attempt to help to protect the 320 million people of this country, who do not have a Mt. Weather or a Cheyenne Mountain to retreat to. He owes it to 320 million American people who are in the crossfire. And if Un is unresponsive? Then the attempt was made. Lead by example and take the first step, for the welfare of the millions…ours, and yes, theirs.

Any who may be smirking will lose such skepticism if the city their family lives in suddenly becomes a dust cloud spiraling into the upper stratosphere.

There was much the President said that was worthwhile, but he said most of it in the present tense…as if we are “there” already, and not that we have a long way to go. To credit him, the Obama years almost destroyed this country. We are now as the hollowed-out exoskeleton of a cicada…clinging to the Tree of Liberty, but emptied, with barely a pulse.

Determined, brave, strong, and wise? The teleprompter told him that: he certainly wasn’t looking out of the window and viewing actual people. Our people have promoted our culture and our values? And just what would those be?  Reality T.V. shows and professional football players who take a knee in a foreign country, and refuse to stand for the anthem of the United States, but will stand for Britain’s anthem?

Yes, there is our value system: not even pride or loyalty to respect the U.S. when in a foreign land… a nation that we fought two wars against, then saved in World War II.

Their right to “take a knee” exercised their right to freedom of speech, while they also exercised the freedom to make complete jackasses out of themselves. Such freedom was earned for them and is maintained for them by their betters…

Pat Tillman was one of those betters: standing for something he believed in, and remembering that he was an American…something he held higher in importance than being a professional football player in the NFL. We can learn much from the example that he set.

It’s from the ground up that we need to return to our basics, and give all of Washington D.C. and Congress an “enema” to drain the true polluting substance from the “swamp” of D.C.  We are long past the tipping point, and possibly past the point of no return, but we still must try. From the President of the United States down to the rest of us…all of us…We the People. Hopefully we’ll have one more example to go by. Lead from the front, Mr. President, and be a Statesman…and act as the Commander-in-Chief as a last resort.

You have the power, Mr. President, to destroy many nations and enter a war, but do you have the strength to not do this? Remains to be seen. If you care about the American people and the United States as much as you say you do, then the choice is simple, even though the execution of it will be tough.

Warning From The World"s Biggest Shipping Line On Outlook for World Trade

The optimism on world trade didn’t last very long.

It was only late September when the WTO issued a “strong upward revision” to their estimate for 2017 world trade. WTO economists raised their forecast to 3.6% from 2.4%, which was at the top end of the previous 1.8-3.6% range. This marked a sharp acceleration from the 1.3% growth in 2016. The IMF’s forecast for 2017 world trade, also made in September, was even higher at 4.2%. Now the Copenhagen-based Maersk, the world’s number one container shipping company, is sounding a warning about softer demand and downward pressure on freight rates. According to Bloomberg.

The world’s largest container shipping line says international freight rates are reversing after climbing for most of this year, raising questions about the sustainability of the global trade recovery. Decade-old oversupply issues swamped demand for containerized sea trade in the third quarter, a senior official at Maersk Line Ltd. said in an interview last week. Over 90 percent of trade is routed through ships, making the industry a bellwether for the worldwide economy.

"We have started to see some pockets of downward pressure," said Steve Felder, Mumbai-based managing director of Maersk’s South Asian unit. The global trade order book at around 13.5 percent of capacity isn’t high, "however, given that freight rates are largely determined on the basis of supply-demand balance, they remain fragile," he said.

Last week, we highlighted the collapse in the share price of Samsung Heavy, the world’s third largest shipbuilder, after unexpectedly forecasting losses for this year and 2018 and announcing a capital raise. The company stated that new order demand is falling which suggested that the revival seen across the industry in 2017 is already fading. Samsung Heavy said it didn’t see a recovery until 2019.

Maersk’s downbeat assessment of the outlook mirrors the view of a number of shipping consultants, banks, other container shipping companies and rating agencies, as Bloomberg notes.

Maersk isn’t alone. Drewry Shipping Consultants expects the container-shipping freight growth rate to drop to less than 10 percent in 2018 from around 15 percent in 2017 as a supply glut hits home. CMA CGM, the No. 3 container shipping company, recently signaled slightly lower rates for 2018 in early negotiations of Asia-Europe contracts, analysts at Credit Suisse Group AG wrote in a Nov. 29 note.

"It remains very early in the negotiation period, but this uncertainty is plainly unhelpful to investor confidence,” they said.

Fitch Ratings expects supply of shipping containers to grow more than 5.5 percent in 2018, outpacing an over 4.5 percent expansion in demand.

The one positive note in the overall world trade outlook right now is air freight, where IATA’s projected growth of 7.5% for 2017 is widely believed to have significant upside potential. However, air freight is a small part of the overall market. The world air freight sector accounts for about $100 billion compared with aggregate world trade of about $15.5 trillion – about 0.6%. 

