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Edited by Alfred Adask
Friday, May 6, AD 2016
Between Friday, April 29AD 2016 and 
Friday, May 6, AD 2016, the bid prices for:
Gold fell  0.4 % from $1,292.40 to $1,287.70
Silver fell  2.1 % from $17.82 to $17.44
Platinum rose  0.0 % from $1,077 to $1,078
Palladium fell  1.6 % from $621 to $611
Crude Oil fell  3.0 % from $46.00 to $44.63

US Dollar Index rose  0.9 % from 93.05 to 93.85

DJIA fell  0.2 % from 17,773.64 to 17,740.63
NASDAQ fell  0.8 % from 4,775.36 to 4,736.15
NYSE fell  1.3 % from 10,436.90 to 10,300.80
S&P 500 fell  0.4 % from 2,065.30 to 2,057.14 

"Only buy something that you'd be perfectly happy to hold
if the market shut down for 10 years." --Warren Buffett 

"If the markets shut down for 10 years, what investment would you dare to hold-- 
other than gold"? --Alfred Adask

The Dire Need for Increased Productivity

By Alfred Adask
Bill Grossis an American financial manager and author. He co-founded Pacific Investment Management(PIMCO) and also ran PIMCO's $270 billion Total Return Fund (PTTRX). Gross left Pimco in A.D. 2014 to join JanusCapital Group as a portfolio manager.
Reuters reported in "Janus's Bill Gross:  'Helicopter money is coming in a year or so," that, according to Mr. Gross,
"The next big monetary and fiscal policy move should include an airdrop of 'money from helicopters' to stimulate the U.S. economy and avoid an extended recession.
"The Federal Reserve and U.S. Treasury should engage in another round of quantitative easing (QE), printing trillions of dollars to buy government bonds and thereby boost the economy.  
Mr. Gross recommends more QE as a means to "stimulate" the economy or at least sustain stock prices.
Buying government bonds may increase the money supply available to government, corporations and/or consumers and thereby "stimulate" the economy.  However, I doubt that buying government bonds will cause a significant increase in productivity.  Thanks to the Fed buying more government bonds, the government, corporations and public might purchase more "stuff" (perhaps from China?), but America won't necessarily produce more "stuff".
In fact, I suspect that buying government bonds does no more to increase productivity than corporations buying back their own stock.  The purchases of governments bonds and corporations' stocks might look good on the books, and might even help "stimulate" the economy but, as I'll explain, I doubt that either really helps increase productivity.
Mr. Gross warns,
"There is a rude end to dropping money from flying helicopters, but the alternative is an immediate visit to austerity rehab and an extended recession. I suspect politicians and central bankers will choose to fly, rather than die."
Mr. Gross is telling us that he and government know that QE will end badly.  However, government will nevertheless do almost anything to avoid the "austerity" (and loss of political offices) that are certain to occur in any economic depression.  Politicians will seek to avoid that depression as long as possible by "kicking the can down" the road with artificial "stimulation" based on borrowing against future generations rather than against increased productivity.
In other words,  government can't prevent another economic depression-they can only postpone it.   Government's only current "solution" for the coming economic decline is to "buy time" and beguile the public with "happy talk". 
*  "Gross noted that the Federal Reserve, the European Central Bank, Bank of Japan, and the Bank of England have effectivelybought bonds from their governments for six years and allowed their governments to borrow and spend moneyto support their sagging economies."
Yes, those governments have "spent money" to stimulate their economies, but much of that spending went to helping consumers buy more "stuff" made in China rather than help American producers to produce more products. 
Net result?
Little or no real economic growth from QE.
QE's failure to significantly stimulate the economies of the US, EU, Japan and England may be evidence of a fundamental fallacy in a "consumer-based" economy.  Government seems to believe that all they need to do to "stimulate" the economy is make it easier for consumers to borrow and spend more currency to purchase more "stuff".   The borrowing creates the illusion of prosperity in the same sense that a stolen credit card can produce an illusion of prosperity for the thief.
However, in a healthy economy, people don't borrow more (against the future) and spend-they produce more in the present, save more, and ultimately spend more without going deeper into debt.
A healthy economy requires a balance between productivity (producers) and spending.  (consumers).  If you can produce more, you can spend more.  If you produce less, you spend less.   The minute that you start going into debt (borrowing against future earnings that may be hoped for but are not yet, and may never be, real), you guarantee that you'll experience a time of future austerity (when the debt must be paid without additional productivity).
*  For example, suppose I earn $100,000 per year.  Suppose I borrow $50,000 to buy a new car, new boat or renovate the kitchen.  I spend the borrowed currency now to give me some degree of utility or pleasure.  But, inevitably, the day will come when I have to repay the $50,000 and that payment will have to come out of my $100,000 annual salary.  That will cause me to tighten my belt for a while, spend less, suffer some measure of austerity and experience some financial pain.
Debt is like drugs.  It makes you feel good today, but will make you feel bad tomorrow.  
