Archive for April 2018
China's Out Of Control Borrowing Binge Leads The Global Debt Addiction

China's Out Of Control Borrowing Binge Leads The Global Debt Addiction

Authored by Alex Deluce via GoldTelegraph.com,

China has developed a craving for consumer goods, the more luxurious, the better. Along with most other countries, China’s credit boom and spending spree are being followed by out-of-control debt.

While household debt is spiraling, the Chinese government is pushing to double the size of the economy by 2020 (setting this goal in 2010). This ambitious project will almost certainly entail more lending and increased debts. There is a question as to exactly how much more debt China can handle.

China’s debt has been rising steadily, from 141 percent of GDP in 2008 to 256 percent of GDP in 2017. This type of rapidly-increasing debt level has frequently been the precursor of a hard economic fall, and the world is watching China carefully.

While countries such as the U.S. and the U.K. also have large debt-to-GDP ratios, the difference is that both are high-income countries, while China has only reached middle-income status, with only $15,400 in household purchasing power. This is a quarter of the household purchasing power of the US. Getting out of debt on China’s low level of income will be far more difficult than in higher-income nations.

Like many global central banks, the People’s Bank of China(“PBOC”) has been injecting lots of cash into the system to try to provide some stability, which is only a temporary fix for a long-term problem. 

Increasing debt without a concurrent economic gain has inevitably led to the economic downfall. Out of 43 countries that experienced an increase of credit-to-GDP of more than 30 percent in five years, 38 of those countries faced a financial disaster. Those statistics do not bode well for China.

China’s economy ranks second globally. It is a leading trader and has the third-largest bond market. Any economic meltdown would have a global ripple effect, with neighboring Vietnam, South Korea, and Malaysia being most at risk. The US economy would feel the effects, as well. China has become an important market for US companies, such as Apple Inc., Intel Corp., and Yum! Brands. For these US companies, China represents a significant market and source of revenues. Intel Corp.’s Chinese revenues increased from 13 percent of total revenues in 2008 to almost double that amount, 24 percent, in 2016. Any financial crash in China would adversely affect the revenues of these and other US companies.

Thus far, China’s household debt has been reasonably leveraged because of easy and available credit. Higher interest rates could curtail this easy credit, but the PBOC has kept the interest rate at 4.35 percent. This inaction regarding interest rates does not mean the Chinese government and Chinese bankers are unaware of the debt problem. The government is encouraging smaller banks to merge to increase capital. Bad loans, however, remain a problem. In 2016, 41 banks wrote off 576 billion yuan in bad loans, up considerably from the 117-billion-yuan bad loan write-offs in 2013.

On the plus side, China has experienced stellar GDP growth, almost seven percent in 2017. This translates into increased profits and higher tax revenues. If this growth is sustained in the next few years, the debt-GDP ratio could remain steady at 290 percent.

China’s economic growth has encouraged widespread home buying and mortgage debts as property prices soar. Mortgage debt has increased by 25 percent in two years. People who have bought during the economic boom are now facing monthly mortgage payments that equal up to half of their monthly income. Household budgets are stretching to the breaking point. This has forced many to curtail spending elsewhere and putting off other necessary big purchase items. This at a time when the government is encouraging greater consumer consumption.

China has traditionally relied on savings as a buffer against financial disaster. However, many younger households will likely use those savings to pay off debt. This could present a problem during times of emergencies, as China’s welfare system and healthcare lag behind other developed nations who have created a more stable safety net. If the central bank does increase interest rates, higher mortgage payments could present genuine problems for homeowners, even though it would help curtail the spiraling debt problem and lavish consumer spending. This is not an easy dichotomy for the Chinese government to handle, and it may put it in a lose-lose situation.

China has grown from an export nation to a nation of consumers, all of whom are eager to stimulate the economy with increased spending. 

Like many other countries, China is on going down a road of unsustainable spending. This may mean that China’s boom may see a dramatic fall, and consumers may be saddled with debts they have no way of repaying.

