CURRENCY WARS - CENTRAL BANKS - WEALTH PRESERVATION

CURRENCY WARS - CENTRAL BANKS - WEALTH PRESERVATION

I have talked several times recently about Spain in the context of its financial difficulties. The only solution for Spain, other than leaving the Eurozone completely, devaluing its currency and defaulting on its obligations, is to be bailed out by the ECB. As already explained the only means by which the ECB can do such a thing is by printing enormous amounts of new money and lending to Spain against little or no security. The amounts of money involved are many times greater than the €60 Billion stated by the Spanish government. The reality is that staying requires hundreds of billions of euros in order to stabilise, but not even improve the situation, where massive budget deficits stretch way into the future. Other countries such as Italy will soon require similar immense amounts of money, otherwise it too will fall victim to the bond vigilantes and sooner or later need a bailout.

The bailout funds available in Europe, if and when they come into existence,  are totally inadequate to refinance Spain and Italy. Mr Draghi knows this full well so when he says he has fully adequate means, he is clearly not thinking of thinking ESM and the EFSF but rather another source of funds. 

This can be achieved by Central Bank currency swaps, notably from the Fed, a solution which was used in the middle of the 2008 crisis. At that time the Fed provided massive, multi trillion USD liquidity to the ECB, which then distributed to other central banks on a discretionary basis totally outside the control of the US congress and the EU. 

Therefore the endless futile haggling between Germany and the other bankrupt European countries must soon come to an end. If finally there is an agreement, then the ECB must print trillions of euros. The consequence of this is to destroy the value of the currency, by putting so many more euros into circulation. The pretence that these funds will not end up in the system and cause inflation is completely illusory. 

The Swiss National bank will also be on the wrong side of these events, as the ECB's race to the bottom with the Euro currency continues, and the Swiss National  Bank with the currency peg, will be the only organisation standing in the way.

The USA  recently announced unlimited quantitative easing, running at amounts of up to US$100 billion per month. In addition they announced a zero interest rate policy as far as the eye can see. This is a deliberate move to destroy the value of the US dollar and make it competitive in export markets, while importing inflation which will be paid for by the American middle classes.

In Japan we are also seeing large-scale quantitative easing, as they are an export-based economy, and must also devalue the currency to remain competitive.

In the UK quantitative easing has been going on now for some years and  sterling has fallen significantly in that period.

So what does all this unlimited co-ordinated global quantitative easing actually mean?

There is an ongoing global currency war,  effectively a trade war by proxy, with each major economic block trying to gain advantage in the world marketplace, and also reduce the true cost of repaying their debts, by the systematic debasement of their currencies, without serious concern for the consequences, most particularly in human and inflation terms.

The power of the central banks to wage wars between themselves, but also against the citizens, who have been prudent savers, by destroying the value of their savings and paying no interest on their capital, should for those who understand it, be a cause for major concern.  

None of those who run central banks have been elected by anybody, they are not accountable to the electorate, who pay the bills for their mistakes, and most people do not even know the names of those wielding such extraordinary uncontrolled powers.

The question then is, not how to change the world overnight, but how best to defend oneself against these unfolding events, and preserve one's assets, when the actual but undeclared government policy is to destroy individual  citizens net worth to save themselves.

It can be seen that the most recent round of quantitative easing,  has once again short-term favourably impacted the stock market. However if no money reaches small businesses, who are the main job creators, no sustainable growth is possible, and the consumer driven recovery in an environment of rising employment levels, is mathematically impossible.

This means that whatever temporary boost comes in the stock market, helping the rich get richer, is not something that can be sustained by a genuine recovery, and is only achievable by money pumping into the asset class.

Mr Bernanke said that he would like to see real recovery in the property market, but once again  we are in dreamland , as new house buyers firstly need to have savings, not student loan debts,  and regular jobs, in order to join the housing ladder.

Much is made of the commodity sector where price increases have been very substantial, however much of this is inflation related, and once again this is very dependent on economic growth. We are seeing a slowdown everywhere in the world, including Germany and China, and the likelihood is we will see a falling off in commodity prices in coming months.

The only logical place that remains for investment, that should prove to be inflation proof, is in the precious metals area with gold and silver.

However the central bankers and central planners do not want you to invest in these markets, they want to keep you inside their game, propping up the equity markets, while they regularly fleece you with flash trading, front-running, insider trading,  excessive fees,  Iibor rigging, and general market manipulation, to  line the pockets of the banks the bankers and their cronies.