The only way I can borrow $50,000 today and not experience some future austerity when I repay the debt is to increase my income from $100,000/year to, say, $120,000/year.  If the extra $20,000 will cover my annual debt repayments, I can have a new car today and not suffer some painful future period of austerity.
How do I increase my income?  By becoming more productive.  So long as my productivity increases faster than my debt, I can afford to borrow now, pay later, and avoid serious episodes of future austerity (personal bankruptcy, economic depression). 
But, once the increases in my debt begin to exceed the increases in my productivity, I'm headed for a day of reckoning wherein I'll suffer significant austerity as my debt payments begin to diminish what would otherwise be my disposable income.
*  The U.S. economy has been going deeper and deeper into debt for decades.  At the same time, we've shipped industries and jobs to third-world countries, we've allowed foreign competitors to freely sell their products in U.S. markets, our real unemployment rate (according to John Williams at is now about 23% and our government has embraced an economic system called "consumerism". 
Result?  American productivity has been falling
We could endure a decline in our productivity if we tightened our belts and accepted a proportional reduction in our spending and standards of living.  I.e., if my annual income fell from $100,000/year to $80,000, I wouldn't die.  I could get by on $80,000-unless, I was also deeply indebted and that debt was based on the presumption that my income would at least hold steady at $100,000 (or might even increase to $120,000) while I repaid my $50,000 debt.
My $50,000 debt could be tolerable so long as I earned $100,000/year.  It might be cause for merriment so long as I earned $120,000.  But if my annual income fell to $80,000, that $50,000 debt might be enough to push me into bankruptcy and personal ruin.
*  Debt is always risky because, while the debt is certain, your future earnings can't be guaranteed.  You or your spouse could get sick.  The house might catch fire.  Your employer could go bankrupt.  The nation might slip into an economic depression.   There are scores of reasons why your future income might be reduced and make you far less able to repay your existing debts.
Bankruptcy (financial ruin) or austerity (your earnings are substantially consumed by your debt payments leaving you with little or nothing to spend on yourself).
There's no reason to suppose that the same phenomenon (although in a longer timeline) does not apply to the United States economy. 
*  In order to establish and strengthen the New World Order, our government has (among other things) shipped many of our jobs and industries to third-world countries leaving us less productive.  We should've seen the loss of productivity in an immediate, correlative decline in our standard of living.  However, that decline in our standard of living was concealed by two policies: 
1)  Government advocated the joy of "consumerism".  I.e., Americans don't really need to produce anything.  All we need to do is keep borrowing and going deeper into debt in order to provide an artificial demand for all the products being produced in foreign countries.  Thanks to "consumerism," we could, and should, "shop 'til we drop".  And that's just what's going to happen:  we going to "drop"-big time.  And,
2)  Government made it easier for us to go into debt and borrow against our imagined future earnings or even against future generations.  So long as we could freely borrow, we could maintain the illusion of prosperity.  Borrowing is often a substitute for being productive.  Borrowing creates the illusion (the lie) of prosperity without the underlying need for productivity.  That illusion of borrowing concealed the fact of our diminishing productivity and inevitable decline in our standard of living.
By diminishing our productivity at the same time it increased our indebtedness, government has guaranteed that Americans will experience one or both of the following consequences:  1)  austerity; and/or 2) bankruptcy.
*  As a nation that values "consumers" more highly than "producers," we're heading for ruin.
If there was any chance of avoiding the coming economic depression, it could only be achieved by a sudden and dramatic shift in policy from "consumerism" to "producer-ism".  If we could regain our status as a nation that was predominately composed of "producers" (people who produce more than they consume), we might be able to avoid the coming depression. 
However, I doubt that's possible. 
Instead, we're coming to a moment when we'll all be forced to become producers, whether we like it or not.  We'll be forced into a deep austerity wherein we might earn/produce $20/hour but only receive $4/hour to spend and support ourselves.  Where'd the other $16/hour go?  To repay the debts. 
If we can't be "producers" by means of producing more than we consume, then we will be forced to become "producers" by consuming less than we produce. 
My point is that, one way or another, we're about to learn to value and revere anyone who is a "producer".  If you're not a producer, or if you're not associated with a producer who's willing to support you, you're heading for an episode of austerity that will make your ears bleed.
I'm not saying that the world must shift to worship "producers".   I'm saying there has to be (and will be) a "balance" between productivity and consumption.  Insofar as we focus on consumption rather than production, we're heading for a calamity whenever it becomes clear that the debt can't be paid.  If we focus on productivity (as we did with the "Robber Barons" of the Great Depression) rather than consumption, we'll see enormous income inequality that leaves the majority of the people/workers in abject poverty and prone to violence and political revolution.
If we have more production than consumption, we become a prosperous nation which exports more than it imports.
If our imports and exports are equal, that's probably evidence that we have a reasonably fair balance between internal production and consumption.
If we have more imports than exports, that's evidence that we've become less productive and are heading for poverty.