Credit-Card Companies Explore New Ways To Monitor Gun Purchases

Credit-Card Companies Explore New Ways To Monitor Gun Purchases

Following the deadly Valentine's Day shooting in Parkland, Fla., banks and credit card companies considered blocking consumers' gun purchases as corporate America engaged in a marathon virtue-signaling session to prove to their customers that they too care about the lives of students being endangered by gun violence.

Of course, these bans would've likely been temporary. Banks could've quietly withdrawn the restrictions once the public furor quieted down. However, some banks and credit card companies are now considering a more permanent move that would transform them into foot soldiers in the deep state's push to create a register of all gun owners. The Wall Street Journal reported Monday that some lenders are now discussing ways to identify purchases of guns through their payment systems. This would effectively transform them into tools of the intelligence services by monitoring virtually all gun sales at sporting goods stores and other merchants that aren't transacted in cash.

As WSJ explains, card networks like Visa and Mastercard can request approval for what's called a merchant category code - or MCC - a protocol that's governed by a Switzerland-based nonprofit. The code can be applied to gun merchants so that banks can flag new gun purchases using their credit cards.

The lenders are still discussing what types of merchants would receive the new code. Would it be all gun sellers? Or just sporting-goods merchants but not companies like Wal-Mart that primarily sell other products.


One bank has even had conversations with lawmakers about a bill to require merchants to report ALL purchases of certain "gun-related" products.

Currently, card companies, including networks and banks that issue credit cards, have little to no insight into gun purchases. Gun sellers fall into broader categories such as sporting-goods retailers or specialty retail shops. Big-box retailers that also sell guns are often assigned codes that include "variety" or "discount" stores.

An area of discussion, according to the people familiar with the talks: How far reaching a new MCC would be. This code could identify purchases made at gun dealers—but not at merchants that primarily sell other products, such as Walmart Inc.

Some talks have gone further. At least one large U.S. bank has had early conversations with lawmakers about potential legislation to require merchants to share information about specific gun-related products consumers are buying with their cards, according to people familiar with the matter.

As WSJ reminds us, banks have at times blocked purchases of certain items that they believed to be risky, or part of a legal gray area. They also act as the front-line of defense in monitoring payments for suspicious - possibly terrorism-related - activity. And in rare instances, banks have stopped doing business altogether with politically unpalatable groups like the government of South Africa during the apartheid era.

Citigroup has already started restricting purchases of guns using its credit cards to users over the age of 21 (because the last thing these banks want to see is the next mass murderer using a Citigroup-branded credit card to make a fatal purchase).

This would also open up a new can of worms, as banks would encounter similar problems to those facing Facebook, Twitter and other social media companies as they decide how they should handle all the sensitive user data they are collecting.

"A bank could say, 'We’re not going to do business with gun manufacturers,'" said Jeremy Stein, a former member of the Federal Reserve board of governors who currently is an economics professor at Harvard University. "But when it gets into using the information, you’re getting into the same issues Facebook and others had problems with."

A dividing line, he added, would be whether banks are monitoring transactions for criminality. "If it’s just a policy objective, even if I liked the policy objective, I’d think it’s worrisome," Mr. Stein added.

Divisions exist within the financial-services industry, which previously has resisted pressure to restrict purchases of controversial products such as tobacco.

"We don’t think it’s a good idea for banks to decide what products and services Americans can buy," Wells Fargo CEO Timothy Sloan said at the bank’s annual meeting last week. "It should not be up to me, to us, to decide that. It should be up to folks following the laws and folks making decisions."

Banks have experienced some political blowback as a result of their relationships with gun owners. The American Federation of Teachers announced it would cut ties with Wells Fargo & Co. over the bank's relationship with the National Rifle Association, as well as with several gun manufacturers.

But not as much as they would receive if they went ahead with the plan to flag all gun buys. With nearly half of Americans admitting to owning guns, we imagine most customers wouldn't take too kindly to their shopping habits being recorded and sent to the government.

