Tag Archives: IMF

The “Experience” Market Bubble

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May31_Secret

“There is truth deep down inside of you that has been waiting for you to discover it, and that Truth is this: you deserve all good things life has to offer. You know that inherently, because you feel awful when you are experiencing the lack of good things. All good things are your birthright!” – The Secret (2007), 41 weeks in top the five NY Times Hardcore Advice List; it opens my article, Fear and Perception, released on November 1, 20017, two days after Hong Kong’s Hang Seng stock index hit its highest level ever. So much for “all good things” being a “birthright”.

 

Four months earlier, on Thursday, July 19, 2007, I released a group email to all paid and free subscribers of Best Minds Inc. The email stated the following:

“Evidence is mounting that we are in the final throes of this worldwide, credit-fueled bubble. The wobbling dominoes certainly merit the attention of all investors and advisors.”

That same day, the Dow closed above 14,000 for the first time. It began its descent the next day, but roared back up to close 8 days above this level in October 2007 before starting its downward march through what is now known as the Great Recession. It would take until February 1, 2013, and the public watching the largest ongoing bailout of global banks ever, before the Dow would once again close above 14,000.

So if investors wanted to “experience” wealth, why was July 2007 a harbinger that their wealth was about to be taken from them? Because financial facts at the top of financial bubbles are very different from financial feelings.

By July 2007 I had already seen the Philly Banking Index decline since February. I had contacted a few of my Wall Street level sources for areas I should be watching. One individual told me to pay close attention to two big hedge funds at Bear Stearns that were close to being shut down. Their total value at the end of 2006 was close to $20 billion. On July 16, 2007, the two funds were closed. One source stated that one fund’s assets were valued at zero and the second at 9 cents on a dollar.

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July20_BKX

 

Two Big Funds At Bear Stearns Face Shutdown, WSJ, June 20, 2007

“Two big hedge funds at Bear Stearns Cos. were close to being shut down last night as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall Street and investors.

Merrill Lynch & Co., one of the hedge funds’ lenders, said it would move to seize collateral — much of it mortgage-backed debt — from the two funds and sell it, according to documents reviewed by The Wall Street Journal.”

Since this is all history now, everyone can say, “Oh, I knew that the markets were going to fall.” However, in July 2007, the mood was very different.

On Sunday, July 22nd, I ran into a financial advisor at my church. He had signed up for my free educational services, so had received the group email on the 19th.

“Hey, are you still looking for a collapse?” he said sarcastically.

“We all have our opinions”, I stated, and walked off.

A few weeks later, anyone reading headlines knew we had entered a credit crisis. However, since we are wired to desire more, and the financial industry feeds the idea that every decline is merely a correction before soaring higher, by October, breaking 14,000 again was seen as normal, and looking for prices to be cut in half seen as nothing more than “naysayers”.

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However, we all know today, that history was about to change the perception of investors in 2008. By the time these comments were made by President George W. Bush to the American people, we had already seen the collapse of Bear Stearns in March and the bankruptcy of Lehman Brothers and the nationalization of AIG in September. Like today, these events did not come because there were no financial facts supporting we were living in a financial bubble in 2007, but because the feeling from rising prices built on “unlimited” cheap debt was far more “positive” while it lasted.

[President George W. Bush, The Economy & The Bailout: Primetime Address to the Nation, Washington, DC, September 24, 2008]

“Good evening. This is an extraordinary period for America’s economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.

 

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action….

 

In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow….”

It is no longer September 2008. It is now June 2016. The problems from the ultra cheap loans into the trillions that lead to the credit crisis of 2008 were never addressed. Global debt is now over $200 trillion, an increase of over $60 trillion since Q4 2007 when the Dow left its 14,000.

At the end of May 2016, the Dow is still hanging close to its all time high from over a year ago, and yet has seen two plunges from its 18,000 twice, both declines taking the Dow down over 2500 points in less than a month.

Yet even the most powerful financial organizations in the world continue to reveal that 7 years of “unlimited debt and intervention” have not created a strong growing economy.

The IMF Slashes World Growth Forecasts Again, CNBC, April 12, 2016

Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” IMF Chief Economist Maurice Obstefeld told a media conference on Tuesday, according to prepared remarks.

G7: Global Economic Growth An ‘Urgent Priority’, Al Jazeera, May 27, 2016

The leaders of the G7 group have said the world economy is an urgent priority and cautioned that a British vote to leave the European Union would seriously threaten global growth.

Act Now, Or Risk Another Deep Downturn, OECD Warns Policymarkets, Yahoo Finance, June 1, 2016

In the OECD’s (an international economic organization of 34 nations) latest economic outlook published on Wednesday, the organization said that global growth had “languished over the past eight years as OECD economies have struggled to average only 2 percent per year, and emerging markets have slowed, with some falling into deep recession”….

 

“The need is urgent. The longer the global economic remains in the low-growth trap, the more difficult it will be to break the negative feedback loops, revive market forces, and boost economies to the high-growth path. As it is, a negative shock could top the world back into another deep downturn,” Mann said.