The greatest fear of the central planners is a major bond and stock market crash. They have been unable to prevent the collapse of the internet  and real estate bubbles, so now they have created two new markets which are in a bubble, namely the bond markets and the stock markets.

In order to sustain the bubble it is the necessary to reduce bond interest rates close to zero, and shorten maturity durations. The financing costs based on normal interest rates, would be unbearable for most economies on the government bonds. While the bond market collapse, at least in the US, does not appear imminent, the bubble will eventually burst. 

The stock market is the only remaining wealth effect available to investors, who are frequently highly  leveraged, so a crash would wipe out huge amounts of household net worth.

Hence there is a massive ongoing effort to herd investors into these asset classes,  and a strong government and media propaganda machine is in operation, to discourage investors from acquiring real assets such as land or gold and silver.

In particular gold and silver are subjected to daily manipulation by central planners using JP Morgan and HSBC as their agents. This intervention is so flagrant that a simple examination of the daily charts show the moments of intervention,  and so extreme that in a recent attack on these markets, the equivalent of 1 years US silver production was dumped in the form of naked short sales  in a period of less than 15 min, to drive prices down and investors out of the market.

The other trap for those unwary investors, who wish to invest in gold and silver, is to purchase the GLD and SLV, ETF's, which are a paper form of gold and silver, not 100% backed by physical inventory. If investors ever requested delivery of physical metals, they would be lucky to get anything, only a paper claim for non existent precious metal,  in the event of a run on these ETF's.

This is a sobering analysis but regrettably the truth, and the regulators in these markets are complicit with the bankers. Indeed all regulators practically without exception come from the major banks they're supposed to regulate, and will return there to much better paid jobs when their "government service" is complete.

If you wish to preserve your wealth in a world where governments and banks, for their own survival, are determined to inflate it away, steal from you through zero interest rates, high taxes, fraudulent activities, or outright theft, then you must hold real assets be it land, gold and silver, art collections, etc.  completely outside of the banking system and as far away from government intervention as possible. 

For many people this will be way outside their comfort zone, but those who analyse the facts and the alternatives, will come to realise that there is little choice and will position themselves well to survive and thrive in the imminent financial holocaust. 

DISCLAIMER: THIS IS NOT INVESTMENT ADVICE, SIMPLY THE AUTHOR'S OPINION. THE AUTHOR IS NOT A REGISTERED INVESTMENT ADVISOR. EACH INDIVIDUAL SHOULD SEEK INDEPENDENT ADVICE FROM THEIR OWN INVESTMENT ADVISOR AND THE AUTHOR ACCEPTS NO LIABILITY DIRECTLY OR INDIRECTLY IN THIS REGARD.  

WHY SPANISH BANKING IS DOOMED

WHY SPANISH BANKING IS DOOMED

Since my last Blog the Spanish bank stress tests have been published and there has even been an “independent audit” performed by Oliver Wyman. Needless to say this confirms the EUR 60 Billion funding requirement given by that ever reliable source, the Spanish Government. This report not surprisingly has found support with both the ECB and IMF.

Once again I  would like to interpose with a couple of niggling facts and questions:

The latest figures show the Spanish Banking sector at end August are already borrowing  EUR 412 Billion from the ECB, so are in fact the funding requirements EUR 60 Billion or an  incremental EUR 60 Billion making a total of EUR 472 Billion, and amount representing well over 40% of the GDP?

The Spanish banking sector is bleeding deposits at a staggering rate, hence the need of the ECB cash, as the economy continues to implode, GDP falls, social costs rise, tax receiptes dwindle. The deposit base has fallen by EUR 180 Billion Jan-Aug 2012, with no sign of abating, compared to EUR 50 Billion Jan-Dec 2011.

When a banking system delevers due to a flight of deposits, it must generate new cash or sell assets, to pay off its liabilities to the depositors.

Normally, the banks can go to the capital markets and raise money, not an option because the markets are effectively closed, and they have little capacity to strengthen their balance sheets and cash positions by profitable operations.

The question then is what assets the banks sell and therein lies the rub.  The assets  in their books are held at “director’s valuation” completely artificial high values bearing absolutely no relation to the current market prices. Thus any fire sale of assets, real estate loans, but government bonds, in particular which are currently held at par value in the bank’s books would immediately trigger huge realised losses. Thhese would  be on such a scale that not even the Big 4 audit firms, and their fudged accounting principles could ignore it, and bankrupt  the entire Spanish banking system.