The Longest, Slowest, 'Falling' Expansion

The Longest, Slowest, 'Falling' Expansion

Authored by Jeffrey Snider via Alhambra Investment Partners,

The current expansion is already one of the longest on record. With another quarter entering the BEA’s books, it has been 35 since the last declared recession. At +2.3% for the current one, there won’t be another considered anytime soon putting this economy within reach.

Yet, out of those 35 quarters only 10 have contained Real GDP growth meeting or exceeding 3%. In the late nineties, the tail end of the current recordholder, GDP advanced by at least 3% in fifteen consecutive. Now, it’s cause for hyperbole whenever this economy manages just two in a row (as it so rarely has). This is the scale of the current boom, the length of time alone.

There’s the big problem. If you say that the economy has expanded for nine years, it is often just assumed that it is doing so consistent with past expansions. To say nothing of the big contraction in 2008-09, it’s clear the economy struggles with those two problems where the combination of them is the amount of time adding up to only immense imbalances, problems, and vast costs (opportunity most of all).

We simply cannot consider it any other way, at least not if we are interested in avoiding the various mysteries that plague so much commentary (where’s the wage growth?) We cannot ignore the first part for the role it may have played in the second. In other words, the conventional view has it that the contraction (the 1st problem) in 2008-09 was somehow completely separate from the lack of recovery (the second problem). Calling it an expansion is just insulting.

It strains all common sense, especially given what happened to cause the contraction and what it is that keeps the current expansion from qualifying for that term in any meaningful way.

We are experiencing our own “L’s” as we bounce between periodic downturns and their limited upturns. The current quarter’s lackluster result continues the same frustrating trend where Real GDP following the near recession in 2015-16 is less than it was preceding it. The economic ceiling appears to be ratcheted downward for each one.

It’s this way for the important underlying components, too. Personal spending, in real terms, was in Q1 2018 the lowest Q/Q growth since 2013. And it continues the trend of “residual seasonality” that we’ve shown several times isn’t residual but is seasonal. The problem isn’t statistical but the “L” nature of this lengthy “expansion.”

Business investment, the necessary supply side addition of capex, also appears to be captured within a lower range post-2016 than it was 2013-14; which was already considerably less than 2010-11. It, too, qualifies as growth or expansion only in the narrowest, technical sense. The further diminishment of the upside if far more relevant than how many quarters might contain a plus sign.

The more extreme case for business investment, at least in terms of GDP components, is inventory. There has been a drastically different reaction to that last downturn, meaning that for two full years afterward businesses have responded to circumstances with far more caution. It is also a complete departure from sentiment surveys that have suggested only great optimism.

When any expansion of any nature comes out so uneven, that’s going to lead to more careful consideration as to economic participation. It’s an elevated sense over the past couple of years because of the growing distance between rhetoric or mainstream projections, and this much different reality.

Economists say everything is picking up, even that the economy itself now risks overheating. They appear unaware that businesses, in particular, have heard this all before – several times now. It’s an almost wait and see attitude at this point, quite appropriate for the circumstances. The boom, such that is, must now actually boom. Yet another positive quarter just doesn’t cut it.

In economic terms, or for GDP, that means a limited upside unless something actually and substantially changes. The latest BEA report merely confirms that nothing has. There isn’t one part that stands out to suggest otherwise. In its own way, it starts to lead us back in the direction of risk and the seeds of the next prospective downturn.

Instead, taken as a whole, everything points in the direction of a continued ratchet effect, these alternating “L’s” that though they haven’t qualified as additional recessions, and therefore the “expansion” remains intact, it works out to a completely different paradigm. This current economy is nothing like it might seem when focused only on positive numbers.

