The Dollar Is Collapsing ECONOMIES

Deutsche Bank: "We've Created A Global Debt Monster"

 

Two observations on the latest thoughts by Jim Reid (DB's best strategist by orders of magnitude):

1. He is far more concerned by what is going on in China than any of the other noise around the world. And rightfully so. As we first showed a few months ago, the money creation in China puts what all the other global central banks do to shame. Any slowdown in this credit creation and the wheels have no choice but to fall off, which also explains why even the tiniest default in this $9 trillion economy will be bailed out as it would risk an outright "flow" collapse.
   
2. The Fed came, saw, and after realizing the mess it created with tapering - which cannever be priced in now that the market is terminally addicted to the Fed's liquidity injections - will soon do what we have said since the May 2013 "taper tantrum" would happen - untaper, and resume bailing out everyone.

Full note from Reid:

From all the stories that broke while I was away the most fascinating surely revolves around the Chinese Trust product that in the end wasn't allowed to be at the mercy of market forces. For me it’s a microcosm of the fragility still present in global financial markets that a $9.0 trillion dollar economy - that will be the biggest in the world within the time frame of most of our careers - struggles to allow a $500 million investment product to default without there being market fears of it igniting panic in financial markets. This has now been a theme for the best part of 10-15 years in global financial markets particularly in the developed world but more recently the EM world since the GFC. We've created a global debt monster that's now so big and so crucial to the workings of the financial system and economy that defaults have been increasingly minimised by uber aggressive policy responses. It’s arguably too late to change course now without huge consequences. This cycle perhaps started with very easy policy after the 97/98 EM crises thus kick starting the exponential rise in leverage across the globe. Since then we saw big corporates saved in the early 00s, financials towards the end of the decade and most recently Sovereigns bailed out. It’s been many, many years since free markets decided the fate of debt markets and bail-outs have generally had to get bigger and bigger.

This sounds negative but the reality is that for us it means that central banks have little option but to keep high levels of support for markets for as far as the eye can see and defaults will stay artificially low. As such we remain bullish for 2014. However it’s largely because we think the authorities are trapped for now rather than because the global financial system is healing rapidly. So as well as EM being very important for 2014, we continue to think the Fed taper pace is also very important. If the US economy was the only one in the world then maybe they could slowly taper without major consequences. However the world is fixated with US monetary policy and huge flows have traded off the back of QE and ZIRP so it does matter. We have suspicions that the Fed may have to be appreciative of the global beast they've helped create as the year progresses.

In other words: bullish... because the system will continue to collapse and need more bailouts. The Bizarro world Bernanke created truly is an exciting place.

Credit to Zero Hedge

Extraordinary sights as UK faces more storms

A woman has died after being swept out to sea by strong currents as new flood and storm warnings were issued for the South East. 

Police officers, coastguard crew and lifeboat volunteers rushed to the mouth of the River Arun at Littlehampton Pier, West Sussex, where she was last seen by an eye-witness.

The pensioner, from Goring-by-Sea, was pulled out of the sea and stabilised before she was taken to the Royal Sussex County Hospital, Brighton.
She was pronounced dead just after 9pm last night.



Surf's up: People attempt to ride the Severn Bore - one of Britain's few truly spectacular natural phenomena



Surfers attempt to ride on a rare maximum five star Severn Bore viewed from Newnham overlooking the River Severn



The shape of the Severn estuary is such that the water is funnelled into an increasingly narrow channel as the tide rises, thus forming the large wave



The Severn Bore is a large surge wave that can be seen in the estuary of the River Severn, where the tidal range is the second highest in the world

PC Andy Baynes from Littlehampton Police said: 'She was carried out to sea by strong currents. 

'A lifeboat crew and HM Coastguard officers were quickly on the scene.

'The RNLI crew pulled her from the rough seas and returned her to shore where she was stabilised before being taken by ambulance to the Royal Sussex County Hospital in Brighton.

'Sadly, she was pronounced dead just after 9pm. Our thoughts are with her family at this difficult time.'

A Sussex Police spokesman added: 'The 67-year-old woman from Goring-by-Sea has been identified by her family, but has not yet been formally named.
'Her death is not being treated as suspicious and the matter has been passed to the coroner's officer.'

People in Somerset have already seen their communities submerged under several inches of stagnant floodwater for more than a month.

Millions of gallons are being pumped away every day from the Somerset Levels but for those living nearby, the anguish is far from over.

Environment Secretary Owen Paterson has promised that 'everything possible is being done' but concerned residents are calling for overflowing rivers to be dredged.