Drewry Shipping Consultants latest data on spot freight routes points to significant weakness on several routes between Shanghai and developed economies. For example, rates for Shanghai-Rotterdam, Shanghai-Genoa, Shanghai-Los Angeles and shanghai-New York are all down more than 20% versus the first week in December 2016.

Currently, both the WTO and the IMF are expecting growth in world trade to remain buoyant in 2018. The former is projecting growth of 4.0% and the latter 3.6% with a range of 3.2-3.6%. 2017 will be the first year since 2014 when trade growth has exceeded global GDP growth. Based on the current IMF forecasts, the two will be approximately equal next year. However, the weakness flagged by Maersk, Drewry and others suggests that trade could, once again, act as a drag on global growth as we move into 2018.

 

The Latte Index: Using The Impartial Bean To Value Currencies

Like any other market, there are many opinions on what a currency ought to be worth relative to others.

With certain currencies, that spectrum of opinions is fairly narrow. As an example, for the world’s most traded currency – the U.S. dollar – the majority of opinions currently fall in a range from the dollar being 2% to 11% overvalued, according to organizations such as the Council of Foreign Relations, the Bank of International Settlements, the OECD, and the IMF.

For other currencies, the spectrum is much wider. The Swiss franc, which some have called the world’s most perplexing currency, has estimates from those same groups ranging from about 13% undervalued to 21% overvalued.

As VisualCapitalist"s Jeff Desjardins notes, such a variance in estimates makes it hard to come up with any conclusive consensus – so in today’s chart, we refer to a more caffeinated and fun measure that also approximates the relative value of currencies.

THE IMPARTIAL BEAN

The “Latte Index”, developed by The Wall Street Journal, uses purchasing-power parity (PPP) – comparing the cost of the same good in different countries – to estimate which currencies are overvalued and undervalued.

In this case, the WSJ tracked down the price of a tall Starbucks latte in dozens of cities around the world. These prices are then converted to U.S. dollars and compared to the benchmark price, which is a tall Starbucks latte in New York City (US$3.45).

Courtesy of: Visual Capitalist

The Latte Index is mostly for fun, but it’s also broadly in line with predictions made by the experts.

For example, the price of a latte in Toronto, Canada works out to US$2.94, which is about 14.8% under the benchmark NYC price. This suggests that relative to the USD, the Canadian dollar is undervalued. Interestingly, estimates from the aforementioned sources (BIS, OECD, CFR, IMF) have the Canadian dollar at being up to 10% undervalued – which puts the Latte Index not too far off.

Given the wild range of estimates that exist for currency values, using the relative cost of a cup of joe might be as good of a proxy as any.

Eat Gold

Submitted by BullionStar.com

A popular phrase in segments of the mainstream financial media is that “You Can’t Eat Gold”. We don’t know who first uttered this comment, but it was more than likely a talking-head or Wall Street analyst on CNBC or Bloomberg.

The disparaging claim seems to be based on concluding that in a financial or monetary crisis, if you own gold, that “You Can’t Eat It”. And so, according to the logic of whoever came up with the phrase, this would make gold useless during a financial crisis.

In addition to the misleading and irrelevant nature of the comment, which we will discuss below, the claim that “you can’t eat gold” is actually factually wrong. And that is because you can eat gold. And also drink it.

Eating and Drinking Gold

While gold can be eaten, it cannot be digested. But it is non-toxic to the human body. And it does not react chemically in the human body. That is why gold can and does appear safely in a number of foods and drinks, not surprisingly foods and drinks which are predominantly at the luxury end of the market.

Some readers will have heard of Goldschläger, a Swiss/Italian liquor which has flakes gold suspended within it. On a similar note, a Swiss gin called ‘Studer Swiss Gold Gin’ also contains flakes of gold. Staying within Switzerland, you can also buy edible gold products including “Swiss chocolate truffles with gold flakes”. Not to be outdone by the Swiss, the Emirates Palace Hotel in Abu Dhabi (United Arab Emirates) offers a ‘Palace Cappucino” which is sprinkled with gold flakes.

In Selfridges department store in London, you can buy a “billionaires soft serve” ice cream cone topped with both sprinklings of gold leaf and a gold leaf covered flake. While in New York, in Manhattan’s Upper East Side, a high-end restaurant offers a "Golden Opulence Sundae” topped with gold leaf, for US$ 1000 a glass. Back in England, a specialist cheese producer in Leicestershire created Britain"s most expensive cheese - "Clawson Stilton Gold", a stilton cheese interwoven with edible gold leaf and shot-through with gold liqueur. These uses of gold in food and beverages illustrate that gold is a sought after and prestigious substance, but also that gold is real, that gold is tangible and that gold is of value.

Wall Street"s Selective Focus

The logic of the “you can’t eat gold” comment, as well as being wrong, is also flawed. Because by extension, you can’t eat any of Wall Street"s favorite investment assets. Imagine chewing on financial securities or fiat currencies. But whoever coined the phrase “you can’t eat gold” conveniently failed to mention this on CNBC. We would challenge anyone, especially CNBC and MSNBC, to eat share certificates or bond certificates or the electronic equivalent thereof.