Recall then-Treasury Secretary Geithner’s August 2010 quasi-official announcement of the recovery:

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery…

The economic rescue package that President Obama put in place was essential to turning the economy around. The combined effect of government actions taken over the past two years — the stimulus package, the stress tests and recapitalization of the banks, the restructuring of the American car industry and the many steps taken by the Federal Reserve — were extremely effective in stopping the freefall and restarting the economy.

The 35 quarters of this near-record expansion state otherwise. The economy may no longer be in freefall (and it’s dubious to believe anything done during the crisis period was effective in stopping it) but that just does not mean it has stopped falling. It used to be that way, which meant you were either in recession or out of it, so by assuming the end of the contraction you could necessarily believe it was expansion. Each additional quarter that rolls by only leaves us further behind and in a weaker state (“L”) to deal with the consequences of being wrong about that.

The only number that matters is $4.4 trillion, not $17.4 trillion. The latter is the product of 35 quarters of positive GDP, increasing it in real terms from a low of $14.4 trillion when the last declared cyclical trough ended. Had that actually been a cyclical trough, as Secretary Geithner and all the rest were only expecting, GDP would have been something like $21.8 trillion in Q1 2018. That is an enormous difference, and that gap is the only thing truly growing.

Can Russia's S-400 Defense System Stop America's Tomahawk Missiles?

Can Russia's S-400 Defense System Stop America's Tomahawk Missiles?

After more than seven years of civil war, the Syrian regime is armed to the teeth with Cold War-era missile defense systems which, despite their age, still managed to shoot down a large percentage of missiles launched during an assault by a US-led coalition earlier this month on the country's chemical weapons facilities.

But as the US flirts with taking a more aggressive role in the conflict, two of the world's most advanced weapons systems - the US's tomahawk missiles and Russia's S-400 missile defense system - could end up facing off against each other, the Telegraph reports.


Following the latest coalition attack, Russia said it would supply Syria with some of its S-400 systems. A showdown between the S-400 and the US's tomahawk missiles in Syria would mark the first time that the two systems ever came into conflict.

Russia's S-400 - the latest generation of its missile defense systems - is the most advanced weapon of its kind in the world. It's equipped with a sophisticated radar array that allows it to target dozens of missiles and enemy aircraft simultaneously at ranges up to 250 miles.


To be sure, its missile-intercepting capabilities are shorter range, roughly 75 miles, but the missiles can fly at speeds up to a thousand meters per second and hit low-flying targets at just a few meters of altitude.


Meanwhile, the tomahawks - launched from US navy ships - could deliver a 1000 pound (450kg) warhead with pin-point accuracy from ranges of 800 to 1500 miles.

But US military observers say the American forces could overwhelm the Russian air defenses by launching an overwhelming number of tomahawk missiles in a strike that would resemble the one launched against the Shayrat airfield in Syria last April, when President Trump fired 59 of the missiles, destroying Syrian planes and other military hardware.

"The system should have plenty of capacity to shoot down individual missiles. But it is fairly easy to swamp it just in terms of the sheer number of interceptors required," said Justin Bronk of the Royal United Services Institute.

Of course, if the S-400 does manage to stop most or all of the tomahawks in a scenario like the one described above, it would have serious ramifications for NATO, which would need to revise its expectations surrounding Russia's aerial-defense capacity.

"The performance of the S-400 would be very significant for Nato. The system is feared in Europe and Kaliningrad. If it was shown to be incapable of stopping significant numbers of Tomahawks it would have implications for Russia's deterrence capability," said Mr Bronk.

"That could be why the Russians refrained from intercepting the Tomahawks fired at Shayrat last year - nothing is more terrifying than the unknown."

Earlier this year, Russian President Vladimir Putin's unveiled a range of new Russian weapons, including a nuclear warhead that he said could surpass NATO's missile defenses in Eastern Europe and strike nearly any target on Earth.

With all these new weapons being unveiled, we imagine NATO's commanders have already been forced to go back to the drawing board again and again to try and work out how best to contain Russia with its new arsenal, which is giving the US a run for its money.