Forecasters are predicting a break in the bad weather today but experts at the Met Office have issued severe weather warnings of winds of up to 80mph and heavy rain of up to 30mm (1.2in) for the South West, southern England, south Wales and Northern Ireland from tomorrow until Wednesday.

As of this morning the Environment Agency has three severe flood warnings and warning of danger to life in place around the River Severn in the Midlands, along with 114 less severe flood warnings, caused by high tides and swollen rivers.

Significant disruption is predicted for much of the coast of Wales and south-west England and parts of south east England, the north west as well as the Yorkshire and Hull coastline will also be affected by wind, rain and high tides.



Three people are n rescued from their vehicles this morning after getting stuck in 3ft of floodwater near Ingatestone, in Essex



The owners of this car did not realise how deep the floodwater was and got stuck in Ingatestone, Essex



During this rescue a brand new Ford Kuga got stuck when the driver was going from Thurrock to Harold Wood

Terrified passengers were rescued after the bus they were travelling on was engulfed by a huge wave as it tried to get through a road closed in the storms.

The single-decker was swept off the road by the 20ft wave and came to a standstill with the driver and 13 passengers trapped inside.

Coastguards said the road had been closed because of the storms but the driver ignored diversion signs and tried to get through.

Eye-witnesses said waves were crashing over the roof of the stricken 52-seater in the village in Newgale, Pembrokeshire, West Wales.

One villager said: 'It was like a scene from a disaster movie - it was high tide and the wind was howling at 50mph.

'The people on the bus must have been scared stiff when the wave hit the side of the vehicle.


This bus has become stuck in between a flooded field and the road it was travelling on in Newgale, Pembrokeshire, west Wales



The bus which is partially lodged in a flooded field with its back wheels resting on the road in Newgale, Pembrokeshire, Wales

'The road has been closed to traffic because of the storms so no one is really sure what the bus was doing there in the first place.'

A major rescue operation was launched with coastguards, an RAF rescue helicopter, police and ambulance sent to the scene at 7.15pm on Saturday night.

The 14 people on board were led to safety by coastguards and fireman as waves continued to batter the bus.

The front of the bus was still partly submerged today and damage from the hammering it took from the waves could be seen.

The casualties were described as 'badly shaken' but uninjured.

The bus was on its way from Haverfordwest to St Davids at 7.15pm on Saturday night when it arrived in Newgale during the height of the storm.

The road through the surfing village of Newgale runs between the beach and a large campsite popular with surfers in the summer.


Ten people have been rescued after the bus they were on was hit by a wave in Newgale, Pembrokeshire, yesterday evening

But the 15ft sea wall made of pebbles was breached by violent waves on Friday night and traffic was being diverted away from the coast road.

It is believed the council were still on the scene after setting up the diversion before high tide and had had told the driver not to go through.

Derek Reynolds, 27, a regular at the Duke of Edinburgh pub in the village said: 'The bus was hit by a massive wave and swept off the road and into the camp site.

'It must have been quite scary for those on board.'

Dyfed-Powys Police yesterday confirmed they were speaking to the driver who worked for Richards Brothers coaches in Cardigan.

No one was available for comment from the bus company today.


The wreck of a trawler which sank near Newquay in Cornwall overnight after storms hit the coastline

Another dramatic rescue saw eight horses pulled from flooded fields close to the River Chelmer, Chelmsford, Essex.

The RSPCA said its inspectors rounded up five of the animals, before a specialist water rescue team were deployed to save the remaining three which had been cut off by the waters.

Inspector Nicky Thorne said the six-strong RSPCA team donned dry suits and waded into the flood water to carefully round up the horses using rope lines.

He said: 'The team worked very carefully and slowly to move the horses. In one place the horses had to go through a ditch where the water was deeper.
'They had to swim a few steps but despite being a bit wet they were none the worse for their experience.'



Vehicles make their way to help with the recovery efforts at flood hit Muchelney in Langport in Somerset



Vehicles are delivered to help with the recovery efforts in Muchelney, Langport, which has been hit with flooding



With high tides, combined with gale force winds and further heavy rain, some parts of the UK are bracing themselves for more flooding this week



Flood water and debris is seen in front of a house near Muchelney, near Langport in Somerset



People walk with a dog on the banks of the flooded River Arun today near Amberley



A flock of birds fly near a barn surrounded by flood water from the River Arun today



Flood warnings have been issued to some areas in southern England as heavy rain is forecast

Firefighters in Essex warned motorists not to try and get through flood water after seven people including three pensioners had to be rescued from vehicles stranded in their cars - one in Watery Lane, Ulting.

