The Peanut Gallery

Statements, comments and forecasts that have no substance, but just might turn out to be relevant.

1.Russia is in crisis, but if anyone thinks Vladimir Putin will have his tail between his legs, they are mistaken. If anyone believes that the Ukraine sanctions had any effect on Russia, they are mistaken. If anything, all it did was add oil (?) to the fire. Russian troops are taking up positions in Eastern Ukraine accompanied by armour, artillery and missiles. They have taken control of the Donetsk airport and have laid down a bombardment of Mariupol, killing at least 30 "civilians". Add to that, in spite of an unbalanced budget and a crash in Russian capital markets, they have been selling oil and purchasing gold in large amounts. COMMENT: Red light blinking! Follow the money.

2. Greek Prime Minister Antonis Samaras called the leader of Greece's anti-austerity Syriza party, Alexis Tsipras, to congratulate him on his party's success in the country's Jan. 25 parliamentary elections, Reuters reported. This is an anti EU party and a possible indicator of whats happening in the peripheral countries of the EU. COMMENT: Orange light blinking!

3. So the mayor of Paris insists that "no-go zones" don't exist in Paris. Possibly she might want to check that theory by accompanying any Orthodox Jew to any of at least five areas in Paris without a police escort. This would be an excellent article for the satirical newspaper "Charlie Hebdo". COMMENT: The liberal media continues to push the theme that "Not all Muslims are terrorists". They are correct. However they should balance that view with "All terrorists are Muslim". 

4. Jared Dillian: I think the scary thing about present-day markets is that you have fewer experienced traders in charge. In an age where 50% of stock market volume is algorithmic, it’s young folks with math and physics degrees who are building these models and who have no sophisticated understanding of actual risk, the kind that cannot be mathematically modeled. They probably think they’re superior to people like me because they know math and I don’t, but when you’ve traded two of the biggest bear markets in the last century, you begin to learn that the market has a much bigger (and more malignant) imagination than you. COMMENT: There is no such thing as hi-tech methodology in markets. Anyone with healthy and logical instincts can invest in a market and make money.

5. The parade of top tech companies planting their flag in Israel continued Thursday with the report that online retail giant Amazon was set to buy Israeli semiconductor development firm Annapurna Labs. Located in Yokne’am, the company has been operating in stealth mode since 2011, and has 90 employees. COMMENT: GO ISRAEL!
Read more: http://www.timesofisrael.com/sources-amazon-set-to-buy-israeli-hardware-firm-for-350m/#ixzz3PeSALL9k

6. Raymond Ibrahim: On January 6, Abdel Fatah al-Sisi became the first Egyptian president ever to visit the St. Mark Cathedral during Coptic Christmas Eve Mass and offer his good wishes to the nation's Christian minority. Because Islamic law bans wishing non-Muslims well on their religious celebrations, all previous presidents -- Nasser, Sadat, Mubarak, and of course Morsi -- had never attended Coptic Christmas mass. COMMENT: A Major historical act in Egypt by a true Muslim Leader. Kolhakavod! Read more http://www.gatestoneinstitute.org/5125/el-sisi-coptic-christmas

7.. A rare frilled shark, whose species dates back 80 million years, was caught in a fishing trawler off Australia's coast. The shark, which reaches about 6 feet in length, has 300 needle-shaped teeth in 25 rows and it is believed to capture its prey by bending its body like a snake. This particular shark was nearly as large as they grow and caught at 2,296 feet below the surface, the association said. COMMENT: Take a look at this baby. http://www.foxnews.com/world/2015/01/21/like-horror-movie-rare-frilled-shark-caught-off-australia/

It often takes more courage to change one's opinion than to stick to it - Georg Lichtenberg

Whenever you find yourself on the side of the majority, it is time to pause and reflect - Mark Twain

The Beginning of the End...?