Almost 2/3 Of Americans Have Given Up On Political Parties, Citing Corruption In Government

Almost 2/3 Of Americans Have Given Up On Political Parties, Citing Corruption In Government

Authored by Mac Slavo via SHTFplan.com,

Disillusioned by the promises of politicians and convinced that the entire political system is irreparably corrupt,  many Americans will be staying out of the voting booth for the 2018 elections.

This isn’t new, however, as many refused to vote in 2016 as well.

Respondents told poll takers at USA Today and Suffolk University in a recent survey:

“Nearly two-thirds of adult U.S. citizens will stay away from the polls during the coming midterm elections, and they say they have given up on the political parties and a system that they say is beyond reform and repair…

A majority of those non-voters would like to see a third party or multiple parties.” –Suffolk University

Although that number may seem high, in 2016, faced with the prospect of having to choose between Hillary Clinton and Donald Trump, 46.9% of eligible voters didn’t even vote in the presidential election.

Most of those who no longer vote have given up on the “lesser of two evils” fallacy and the irrational belief that somehow the government has our best interests in mind.

The Huffington Post noted, 

“The poll surveyed Americans who aren’t registered to vote or who are registered but say they’re unlikely to cast a ballot. Combined, the two groups include more than 100 million adults, the pollsters note.

And the corruption in government is becoming apparent to those who choose to opt out of voting. About 68 percent of independent voters and party registered voters who say they are unlikely to vote this year agreed with the statement:

“I don’t pay much attention to politics because it is so corrupt.”

It’s a marked increase over the 54 percent of respondents who agreed to this characterization of politics in the 2012 survey.

The bad news for both major political parties continues too.  According to Truth in Media, around 63 percent of respondents in these categories agreed or strongly agreed with the statement: “I don’t pay much attention to politics because nothing ever gets done – it’s a bunch of empty promises,” which is also up from the 59 percent who said the same nearly six years ago.

Only 22 percent of respondents said the Democratic and Republican parties do a good job of representing Americans’ political views, which is down from 32 percent when the question was asked in 2012.

An increasing number of voters from both sides are beginning to see the corruption and manufactured compassion inherent in most (if not all) politicians.

"He's An Idiot": John Kelly Reportedly Insults Trump In Front Of Aides, Plans May Departure: NBC

"He's An Idiot": John Kelly Reportedly Insults Trump In Front Of Aides, Plans May Departure: NBC

White House chief of staff John Kelly has reportedly been undermining morale in the West Wing in recent months - commenting to aides that President Trump is an idiot, while touting himself as the "savior of the country," reports NBC News, citing "eight current and former White House officials."

The officials said Kelly portrays himself to Trump administration aides as the lone bulwark against catastrophe, curbing the erratic urges of a president who has a questionable grasp on policy issues and the functions of government. He has referred to Trump as "an idiot" multiple times to underscore his point, according to four officials who say they've witnessed the comments. -NBC News

NBC notes that three White House spokespeople say the "idiot" thing just isn't true, and he may have spoken in jest about saving the country.

In one heated exchange between the two men before February's Winter Olympics in South Korea, Kelly strongly — and successfully — dissuaded Trump from ordering the withdrawal of all U.S. troops from the Korean peninsula, according to two officials.

For Kelly, the exchange underscored the reasoning behind one of his common refrains, which multiple officials described as some version of "I'm the one saving the country."

"The strong implication being 'if I weren't here we would've entered WWIII or the president would have been impeached,'" one former senior White House official said. -NBC News

"He doesn't even understand what DACA is. He's an idiot," Kelly said in one meeting, according to two officials who were present. "We've got to save him from himself."

According to NBC's sources, Kelly has been hiding behind his public image as a four-star, while in truth operating in an "undisciplined and indiscreet" manner. "The private manner aides describe may shed new light on why Kelly now finds himself — just nine months into the job — grappling with diminished influence and a drumbeat of questions about how long he'll remain at the White House." 

