Marc Faber: "Something Will Break Very Badly"

theglobeandmail.com

Marc Faber, editor and publisher of The Gloom, Boom and Doom Report, was late to arrive to our Tuesday live discussion at Inside the Market alongside David Rosenberg. But we posed some of the questions you left for him in a later telephone conversation.
Before we did, however, we couldn’t resist asking him about his views on Canada. Not surprisingly, the famed economist known for his contrarian and often pessimistic bent didn’t exactly offer an uplifting view.

“I think Canada is a case where you have huge leverage in the private sector and where the economy is slowing down, where you have a strong currency and where the price levels are now relatively high,” Dr. Faber told us from Thailand. “I don’t think Canada is very inexpensive any more. I travel there all the time, it’s rather on the expensive side. I think there’s significant risk to the Canadian economy.”

It’s official: Global economic policy now firmly in the hands of money cranks

By Detlev Schlichter
              

The lesson from the events of 2007-2008 should have been clear: Boosting GDP with loose money – as the Greenspan Fed did repeatedly between 1987 and 2005 and most damagingly between 2001 and 2005 when in order to shorten a minor recession it inflated a massive housing bubble – can only lead to short term booms followed by severe busts. A policy of artificially cheapened credit cannot but cause mispricing of risk, misallocation of capital and a deeply dislocated financial infrastructure, all of which will ultimately conspire to bring the fake boom to a screeching halt. The ‘good times’ of the cheap money expansion, largely characterized by windfall profits for the financial industry and the faux prosperity of propped-up financial assets and real estate (largely to be enjoyed by the ‘1 percent’), necessarily end in an almighty hangover.

The crisis that commenced in 2007 was therefore a massive opportunity: An opportunity to allow the market to liquidate the accumulated dislocations and to bring the economy back into balance; an opportunity to reflect on the inherent instability that central bank activism and manipulation of interest rates must generate;

Is Mr. Buffett Right about not Holding Gold?

By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch

Who is Warren Buffett? He's 'Yoda' of the financial world. He is a man brilliantly skilled at making profits with considerable expertise in the U.S. economy and its corporations.

Gold is, as he says, a dormant item pulled out of the ground and stored in vaults thereafter. It is not for 'just making profits because it is an entirely different animal to corporations. The big difference is that Buffett has been making money for around 70 years, whereas gold has been preserving wealth for around 5000 years. Buffett is mortal and coming to the end of his life, whereas gold is not. Mr Buffett's ability to make money is dependent on the continuation of a growing U.S. economy. More importantly it depends on his mortal skills as an investor. Gold is immortal.

China produces 90 tons, consumes 320 tons in Q1-2013

The Association added that country's gold production gained 11% in the same period to 89.91 tonnes.

BEIJING (BullionStreet): World's largest gold producer and second largest consumer China's total gold usage reached 320.54 metric tonnes in the first quarter, China Gold Association said.
According to CGA, purchases of gold bars surged 49% to 120.39 tonnes, while jewelry gained 16% to 178.59 tonnes.
Gold consumption in China soared 26% in the first three months of 2013 from a year ago amid strong bullion sales and rising jewelry demand.
The Association added that country's gold production gained 11% in the same period to 89.91 tonnes.
Analysts said Chinese gold imports are likely to swell further after rising strongly for a second straight month in March, as investors seek safety from economic uncertainty and after prices plunged to a two-year low last month.
Meanwhile, China's net gold inflows from Hong Kong rose to 223.519 tonnes in March from 97.106 tonnes in February.
China produced 403 tonnes of gold in 2012, but consumption was more than double at 832.2 tonnes.
Demand for gold from India and China is a major factor in global prices, with the World Gold Council saying the two countries account for more than a third of global appetite.