*  Mr. Gross:
"The central banks buy the government's bonds by printing money,expanding their balance sheets in the process.  They then remit any net interest from their trillions of dollars or yen bond purchases right back to their Treasuries.   The money is in essence free of expense and free of repayment as long as the process continues uninterrupted.
The central banks don't print "money".  They only print "currency".  There's a difference.  Gross should know that.
"Remit any net interest from their bond purchases right back to their Treasuries"?  Oh, pulleese!  How much "net interest" can there be if the central banks mandate near-zero or even negative interest rates?
The QE "money is in essence free of expense and free of repayment?"  Is Gross crazy or a pitch man for the "system"?  Where do you find "money" that is free of expense and repayment?  
Money, by definition, has value.  That means people want it.  Because people want "money," they won't normally give it away and they don't lend it for no real interest.  "Free money," by definition, has no value.  There may be illusions of "free money," but there's no such thing in reality.
When Gross declared that economic "stimulation" can only last "as long as the process continues uninterrupted," he implicitly admitted that us that our illusion of QE and "free money" can persist only so long as our QE "stimulation" process continues.   As in Zimbabwe, the economic system can continue to function for several years, during greater and greater money-printing and hyperinflation.  But, ultimately, the QE process must end when it becomes apparent that we can't produce enough to repay the debt, can't borrow enough to service the debt and can't continue printing enough fiat currency to "roll over" the existing debt.  When that moment arrives, we'll all see that the "free"/helicopter monetary system is nothing but a Ponzi scheme that can't "continue uninterrupted" forever and must therefore, someday, implode. 
The government is going deeper and deeper into debt without significantly increasing our nation's productivity and capacity to repay the National Debt.   Eventually, creditors-even  central banks-will lose the will or capacity to continue lending more currency to the non-productive government.  When Americans can't produce more and government can't borrow more-and therefore the debt can't be paid, serviced or increased-the U.S. economy will implode.
*  "Gross believes central banks will print more helicopter money via QE 'perhaps even in the U.S. in a year or so and reluctantly accept their increasingly dependent role in fiscal policy.'"
I agree that "helicopter money" isn't coming for at least another "year or so". 
Because I strongly suspect that the Fed is nearly broke and/or is unable, or at least unwilling, to purchase more government debt in return for providing more QE currency.
I could be wrong, but I don't believe we'll see another serious episode of QE (money printing) in the U.S. in the next year because I don't believe the Fed will be able and willing to purchase much more government debt for the next three to five years. 
The Fed must know that the government will inevitably, and perhaps imminently, repudiate the value of its bonds.  When that happens, the $3 trillion in US Bonds/"assets" in the Fed's $4 trillion balance sheet will be diminished by 50% to 90%.  The Fed's liabilities will remain close to $4 trillion and the Fed will be technically insolvent and therefore bankrupt.
QE's is finished.  It's been tried around the world and repeatedly shown to be largely ineffective.  I doubt that the Federal Reserve will throw more "good" phony-baloney fiat currency after all the bad phony-baloney fiat currency they've already dumped into the government's maw.  I doubt that the Fed will try QE again for long, if at all, in the foreseeable future.
*  Gross:
"Such a move [more QE] would allow governments to focus on infrastructure, health care, and introduce a 'universal basic income'for displaced workers amongst other increasing needs."
Under the guise of some "universal basic income," productivity will stagnate.  Why?  Because, as we spend more currency to provide "entitlements" for the non-productive, we have less currency available to invest in increasing our productivity. 
This isn't conjecture.  It's happening right now.
According to Mish Shedlock ("Greenspan:  Worried About Inflation, Says 'Entitlements Crowding out Investment, Productivity is Dead'"), Alan Greenspan agrees:
"Former Fed Chairman Alan Greenspan spoke with Tom Keene and Mike McKee for Bloomberg TV & Radio. He discussed the ramifications of negative interest rates, entitlement spending and declining productivity.
"On the state of the U.S. and global economy, he said: 'We're in trouble basically because productivity is dead in the water.'
"On whether he is optimistic going forward, Greenspan said: 'No. I haven't been for quite a while. And I won't be until we can resolve the entitlement programs. Nobody wants to touch it.  And that is gradually crowding out capital investment, and that's crowding out productivity, and it's crowding out the standards of living."
According to an A.D. 2014 article in Investor's Business Daily ("70% Of U.S. Spending Is Writing Checks to Individuals") : 
"Buried deep in a section of President Obama's budget, released this week, is an eye-opening fact: This year, 70% of all the money the federal government spends will be in the form of direct payments to individuals, an all-time high."
If government spends 70% of whatever it borrows on entitlements, government thereby depletes the credit markets and leaves less and less to be borrowed and spent by the private sector on improvements in productivity.
 As government gives more borrowed, fiat currency to the unemployed and unemployable, inflation devalues the currency and productivity declines.  That's stagflation-the worst or all possible economic worlds.   Prices rise at the same time employment and productivity fall.  Debts become increasingly burdensome.  Bankruptcies rise.  Standard of living falls.  