The currency wars continue. At time of print and within 24hrs of The EU's trillion Euro QE announcement the Euro has fallen 3% and the fall is continuing. Markets cheered another mammoth paper creating mechanism out of Europe while the US Dollar bull market continues to rocket upwards putting even more pressure on world international debt. But this is not the subject of this blog. Hidden in the small print of the EU announcement is what might be the political shocker of the decade(s). Germany, the strongest economic power in Europe and the force behind the creation of the European Union, is clearly having second thoughts about the decades old dream of of a "United States of Europe". 

Financial Times: "After strong pressure from Germany, it was agreed that national central banks would assume most of the responsibility for losses from any default or restructuring of their national debt, breaking with the eurozone tradition set by previous sovereign bond-buying schemes. There will be, however, risk-sharing on 20 per cent of the assets, largely debt issued by European institutions bought by national central banks." Simply said, Central banks in the EU would be responsible for 80% of debt creation in their own countries. So if the Greek Central Bank creates liquidity (through bond purchases), it is responsible for any losses created.

To be frank, money creation in places like Greece, Portugal, Ireland, Italy and Spain are not worth the toilet paper they are printed on. Greek debt, for example is 175% of GDP. The other countries are slightly better, but not by much. As has been mentioned in previous blogs, when it comes to national Interests, its "every central bank for itself". This now has been clearly demonstrated by CB's in the US, Japan, Switzerland and now Germany. Now that Germany has evidently signalled that it will no longer be responsible for European debts, the rush to sell the Euro is the logical conclusion. For Europeans, the purchase of non Euro currencies in Europe like the Swiss Franc and Danish Krone is the obvious follow on. Both these countries now have negative interest rates (Denmark -0.2% and Switzerland  -0.75%) as they try to prevent the rush on their currencies.

Michael Kemmer, chief executive of the German Bankers Association comments: "The effects of QE would be “marginal”, but there would be a “noticeably increased risk of asset price bubbles, of mistaken risk assessments and misdirected investment”. Couldn't agree more.

Add to the teacup that the economic implosion of Islam is adding mass immigration to "multicultural" Europe, new anti-immigration parties being fuelled by Jihadist culture and the emergence of historical animosities of European countries for each other...The European teacup must surely runneth over.

If you think you have it tough, read history books - Bill Maher

Life is tough, but its tougher when you're stupid - John Wayne

The Case for Gold

Surprisingly, I will probably not mention gold until the last paragraph of this piece, but by then, hopefully the message will be apparent. I might have mentioned (in the strongest possible terms) that the two macroeconomic drivers for 2015 and possibly for the next few years will be GLOBAL CURRENCY WARS and a BULL MARKET IN THE US DOLLAR.

The global currency wars are being waged via devaluations and interest rate manipulations as competition in a slowing world global village heats up. Falling commodity prices are changing geopolitical trends and the seeds of new partnerships are being fertilized. Somebody recently said that "James Bond has a license to kill and central bankers have a license to lie." The myth that central bankers work together and in tandem is exactly that...a myth. A perfect example of this is the Swiss National Bank decoupling the Swiss franc from the Euro a day after previously denying that such a move was being considered. The Franc jumped 15%-20% against all currencies in one day and now the cat is really amongst the pigeons.

Swiss denominated debt jumped placing countries like Hungary and Poland up a creek. About 60% of Hungarian mortgages and 40% of Polish mortgages are denominated in Swiss francs. The quote "all hell breaks loose" is an understatement regarding the Swiss move. And despite negative interest rates of -0.75% in Swiss francs, the money is still pouring into Switzerland and one may well ask "why Switzerland?" Safe haven is the short answer. Think Russia (50% devaluation) and all her Allies that have linked their currencies to the Rouble. Think Middle East, North Africa, South America (to name just a few) blundering from crisis to crisis.