Nor can you eat the electronic coins of cryptocurrencies such as Bitcoin, Ethereum’s Ether or Litecoin. Real assets such as art, antiques, real estate, agricultural land, or vintage cars are also off the menu. A possible exception is that can drink an expensive investment wine collection, but would you really want to do this, as then you would be consuming your principal investment?

Wall Street analysts fail to mention that you can"t eat stocks and ETFs

Gold"s Many and Varied Benefits

But beyond the fact that you can in fact eat gold, and that Wall Street never points out the non-edibility of stocks and bonds, there are many beneficial reasons to buy and own investment grade physical gold of which we recently pointed out in 28 reasons to buy and own physical gold. What we are talking about is real physical gold in the form of gold bars and gold coins. This is true both during times of financial crisis, and also over the long-term as a form of investment and savings.

Gold is without doubt the ultimate safe haven asset. In times of financial crisis and turmoil, investors and savers flock to gold as a wealth preservation strategy. The reason for investing in gold during times of crisis is based on the fact that investors instinctively know that the gold price behaves differently to the prices of other assets, particularly during crises. This is because the gold price moves independently of economic and business cycles.

In times of war and social upheaval, physical gold"s benefits also come to the fore. Since gold has a high value to weight ratio, significant personal wealth can discreetly be carried in the form of gold across borders and frontiers and within areas of conflict.

Since gold is a universal money supported by a highly liquid global market, it will always be accepted everywhere at the going gold price. Gold can easily be sold. Gold can easily be traded or even bartered with, especially in non-functioning economies where the local paper currency has collapsed or has become worthless. The fact that gold coins are regularly issued to elite military personnel in areas of conflict attests to gold"s critical benefits in times of monetary crisis and localized economic collapse.

Gold as Store of Value

But gold is not just of use during financial crises. It is also an essential asset to own over the long-term as a strategic form of saving and investment. Physical gold retains its purchasing power over long periods of time. This is in contrast to fiat currencies issued by the world"s central banks, which generally lose most of their purchasing power over time. In other words, gold is a great hedge against inflation, as the gold price adjusts upwards to offset inflation. The gold price even adjusts to inflation expectations, hence it is sometimes called an inflation barometer and is watched like a hawk by central bankers because the gold price signals future inflation.

Physical gold is also an asset without counterparty risk. This is because when you own physical gold in the form of gold bars or gold coins, there are no counterparties. In other words, the physical gold that you own outright is no one else"s liability. Nor are there any governments or central banks involved in issuing gold, or in trying to increase and debase its supply. Gold also lacks default risk, because it cannot default.

Physical gold is also inherently valuable because it is a scarce precious metal that is difficult and costly to mine and refine. Gold"s price will never go to zero because it has a finite and significant production cost. Physical gold is difficult to counterfeit, impossible to create artificially, and cannot be debased.

These are just some of the reasons for buying and owning physical gold. Please see BullionStar"s recent article "28 Reasons to Buy Physical Gold" for a  list of reasons why you should consider buying physical gold.

Gold in Zimbabwe & Venezuela & South Korea

In the real world, owning physical gold can be of critical importance in scenarios where trust in a nation"s money supply has evaporated, such as is currently the case in Venezuela or Zimbabwe.

Gold can also be of critical importance when entire nations suffer economic shocks.  A case in point is the interesting experience of South Korea during the Asian financial crisis that swept the region in the late 1990s. This crisis left the South Korean economy severely impaired, with it’s currency, the Won, collapsing against the US dollar.

In addition to a bailout by the International Monetary Fund, the South Korean government also launched a patriotic campaign in early 1998 to actually collect physical gold from the South Korean citizens which was then sold on the international market to raise much-needed foreign currency. This collective campaign was pursued precisely because the South Korean government understood that gold is a high-quality liquid asset that has substantial value.

National Mobilization of Gold

By mid-March 1998, the South Korean citizenry had donated more than 220 tonnes of gold, worth over US$2 billion, in the form of investment gold coins and bars, and other gold in the form of rings, jewelry, and gold medals. More than 3 million households were said to have contributed. This collective mobilization of gold to overcome a nation"s economic adversity and raise financing is a great illustration of how gold comes to the fore in a time of crisis, due to its store of value, safe haven, and high liquidity characteristics.

In conclusion, knowing the many compelling reasons to buy and hold gold, and how gold can sometimes be a lifeline in a time of crisis, the claim that "you can"t eat gold" is exposed for what it is, misguided and disingenuous, and shows either ignorance on the part of the people who use it, or more likely, a deliberate intention to mislead and deceive.

This article originally appeared under the same title on the BullionStar.com website.