A spokesman said: 'Six inches of water is enough to get inside car or cause the engine to stall. And two feet is deep enough to float a vehicle.'

Two people were rescued from deep floodwater after their boat capsized and in Chaceley, near Tewkesbury, in Gloucestershire, yesterday.

The pair had been with a third person who swam to the flooded Yew Tree Inn at Chaceley to raise the alarm after their boat turned over.

Credit to Dailymail
Read more: http://www.dailymail.co.uk/news/article-2550367/New-flood-storm-warnings-South-days-heavy-rain-set-cause-misery.html#ixzz2sBjGZiAG

"The 'Recovery' Is A Mirage" Mark Spitznagel Warns, "With As Much Monetary Distortion As In 1929"

 

"Today there is a tremendous amount of monetary distortion, on par with the 1929 stock market and certainly the peak of 2007, and many others," warns Universa's Mark Spitznagel.

At these levels, he suggests (as The Dao of Capital author previously told Maria B, "subsequent large stock market losses and even crashes become perfectly expected events."

Post-Bernanke it will be more of the same, he adds, and investors need to know how to navigate such a world full of "monetary distortions in the economy and the creation of malinvestments." The reality is, Spitznagel concludes that the 'recovery is a Fed distortion-driven mirage' and the only way out is to let the natural homeostasis take over - "the purge that occurs after massive distortion is painful, but ultimately, it’s far better and healthier for the system."

Via Investments & Wealth Monitor:

On the "recovery" in the United States...

Spitznagel: The somewhat improved economic activity that we’re seeing is based on a mirage—that is, the illusion created by artificial zero-interest rates.

When central banks lower interest rates in hopes of stimulating the economy, that intervention is not the same as a natural move in interest rates.

A genuine drop in interest rates is in response to an increase in savings, as consumers defer consumption now in order to consume later. In a high-savings environment, entrepreneurs put their capital to work to become more roundabout,1 layering their tools and intermediate stages of production to become increasingly productive. The time to make these investments is when consumers are saving, so that entrepreneurs can be in an even better position to make the products that consumers want, when they want them.

In an artificial rate environment, however, that’s not what’s happening. Instead of consumers saving now to spend later, they are spending now.

But because interest rates are artificially lower, entrepreneurs are being fooled into investing in something now that they will have to back out of later—building up what the Austrians call “malinvestment.” Therefore, the illusion is unsustainable, by definition. The Fed can’t keep interest rates low forever.

From an investor perspective, people are trying to extract as much as they can right now. Consider the naïve dividend investment argument: “I can’t afford to be in cash right now.” Investment managers have to provide returns today.

Whenever investors sell a low dividend-paying stock to buy a higher-dividend stock, some piece of progress is sapped from our economy. (The cash needed to pay that higher dividend isn’t going to capital investment in the company.)

This is the exact opposite of entrepreneurial thinking that advances the economy. Consider the example of Henry Ford, who didn’t care about paying dividends today. He wanted to plow as much capital as possible back into making production more efficient for the benefit of the consumer who would pay less for a higher-quality product.

In summary, a major message of my recent book, The Dao of Capital, is recognizing the distortions that come from central bank intervention. Because of the Fed’s actions, interest rates are no longer a real piece of economic information. If you treat them like they are, you will simply do the wrong thing.

After all, when the government tries to manipulate things, the inverse of what was intended usually happens. On that point, history is entirely on my side.

On The Government & Federal Reserve's "Interventions"...

Spitznagel: The reality is, when distortion is created, the only way out is to let the natural homeostasis take over. The purge that occurs after massive distortion is painful, but ultimately, it’s far better and healthier for the system. While that may sound rather heartless, it’s actually the best and least destructive in the long run.

Look what happened in the 1930s, when the actions of the government prolonged what should have been a quick purge. Instead, the government prevented the natural rebuilding process from working, which made matters so much worse.

I draw a parallel to forest wildfires. Fire suppression prevents small, naturally occurring wildfires from error-correcting the inappropriate growth, and thus prevents the system from seeking its natural homeostatic balance—its natural temporal structure of production, if you will. Instead, everything is allowed to grow at once, as if more resources exist than actually do, and the forest actually gradually consumes itself. When fire inevitably does break out, it is catastrophic. This is a perfect analogy for the market process. We simply do not understand the great homeostasis at work in markets that are allowed to correct their mistakes.

Suppression that makes the cure that much worse than the initial ill, until exponentially more damage is done, calls to mind the wry observation made by the great Austrian economist Ludwig von Mises: “If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the [opposite] direction.”