"He says stuff you can't believe," one senior White House official tells NBC News. "He'll say it and you think, 'That is not what you should be saying.'"

According to presidential historian Michael Beschloss, Kelly's comments about Trump vs. prior White House chiefs of "suggest a lack of respect for the sitting president of a kind that we haven't seen before," adding that the closest would have to be President Ronald Reagan's chief of staff, Don Regan, who "somewhat looked down on" The Gipper, and eventually lost Reagan's support - having been replaced after two years by Howard Baker.


Meanwhile, insults or not, Trump is said to have soured on Kelly - and is aware of some, "though not all" of Kelly's comments. And as NBC News points out, "The last time it became public that one of Trump's top advisers insulted his intelligence behind his back, it didn't go over well with the president. White House aides have said Trump never got over former Secretary of State Rex Tillerson calling him a "moron" in front of colleagues, which was first reported by NBC News. Trump later challenged Tillerson to an IQ test and fired him several months after the remark became public."

Current and former White House officials said Kelly has at times made remarks that have rattled female staffers. Kelly has told aides multiple times that women are more emotional than men, including at least once in front of the president, four current and former officials said.

And during a firestorm in February over accusations of domestic abuse against then-White House staff secretary Rob Porter, Kelly wondered aloud how much more Porter would have to endure before his honor could be restored, according to three officials who were present for the comments. He also questioned why Porter's ex-wives wouldn't just move on based on the information he said he had about his marriages, the officials said.

So in addition to Kelly allegedly calling Trump an idiot, he's also a misogynist, according to NBC.

Kelly is expected to leave by July - his one-year mark, according to sources, however others say it's anyone's guess. That said, "what's clear is both Trump and Kelly seem to have tired of each other." 

"Kelly appears to be less engaged, which may be to the president's detriment," a second senior White House official said. If NBC is correct, we're about to once again play White House Musical Chairs. 

That said, when reached for comment, Kelly that it's all more fake news:

“He and I both know this story is total BS. I am committed to the president, his agenda, and our country. This is another pathetic attempt to smear people close to President Trump...

One hopes that is the case, then again one also remembers the Rex Tillerson incident...

The US Just Borrowed $488 Billion In One Quarter, The Most Since The Financial Crisis

The US Just Borrowed $488 Billion In One Quarter, The Most Since The Financial Crisis

For months, analysts have been warning that the US is set to borrow an unprecedented - for a non-recessionary period - amount of money...

... and on Monday afternoon this was confirmed, when the US Treasury announced that in the quarter ended March 31 (the fiscal year's second), the US borrowed $47BN more than its had anticipated three months ago, or $488BN to be precise.

This was the single biggest quarterly amount of debt sold by the US Treasury since the record $569BN in debt borrowed in Q4 2008 when the financial system nearly collapsed, and Treasury had no choice but to raise a gargantuan amount of money during the biggest financial crisis in modern US history.

What makes the just passed quarter different, however, is that there was no crisis, not even a recession. In fact, in the first quarter US GDP rose by 2.3% according to the BEA amid what, until recently, the "experts" said was a global coordinated recovery.

In retrospect, it appears the "recovery" was only around long enough for the US and/or China to raise near record amounts of debt.

As a result of the near-record borrowing spree, the US ended the quarter with $290BN in cash, more than the $210BN budgeted.

What is scary is how fast the US is raking up the debt: as a reminder, just a few weeks ago we reported that in the first six months of the fiscal year, the US budget deficit rose to $600 billion as spending increased at three times the pace of revenue growth in the October-to-March period. At that run-rate, the US deficit will soar to $1.2 trillion for fiscal 2018, far above the $804BN projected budget gap and resulting in an even greater amount of debt borrowed.

Commenting on the debt splurge, the Treasury said tax changes are “poised to underpin near-term consumption and investment” and “the stage is set for a pick-up in growth over the near term."

They better, because if all we have to show for nearly a half a trillion in debt in one quarter is 2.3% GDP, then the US is in very serious trouble.

