US-China trade war risks becoming a currency war 

Source: The Hill

“Leaders of the world’s most advanced economies – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, known as the Group of 7 (G-7) – met in France last month, with the world markets on edge and economies slumping….One formidable challenge on the minds of G-7 leaders was the escalating U.S.-China trade war and its fallout on world markets and slowing global economy…To the trade war’s disruption we now can add the possibility of even greater disruption from a potential currency war. On Aug. 5, China’s currency, the renminbi (RMB), fell below what markets consider the ‘psychologically significant’ level of 7 RMB to the dollar…President Trump pressed the Federal Reserve to counter by pushing down the dollar’s value and pushing up the RMB…Taken together, these actions raise fear of a series of competitive devaluations – a currency war.”

 

The Great Debasement

Source: Zero Hedge

“The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week….Everyone should be bellowing from the rooftops, not about the greatly exaggerated death of the dollar, but that major currencies are dropping so fast! Analysts should be inquiring why they are falling, while their paradigm encourages them to think that it is the dollar which is, or should be, falling. We think it is entirely appropriate to measure these currencies by the US dollar, as they are derived from the dollar. And we measure the dollar by gold. Since the recent peak, at 24.51 milligrams of gold at the beginning of May, the dollar has fallen 12% to 20.34mg. It now seems to be within striking distance of its all-time low set in 2011, about 16mg. In gold terms, since that same date, the euro has fallen over 18%. We don’t know why Europeans aren’t screaming ‘bloody murder’ at this not-so-subtle looting. And to a somewhat lesser degree, Americansshould be right there yelling too. Instead, gold owners in both currency areas are celebrating. That’s because they adhere to the dollar paradigm. Although they know that the dollar loses value, they measure the value of everything else in dollars. They think gold is going up. We have a radical idea: the dollar’s loss can be measured in gold. That means: if the price of gold doubles, the gold owner may have twice as many dollars but those dollars are each worth half as much. It is good to own gold, not for making profits but for avoiding the loss of the currency.”

 

The 9/11 Generation Comes of Age 

Source: Wall Street Journal

“It’s always difficult to determine precisely when an epochal event makes the transition from memory to history, but 2019 may well mark that moment for the terrorist attacks of Sept. 11, 2001. This week’s 18th anniversary can be seen as both the legal coming-of-age of the cohort born in the wake of al Qaeda’s assault and the generational passing of the torch from the children of the Cold War to the children of the war on terror….Many members of the ‘9/11 Generation’ – the young Americans who have come of age in a world still wrestling with the consequences of the day – remember not so much the events themselves as the way they were refracted through the emotions of the adults around them. Beau Garner, who lived in Michigan and was just 3 on 9/11, said, ‘My only memory is my mom standing in front of the TV watching the news.’….For many, al Qaeda’s attacks marked a profound moment of growing up. ‘I just couldn’t understand why anyone would want to hurt so many people,’ recalled Kristin Camille Chez, who was a fifth-grader in Florida in 2001….We rarely know precisely how milestone events transform entire generations, even as we note the way that those who came of age during the Great Depression so often remained frugal and how those who lived through Vietnam and Watergate tended to doubt national leaders and institutions. We don’t yet know what the lasting impact will be of coming of age in a country engaged in seemingly perpetual war….The 9/11 generation, numbering roughly a quarter of the U.S. population, has never known the peace, security and swagger that pervaded America in the 1990s – when the political scientist Francis Fukayama could proclaim ‘the end of history’ on American terms.”

 

Every reason to avoid buying a gold ETF 

Source: Sovereign Man

“ETF stands for ‘exchange-traded fund’. It’s sort of like a mutual fund that’s listed on the stock exchange, meaning investors can buy/sell shares of an ETF just like they would buy/sell shares of Apple, Ford, or Netflix. But unlike Apple, which is an operating business with employees, products, revenue, etc., an ETF is NOT an operating business. It’s a fund that merely pools capital to own assets….The ETF is a LOT easier for most investors. But there are also ETFs for gold and silver. And I find this mystifying…Gold and silver are easy to buy…So gold ETFs provide no added convenience. Yet there’s an enormous amount of downside….First off – it’s important to know that if you buy an ETF, you’re paying for a ton of unnecessary expenses. The ETF has to pay custodian fees, marketing fees, listing fees to the New York Stock Exchange, audit fees, management fees, etc. If you own physical gold in your own safe, you wouldn’t have to suffer the cost of paying lawyers, auditors, and investment bankers. So how do they (ETFs) pay for this mountain of expenses? By selling gold. Your gold. GLD trustees periodically sell off the gold (that’s supposedly owned by the investors) in order to pay expenses….Seriously, you have to be insane to buy GLD. Sure, it’s convenient to click a button and buy GLD with your brokerage account. But it’s also convenient to buy physical gold coins…So gold ETFs have no real advantage. But the disadvantages are numerous.”