The Truth About Economic Forecasting

 by Graeme B. Littler

Astrologers, palmists, and crystal-ball gazers are scorned while professional economists are heralded for their scientific achievements. Yet the academics are no less mystical in trying to predict the direction of interest rates, economic growth, and the stock market.
Forty years ago, Thomas Dewey was defeated by Harry Truman, stunning the political experts and journalists who were certain Dewey was going to win. While questions about “scientific” polling techniques naturally arose, one journalist focused on the heart of the matter. In his November 22, 1948, column in Newsweek, Henry Hazlitt said the “upset” reflected the pitfalls of forecasting man’s future. As Hazlitt explained:

The economic future, like the political future, will be determined by future human behavior and decisions. That is why it is uncertain. And in spite of the enormous and constantly growing literature on business cycles, business forecasting will never, any more than opinion polls, become an exact science.

We know how well economists forecasted the eighties: from the 1982 recession and the employment boom to the Crash of 1987, no major forecasting firm came close to predicting these turns in the market.

The Story Of Inequality In The US: Past, Present And Future

In this far-reaching documentary, we are first treated to a history lesson from the early 80s to the present day - a story of lust, debt, and largesse; from Reagan deficits to cell phones to day trading to real estate... and then 2008 is explained (as reality started to peek through). The clip projects the next few years - from failed bond auctions to QE9 and social unrest - "but it doesn't have to be this way," the narrator notes. Breaking Inequality is a documentary film about the corruption between Washington and Wall Street that has resulted in the largest inequality gap in the history of America.
It is a film that exposes the truth behind the single event that occurred back in the early 70's that set us off on this perilous journey that we are currently on. The inequality gap is presently the worst that it has ever been and there is no solution in place to repair this crippling problem.

Are We a 'Criminal Element'?

by Bill Bonner 

 















Back in the USA, stocks rose again yesterday. The Dow finished up 128 points. Gold fell $25 per ounce yesterday... and everybody seems to think it will be going down forever. (A word of caution: probably not.)
Last week, we went to São Paulo, Brazil. There, too, we found taxi drivers who knew a lot more about monetary crises than the typical US economist. Said one:

I remember. I was just a kid. But my father would call and tell us to run to the grocery store. He had just been paid. We'd dash for the grocery story, meet him there and buy everything we could. We spent every cent in just a few minutes.

Our friend was recalling what it was like in the late 1980s in Brazil. The government had caused inflation... then hyperinflation. Prices rose so fast that as soon as people got some cash they ran to the grocery store to spend it.
Later, there was no point. In 1990, hyperinflation in Brazil reached 30,000%. What cost 1 real (the Brazilian currency) in 1980 cost 1 trillion in 1997. The hyperinflation wiped out the middle class... and wiped the shelves clean.
"It's hard to run a business when you don't know what your money is going to be worth," said our friend. "Businesses tended to just stop."



From Harare to Buenos Aires...

And here in Argentina, there came an announcement this week. The government will freeze the price of gasoline for the next six months.

What Is a Gold Standard?

Before 1971, U.S. dollars were backed by gold. This meant that the federal government could not print more money than it could redeem for gold. While this constrained the federal government, it also provided citizens with a relatively stable purchasing power for goods and services. As Learn Liberty explains in this simple 4 minute clip, today's paper currency has no intrinsic value; it is not based on the value of gold or anything else. Under a gold standard, inflation was really limited. With floating value, or fiat, currency, however, some countries have seen inflation reach extremely high levels - sometimes enough to lead to economic collapse. Gold standards have historically provided more stable currencies with lower inflation than fiat currency. Of course, this leaves the question open of whether the United States return to a gold standard?

This Is The S&P With And Without QE

by Zero Hedge

 

For a while there, it seemed that even the densest of career economists who try to pass for stock pundits on financial comedy TV, were starting to get that without the Fed's (and the ECB's, and the BOE's, and the BOJ's) QE, the market would be much, much lower (whether 500 points lower as Gundlach suggested or much more, remains unclear). After all: by now it should have been clear to most that QE is doing nothing for the economy, and everything for the stock and bond market (here we certainly agree: there is a bond bubble, which by implication there is an even more massive stock bubble too - anyone who says the two are unlinked can be immediately put on mute).
This is why we presented this chart previously:

Jim Rickards on the EU Economic Crisis

Jim Rickards, senior managing director at Tangent Capital and author of Currency Wars: The Making of the Next Global Crisis, joins Phillip Yin on CCTV America. They discuss the Euro Zone economic crisis.

Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility

by Tyler Durden 

 

A month ago we pointed out that as a result of Australia's unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.



Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world's "reserve currency" in its trade dealings with the world's biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process "slashing costs for thousands of business" and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar's reserve currency status until one day it no longer is.

A. Gary Shilling - Six Realities In An Age Of Deleveraging

by Lance Roberts of Street Talk Live blog

In Part III of Lance's series of reports from the 10th annual Strategic Investment Conference, presented Altegris Investments and John Mauldin, the question of how to invest during a deleveraging cycle is addressed by A. Gary Shilling, Ph.D.  Dr. Shilling is the President of A. Gary Shilling & Co., an investment manager, Forbes and Bloomberg columnist and author - Mr. Shilling's list of credentials is long and impressive.  His most recent book "The Age Of Deleveraging: Investment Strategies In A Slow Growth Economy" is a must read.  Here are his views on what to watch out for and how to invest in our current economic cycle.

Six Fundamental Realities

• Private Sector Deleveraging And Government Policy Responses
• Rising Protectionism
• Grand Disconnect Between Markets And Economy
• Zeal For Yield
• End Of Export Driven Economies
• Equities Are Vulnerable

Private Sector Deleveraging And Government Policy Responses

Household deleveraging is far from over. There is most likely at least 5 more years to go. However, it could be longer given the magnitude of the debt bubble. The offset of the household deleveraging has been the leveraging up of the Federal government.

The flip side of household leverage is the personal saving rates. The decline in the savings rate from the 1980’s to 2000 was a major boost to economic growth. That has now changed as savings rate are now slowly increasing and acting as a drag on growth.

However, American’s are not saving voluntarily. American’s have been trained to spend as long as credit is readily available. However, credit is no longer available. Furthermore, there is an implicit mistrust of stocks which is a huge change from the 90’s when stocks were believed to be a source of wealth creation limiting the need to save.    

The Monarchs Of Money

by Tyler Durden 


The world's central banks have printed unimaginable amounts of money in recent years - "these guys are really more powerful than the government." Neil Macdonald explores what this means for the global economy and for your financial well-being - "can you imagine if the American public knew there was this 'club' that met secretly in Switzerland and made decisions that dramatically affected their lives, but we're not going to tell you about it because it's too complicated." This brief documentary should open a few eyes to the reality behind the world's most powerful (and real) cabal.

Nigel Farage on "wholesale, violent revolution" in Europe

by sovereignman.com



As Nigel said… “When the next phase of the disaster comes, they will come for you“ As countless examples throughout history have shown, there will always be winners, and there will always be losers. At Sovereign Man we write frequently about how you can end up on the winning side, and the key to not ending up as one of the losers is internationalizing yourself and your assets ahead of time. Once capital controls were erected in Argentina it was too late. Once the banks recently announced the “bank holiday” in Cyprus it was too late. But chances are you don’t live in Argentina or in Cyprus, and that there’s still time for you to take certain steps that makes sense no matter what happens.

Arizona Becomes 2nd State To Make Gold & Silver Legal Tender

by Tyler Durden

Just under a month ago we raised the prospect of a number of states following Utah (which authorized bullion for currency in 2011) down the path of gold and silver as legal tender. "The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing," was how this shift was previously described and as Yahoo reports, the Arizona Senate on Tuesday approved a measure to make gold and silver legal currency in the state, in a response to what backers said was a lack of confidence in the international monetary system. The bill will make gold and silver coins legal tender as of mid-2014 and more than a dozen other states continue to mull the transition. Those against the bill argue somewhat ironically, "anybody who thinks gold or silver is a really safe place to put your money had better think again," anchored on the last two weeks, but as one supporter of the bill added, a "sound and honest money system such as gold and silver" is needed to bring stability.