Looking ahead, the Treasury forecast a need to issue $75BN in net marketable debt in the current quarter, $101BN below the last forecast, and assumes the cash balance continues to rise by the end of June to $360 billion, the TSY said. The April-June borrowing estimate is $101 billion less than its previous forecast, which was partly driven by the higher cash flows.

As for the last quarter fo the fiscal year (calendar Q3), the Treasury plans to borrow a net $273 billion, assuming a cash balance of $350 billion by the end of that period.

It is safe to assume that the Treasury will be well "over" all its borrowing estimates.



Is This The Collapse You Ordered...?

Is This The Collapse You Ordered...?

Authored by James Howard Kunstler via Kunstler.com,

I had a fellow on my latest podcast, released Sunday, who insists that the world population will crash 90-plus percent from the current 7.6 billion to 600 million by the end of this century. Jack Alpert heads an outfit called the Stanford Knowledge Integration Lab (SKIL) which he started at Stanford University in 1978 and now runs as a private research foundation. Alpert is primarily an engineer.

At 600 million, the living standard in the USA would be on a level with the post-Roman peasantry of Fifth century Europe, but without the charm, since many of the planet’s linked systems — soils, oceans, climate, mineral resources — will be in much greater disarray than was the case 1,500 years ago. Anyway, that state-of-life may be a way-station so something more dire. Alpert’s optimal case would be a world human population of 50 million, deployed in three “city-states,” in the Pacific Northwest, the Uruguay / Paraguay border region, and China, that could support something close to today’s living standards for a tiny population, along with science and advanced technology, run on hydropower. The rest of world, he says, would just go back to nature, or what’s left of it. Alpert’s project aims to engineer a path to that optimal outcome.

I hadn’t encountered quite such an extreme view of the future before, except for some fictional exercises like Cormac McCarthy’s The Road. (Alpert, too, sees cannibalism as one likely byproduct of the journey ahead.) Obviously, my own venture into the fictionalized future of the World Made by Hand books depicted a much kinder and gentler re-set to life at the circa-1800 level of living, at least in the USA. Apparently, I’m a sentimental softie.

Both of us are at odds with the more generic techno-optimists who are waiting patiently for miracle rescue remedies like cold fusion while enjoying re-runs of The Big Bang Theory. (Alpert doesn’t completely rule out as-yet-undeveloped energy sources, though he acknowledges that they’re a low-percentage prospect.) We do agree with basic premise that the energy supply is mainly what supports the way we live now, and that it shows every evidence of entering a deep and destabilizing decline that will halt the activities necessary to keep our networks of dynamic systems running.

A question of interest to many readers is how soon or how rapid the unraveling of these systems might be. When civilizations crumble, it tends to fast-track. The Roman empire seems to be an exception, but in many ways it was far more resilient than ours, being a sort of advanced Flintstones economy, with even its giant-scale activities (e.g. building the Coliseum) being accomplished by human-powered work. In any case, the outfit really fell apart steadily after the reign of emperor Marcus Aurelius (180 AD).

The Romans had their own version of a financialized economy: they simply devalued their coins by mixing in less and less silver at the mint, so they could pretend to pay for the same luxuries they had grown accustomed to as resources stretched thin. Our financialized economy — like everything else we do — operates at levels of complexity so baffling that even its supposed managers at the central banks are flying blind through fogs of debt, deception, and moral hazard. When that vessel of pretense slams into a mountain top, the effects are likely to be quick and lethal to the economies on the ground below.

In our time, the most recent crash of a major socioeconomic system was the fall of the Soviet Union in 1990-91. Of course, it happened against the backdrop of a global system that was still revving pretty well outside the USSR, and that softened the blow. Ultimately, the Russians still had plenty of oil to sell, which allowed them to re-set well above the Fifth Century peasant level of existence. At least for now. The Soviet Union collapsed because it was a thoroughly dishonest system that ran on pretense and coercion. Apparently, the US Intel Community completely missed the signs that political collapse was underway.