Charles Gave with tongue in cheek says:"But the Swiss, not being as smart as the Italians, do not believe in devaluations. You see, in Switzerland they have never believed in the Keynesian multiplier of government spending, nor have they accepted that the permanent growth of government spending as a proportion of gross domestic product is a social necessity. Strange as it may seem, they still believe in such queer, outdated notions as sound money, balanced budgets, local democracy, and the need for savings to finance investments. How quaint!" Switzerland runs a current account surplus, a balanced budget, and suffers almost no unemployment, all despite the fact that nobody knows the name of a single Swiss politician or central banker. "The last time I looked, the Swiss population had the highest standard of living in the world – another disastrous long-term consequence of not having properly trained economists of the true faith."

John Mauldin, who in my opinion truly gets it says: "Japan is not going to cater to Korea with its monetary policy; neither is Indonesia really interested in helping Singapore or Malaysia; and countries like Switzerland and Sweden carve out their own paths on the flanks of the Eurozone. The US Federal Reserve has made clear on many occasions that it is not responsible for the policy decisions and outcomes of any other country. The simple fact is that Europe and the Eurozone just don’t make sense; nor, given the recent Swiss action, do they seem to be pursuing the sorts of policies that would improve their condition".

Hey, and we haven't even discussed the roaring bull market in USD. While nearly all economies are considering devaluation as a way out of their economic malaise, the USD continues on its merry way upwards. The majority of World international debt is denominated in USD. Every time the USD strengthens, the credit markets groan and the central bankers rush for their anxiety medication. The US carry trade is estimated at anything from $6 trillion to $11 trillion. If the dollar continues to strengthen the violent unwinding of this US Carry Trade market will make the potentially slow demise of Europe look like childs play.

So, why wouldn't I want to hold a small percentage of my portfolio in gold? Not because the USD is in trouble...but because most other economies and currencies are about to experience change..by the ballot or by the bullet. Did I mention emerging markets, Japanese Yen or falling bond yields?

Rule Number One: Never lose money. Rule Number Two: Never forget Rule Number One - Warren Buffet

The truth does not change according to our ability to stomach it - Flannery O'Connor

Preposterous Predictions

If we get 7 out of 10 predictions correct that would be pretty good!

1.The Middle East will continue to degenerate into the wild east, with Libya, Syria, Iraq, Yemen and a surprising erosion in Turkey. Sunni and Shiite extremists will battle it out with each other and with secular muslims. To add a little spice to this Jihadist salad, they will target a confused western world with growing appetites the way a predator senses fear and goes for the jugular.

2. And since misery loves company, Africa as a continent will have to contend with a rising Islamic wave (Boko Harem, al Shabaab and Ansar al sharia to name a few) together with tribal rivalries, water and food shortages. Not a pretty sight. Anyone contemplating going on Safari, should stick to South Africa, Botswana, Namibia and Tanzania.

3.We will witness the demise of OPEC as energy markets wallow in oversupply interrupted by the occasional civil war. Even countries will go belly up, the most conspicuous being Venezuela closely followed by Libya and Nigeria.

4. The US Iran nuclear negotiations will draw to a successful close, and most sanctions will be lifted. That might sound like good news to Iran but they will find that three things cannot be hidden...the sun, the moon and the truth. In this case the elephant in the room is that by adding Iran's oil supply to the present glut, it will cause a further deterioration in the price. Iran needs oil at $131 dollars a barrel to balance even the most meagre budget. Conclusion easily drawn.

5. Russia and Putin will survive the oil crisis, the Russian people being made of sterner stuff than most. Russia and China will form the baby nucleus of an alliance which will in time challenge the US in many spheres. China will use its huge foreign currency reserves to create new partnerships in emerging markets, notably in countries badly hit by the oil and commodities crises. They are already thinking ahead to the next cycle.

6. Europe has reached the point of no return. Create liquidity or slip into recession. Recession could easily exacerbate the already growing anti-immigration, anti EU groups, whose political power is now something that is of concern to the powers that may be.

7.The two major macroeconomic drivers for 2015 will be the rising US dollar and a global currency war. Central banks, whom until now have worked in tandem will diverge into a "every man for himself" mode, while slowing economies with large US denominated debt will struggle to repay that debt, pressuring an international USD credit bubble already under strain.