 

Why the coming recession could force the Fed to swap greenbacks for digital dollars

Source: Marketwatch

“A movement has been brewing among economists, financial-services professionals and central bankers to encourage a rethinking of the technology of currency – those paper notes we carry in our wallets – with an eye toward issuing a digital currency. Some argue that could give central banks the tools necessary to break free of chronic disinflation and persistently low or negative interest rates, while providing Americans a risk-free means to transact in a world where digital commerce constitutes a growing share of the economy….Americans already use digital currency for most of their purchases. In 2018, they used physical dollars for just 26% of transactions, versus 62% with digital currency, which includes credit cards, debit cards and bank transfers, according to the Fed…The local bank that manages your savings account could fail at any time and the dollars in your account (beyond those insured by the FDIC) would disappear. A Fed ‘e-dollar’ would persist as long as the U.S. government does….The current economic expansion is the longest in U.S. history, but warning signs of a recession abound, including slowing economic growth and the recent inversion of the yield curve for U.S. government debt. In response, the Fed reduced interest rates in July and hinted at more cuts to come. But economists worry that the Fed will not have enough ammunition to fight the next downturn, as the central bank has typically had to cut rates by at least five percentage points to stimulate the economy following a recession. The Fed may be forced to restart its program of ‘quantitative easing,’ or the purchase of long-term government debt to push down long-term interest rates, though there is growing concern that this is an ineffective tool….While the Federal Reserve is unlikely to issue e-dollars anytime soon, it will surely be watching digital-currency experiments undertaken by central banks around the world….As economic storm clouds gather over the United States, and as the Federal Reserve appears to lack the ammunition to save the country from the sort of prolonged malaise that has overtaken other wealthy economies, it’s possible that the next crisis-driven revolution in monetary policy is at hand.”

 

Real US debt levels could be a shocking 2,000% of GDP 

Source: CNBC

“Total potential debt for the U.S. by one all-encompassing measure is running close to 2,000% of GDP, according to an analysis that suggests danger but also cautions against reading too much into the level. AB Bernstein came up with the calculation – 1,832%, to be exact – by including not only traditional levels of public debt like bonds but also financial debt and all its complexities as well as future obligations for so-called entitlement programs like Social Security, Medicare and public pensions….’U.S. debt is large. And it’s growing. But if we want to think about debt problems (in any sector – sovereign, households, firms or financials) the conditions rather than the levels are more significant,’ Carlsson-Szlezak said. The warnings about potential debt hazards come as the total federal debt outstanding has surged to $22.5 trillion, or about 106% of GDP. Advocates for fiscal reform argue that the debt impact has indeed reached the point where action is necessary. ‘Globally, we have become over-reliant on borrowing as a solution for everything. Political excuses abound for why it doesn’t matter, which just clearly isn’t the case,’ said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan committee of legislators. ‘We are quickly approaching a situation where we have dug ourselves a debt hole which is doing to have profoundly negative effects on the economy for probably decades going forward,’ MacGuineas added.”

 