World Bank Cuts Global Growth Forecast on Weak Demand, Commodity Prices, Financial Express, June 7 ’16

The World Bank slashed its 2016 global growth forecast on Wednesday to 2.4 percent from the 2.9 percent estimated in January due to stubbornly low commodity prices, sluggish demand in advanced economies, weak trade and diminishing capital flows….

 

The downgraded World Bank forecast follows a similar move by the International Monetary Fund, which cut its growth forecasts two months ago.

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May2016_BKX

 

With all the strong concerns about the global economy slowing from the world financial organizations listed above, shouldn’t both investors and advisors be asking WHY does the Dow keep returning to its first in history 18,000 level, and ignoring headlines like the ones above?

Remember 2007 when the Dow went to 14,000 for the first time in 2007? Remember how the KBW Bank Index was dropping months ahead of the broader US stock indices. As of May 31, 2016, the KBW Bank Index, after two big drops, and two big rallies, is still down 12.4% lower than its 2015 high. Are the big banks telling everyone something?

Unlimited Debt and State Intervention Was Wrong From the Start

We are quickly running out of time to sit silent and ignore this 800-pound gorilla. We must choose between two paths. The first is to continue to ignore this problem, the lessons from the 2000-2002 and 2007-2009 collapse, and the destruction straight ahead to the lives of people all over the world. We must embrace the expansion of the state and the constant “assistance” we have seen since 2009 by central banks around the world through additional trillions in ongoing bailouts in our financial markets, even the direct actions to buy up certain markets in order to artificially inflate them for a few years.

The second is to face these real world problems. We must start quickly by talking about these problems, that will impact every individual, community, school, and place of worship across our nation, and for that matter, world.

Will we speak out? Will we sit silent? One thing is for certain, hoping for more corruption of our markets and economy by central bankers and global politicians is immoral.

The trouble is finding ways to talk about what our globalist, materialist centered world has come to believe is permanent, which never was: the path to riches from bankrupting the nations.

Everyone needs to consider the hard facts presented in one of my recent articles, When Rare Data Screams, Listen. Anyone who remembers the double-digit CD rates from the early 1980s really needs to check this one out. This is history!

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* 1981 – Annual high in the Dow was 1,050. US national debt crosses $1 trillion for the first time. 2015 – Annual high in the Dow hits 18,351 on May 19th. The last day of 2015 the national debt hits 18.9 trillion.

 

A Curious Mind

 

 

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A Global Currency: Peace or Pain?

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For the last few years my wife and I have watched the PBS series, Downton Abbey. The final episode left us with a positive finale to the lives of many of its characters. I believe many have watched the series from remarks made over the last few years.

The series has taken us through a short but tumultuous period of British history. From the sinking of the Titanic in April 1912, WWI, the return from the war, and the roaring 20s, the attention to detail in this series has been superb in my opinion. Rather than a documentary on history with names, dates, and statistics, we have seen this period through the lives of the individual fictitious characters.

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One part that rings home from my own research on the financial side of history during this period, was that the US and Europe both disconnected from their history of backing their currencies with gold, and instead devalued their currencies by printing up massive amounts of debt in order to cover their expenses during World War I. You may remember statements by Lord Grantham in episodes how the rapid rise in wage costs had lead them to lay off workers from their estate. Did you know that land prices shot through the roof in the 1910s as the Federal Reserve went into action in 1914, pouring in billions (remember that was a big number for our debt at that time) into the US and global banking system.

While the world of WWI and the 1910s and ‘20s seems like ancient history today, the role of central banks and money have been at the heart of the modern global financial system over the last century. If one seeks to understand where history has brought us and is taking us, one must understand the role of money in the hands of the central banks, the most powerful financial players in our global financial system. One must also understand the history of the world’s only international monetary unit, something most individuals do not know even exist.

The following is a very short summary of various events that prove that a global currency is in fact a development that totally changes everyone’s long term plans. It will be written in the format of diary entries from the last 12 years of my life and our history.

So hang on!

The Modern History of Global Money

Spring 2004

My first understanding of the history of a global currency came from a book written by renown monetary historian and Austrian economist, Dr. Murray Rothbard, A History of Money and Banking in the United States: The Colonial Era To World War II (2002). Below is a look at historical events that took place in 1943 and 1944:

“In the postwar planning for economic affairs, the State Department was in charge of commercial and trade policies, while the Treasury conducted the planning in the areas of money and finance. In charge of the postwar international financial planning for the Treasury was the economist Harry Dexter White….

 

While the White Plan envisioned a substantial amount of inflation to provide greater currency liquidity, the British responded with a Keynes Plan that was far more inflationary.

 
The Keynes Plan, moreover, provided for a new international monetary unit, the ‘bancor’, which could be issued by the ICU (a new entity called the International Currency Union. It was never launched) in such large amounts as to provide almost unchecked room for inflation, even in a country with a large deficit in its balance of payments….

 
Despite extensive concessions, there was no ‘bancor’; the US dollar fixed at $35 per gold once was now firmly established as the key currency base of the world monetary order.”