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

Econstories.tv is a place to learn about the economic way of thinking through the eyes of creative director John Papola and creative economist Russ Roberts.

In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there's a "boom and bust" cycle in modern economies and good reason to fear it.

Cyprus Bailout Deal Is Pilot Program for Future Bank Deposit Confiscation

by goldsilver.com

A great deal of ink has been spilled recently about the economic meltdown in Cyprus. The latest domino in the slow collapse of the European monetary union, Cyprus introduced radical solutions to meet the demands of the EU (European Union) and International Monetary Fund (IMF). Now, Cypriot bank depositors have lost chunks of their savings, the Cyprus government has imposed currency controls, and the central bank may be forced to sell the majority of its gold reserves. In some ways, however, the Cypriots are receiving a better deal than citizens of the U.S., U.K., or Canada.

The Cyprus bank crisis is intimately tied to that of Greece. Due to rising unemployment and benefit payments, the volume of state debt – much of which is funded through Greek loans – steeply increased during the recession. In order to fund the loans, Cypriot banks bought Greek bonds. As a result of the Greek bailout settlement, the bonds suffered a 50% haircut, in turn threatening the collapse of the Cypriot banking sector.

Good riddance to deposit ‘insurance’

By Detlev Schlichter

Once the public furor and shrill media coverage have died down it will become clear that events in Cyprus did not mark the death of democracy or the end of the euro but potentially the beginning of the end of deposit ‘insurance’. If so, then three cheers to that. It may herald a return to honesty, transparency and responsibility in banking.

Let us start by looking at some of the facts of deposit banking: When you deposit money in a bank you forfeit ownership of money and gain ownership of a claim against the bank – a claim for instant repayment of money but a claim nonetheless. In 1848 the House of Lords stated it thus:

“Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it…The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted.”

Book review: David A. Stockman – “The Great Deformation – The Corruption of Capitalism in America”

by DETLEV SCHLICHTER

David Stockman’s new book “The Great Deformation” is a brilliant, penetrating analysis of the present state of the US economy and the US political system, and a detailed account of how the nation got into this mess. The book will upset Democrats and Republicans alike, and quite a few other constituencies as well, which can, in this case, be safely accepted as proof that Stockman’s narrative is spot on.

Stockman is an angry man and he admits so himself early in his 719-page tome. That anger adds bite and verve to his writing and keeps what is in fact a detailed historical account and economic analysis always highly entertaining. The book is long but never boring. Furthermore, Stockman does not let the anger cloud his judgement, which remains, in my view, relentlessly accurate throughout.

It’s official: Global economic policy now firmly in the hands of money cranks

by DETLEV SCHLICHTER

The lesson from the events of 2007-2008 should have been clear: Boosting GDP with loose money – as the Greenspan Fed did repeatedly between 1987 and 2005 and most damagingly between 2001 and 2005 when in order to shorten a minor recession it inflated a massive housing bubble – can only lead to short term booms followed by severe busts. A policy of artificially cheapened credit cannot but cause mispricing of risk, misallocation of capital and a deeply dislocated financial infrastructure, all of which will ultimately conspire to bring the fake boom to a screeching halt. The ‘good times’ of the cheap money expansion, largely characterized by windfall profits for the financial industry and the faux prosperity of propped-up financial assets and real estate (largely to be enjoyed by the ‘1 percent’), necessarily end in an almighty hangover.

The crisis that commenced in 2007 was therefore a massive opportunity: An opportunity to allow the market to liquidate the accumulated dislocations and to bring the economy back into balance; an opportunity to reflect on the inherent instability that central bank activism and manipulation of interest rates must generate; an opportunity to cut off a bloated financial industry from the subsidy of cheap money;