As the Mises protégé Murray Rothbard would say, the catharsis needed to return to homeostatic balance “is the ‘recovery’ process,” and, “far from being an evil scourge, is the necessary and beneficial return” to healthier growth and “optimum efficiency.”

It is unfair to call the Austrians heartless because of these views. The Keynesians are the ones who got us into this mess in the first place—just like those who advocated for the suppression of natural forest fires are the ones who created the tinder box that puts the forest at risk.

On The Yellen Fed... (hint - no change)

Spitznagel: Post-Bernanke it will be more of the same.Therefore, investors need to know how to navigate a distorted world—and post-Bernanke the world is likely to get even more distorted—until the markets, ultimately and inevitably, flush out that distortion. This is why I rely on the Austrian school so much.

Austrian business cycle theory (ABCT) shows us what is really happening behind the curtain, so to speak, from monetary distortions in the economy and the creation of malinvestment. When the economy is subject to top-down intervention from the government and especially the central bank, investors need to read the signs in order to protect themselves—as well as still find a way to own productive assets.

People can avoid becoming trapped into chasing immediate returns along with the rest of the ill-fated crowd.

A far better approach is to wait for the return to homeostasis that will prevail even in the midst of pervasive distortion. In that way, investors can embrace roundabout investing by avoiding the distortion and, thus, have all the more resources later for opportunistic investing.

On investing (for retail inevstors)...

Another option for investors is a very simplistic, “mom-and-pop” strategy that starts with recognizing when you are in a distorted environment. For this I use what I call the Misesian stationarity index, which describes the amount of distortion in the economy.

This simple, back-of-the-envelope strategy would be to buy when the index is low and sell when it is high. In other words, people should stay out of the market when it is distorted and thus preserve their capital to deploy after the inevitable purge and correction, when productive assets become bargain-priced. Such an approach has resulted historically in an annualized 2-percent outperformance of stocks. Logically it makes sense, and when you look at it empirically, it’s incontrovertible.

Yet, admittedly, in the world of investing, sitting with one’s arms folded and not taking advantage of a rising market pumped up with distortion, is difficult—even though avoiding the enticement leads to better intermediate means for positional advantage to be exploited later.

It is difficult to do and may even feel anticlimactic. Nonetheless, the disciplined Misesian approach is healthier for one’s portfolio.

On the worst case scenario...

the Fed keeps winning and the illusion continues. The equity markets keep ripping along.

On extreme monetary distrortion and the Q-Ratio...

In simplest terms, the equity Q ratio is the total corporate equity in the United States divided by the replacement cost. Another way to think about it is the appraised value of existing capital in the United States divided by what it would cost to replace or accumulate all that capital.

This ratio has tremendous meaning from an Austrian standpoint, as it reflects what the markets are saying about the state of distortion in the economy.

This aptly illustrates Mises’s concept of “stationarity.” (In a stationary economy, in the aggregate, balance is achieved between the return and replacement costs.) The farther the ratio moves above “1,” the more monetary distortion there is in the economy. For this reason, and as a tip of the hat to the man who gave us the Austrian business cycle theory, I call this ratio the Misesian stationarity index, or MS index for short. When the MS index is high, subsequent large stock market losses and even crashes become perfectly expected events.

Today there is a tremendous amount of monetary distortion, on par with the 1929 stock market and certainly the peak of 2007, and many others (except the 2000 peak, which got a bit more ahead of itself). And all were caused by monetary distortion. As the Austrians show us, the business cycle is a Fed-induced phenomenon.

Credit to Zero Hedge

Tony Blair's Role In New World Order...

14 killed by Indonesia volcano eruption

Villagers and a journalist prepare to flee as Mount Sinabung releases pyroclastic flows during an eruption in Namantaran, North Sumatra, Indonesia, Saturday, Feb. 1, 2014. The rumbling volcano in western Indonesia has unleashed fresh clouds of searing gas, killing a number people and injuring fewothers. (AP Photo)

Karo (Indonesia) (AFP) - Fourteen people, including four schoolchildren, were killed Saturday after they were engulfed in scorching ash clouds spat out by Indonesia's Mount Sinabung in its biggest eruption in recent days, officials said.

Dark, searing clouds rolling down the mountain left apocalyptic scenes of ash-covered bodies scattered by a roadside in Sukameriah village, just 2.7 kilometres (1.7 miles) from the volcano's crater, an AFP witness who helped with the evacuation said.

Officials fear there could be more fatalities from Saturday's eruptions, but due to the high potential of lethal heat clouds spewing from the mountain, a search and rescue mission has been grounded, officials said.