Of course the vultures, distressed debt private equity firms, and opportunistic HNW investors  are waiting in the wings for exactly this to happen. It is basically a repeat of the 1990 S&L crisis in the USA where fantastic returns were made by astute speculators.

So to maintain the lie of both national and banking solvency, Spain has no option but to turn to the ECB, who are already loaning them EUR 412 Billion and like Oliver Twist say “please sir I want some more”.

So the question then is what security the ECB, which is backed by the European tax payer, will get in exchange for these loans. The answer of course is the very same government bonds that had no little or no value in the first place.

However, these banks do not have an unlimited supply of bonds to pledge to the ECB, and if banking deposit outflows accelerate, requiring hundreds of more EUR Billion of ECB support, what security can be offered. Perhaps they will pledge the same worthless bonds twice or three times over to get more cash. This in banking parlance is called rehypothecation, but for the lay man it is called fraud.

Financial systems are based of liquidity and confidence, however policy makers only deliver de-levering and deception. Even the small bank depositor has fully understood the situation, and is emptying his bank account and stuffing the mattress.

The critical issue for the Spanish banking sector, has nothing to do with stress tests, but is to stop the bank run, because despite Mr. Draghi’s assurances that the means at his disposal are sufficient, he cannot prevent the entire Spanish banking system from imploding before his eyes.

This in turn could take Spain the ECB and the Euro-zone with it.

So at a time when one would have thought that honesty and transparency are paramount what does our leadership do?

They rig the numbers with a complicit audit report, which as shown above can be demolished in a few lines of text, and give it their blessing.

As our dear friend Mr. Juncker said “when the situation is really bad you have to lie”. Perhaps this should become the new motto of the Troika.

SPAIN GOING DOWN THE DRAIN

SPAIN GOING DOWN THE DRAIN

I have mentioned the dire situation in Spain, which I have visited frequently this year, in a number of my Blogs and interviews.

The complete disconnect between Prime Minister Rajoy’s and his finance minister’s view of the situation and the reality, is tragicomic at best and outright deception at worst.

In the last couple of days we have been told yet again that Spain is so much on top of taking austerity measures that all will now be well. Spanish bond yields even dropped long enough for smart investors to exit and buy Bunds.

Perhaps it is time to infuse this EU/ECB/Spanish mutual admiration society with something rather tedious called the facts.

Egan Jones (“EJ”) a small rating agency downgrades Spain to CC from CC+ (deep junk), with outlook of C. Unlike its larger competitors, Moody’s and S&P, little EJ is not owned by a large multinational, who depend on their revenues from finance sector advertising and related services. Yes, EJ is truly independent and is financed by subscriptions from paying clients, who want the truth and value for money.

EJ’s justification for the downgrade, my comments in (brackets), can be summarized as follows:

Spain on a national level has 25% unemployment (Regionally up to 50%).

Their estimated 2012 decline of GDP of 1.7% (as per Economy minister).

Two regions, Catalonia, Valencia and other regions are seeking $20bn of aid (Catalonia is threatening a vote to secede which has brought a strong menace from the powerful Spanish military).

The flight of deposits from Spanish banks, in particular to Germany and Switzerland, are massive, (and have required equally massive liquidity re-injections from the ECB, USD 332 Billion end June, and rising, to maintain a facade of liquidity).

Social security funds are being robbed to provide cash for current payments (at one time this was only in America and of course Argentina).

From 2008 to 2011, Spain’s debt jumped from EUR 436bn to EUR 735bn. At the same time, GDP declined from EUR 1.09 trillion to EUR 1.07 trillion.

Social benefits are a problem. Over last 3 years, government revenues have increased by only EUR 3bn, while payouts have risen by EUR 45bn. (unemployment benefits etc. definitely not reversible in the short/medium term, unless the government wants anarchy in the streets).

Spain is short about EUR 50bn per year for social payments, EUR 20bn for interest (and rising) and an additional 20bn for other items. Hence the EUR 90bn per annum increase in debt (none of these items is reversible in today’s situation; in fact it will probably continue to get worse).

Tax increases have been announced (further reducing disposable income for job creation and growth).

Spain’s two largest banks have assets exceeding the country’s GDP (much of which is linked to real estate which in a desperate state nationally).

Additional bank loan losses of up to EUR 260bn (however we were told a few short weeks ago that EUR 100 Billion bail out direct to banks was already more than sufficient. My view is bank losses could be even higher).

It is likely that Senior debt holders of weak banks will be forced to take losses; there might be some sharing of losses among all banks

Spain will inevitably be faced with additional payments to support its banking sector and weak provinces, (or risk national disintegration).