*  Government can't increase the national standard of living by subsidizing the unemployed/non-productive.  The only way our average standard of living can rise is if our average productivity rises.  
The fundamental idea behind QE is that government will borrow from future generations to provide cheap loans to today's consumers; the consumers will buy more goods and services' the producers will make more profits, and the nation's GDP and standard of living will rise.
It's a nice theory, except for one thing.  It won't work in a world of Global Free Trade.  
Why not?
Lemme illustrate.  Suppose I'm a poor guy, living in poverty and not spending very much.  Suppose government gives me some "free" currency as an "entitlement".
What do you suppose I'll do?  Rush out and buy a new, American-made Cadillac? 
Or, will I-knowing myself to be a poor guy and having habitually purchased cheap products made in China for the past decade-try to stretch my windfall by purchasing more cheap products made in China or some other third-world country? 
As long as the Chinese products are cheaper than American-made products, you can bet that I'll be going to Walmart to buy Chinese.  To the extent that's true, QE did not stimulate American consumers to purchase American products-it stimulated American consumers to purchase cheap products and thereby enriched Chinese producers rather than American producers.
Which means that the QE that was supposedly intended to ultimately enrich American producers, actually went into the pockets of Chinese producers. 
Can I prove that hypothesis?
No.  But I can point to an interesting coincidence. 
Q:  When did our last episode of QE taper off and finally end? 
A:  October, A.D. 2014.
Q:  What's happened to China's economy since U.S. QE ended?
A:  China's economy has been in significant decline.
That coincidence doesn't prove anything, but it does support the hypothesis that (thanks to low tariffs and global free trade) much of the rise in productivity that followed QE flowed to China's producers rather than America's.  It's at least arguable that the end of American QE may have helped push Chinese producers and China's economy into recession.
*  If QE stimulated American consumers to purchase more foreign-made products, it thereby increased the imbalance between American consumers and American producers by further favoring consumers.
Result?  QE did not boost American productivity.  American productivity might even have fallen insofar as Chinese producers (subsidized by U.S. QE) were able to drive some American producers into bankruptcy or into relocating their factories to China. 
Result?  QE may have actually not only increased the National Debt, but also reduced American productivity.
Result?  More debt and less productive capacity to repay that debt.
Result?  America is heading for that day of reckoning when we must admit that we:  1) can't pay the national debt; 2) can't borrow any more; and therefore, 3) must reduce our standard of living to reflect our true capacity to produce; or 4) must repudiate most of the National Debt.  
In A.D. 2014, Forbes magazine ("We've Crossed the Tipping Point; Mos Americans Now Receive Government Benefits") reported that 49.2% of Americans receive government support.  By now, the percentage is probably over 50%.  And, bear in mind that this support is based primarily on government borrowing rather than American productivity.
If 70% of all government spending was directed to entitlements, that wouldn't necessarily be bad so long as the government's spending was derived from tax revenues based on our productivity.  I wouldn't like it, but I might not object if 99% of Americans lived on generous entitlements-so long as the remaining 1% of producers were sufficiently productive to afford that tax burden.
But, when 70% of all government spending is directed to the non-productive consumers, and those funds are substantially borrowed, I must object because I think I can see how this will end.  Badly.  Catastrophically.    
What do you think will happen to the 50% of Americans who depend on government support, if creditors refuse to lend more currency to government to provide that support?  The support they depend on will be significantly reduced.  What then?
There'll be poverty.  Trouble.  Chaos.  Violence.
And it won't end until Americans, as a people, regain their respect for producers and their capacity to produce more than we consume.
In sum, Mr. Gross's recommended strategy is to simply "kick the can" a little further down the road to postpone the depression that everyone knows we're going to have.  He implies that we should do what we can to "buy time" and postpone the coming collapse, but he has no remedy to prevent that inevitable collapse.
Neither does the Federal Reserve or the U.S. government.
Buckle up.
Learn to become productive.  Learn to become independent.  The two words, "productive" and "independent" are pretty-much synonymous. 
If you're a "dependent," you're in peril.

Saturday, May 7, 2016
Doug Noland is not a financial advisor nor is he providing investment services. This blog does not provide investment advice and Doug Noland's comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time.
Weekly Commentary: Inflection Point for EM
Don't let a relatively tame week in the S&P 500 engender complacency. Perhaps it was not obvious, yet the trading week provided important confirmation for the incipient "Risk Off" dynamic thesis. Indeed, the global bear seemed to roar back to life. Stocks were lower, financial stocks were under heavy selling pressure, and some commodities reversed sharply lower, while safe haven bonds were in high demand. It's worth noting that financial stocks lagged during the recent global risk market rally and now lead on the downside.