"We suspect there are more victims but we cannot recover them because the victims are in the path of the hot (ash) clouds," said Sutopo Purwo Nugroho, the spokesman for the National Disaster Management Agency.

All 14 bodies have been identified. Four of them were high school students on a sightseeing trip to the volcano on the western island of Sumatra, he added.

"The bodies were in a state where, even though their skin did not peel, their faces were swollen and the tongues were sticking out," an AFP reporter on the ground said.

Three other people -- a father and his son who wanted to pay respects at the graves of their relatives, and a man who came to the village to check his long-abandoned house -- were also trapped and injured by the deadly clouds, Karo district official Johnson Tarigan told AFP.

He said the three were in the intensive care unit of a local hospital.

Thirty thousand people have been evacuated from the area since the volcano started erupting in September.

But some residents had returned home on Friday following advice from the Center for Volcanology and Geological Hazard Mitigation that houses outside the five-kilometre radius from the mountain were safe.

The volcano erupted again on Saturday morning, sending hot rocks and ash up 2,000 metres (16,00 feet) into the air, blanketing the surrounding countryside with grey dust, said volcanologist Kristianto, who like many Indonesians goes by one name.

Sukameriah village is located in the red zone, where human activities are strictly banned, but locals often trespassed the restricted area to check on their houses and belongings as well as their crops, officials said.

Nugroho said the evacuation will resume on Sunday.

Mount Sinabung is one of 129 active volcanoes in Indonesia that straddle major tectonic fault lines, known as the Pacific Ring of Fire.

It had been quiet for around 400 years until it rumbled back to life in 2010, and again in September last year.

In August 2013, five people were killed and hundreds evacuated when a volcano on a small island in East Nusa Tenggara province erupted.

The country's most active volcano, Mount Merapi in central Java, killed more than 350 people in a series of eruptions in 2010.

Credit to Yahoo

US intelligence: Iran can build bomb at will

U.S. intelligence report: Iran continued to develop its nuclear program over the last year, political consensus to determine whether the country builds a nuclear bomb • U.S. President Barack Obama promises to veto new sanctions during talks.
Yoni Hirsch and Israel Hayom Staff


U.S. National Intelligence Director James Clapper

| Photo credit: AFP


Iran's ability to create missiles with nuclear warheads is currently more dependent on the "political will" of the country's leadership than on closing technological gaps, according to the annual American intelligence community's report presented to Congress on Wednesday.

"Tehran has made technical progress in a number of areas -- including uranium enrichment, nuclear reactors, and ballistic missiles -- from which it could draw if it decided to build missile-deliverable nuclear weapons," National Intelligence Director James Clapper wrote in testimony submitted to the Senate Intelligence Committee.

"These technical advancements strengthen our assessment that Iran has the scientific, technical and industrial capacity to eventually produce nuclear weapons," he added. "This makes the central issue its political will to do so."
According to the report, Iran continued to develop its nuclear program during the year prior to signing the interim deal in Geneva with world powers. The Islamic republic continued "installing additional centrifuges at [its] Fuel Enrichment Plant, developing advanced centrifuge designs and stockpiling more low-enriched uranium."

The report goes on to state that there is no consensus within the Iranian leadership on the issue of nuclear weapons. The intelligence bodies also noted that the Iranians agreed to the interim deal due to uncertainty over whether the nuclear program was worth the price being paid in economic sanctions, set to be eased by the Geneva agreement.

"We judge that Iran is trying to balance conflicting objectives. It wants to improve its nuclear and missile capabilities while avoiding severe repercussions -- such as a military strike or regime-threatening sanctions," the report says.

But when it comes to the question of whether Iran will decide to build a nuclear bomb, the American intelligence community wrote in the report that it does not know the answer.

A chance for diplomacy

Meanwhile, U.S. President Barack Obama used the opportunity of the State of the Union address on Tuesday evening to tell the two houses of Congress that he has no intention of approving legislation for further sanctions on Tehran while nuclear negotiations are still ongoing.
"Let me be clear: If this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it," Obama said, "For the sake of our national security, we must give diplomacy a chance to succeed.
"If Iran's leaders do not seize this opportunity, then I will be the first to call for more sanctions, and stand ready to exercise all options to make sure Iran does not build a nuclear weapon," he added.

Obama said that Iran had already begun to destroy its stockpiles of uranium enriched to a high level, and is not installing advanced centrifuges. He said, "The mistrust between our nations cannot be wished away. But these negotiations do not rely on trust; any long-term deal we agree to must be based on verifiable action."

The U.S. president added: "If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today."


Credit to Israel Hayom