The Fed Can’t See Its Own Shadow 

Source: Wall Street Journal

“Over the past few weeks 30-year bonds yielded less than 2% interest. That inverted the yield curve as short-term rates were higher, including the rate on repurchase agreements and what the Federal Reserve pays on excess reserves. Should we blame the usual suspects – a weakening global economy and trade wars? Not so fast. Sometimes it helps to look at things differently. ‘There’s a dollar shortage,’ Jeffrey Snider of Alhambra Investments tells me. ‘The market knows what’s going on and further knows the Fed doesn’t.’…The Fed’s assets increased from less than $1 trillion in September 2008 to almost $3.8 trillion today. Sadly, the stimulus hasn’t stimulated very much. What went wrong? Maybe the shadow knows. Shadow banking, that is. That’s the market for repurchase agreements, or ‘repos,’ a form of short-term borrowing….’The Fed is, as usual, clueless,’ Mr. Snider explains. ‘It’s a dollar shortage across several different facets, including foreign exchange, which is not something the Fed can recognize especially since it involves the global dollar system rather than just certain domestic pieces of it.’ The U.S. dollar is indeed global. China and others use dollars as reserves instead of gold. Dollars are involved in 87% of currency exchanges world-wide….So what should they do? Encourage the Treasury to issue more of the long bonds the market is demanding: 30- or even 100-year. Feed the beast. Then stop quantitative easing: It doesn’t work and soaks up collateral.”

 

US-China trade war risks becoming a currency war 

Source: The Hill

“Leaders of the world’s most advanced economies – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, known as the Group of 7 (G-7) – met in France last month, with the world markets on edge and economies slumping….One formidable challenge on the minds of G-7 leaders was the escalating U.S.-China trade war and its fallout on world markets and slowing global economy…To the trade war’s disruption we now can add the possibility of even greater disruption from a potential currency war. On Aug. 5, China’s currency, the renminbi (RMB), fell below what markets consider the ‘psychologically significant’ level of 7 RMB to the dollar…President Trump pressed the Federal Reserve to counter by pushing down the dollar’s value and pushing up the RMB…Taken together, these actions raise fear of a series of competitive devaluations – a currency war.”

 

Gold rebounds on weaker US jobs growth, eyes weekly gain 

Source: CNBC

“Gold turned positive on Friday…as a weaker-than-expected U.S. nonfarm payrolls report weighed on the dollar and increased appetite for safe-haven bullion, putting it on course for a weekly gain….The dollar also dipped following the payrolls data, making gold cheaper for investors holding other currencies. ‘Today’s jobs number missed expectations, causing gold to bounce higher. It just lends more credence to the fact that the job numbers are getting a little softer and it supports another rate cut by the U.S. Federal Reserve,’ said Bob Haberkorn, senior market strategist at RJO Futures. Federal fund futures implied that traders saw a 96% chance for a 25 basis-point rate cut from a current rate of 2.00-2.25% by the U.S. central bank this month. Uncertainties around U.S.-China trade ties, fears of a deceleration in global economic growth and negative Treasury yields around the world were further supporting bullion, analysts said….Bullion has risen about 19% so far this year…Silver was up 0.1% to $18.65 an ounce and was headed for its fifth straight weekly gain.”

 

The Current Situation is much more dangerous than during the Dotcom Bubble 

Source: Hickey/The Market

“Wall Street darlings like Apple, Google and Amazon have dominated this bull market. But today, the so-called FAANG stocks have lost some of their attraction and are lagging the overall market since last year. ‘Without participation from the FAANGs it will be difficult for the stock market to rip to new highs’, says Fred Hickey. According to the renowned contrarian investor, each of the tech behemoths is struggling with its own fundamental problems, with Apple being the weakest of the group. Hickey also sees a huge gap between fundamentals and valuations in the semiconductor sector…Yet, in contrast to previous cycles, the editor of the ‘The High-Tech Strategist’ hasn’t placed large bets on a crash. That’s because he fears that central banks could step in once again and bloat the stock market with new rounds of quantitative easing. ‘We’re near a recession if not already in one. Many parts of the world are in trouble. China’s growth is at a multi-decade low and its economy might be in a recession. As a result, we see terrible export numbers coming out of Korea and Taiwan. Around the globe, trade, manufacturing and capital spending are contracting. In the tech world, all the end markets are very poor: auto and smartphone sales are declining, PC sales are weak, and semiconductors are in the worst downturn in a decade.’….’And, if you look at the valuations in the stock market as a whole, you could see a 40 to 50 per cent decline there.’….’I have quite a bit of cash, more than I had in a long while…But my biggest position is in precious metals.’….’People are very underinvested in gold and silver. In the past, when people were heavily invested in gold, they had 5 to 8 per cent of their portfolio in gold. Today, we’re at a fraction of one per cent…So the smart money has jumped in, the masses of institutions have not yet. We’re still in the early stages of this bull market.'”

 

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