China Hits A Brick Wall: For First Time Ever, Record Chinese Credit Creation Fails To Stimulate Economy

Submitted by Gordon Johnson of Axiom Capital

We believe that exhibit 1 says a lot: it shows that despite a record level of new credit issued by China’s PBoC YTD through Oct. 2017 (which stands in stark contrast to government authorities continued statements that China is de-levering), China’s economic backdrop is currently experiencing:

• (a) monthly construction new start (commercial + residential + office) growth slowing Y/Y (Ex. 2),


• (b) monthly fixed asset investment growth slowing Y/Y (Ex. 9),


• (c) monthly cement output slowing Y/Y (Ex. 5),


• (d) monthly electricity production slowing Y/Y (Ex. 6),


• (e) monthly M2 money supply growth slowing Y/Y (Ex. 7),


• (f) monthly household loan growth slowing Y/Y (Ex. 8),


• (g) monthly private fixed asset investment growth slowing Y/Y (Ex. 10), and


• (h) monthly home price growth slowing Y/Y (Ex. 12) – in fact, select data points have turned negative Y/Y.

Stated differently, while the lion’s share of our client base continues to tell us, with respect to our bearish views on China… “President Xi Jinping will simply stimulate more if/when things get bad”, we would highlight, again as detailed in Ex. 1 below, China stimulated at a record pace in 2017, yet it did not resonate in improved economic activity (in fact, the exact opposite appears to be unfolding – i.e., economic growth is slowing across a number of data points).

Furthermore, underpinning our view that China’s debt stimulus was targeted specifically at the months preceding the 19^th Party Congress in Oct. 2017 (i.e., when President Xi Jinping consolidated power to become the strongest Chinese leader since Mao Zedong), implying we may see a phase of debt fatigue, we note that in the first 10 months of 2016, incremental credit issued in China on a month-over-month (“M/M”) basis was negative three times (i.e., May, July, and Oct.), and averaged $189 billion on a monthly basis; yet, in the first 10 months of 2017, incremental credit issued on a M/M basis was positive in each month outside of Oct., and averaged $429 billion on a monthly basis (in Oct. 2017, the month the 19^th Party Congress concluded, new credit issued fell by $11.9 billion M/M).

WHAT DOES IT ALL MEAN? The broader point is… when you issue an unprecedented amount of credit targeted at a growing number of negative ROI projects multiple decades, at some point the law of diminishing marginal returns sets in (since 1/1/09, China’s credit has grown by CNY153.9 trillion while GDP has grown by a much more modest CNY 48.5 trillion, or a multiple of 3.17x, meaning a lot of bad investments have stacked up over the years) – keep in mind that China’s $3.6 trillion in credit issued in 2017 YTD through Oct. is more than the entire developed world combined. Put in the simplest of terms, at some point the incremental dollar in new credit created actually does more harm than good.

Ex. 1: China New Credit Created YTD Through Oct.

Note: Credit created = TSF + Local Gov"t Debt.
Source: PBoC; NBS; ChinaBond.

SO WHERE FROM HERE? When considering China hit the afterburners on new credit issuance in 2017, yet the impact seems to be quickly fading, it would appear we may have reached the point of “no return” (while Consensus, at this point, seems completely oblivious to this possibility, the recent sell-off across the Chinese stock markets suggest investors on-the-ground in China may be catching on).

CONCLUSION: In the face of China’s TTM 3Q17 credit as a percentage of GDP coming in at 250%, to “keep the party going”, Xi Jinping would have to force new credit issuance far in excess of $4.0 trillion in 2018 (which could trigger a number of ratings downgrades, as well as a reassessment by the IMF of China’s “market economy” status).

Moreover, given what we’ve seen this year – i.e., 101.7% Y/Y new credit issuance growth YTD through Oct. 2017 – it seems the level of credit necessary to stimulate growth in China could prove elusive at this point (we don’t recall any economist’s forecasts exiting 2016 pointing to China’s new credit issuance more than doubling Y/Y in 2017, yet that’s exactly what’s happened – had this been our base case, we would have expected all economic indicators in China to be moving substantially higher at this point in the cycle). Thus, to the thesis that rests on a view that: “Xi will just stimulate more”, we would argue that the extent of the stimulus necessary may be so high at this point that President Xi Jinping may have lost sight of how much debt he needs to “get things going again”. Should this prove to be the case, China’s economy will continue slowing, putting pressure on bulk commodity prices, and, ultimately, industrial/steel stocks (CAT, URI, FMG, RIO, X, CLF, GATX, and TRN, all of which we have SELL ratings on).

HOW’S THE DATA LOOK IN THE FACE OF CHINA’S RECORD 2017 CREDIT “BINGE”? So how do the data points look? Well, here’s a few (we feel the charts say it all)…

Ex. 2: Monthly Construction Starts (Residential + Commercial + Office)

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 3: GDP Growth Internals - China (FAI, Industrial Production, & Retail Sales)

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 4: China Monthly Steel Production by Year

Source: World Steel Association (WSA), National Bureau of Statistics (NBS), Axiom Capital Research.