Japan's Nikkei equities index dropped 3.4% this week, boosting its two-week drop to 8.3% (down 15.4% y-t-d). The Nikkei closed the week at 16,107. Keep in mind that the Nikkei traded at about 20,000 this past December (and about 39,000 in December 1989), and is now only about 1,000 points off February lows. Japanese financial shares trade even worse than the major indices. Japan's Topix Bank Stock Index sank 4.6%, with a two-week decline of 12.8% (down 32.5% y-t-d). The Topix Bank Stock index traded at 250 last summer and closed Friday at 140.
Chinese stocks (Shanghai Comp) declined another 0.9%, increasing 2016 losses to 17.7%. Hong Kong's Hang Seng Financial Index fell 5.0%, with a two-week decline of 7.6%. The Singapore Straits Times equities index lost 7.1% over two weeks, with financial share weakness behind 10 straight losing sessions.
European bank stocks (STOXX) dropped 5.0% this week, increasing y-t-d losses to 22.2%. Italian banks were hammered 9.0%, boosting two-week declines to 10.8%. Italian bank stocks have lost 35% of their value already in 2016.
The ongoing bear market in Europe equities gained momentum this week, an especially notable development considering the extraordinary efforts of "whatever it takes" monetary stimulus. Germany's DAX declined 1.7%, increasing y-t-d losses to 8.1%. Notably, Deutsche Bank sank 11.6% this week, increasing y-t-d losses to 30%. Major equities indices dropped 2.9% in France, 4.1% in Italy and 3.6% in Spain. European debt markets this week saw a notable widening of periphery sovereign spreads. Portuguese 10-year spreads widened 29 bps versus German bunds, Spanish spreads widened 13 bps and Italian spreads gained 14 bps.
U.S. stocks performed relatively well, or at least the major indices. The S&P 500 slipped only 0.4%, although the broader market was notably weaker. The small cap Russell 2000 dropped 1.4%. Technology stocks remained under the pressure of a deflating tech Bubble, with the Morgan Stanley High Tech (MSH) index dropping 1.7% (down 5.8%). The biotechs (BTK) were hammered 5.1%, increasing 2016 losses to 23.2%.
Bearish action continued to envelope the financial sector. The Banks (BKX) dropped 3.2%, boosting 2016 losses to 8.4%. The broker/dealers (XBD) sank 3.5%, increasing two-week losses to 8.8% (down 12.2%). Leading on the downside, Citigroup dropped a notable 4.6% this week (down 14.3%), with Bank of America down 3.4% (16.3%), JPMorgan 2.9% (6.8%), and Goldman Sachs 3.3% (11.9%). Consistent with the global trend, U.S. financials lagged during the rally and have now reversed sharply lower.
As I have written repeatedly, I believe the global Bubble has been pierced. My view is that the world is in the initial stages of what will be a protracted bear market (at best), interrupted sporadically by policy-induced short squeezes, bouts of speculative excess and insuppressible bullishness.
May 6 - Bloomberg (Andrea Wong and Oliver Renick): "Worries about the outlook for the U.S., Europe and China, as well as mixed policy signals from central bankers around the world, have all contributed to what UBS Group AG Chief Executive Officer Sergio Ermotti called a 'paralyzing volatility' that's scaring away clients and caused industry-wide trading revenue to tumble to the lowest since 2009."
The global Bubble succumbed first at the periphery, notably with last year's pronounced weakness in EM currencies, equities and debt markets. And it was EM - "at the margin" of global finance - that cashed in over recent months from extreme monetary policy measures. Chinese adoption of "whatever it takes" - a stable currency peg and a Trillion ($US) of Q1 Credit growth in concert with global QE and negative rates - spurred a major reversal of bearish EM bets along with newfound optimism. Amazingly, "money" was again flowing into EM. Was...
From Bloomberg (Camila Russo and Manisha Jha): "Worldwide stock ETFs lost $12.6 billion in the four days through May 5, wiping out more than six weeks of inflows, as the MSCI All-Country World Index capped its worst week in three months."
I believe this week marked a key Inflection Point for EM, with major ramifications for global markets and economies. With global "risk on" rapidly transitioning to "Risk Off," developing markets - currencies, stocks and bonds - this week suffered the brunt of newfound risk aversion. The MSCI Emerging Market ETF (EEM) sank 4.7% this week.
A Bloomberg headline: "Emerging Markets Head for Worst Week Since January..." Political turmoil saw Turkish stocks (previously a big "risk on" beneficiary) hammered 8.2%. Wednesday trading saw the Turkish lira sink 3.9% versus the dollar, "the most since 2008."
The Mexican peso fell a brutal 4.0% this week to the low since early March. Those levered in higher-yielding Mexican (or other EM) debt suffered a rough week. Tuesday trading saw the peso sink 2.5%, "its biggest drop since November 2011." Brazil's real dropped 1.9%, the "worst week since November." Brazilian stocks sank 4.1%.  The Colombian peso fell 3.8%.