Rothbard’s book was my first step in not only understanding the foundation of a move toward a global currency in 1943 & 1944, but in truly understanding the modern history of paper money.

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I would strongly encourage each of you to visit the Mises Institute’s website.

May 2006

After releasing my industry research paper on short selling, which contains interviews with world famous individuals, as I prepared for my 5th monthly issue to my investment research newsletter a very strong patriot and Christian woman called me from the Washington DC area named Joan Veon. Joan had been encouraged by a friend in 1990 to go to a world UN meeting since she was always researching and reading how material and policies developed at these major conferences was filtering down to educational and government policies around the world. She was always trying to educate her fellow Americans.

She also told me to start watching the developments in the only international monetary unit in our world today, the Special Drawing Rights established by the International Monetary Fund in 1969, just two years before the US government refused to redeem its paper currency for gold in international finance.

In April 2009 it was being introduced to the world as part of the “rescue” to the 2008 credit collapse.

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April 2009

“I think a New World Order is emerging and with it, the foundations of a
new and progressive era of international cooperation. We have resolved,
that from today, we will together manage the process of globalization, to
secure responsibility from all and fairness to all, and we have agreed that
in doing so, we will build a more sustainable and more open, and a fairer
global society.” – Gordon Brown, member of the Fabian Socialist Party and Prime Minister of the UK in 2009, comments made to at a G20 Conference in London on April 2, 2009. An actual film of his remarks is linked.

World Leaders Agree On Global Response, Accord in London Quadruples Funding of IMF, but Delays Decisions on Many Divisive Issues, WSJ, April 3 ‘09

“The summit of many of the world’s leading economies in London
announced a tripling of the lending power of the International
Monetary Fund to around $750 billion.

They also unveiled a $250 billion expansion in the IMF’s reserve
currency — the special drawing right — to boost liquidity in the global financial system….”

As you can see above, the IMF’s expansion of the ONLY international monetary unit known as the Special Drawing Rights was rapidly expanded in 2009 for the first time in its 40 years of existence.

March 2011

In the spring of 2011 I posted the two research papers to my website showing an expanding  role of the Special Drawing Rights in global banking and financial markets. Clearly this international monetary unit was not going away nor merely a topic for academic eggheads.

 
Reserve Accumulation and International Monetary Stability, 4/13/10
Enhancing International Monetary Stability – A Role for the SDR?, 1/7/11                           International Monetary Fund. — posted on March 23 ’11

“From SDR to bancor – A limitation of the SDR (Special Drawing Rights) as discussed previously is that it is not a currency….A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange– an ‘outside money’ in contrast to the SDR which remains ‘inside money’.” [see pp 26 – 27 from the April  10 IMF report listed above.]

May 2014

Now we leap to the spring and summer of 2014, to examine the slow move POLITICALLY away from the US dollar as the most widely used currency in the world and frankly, at the very foundation of the substantial improvement of the American way of life since WWII.

 
During the spring of 2014, I started seeing our various European Allies signing major financial agreements to do business directly between the euro and pound with the Chinese renminbi. These were first in history events. These were nations that had been our allies since WWII. Now they were setting up agreements to do business directly between their currency and China’s currency, which would further reduce the need for the US dollar in global trade.

Bundesbank, PboC Sign Accord To Make Frankfurt Yuan Hub, Bloomberg, 3/28/14

 
Bank of England and People’s Bank of China Agree on London Yuan Clearing Hub, International Business Times, 4/1/14

2015, May and December

In 2015, China established the Asia Infrastructure Investment Bank, which some saw as a direct attempt to go head to head with the World Bank established by the West in the 1940s. Once again, European nation’s joined the AIIB in spite of pressure from the US.

Why Europe Defies the US to Join A China-Led Bank, DW, 3/18/15

“Despite US pressure to stay out, Europe’s four-largest economies, Germany, France, Britain and Italy, are set to join a China-led regional bank, seen as a potential rival to the US-based World Bank.”

China Officially Launches New Development Bank AIIB, DW, 1/17/16

“China, the world’s second largest economy, has officially launched a development bank that could complement or rival the US-backed World Bank. Regardless, it highlights China’s growing economic clout.”

Finally, we finished 2015 with another first in history, when the IMF approved inclusion of China’s renminbi currency as part of the Special Drawing Right. This is now no longer a possibility. It is now a fact.

 
The Renminbi Joins the IMFs SDR Basket. Now What?, The Diplomat, 12/1/15

“This is a big moment for China, but its economy still has challenges that it needs to address.”

So as we continue to watch history, unless the citizens of various nation states protest this continued rise in the only global monetary unit, it would appear that when we may find ourselves at the bottom of this current major bust like the spring of 2009, with the high probability that this global money will expand its global reach yet again.

 
While I see this as a direct threat to the financial sovereignty of each individual nation, the lack of understanding or discussion about this development since 2009 does not bode well for an informed public to reject this threat.

A Sad, but Curious Mind

 

 

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