In the light of all this and the fact that Spain, before raiding its social security fund for cash had only EUR 20 Billion in liquidity, equivalent to one week’s GDP, with bond maturities to pay in October for approximately twice that amount, we can clearly see that everything is fully under control.

 In order to illustrate the degree of mendacity of the political and financial elites please find below a summary of the true situation in Spain prepared based on figures prepared  some weeks ago by ZeroHedge:

One can pretend that Spain's officially reported debt/GDP ratio is 68.50%, or one can do a full breakdown of all liabilities, including contingent, and add the €100 billion bailout to the total, and get the following rather terrifying ratio: 146.6%

In summary the admitted sovereign debt is USD 732 Billion, to which should be added Spanish regional debt and state guaranteed debt bringing us to USD 1,090 Billion.

Thereafter we include monies owed to the ECB  of USD 332 Billion, currently increasing at USD 50 Billion per month approximately, as funds flood out of Spain, and a further USD 311 Billion of guarantees and liabilities to European institutions.

Adding this together we reach the staggering number of USD 1,858 Billion, or 146.6% of the GDP of USD 1,178 Billion

Even the mainstream media, traditionally responsible for “putting lipstick on the pig” is admitting that the austerity measures are offset by rising interest costs. With a true Debt/GDP of 146.6% how can we possibly blame the investors for wanting a risk adjusted return.

The only possible way out of this situation, assuming Spain stays in the EUR zone, is massive  buying of worthless Spanish bonds by the ECB, which having already bankrupted itself by giving colossal cash advances to the Spanish insolvent banks, which it can never recover,  can now compound the felony and buy Spanish Government bonds.

All this of course will not fix the structural problem of the EUR 100 Billion annual deficit going forward.

 As Hemingway said, when writing during the Spanish civil war, ”no man is an island, each man’s death diminishes me”. I am sure even is his darkest moments he never envisaged the death of a whole nation.

GENEVA BUSINESS INSIDER – HAPPY BIRTHDAY

GENEVA BUSINESS INSIDER – HAPPY BIRTHDAY

It is now one year this week since I started the Blog and time to celebrate.

I started with the idea of writing short one page comments, on subjects where I thought the information available through the “MSM” main stream media,  were wrong, incomplete or misleading, with  a view to better informing readers on the financial political and economic issues, which  affect our daily lives.

My objective was to demystify and simplify the information pumped out by the MSM, politicians, governments,  bankers and central bankers, so that a normal person, if they were willing to invest some time, could understand the true issues.

As a result of these short articles I was asked on to a local financial television station in Geneva,  and subsequently was approached by various TV and radio stations in Europe, and the US and Japan, to do the same.

I have come to realize that the radio and TV media are infinitely more effective means of communication and for the past several months have concentrated on this approach. The central theme of factual, transparent, honest information on subjects I know well, has really paid off, between the TV, radio, You tube video’s etc.

It has been a fascinating experience. I have been amazed at the response and the absolutely explosive growth  in the listener-ship from literally zero, to tens of thousands a month and rising.

I attribute this to the audience who realize that they are being duped on a daily basis and are anxiously seeking alternative sources of information. Fortunately we have the great power of the internet at our disposal, through which everybody can educate and inform themselves. Many governments around the world wish to limit or regulate or censor this medium. This should be resisted at all costs.

My experience has taught me that we can all become Bloggers and radio and TV broadcasters, should we so desire.  The entry cost is very low, I have a Mac Book Pro and use standard Mac software. I also use Skype and you can post the end product on your Blog or You tube as the case may be.

If there are any budding Bloggers who wish to interview me on a subject I know about, I would be pleased to hear from you.

I attach a link to an extract from a recent radio broadcast where I talk about the experience.

http://www.corbettreport.com/mp3/smithexcerpt.mp3

Thank for you once again your interest and support, and to my family and friends who have encouraged me in this venture.

QE MADNESS

 QE MADNESS

 Please find below a link to a recent radio interview between myself and James Corbett, founder and owner of The Corbett Report.

We talk about the latest rounds of quantitative easing in Europe, the U.S. and Japan, and their likely long-term impacts on paper currency values. We also discuss ways to protect wealth against inflation and reliable sources of alternative economic analysis.

 

 http://www.corbettreport.com/interview-543-david-l-smith-on-the-qe-madness/
 

The Corbett report provides weekly podcast as well as interviews, articles and videos about current events and suppressed history from an independent perspective.

I am very pleased that my message is reaching an ever wider audience.