Ex. 5: China Cement Output

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 6: Y/Y Growth in Electricity Production by Month

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 7: China M2 Money Growth, Y/Y% - Multi Decade Low (bearish)

Source: Peoples" Bank of China (PBOC), Axiom Capital Research.

Ex. 8: 3MMA Household Loan Growth, Y/Y%

Source: Axiom Capital Research, Bloomberg, National Bureau of Statistics.

Ex. 9: Monthly Total Fixed Asset Investment and Y/Y Growth

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 10: Monthly Private Fixed Asset Investment and Y/Y Growth

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 11: Private Investment in Industrial Sector and Y/Y Growth

Source: National Bureau of Statistics, Axiom Capital Research.

Ex. 12: Average Price Change of New Residential Buildings, by Tiered-Cities, %Y/Y

Source: National Bureau of Statistics (NBS), Axiom Capital Research.

In short, we feel China could be the “black swan” that ruins the stock market rally party for many in the industrials space. Caveat emptor.

Tilt! Game Over...

Authored by Jeff Thomas via InternationalMan.com,

Anyone who’s ever played a pinball machine can attest to the fact that the player easily becomes wrapped up in it, to the point of the exclusion of all else happening around him. He hits the flippers rapidly, glancing up from time to time at his increasing score. It becomes irresistible to jiggle the table frequently, in an effort to get the ball to go where the player wants it to go.

And, of course, every player is familiar with the disappointment that comes when he’s overplayed his body English and the machine stops suddenly, lighting up a sign that says, “Tilt! Game Over.”

Much of the world is now embroiled in an economic game similar to pinball. The stakes are becoming ever greater, the flipper buttons are being pressed ever faster, and those who are desperately attempting to keep the collapsing system going are shoving the table ever more recklessly.

At this point in the world economy, the number of possible triggers that could take the system down is growing ever more rapidly.

And, for those who are paying attention, the list of dominoes that we’ll see fall is becoming ever more starkly apparent. Let’s have a look at just some of the more basic dominoes:

• Creditor countries dumping US Treasuries back into the US market. (This has already begun and will continue until the dollar crashes.)


• Cessation of the US dollar as the petrodollar. (This is about to begin, but will take several years to play out fully.)


• Economic sanctions by the US against Russia and China (that are unlikely to have the support of the US’s allies).


• Implementation of tariffs, resulting in a tariff war.


• A rise in interest rates (as was consciously created in 1929 by the Fed in order to trigger a timed crash).


• Bursting of the bond market bubble.


• A major stock market crash.


• Dramatic increase in mortgage defaults.


• A spike in commodity prices, coinciding with a drop in asset values (inflation and deflation at the same time—the worst possible combination).


• Collapse of the paper gold market.


• A switch to the new IMF cryptocurrency and a major effort to end the use of cash. (This will succeed to some extent, but will create a worldwide monetary black market.)


• US defaults on its debt. (This, too, will occur over several years.)


• Collapse of the dollar.

Many of these events will be black swans.

As can be expected, some of the events will be sudden, whilst others will take time to play out. In addition, although they’re likely to occur roughly in order, several will be in play at any given time.

Although each of these events can be anticipated, they won’t come with warning notices. Their actual occurrences will be unheralded. (As an example, when a stock market crash occurs, investors will wake up to discover that it’s occurred whilst they were sleeping.)

And, just as in pinball, the end of the game will come quite suddenly. The moment that the player will know that it’s “Game Over” will be when he goes to his ATM and finds that the screen is dark. The machine has been made inoperative overnight. Annoyed, he’ll go to the next-nearest ATM, but will find that that one, too, is shut down. He’ll go to others and, at some point, will realise that they’re all shut down.

Without spending cash in his wallet, he’ll then go to the local gas station or supermarket and attempt to pay with his credit cards but will find that they’ve all been made inactive. In trying to sort out the problem with the manager, he’ll be told that all credit cards for all his customers have been denied that day.

The realization will suddenly hit that money has ceased to flow. For how long? The television news programmes will state that it will be temporary, but they don’t define “temporary.”

Those few individuals who understood that an economic crisis was brewing will take inventory of how much cash they have remaining in their wallets and how much they’ve stashed at home, and realise that this total now represents their total purchasing power.

Overnight, wealth is no longer measured in saleable assets, since, if virtually no one has spending money, they have no means of payment. Therefore, the fellow who thought that, if he found himself in a pinch, he could always sell the Harley in the driveway, or perhaps the family boat, for some quick cash, can no longer locate a buyer who can pay him—at any price.

Of course, many people will do all they can to contact their bankers, demanding that they be allowed to remove their money on deposit and extract the contents of their safe deposit boxes, but they’ll receive a recording, saying, “We’re sorry for the inconvenience, but the bank will be temporarily closed until further notice.”