They seem to be pretty clueless about the fate of the USA these days, too. If you consider the preoccupations of two very recent Intel chiefs — John Brennan of CIA and James Clapper, DNI — who now inveigh full-time on CNN as avatars of the Deep State against the wicked Golden Golem of Greatness. Personally, I expect our collapse to be as sudden and unexpected as the USSR’s, but probably bloodier because there’s simply more stuff just lying around to fight over. Of course, I expect the collapse to express itself first in banking, finance, and markets — being so deeply faith-based and so subject to simple failures of faith. But it will become political and social soon enough, maybe all-at once. And when it happens in the USA, it will spread through the financial systems the whole world round.

Crypto, Crude, & Credit Soar In April Amid Dollar, Bond Yield Explosion

For many investors in April...

Earnings up, stocks down...


Stocks managed to cling to gains in April for the first time since January...


And while Stocks ended almost unchanged, VIX tumbled in April - erasing all of February's spike...

With VIX seeing its biggest monthly decline since July 2016... (NOTE - the seasonality in VIX in April/May in the last few years)...

Large speculators have cut their bets for turbulence in the stock market, as Bloomberg notes that After hitting a record earlier in April, the number of net-long positions on VIX futures plunged by more than 46,000 contracts, one of the fastest paces ever,

And finally on VIX, it appears the 15 level - seen as the ceiling for the vol index last year - is now the floor...

As Bloomberg reports, it doesn't necessarily tells us where we go from here, but it shows that when the trading regime shifts, it tends to be swift and lasting. For what it is worth, the VIX averaged about 13 during the second half of the Fed's tightening during the 2004-2006 cycle. So vol may have some room to decline, but not that much.

HY Credit spreads plunged in April (along with VIX) - the biggest monthly spread compression since Feb 2017...

Treasury yields ended the month higher across the curve...

Just as we warned, CTAs tried - and failed - to break 3.00% for good on the 10Y Treasury yield in April...

(And 10Y is now back the same level as the highs on fed rate hike day and 30Y Yield is 2bps below pre-rate-hike levels)

Despite the greatest short bond position in history...

And while yields were higher on the month, the yield continued its collapse - down 8 of the last 9 months, and 14 of the last 17 months... to the flattest since Oct 2007


The Dollar Index soared in April - its biggest monthly rise since Trump's election in Nov 2016...


What is perhaps most notable in April is the surge in the USD and bond yields coincided with HKMA's needing to intervene in the FX markets to sustain its peg band to the USD...


Cryptos had a yuuge April with Bitcoin up over 35% -the best month since 2017...but Bitcoin Cash was the big winner - up 100% in April...


Despite the huge gains in the dollar, April saw commodities generally unmoved (except Oil)...


WTI Crude was up for the 8th month in the last 10 in April to its highest monthly close since Nov 2014...

Silver notably outperformed gold mid-month but the last week or so has seen that unwound...

Finally, April saw a total collapse in 'soft' survey macro data - the biggest monthly drop since Feb 2015...

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On the day, it was quite a frenetic day session as stocks opened higher, exuberant on earnings then gave it all back as Bibi broke the dead-cat-bounce's back... Futures show the overnight exuberance faded at the open despite good earnings as hawkish comments from Bibi sent stocks reeling...

Cash markets ended the day "not off the lows"...

The Sprint, T-Mobile deal sparked some chaos...


Bank stocks gave up early gains...

Treasury yields were all lower on the day... (Japan was closed)


And the yield curve kept flattening...


The Dollar rebounded from Friday's losses today but was unable to reach Friday's highs...


Cryptos are up from Friday's close...


Commodities were weaker on the dollar gains but crude managed to jump on Bibi statements...

WTI spiked today after Israeli Prime Minister Benjamin Netanyahu said Iran is lying about its nuclear weapons. But note that $69 was once again a resistance level...