Goldman Sachs discovered in what way the PBOC clerks hide capital flows outside China. Since October 2015 until June 2016, nearly 500 billion USD left China. To make the balance look good it was deleted from the PBOC’s statement on foreign currency transfers. When this was ont enough they also fabricated amounts wired.
It is prohibited In China to transfer out over 50,000 USD per person. Notoriously this limit is broken using multiple ways: starting from wire transfers using ‘underground’ banks and ending with buying/selling bitcoins. This money helps to pump more money into speculative bubbles (mostly real estate) in the West.
The more PBOC tries to hammer price of CNY (through currency market interventions) the more people decide to get their money out of the country. It is estimated that in 2015 only, 1 trillion USD left China and this year it may be even more. Reason? A tough situation of Chinese enterprises affected by developed world economic slowdown.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Aforementioned money drainage is starting to be a big problem for Beijing especially due to weak international trade. If the problem worsens then China could impact financial liquidity (already affected by big real estate bubble).
Lockheed and DigitalGlobe eyes mapping the world
WorldView-4 – a new satellite which is going to deliver a high-quality footage from August. The resolution of imagery is said to be high enough to help gather information about fauna, flora, soil type and forest stand. After analysis, it should even enable looking for mineral deposits and energy resources.
This type of monitoring definitely will be useful for many industries but can be a big surveillance threat for people around the world. The suspicion is reasonable considering the amount of government cooperation with DigitalGlobe. One of the reasons why the deal was made is consent given to DigitalGlobe to sell images to the private sector in exchange for governmental access to data collected. DigitalGlobe applied for this years ago, without any success. Similar transactions are far from being free and today’s trend of increasing spying leaves us wondering to what end this technology will be used.
Gold-backed pensioner accounts?
Gold for pensions – new scheme offers an ability to use money for the future to buy bullion. Cash put aside now can be used to acquire bars or coins from the Royal Mint of England. Stacking precious metals is a very good idea to store value during turbulent times but the only problem British pensioners may have is not being able to verify purchased assets. Only banker’s word is there to certify the real amount of reserves.
The implementation is akin to the FED’s practice, which since 1953 forbids any sort of audit of their gold reserves. Because this institution does not have even an ounce of physical gold but only numerous deeds (information given to the Congressional commission by one of the FED’s employee). Gold itself is most probably leased to bullion banks. What guarantee pensioners have that they indeed bought a physical gold? Will they be able to sell their gold in the future?
Bubble in government bonds market is only growing
According to the recent data, the EU, Swiss and Japanese bonds (with negative interest) are worth 13 trillion USD. This is equal to 80% of the EU’s GDP! What is more, thanks to the ECB intervention companies like Johnson & Johnson or GE joined the institutions issuing debt at <0% interest. Apart from the fact that this is unprecedented upper hand given by the ECB to the biggest corporations in the world, this is a very dangerous phenomenon.
Private investors or investment funds hold bonds with negative coupon only to sell them later at a higher price – this is what they are hoping for. It works as long as there is a buyer – the ECB – one which will buy even at a loss. The time when official inflation catches up with reality the demand for overpriced bonds will disappear. We can then expect a mammoth sale of negative interest bonds worth trillions with no buyer at the horizon. The subprime credits (now worth 0.7 trillion USD) responsible for 2008 meltdown pale in comparison.
The official list of the biggest US holding companies in the derivative market
Derivatives held by top 25 banks in the US equal 250 trillion USD. The Bank for International Settlements in Basel estimates this sum to be 700 trillion USD and unofficial sources put them at 1.5 billiard USD.
The numbers we talk about are hard to imagine, especially when compared to the world’s GDP of 78 trillion. Everything above is in nominal terms but the problem is that settlements are done using those numbers. A loss of 1% is equal to 1.5 trillion USD! Think about a big crisis when central banks may not be able to save the day. The bigger the balance the higher the risk – risk which grows geometrically.
The TBTF banking institutions were allowed to grow even bigger and now their collapse does not threaten regions or sectors but the whole global financial system itself. A bankruptcy of one of the biggest institutions can create a wave of claims and empty holes in balances of interconnected entities – instead of domino effect we will see a chain reaction.
Pension funds in the US are 6 trillion USD short
After reading Trustees Report published by the Social Security Trustees you can find out that only in one year deficit of American pension funds has widened by 6 trillion USD. This is because of the huge gap between assets (26 trillion USD), funds operate with and obligations towards pensioners (32 trillion USD). Last year this gap was only 3 trillion USD. The speed at which the debt is accruing points out to a huge crisis of liquidity of public institutions.
Previously, in the Independent Trader News, I mentioned problems of pension funds. Fresh data only highlights the problem of future instability in the developed world. It does not matter whether it is a redistributive or a capital system. The West, due to divergence from the traditional values and multigenerational family model entered very risky territory. Money from pensioners was used to fuel the biggest equity markets in the recent years. Now, when the money is gone the situation starts to look grim.
Another governmental program in the US ready to ‘help’ the public
New SAVE UP Accounts Act (Secure, Accessible, Valuable, Efficient, and Universal Pension Accounts Act) tries to secure a fresh stream of money for social security. The novelty of this one is an increase of employer contribution for employees account by 32%. Einstein described insanity as doing the same thing over and over again and expecting different results. It seems to be the motto of public institutions.
Gold imports from Switzerland skyrocketed
A significant jump in the US gold imports from Switzerland tripled the annual average of previous years.
This is surprising because in the previously we saw only one direction for gold – from the West to the East. The amount itself is far from being significant but what matters here is the trend. Most probably investors in the US finally thought about the future. Their own assets are obligations towards other entities and there can be a situation when those assets will not be honoured anymore.
The crucial part here is a compromise between China and the US, discussed by precious metals market analysts. Washington gave Beijing a green light to diversify their dollar reserves with physical gold. China’s side of the deal is not to make moves leading to revaluation of gold and devaluation of USD as long as metal finds its way into China. Are we witnessing the fundamentals of the financial system being crushed?
Houthis rebels attack Saudi Arabia
Yemeni soldiers – Houthis – who in the last 4 decades fought 6 wars (all won), show that they are not afraid of Saudis. Coalition forces (Saudis, UAE and Qatar) try to take over Yemen’s land after recent oil discoveries. The invasion of the Northern neighbour started a year ago and military, armed with high-tech weaponry made in the USA, is still struggling to secure Yemen. On top of that, rebels started their own invasion on Saudi lands and showed that it will take more than bombings and airstrikes to defeat them.
Saudi situation is not good. Having the security agreement with the USA and being well armed (billions of USD spent) they still struggle against Houthi rebels. Riyadh’s effort is seen as weakness by the opposition growing stronger. How long, given the terrible foreign policy, the failing Saudi regime will continue its rule? This question is essential because it is the Saudi Kingdom that created and sustained (for over 4 decades) petrodollar as a reserve currency of the world.