It was a global phenomenon. The South African rand sank 4.6%, as debt worries return. The Russian ruble declined 2.2%, the "worst week since February." Russian stocks dropped 2.6%. In emerging Asia, the Korean won declined 2.7%, the Malaysian ringgit fell 2.6%, the Indonesia rupiah declined 1.3% and the Singapore dollar fell 1.3%.
May 5 - Bloomberg (Constantine Courcoulas): "Turkish bonds retreated the most among major emerging markets and credit risk climbed as investors assessed the economic cost of a political showdown that prompted the prime minister to say he's stepping down. The yield on the five-year government note jumped 25 bps to 9.73%, the biggest daily increase since January... The cost of insuring Turkish debt against default for five years rose for a fifth day, increasing seven basis points to 267 bps..."
It's worth a brief return to a Fitch warning from September 2014: "Most of the recent increase in Turkey's external debt has been driven by bank borrowing, Fitch Ratings says. The rapid rise in banks' foreign liabilities, particularly at the short end, leaves them more vulnerable to an extreme stress involving an abrupt and prolonged market shutdown. The increase in external debt was one of the factors leading to the downgrade of Turkey's three largest domestic privately owned banks to 'BBB-'... Turkish banks' foreign borrowings increased almost threefold, to USD164bn, between end-2008 and end-1H14, rising to 38% of the country's total external debt from 20%."
It's been a few months since EM debt issues garnered market attention. Typically, so long as "money" is flowing in, EM looks good. Over recent months, "money" has indeed been flowing - though EM fundamentals remained ominous. If, as I expect, outflows gain momentum the EM backdrop could turn problematic in a hurry.
Analysts took a respite from contemplating Trillions of EM external debt, much of it having accumulated since the '08 Crisis - and too much of it denominated in dollars and other foreign currencies. Curiously, EM currencies this week under the most selling pressure were in many cases economies on the hook to Creditors for large amounts of foreign-denominated debt. It's worth recalling that EM corporate debt is up more than three-fold since 2008 to $2.6 TN (from IIF).
EM banks absolutely ballooned in the post-crisis monetary free-for-all, with considerable borrowings in dollars and foreign currencies. Earlier in the year I believed that the markets were becoming increasingly apprehensive with global inter-bank liabilities. When EM currencies and global bank shares find themselves simultaneously under pressure, as they were this week, one has to ponder the possibility that these fears are reemerging.
Yet is wasn't only EM that this week supported the "Risk Off" thesis. And I'm not so sure market confidence in U.S. high-yield is much deeper than that of EM debt. A bout of de-risking/de-leveraging would have major ramification across global financial markets.
May 5 - Bloomberg (Sridhar Natarajan): "The largest exchange-traded fund that buys junk bonds is flashing a potential warning sign that a three-month rally in the $1.4 trillion market is losing steam. BlackRock Inc.'s iShares iBoxx High Yield Corporate Bond ETF has seen 27.8 million shares redeemed, or about $2.6 billion, in the last four days... Short interest in the fund climbed more than 80% since mid-April..."
May 6 - Financial Times (Ben Bennett, Legal & General Investment Management): "For some, China represents a positive scenario of structural reforms returning the country to its position as the engine of world growth. Not only do we think this is unlikely, we actually believe China poses a systemic risk of historic proportions. It is now clear that China is not smoothly passing its growth baton from exports and investment to the service sector... It is hard to exaggerate the magnitude of the Chinese debt bubble. According to the Bank for International Settlements, debt to GDP has increased by around 100% since 2008, which compares with about 40% in the US leading up to the subprime meltdown, 60% in Japan prior to its collapse in 1997 and is even more than the credit booms of Greece, Portugal, Spain and Italy in the run up to the euro crisis. The only similar credit bubble in recent history was that in Thailand before the Asia crisis. And if an economy the size of China's goes through what Thailand went through in 1997, the world will be a very ugly place indeed."
May 6 - Reuters (Manolo Serapio Jr and Ruby Lian): "Chinese commodities prices spiraled lower on Friday, with steel futures suffering their worst week since 2009, as more money flowed out of markets whose surge two weeks ago unnerved global investors and forced regulators to step in to restore calm. Indicating how authorities may now be alarmed after a collapse in volumes and prices, the Dalian Commodity Exchange on Friday said it will cut some trading fees on contracts such as iron ore and coking coal. The commodities slide spilled over into stocks, with the Shanghai Composite Index ending down 2.8%, its worst day since February, as commodity producers fell."
There were more Credit rumblings this week in China, along with serious cracks in the Chinese commodities Bubble. I continue to believe that the unfolding Chinese Credit crisis is the root cause of dysfunctional global financial markets. Waning confidence in Chinese finance, policymaking and economic structure will now (again) weigh on EM. The weakening dollar and attendant commodities rally had recently helped underpin the bullish EM recovery story. This week it appeared that markets began coming to grips with the reality that it's going to take a lot more than a weaker dollar to support such highly indebted and maladjusted EM economies (and financial sectors) - as confidence in the world of finance and the global economy wane.