At this point, “wealth” will change its definition to include only the cash in hand, plus whatever might be bartered.

Recently, I received an email from an associate in Canada, who asked, “When will I know when I really have to make a move?” My answer was, “You won’t. But there will be an actual day when you’ll know that you’ve waited too long and it’s now too late. That day will be the day that you visit the ATM and find it closed.”

That’s it. “Game Over.”

So, are we all doomed? Well, no, not at all. Those who are proactive can remove themselves from the system now, before the system reaches the “Tilt!”

If the reader lives in one of the jurisdictions that’s likely to be the most impacted (EU, US, Canada, etc.), he would be wise to liquidate his possessions there and move the proceeds to a jurisdiction that’s less likely to be impacted and which has a long reputation for economic stability. He should place his wealth (no matter how great or little) in precious metals and real estate overseas—again, in a safer jurisdiction.

He should retain some money (in cash and precious metals) at home, or nearby—enough to cover a few months’ expenses.

If he can afford to, he should then create a bolt-hole in a jurisdiction that he can go to quickly, should the crisis overtake him.

However, even those who recognize that their home country may soon become an economic prison camp are likely to dither, failing to prepare adequately. Sadly, they’re likely to find themselves in the position of the fellow in the photo above, discovering that “Game Over” has arrived before he could ready himself.

*  *  *

This isn’t all bad news. A select group of investors will not only endure the collapse—they’ll actually come out the other side much wealthier. There are practical steps you can start taking today to make yourself one of them. Find out how in our Guide to Surviving and Thriving During an Economic Collapse. Click here to download your free PDF copy now.

All The Old World Systems Are Being Deliberately Torn Down

Authored by Brandon Smith via Alt-Market.com,

As we approach the holiday season many people turn to thoughts on tradition, heritage, principles, duty, honor and family. They consider the accomplishments and even the failures of the past and where we are headed in the future. For most of the year, the average American will keep their heads in the sands of monotony and decadence and distraction. But during this time, even in the midst of the consumption frenzy it has been molded into, people tend to reflect, and they find joy, and they find worry.

What perhaps does not come to mind very often though are the institutions and structures that provide the "stability" by which our society is able to continue in a predictable manner. While many of these institutions are not built with the good of the public in mind, they often indirectly secure a foundation that can be relied upon, for two or three generations, while securing power for the establishment. The problem is, the establishment is never satisfied with a static or semi-peaceful system for very long. They are not satisfied by being MOSTLY in control, they seek total control. Thus, they are often willing to create chaos and crisis and even tear down old structures that previously benefited them in order to gain something even greater (and more oppressive for the rest of us).

The official Thanksgiving holiday, for example, did not really begin as a homage to the colonial settlers and pilgrims of America"s birth and their struggles to build a new life.  While George Washington did proclaim a "Day of Thanks" in 1789, the model for Thanksgiving began far later, in 1863 as the Civil War was raging. It was the Civil War that upset the traditional balance of power between the states and the federal government, nearly annihilating the nation and asserting federal power as unquestionable for decades to come. A moment of great chaos which destroyed old institutions (like the 10th Amendment) but gave establishment elitists even more control in the end.

In Abraham Lincoln"s proclamation for the Thanksgiving holiday, he stated: "In the midst of a civil war of unequaled magnitude and severity ... peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed and harmony has prevailed everywhere, except in the theater of military conflict."

This may sound like a rather delusional claim on Lincoln"s part as we look back now at that time period, especially for those who understand how much freedom was actually lost in the process. But this is what the establishment does — it provides some security and some stability for a time, then suddenly rips it away to frighten the masses into conforming to increased centralization, then it returns that security and stability afterwards as a reward for our compliance.

In 1864, Lincoln gave a second proclamation for a Thanksgiving holiday, stating that: "I do further recommend to my fellow-citizens aforesaid that on that occasion they do reverently humble themselves in the dust." Now, I sometimes wonder if Lincoln was referring to reverence for God, or reverence to the power structure which was about to give back some of the predictability and tranquility it had taken away?

Well, America has enjoyed another period of relative calm in terms of institutional peace and most citizens have grown rather used to the idea that this calm is somehow the norm. However, it is becoming ever more clear that another shock to the system is coming, this time through domestic AND international events, and some of the old world structures we are used to seeing may not exist afterwards. Here are just a few...

NATO

The cold war era defense alliance between multiple Western nations is on the verge of breaking apart. Turkey, a key NATO ally in projecting power across the Middle East, has undergone a dramatic and aggressive shift towards increased totalitarianism recently. This has all been in the name of stopping a "coup," which is rather bewildering because there is almost no evidence of a coup actually being planned or attempted.

Ever since, Turkey has launched a campaign of anti-western sentiment and is embracing closer economic and military ties with Russia. Recep Erdogen"s chief adviser has publicly called for Turkey"s membership in the NATO alliance to be reconsidered.