8. The US federal reserve who in the minds of many can do no wrong, will find themselves in a quandary as to dealing with the strong USD and raising of US Interest rates, while worldwide inflation flirts with a negative figure. In 2015, we will learn that the markets are bigger and more powerful than even the vaunted Federal Reserve.

9. Many banking systems will be tottering as 2015 unfolds (especially Russia), markets will be volatile, as already witnessed and protection of principle, rather than creation of profits should be the name of the game as regards portfolio management. With so much uncertainty, we make a wild prediction that gold will hit at least $1800 an ounce.

10. President Obama will use the coming period to try and get done what he was unable to accomplish while in control of both houses of congress. The impending collapse of the shale oil boom will dampen some of the economic achievements of his presidency and as for foreign policy achievements....I'm sure he would prefer to forget his creation of an "arab spring".

11. Israel is always at number 11 and outside the ten forecasts. Why you may ask? Israel from year to year remains a shining light to the world, regardless of the tinted sunglasses with which some may view this.

We really can't forecast all that well, and yet we pretend that we can, but we really can't - Alan Greenspan.

Weather forecast for tonight: dark - George Carlin

Turbulent Tidbits

1.China and Russia have effectively switched to domestic currencies in trading using financial tools as swaps and forwards, as they seek to reduce the influence of the US dollar and foreign exchange risks. The country’s Foreign Exchange Trade System will carry out similar transactions with the Malaysian ringgit and the New Zealand dollar. China has set up bilateral currency swap lines with more than 20 countries and regions since 2009, including Switzerland, Brazil, Hong Kong, Indonesia and South Korea, Xinhua News reported in July.

COMMENT: There is a movement underfoot to reduce the reliance upon the USD as a reserve currency. Still small, but growing.

2. The Central Bank of Venezuela confirmed that the country entered a recession in 2014, a bank statement said Dec. 30, Reuters reported. According to the bank, Venezuela's economy shrank during the first three quarters of the year. GDP dropped by 4.8 percent year-on-year in the first quarter of 2014, followed by 4.9 percent and 2.3 percent declines in the second and third quarters, respectively. Additionally, 12-month inflation reached 63.6 percent by November. COMMENT: The fall in oil prices has devastated this economy and the first rat to flee the sinking ship is Cuba.

3.Ukrainians received gloomy economic news Dec. 30 when the governor of the National Bank of Ukraine announced that the country's real gross domestic product declined by 7.5 percent in 2014. COMMENT: Another unending crisis unfolds.

5.Israeli high-tech exits doubled to a record $15 billion in 2014. This has been by far the best-ever year for the country's high-tech and biomed sector in terms of exits, according to figures published today by PwC Israel. http://www.globes.co.il/en/article-record-15b-israeli-high-tech-exits-in-2014-1000997256 COMMENT: Go Israel!

6.Turkmenistan devalued its currency against the U.S. dollar by 18.6 percent Jan. 1, AFP reported. The move is a rare negative sign of The country's economy following the plunge of the Russian Ruble. The Central Asian country, which has seen high GDP growth in the past few years, is an important producer and exporter of natural gas.

7. The export-import bank of China granted Ecuador a $5.3 billion credit line following the decline of the price of oil Bloomberg reported Jan. 6. Finance Minister Fausto Herrera said in a statement that the country would use some $1.5 billion this year to finance infrastructure initiatives, including irrigation and transportation projects. Crude oil is Ecuador's biggest export, and the country was forced to cut spending after its drop. Ecuadoran President Rafael Correa traveled to China this week to ask for the loan.COMMENT: He who pays the piper calls the tune.

8.The US Labor Department said on Friday its Consumer Price Index fell 0.4 percent last month, the largest drop since December 2008, after sliding 0.3 percent in November. In the 12 months through December, CPI increased 0.8 percent. COMMENT: Imagine an interest rate rise on top of this figure!

The techniques I developed for studying turbulence, like weather, also apply to the stock market - Benoit Mandelbrot