The Credit Bubble Bulletins are copyrighted. Doug's writings can be reproduced and retransmitted so long as a link to his blog is provided.

We hear a lot about skin cancer and more people seem to be getting it. Is skin cancer a new disease or has it been a condition since ancient times? If you check the scientific research and the projections for skin cancer into the future the data rarely goes back past the 1990's or 1970's. We're told that the reason for not checking earlier data is that people died at younger ages before the disease could kill them and diagnosing cancer back then was not as sophisticated as it is today. Skin cancer is one of the most fatal cancers and kills more than 50,000 worldwide. There are some health experts that see a correlation between the high processing and lower nutrition or our food with the incidence of cancer rates. Could skin cancer be just from too much sun, a lack of nutrition or could it be the addition of something else? Let's check it out.
Research coming from the UK Cancer Research Center, shows they started looking at cancer rates in the early 1900's. They compared birth and death records from those born in 1930 to those born in 1960 and tracked the cancer risk rate. Those born in the early 1900's had a 1 in 3 risk of developing cancer compared to those born in the 1960's who had a 1 in 2 cancer risk. This research included all types of cancer and not just skin cancer.
In 2013, a study appeared in the Journal of Clinical Oncology. In this particular study the research team wanted to look at the rates of skin cancer in one state (Connecticut) involving long-term dates. They looked at cancer data from the 1950's, in which skin cancer was rare (1 in 100,000 for men and 2.6 in 100,000 women). The skin cancer rate jumped 17 fold by the 1970's. And over the next sixty years the mortality rates tripled. The researchers concluded that skin cancer has gone from a "rare" to a "common" type of cancer in developed countries but did not declare a cause for the increase.
According the Cancer Research 75th Anniversary edition, a report was published on the rate of cancer mortality. They looked at some statistics that were published in 1921, which were based a paper titled "The Menace of Cancer" written by Dr. Frederick Hoffman in 1913. Hoffman was a statistician for Prudential Life Insurance Company and everyone knows the life insurance industry is very interested on the risks associated with disease. In 1913, Hoffman used not only US health data but also health data from abroad to draw his conclusions. Hoffman was able to get this data because in the early 1900's all states had to register their death rates along with listing the deaths by diseases per 100,000 populations. What Hoffman found was that death from cancer between 1900 to 1913 went from 63 in 100,000 to 79 in 100,000 (25% increase). The UK during this time also showed a considerable increase; their rates were higher (83 to 105 in 100,000). Hoffman dug deeper and found data from 1881 to 1885 involving twenty large US cities and the death rate for cancer at the time was 49 in a population of 100,000. That means from 1885 to 1913 there was an increase of 89 and in Europe it was 81. The statistics that Hoffman had access to also broke out the deaths by age starting in the year 1900. The cancer was more prevalent in people over 45-years-of-age. What Hoffman uncovered was that cancer deaths were increasing rapidly. According to the American Association for Cancer Research, other insurance companies during Hoffman's time did not agree with his findings.
There have been health experts that tell us that cancer is a creation of man's devitalized food. There are some strong correlations to how Americans grew food and processed it. Let's take a look at the early changes.
  • 1911 The grain milling process was changed to strip away outer layers of the grain (where the oils and nutrition are) to refine the flour products.
  • 1920 Character advertising was introduced by the food manufacturers to encourage the consumption of the more processed foods (i.e. Betty Crocker and Aunt Jemima).
  • Alaskan & Canadian Eskimos had almost no cancer. In 1935 one cancer case was reported in a 50-year timeframe. Processed foods were introduced to their culture and by 1970 their cancer rates were similar to the rest of the US and Europe.
  • When comparing sperm count in men from 1938 to 1990 it dropped 50% and testicular cancer tripled.
  • From 1973 to 1991 prostate cancer increased by 126%.
  • From 1900 to 1949 breast cancer was rare but is currently 58 out of 100,000 populations. Compared to the Asian population who did not have breast cancer until milk products were introduced into their culture.
  • Smoking was heavily marketed to the US population between 1950 to 2000. The overall cancer rate increased by 55%. Lung cancer was at 25%, colon cancer 60%, brain cancer 80% and adolescent cancer increased by 20%.
  • The consumption of overly processed foods increased. From 1970 to 2001 Americans expenses from $6 billion to $110 billion on these foods.
  • The 1990 US Department of Agriculture Report #2 titled "An Evaluation of Research in the US on Human Nutrition" has been missing for 21 years. It has been said that pressure from the processed food lobbyists had it banned from public view.
  • According to statistical data, teenage boys in 1982 drank more milk than soda. Within twenty years, by 2002, boys drink more soda than milk.
  • From 1990 to 2005 the grocery store shelves went from 120,000 processed foods to 320,000.
  • In 2000 it was declared that cancer caused the death in 20 out of 100 mortality cases. In the span of 100 years the cancer rate jumped an overall 79%.