At the same time, two dozen European nations have signed a defense pact this month, seeking to build a centralized European military and end dependency on the U.S. and NATO.

The old world military order is being upended. But to what goal? As stated earlier, the establishment is shaking up our conceptions of what is safe and secure. They are taking away the carrot to make way for the stick. When all is said and done, the goal would be a renewed interdependency between nations to a greater degree and a reduced and hobbled U.S. populace more easily frightened into submission.

OPEC

As I examined extensively in my article "Saudi Coup Signals War And The New World Order Reset," there is a vast change coming to the dynamic in the Middle East and specifically involving OPEC pillars like Saudi Arabia. The old order of oil trade and stability is about to crumble and be replaced with something much less agreeable to the U.S. economy.

It is important to remember that while oil and gas only make up about 10 percent of international trade, these are perhaps the most important commodities in the industrial world. Energy from petroleum sources is a root feeding all other trade and production. The fact that the dollar has been inexorably attached to this energy and production has allowed the U.S. a level of economic advantage that is perhaps unprecedented.

As multiple OPEC nations begin to question the validity of the dollar as the petrocurrency, and Saudi Arabia leads the way towards bilateral deals with Russia and China, it is imperative that we ask ourselves how much stability we can count on in the future of our currency? We also need to look at the systems that are being staged to take over from the dollar, including the IMF"s SDR currency basket system and ask ourselves who is really benefiting from the derailment of old world dollar dominance?

Cash And Anonymity

While fiat monetary systems are an abhorrent creation that destroy economies slowly over time, cash at least has the advantages of being anonymous and existing in a physical space - hopefully your pocket.  Unfortunately, current trends indicate that even these small consolations are about to be taken away.

Over the past several years, cryptocurrencies based on blockchain technology have been touted in the liberty movement as the end all be all solution to central bank corruption and control.  They were going to decentralize everything, and perhaps even collapse the banking system as we know it.  These fantasies have so far been proven to be just that - fantasies.  The primary investors and supporters of blockchain technology and cypto have turned out to be the international banks themselves.  Globalist pillars like Goldman Sachs and JP Morgan are working fervently to push varying incarnations of the blockchain, and the goal is becoming increasingly clear:  To eliminate all physical transactions in the near future and make digital systems the preeminent method of commerce.

I do not think very many people realize how world changing and catastrophic this development will be if it is allowed to continue.  Cryptocurrencies were promoted as a means to stop international banking power, and now they represent a whole new level of centralization.  The death of anonymity in trade means the death of individual freedom.  It is that serious.

East/West Economic Order

Most alternative analysts have observed the economic power shift over the past 10 years from the West to the East. China is now the largest exporter/importer in the world, and is set to surpass the U.S. as the number one economy on the planet in the next couple of years. We have also seen a slow but methodical decoupling from the U.S. dollar as the world reserve currency. But, what many analysts mistake as a "positive move" by the East away from Western control is actually a deliberate dismantling of the old monetary order by the globalist establishment with the intent of creating a new world order.

As I have outlined and heavily evidenced in numerous articled, eastern powerhouses like Russia and China are quite public and open about their desire for a new monetary system, NOT under their control, but under the control of the IMF using the SDR basket as a bridge. Once again we see that the deconstruction of the old is almost always pursued to the benefit of the same people that have always been in control.

American Civility

Here at home, divisions have become extremely pronounced in the past few years. There was a time, not long ago, when the primary intention of political ideologues was simply to "win elections" and gain influence over societal norms through legislation. Today, the goal of ideologues is to outright destroy their political opponents by any means necessary, including lies, violence and subterfuge. The political Left in particular has, in my opinion, reached a point of no return in this regard.

The level of zealotry that has been achieved through "social justice" propaganda and cultural Marxism is staggering. There is no logic or reasoning with these people. They are essentially a cult. And while a large percentage of leftists claim they do not necessarily agree with the methodology of these cultists, they do nothing to stop them and often go along quietly with their objectives.

This zealotry and insanity designed to snuff out conservative principles and wreak havoc on American heritage is dangerous. Not because it will be victorious, per se, but because it has the potential to drive conservatives to opposite extremes and into the arms of a totalitarian government response.

When one side reaches a point of zero-tolerance for the ideals or even the existence of the other side, there is a potential for civil unrest. When both sides reach a point of zero tolerance for existence of the other, war is probably coming.

Of course, there should not be "two sides," but as many sides as there are individuals. And by merely observing the non-aggression principle and refusing to apply force to others except in self defense, much of these divisions could be defused. But presenting this solution is easy, making it a mainstay of our culture is another thing entirely.

The Old And The New Belong To Us

These holidays should not be a celebration of luck, which is what they have become. We should not be thankful for one more year without total crisis because the establishment "allowed us" to have it. If something "new" needs to be constructed within our societal framework, then it should be a change in our mentality in terms of how we view the stability of the old world.