"If man made it, don't eat it." Jack LaLanne
There has been a ton of research screaming at us that it is the sun that causes skin cancer and to wear sunscreen. Some recent research from the British Association of Dermatologists state that if you do not use the right sunscreen and use it properly you have a 72% greater chance of developing skin cancer or a deadly form of melanoma. The other problem is that according to Dr. Julie Sharpe of the Cancer Research of the UK, people that use sunscreen will spend longer hours in the sun thinking they are protected from UV rays. So, it looks like sunscreen can be a double-edged sword. Researchers advise to get sunscreen that protects from UVA and UVB light and don't overdo the exposure.
In 2013 the Hoffpost of Canada published an article by Dr. Mike Hart on skin cancer. According to Dr. Hart, we can develop skin cancer from; exposure to the sun's UV-B rays causing skin damage to your DNA, smoking, HPV (virus) and artificial lights from tanning beds. 
Before there was sunscreen, what did people do to protect themselves from the sun and skin cancer? They either covered up like they do in the Middle East or they didn't stay in the sun for very long periods of time. The sunscreen product didn't come on the market until the 1940's. It was invented in 1938 by a Swiss chemistry student, Franz Greiter. He wanted some protection when he enjoyed his favorite sport, mountain climbing, and called his product Glacier Cream. It is still sold today under the name Piz Buin. The Coppertone Girl (more character marketing) didn't come onto the sunscreen scene until 1956. The sunscreen products today are more than just zinc oxide. They are loaded with chemicals and harmful parabens. The sunscreen chemicals antagonize human hormones and disrupt them. Other ingredients, such as oxybenzone, can make skin sensitive and actually breakdown the skin's surface. Another ingredient is retinyl palmitate (a known carcinogen) can increase the risk of cancer when exposed to UV-A rays. According to Dr. Hart, a Swedish 2000 study in the International Journal of Cancer, titled; "Sunscreen Use and Malignant Melanoma", showed that there was an increased risk of skin cancer if sunscreen was used compared to those who used no sunscreen. The conclusion from the researchers was this; those who use sunscreen stay in the sun too long risking their largest organ (the skin) to developing melanoma. Other studies have stated that sunscreen has no association with skin cancer. Dr. Hart recommends that if you are going to use a sunscreen, to use a micronized zinc oxide sunscreen. It does not absorb into skin, enter the bloodstream or wreck on your hormones. He cautions against using an aerosol spray to avoid breathing in the particles. Micronized zinc oxide sunscreens are more expensive ($30 to $50) and harder to find.
According to Jon Barron, The Baseline of Health Foundation, cancer has always been with mankind but is it worse now than a few hundred years ago. However, Barron states that more than any other age we have more information on diseases such as cancer and how we can be proactive and reduce our risks. Health experts tell us to reduce our sun exposure and consume more omega-3 fatty acids. Natural health experts also suggest frequent cleansing to remove toxins in the body and avoid things that hurt the immune system (vaccines and antibiotics) to help keep cancer cells in check.
It seems to me there's combination of things that are putting us more at risk of all types of cancer including skin cancer. The correlations are strong that around the time we started to over process foods in the early 1900's and then putting too much faith in cosmetic sunscreens (1940's) and smoking (1950's) that we increased our risk of getting all types of cancer. We've stepped too far away from what is natural and common sense. We're reaping what we've sowed.  We all have the power to change this and protect ourselves. The mindset needs to be proactive and a "doer" for one's health rather than hoping the white coats in medicine will save you from cancer. They won't, because there's more money managing cancer than curing it. Cancer is like the golden goose that laid the golden egg to all the specialties in healthcare. If you get cancer and follow the path science has laid out for you, it will entail; seeing a minimum of two oncologists (after your primary referral), an anesthesiologist, surgeons, physical therapists, counselors, dermatologists and pharmacists. The cost for skin cancer can reach beyond six figures. Modern medicine won't destroy this money-maker by telling you to change your diet, change your sunscreen, quit smoking, get more exercise, boost your immune system and cleanse your organs. That advice may cure you but put them on the unemployment line. We all need to wake up and see that a large part of the healthcare system is really a sick-care system.
In my opinion, here are the dos and don'ts with any disease. Do exercise prevention and don't wait until the last minute to be proactive. A little conscious effort can prevent big problems. I found that we can sidestep many health problems by strengthening the body including the immune system. I go about this by using herbal cleansing of the major organs on a regular basis and using immune support herbs. I also eat organically and keep the diet very basic. I call it the "cleanse and nourish" approach. It is not hard or complicated but you do have to be a "doer" for it to work. So, call Apothecary Herbs for information or to order your herb organ cleanses and immune boosting formulas. They also have a great Calcium formula to strengthen the skin, bones and connective tissues (great for sunburn recovery). They also have the Honey Oatmeal Soap to soothe skin, lock in moisture and protect the skin's ecosystem of healthy bacteria. Call now for a free product catalog and be a "doer"! Toll free 866-229-3663, International 704-885-0277, where your healthcare options just became endless.


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