These holidays should become a celebration of our own self reliance and independence. A reflection on how we provide our for ownstability and continue our traditions. The existing and planned structures of establishment elitists should play no part in how we reflect and set our course. These systems should not matter. We should not need them.

What does matter? Conscience, freedom, family, responsibility, self reliance and integrity. The best traditions are built on these things. Everything else is a fiction, an illusion of solid ground under our feet that can be taken away at any moment by people who would have us abandon all that matters just to get that poisoned ground back again.

Hunting Angels: What The World"s Most Bearish Hedge Fund Will Short Next

It"s not easy being "the world"s most bearish hedge fund", a description we first conceived nearly three years ago, and one look at Horseman Capital"s returns over the past three years confirms it: after generating market-beating returns for much of its existence, things went bad in 2015, and much worse in 2016...

... when the Fund had a record net short equity position of over -100%, just as the market ripped higher after the Trump election.

That said, 2017 has been much better for Horseman and its CIO Russell Clark, who correctly timed the year"s two big short trades so far: the mall REIT and the shale shorts.

Unfortunately, his other positions stood in the way, and as of the end of October (a good month with 2.04% in P&L), the fund is just 0.25% up on the year. Worse, after a period of calm, steady, upward grinding monthly performance for much of the previous several years, Horseman"s sharpe ratio has cratered, as the monthly return variance surged, with a -6% month following two +7% months as a result of gross leverage that has never been higher, even if the net equity position - while still largely short - is far more manageable than it was in 2016.

Still, having been well ahead of the pack on the two big shorts of 2017, most money managers are always curious what if anything Clark - and Horseman - are shorting next. Well, they are in luck, because in his latest letter, he unveils the answer: according to Clark, the next major source of alpha will be shorting fallen angel bonds.

In his November letter to clients, Clark explains why he is hunting for soon to be "fallen angels", and where he got the idea from. And after more fund managers read the following excerpt, we have a feeling that the next big leg lower in not only junk, but also crossover credit, is imminent:

Mifid II will come into force soon, and a lot of research that used to be free, will need to be paid for. This has been a reason to ask ourselves some serious questions, namely what research do I read, and what has made me the most money. Strangely the research that has been most profitable for me, will remain free even post Mifid II as it is publicly available. The International Monetary Fund produces Global Financial Stability Reports. The stand out report for me was the April 2008 report that highlighted Eastern European banks vulnerability to wholesale funding. I shorted many of the banks named in the report. Most fell 70% to 90% subsequently.

 

What does the most recent issue of the Global Financial Stability Report have to say? It notes that BBB bonds now make up nearly 50% of the index of investment grade bonds, an all time high. BBB bonds are only one notch above high yield, and are at the greatest risk of becoming fallen angels, that is bonds that were investment grade when issued, but subsequently get downgraded to below investment grade, or what is known these days as high yield. It then points out that investors have never been more at risk of capital loss if yields were to rise. In addition, it notes volatility targeting investors will mechanically increase leverage as volatility drops, with variable annuities investors having little flexibility to deviate from target volatility. Another interesting point was that mutual fund share of the high yield market in the US have risen from 17% in 2008 to 30% today, and notes that investors outflows have become much more sensitive to losses than they used to be.

 

So my favourite research (love the price!) is telling me that US investment grade debt is very low quality, and could produce some large fallen angels. It then goes on to tell me that mutual funds are much larger in the high yield market than they used to be. It also tells me low rates means the capital losses are much higher than they used to be. And that investors in high yield mutual funds are much flightier than they used to be! Essentially the IMF are telling me that if you get a large enough fallen angel, the high yield market will freak out, and volatility will spike causing volatility targeting investors to dump leveraged positions. Sounds good to me - but with growth so good and the market so strong, how on earth would we get a fallen angel?

 

To find a potential fallen angel, I looked through the holdings of investment grade bond ETFs to find large BBB bond issuers. The biggest of the BBB issuers happened to be the large telecommunication companies. The sector has over USD300bn of BBB rated debt compared to a high-yield market of USD 1tn. I am not a debt specialist, but I have noticed that falling share prices tend to be good lead indicators on debt downgrades, and the US telecommunication sector has not been participating in the market rally this year. The story looks good to me, and it comes via my favourite research source. US debt markets look in trouble to me, whether that has any effect on broader equity markets remains to be seen.

Aside from this rather original idea, some other notable changes in Horseman"s industry exposure are noted: while both the retail and E&P shorts are still there, they have been notably tamed, and of note are two other major shorts (both in the US): one in real estate (we assume this is a play on the adverse impact of rising rates on real estate valuations), and the healthcare sector, a short whose thesis is quite interesting and we will reveal tomorrow.

For those wondering, the top 10 positions by % of NAV are the following:

Needless to say, we wish Horseman much success with a prompt realization of his BBB-short, especially since it appears that his LPs are starting to get cold feet, and the fund"s AUM has shrunk by half from $2.8 BN  one year ago...

... to less than half, or $1.2BN currently.