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“Polar Vortex” Shock And Awe: The Utility Bill Arrives (And Why It Will Get Worse Before It Gets Better) | Zero Hedge

“Polar Vortex” Shock And Awe: The Utility Bill Arrives (And Why It Will Get Worse Before It Gets Better) | Zero Hedge.

The “polar vortex” shock has arrived, only this time it is not in the form of another 12 inches of overnight snow accumulation but in the shape of household utility bills. A reader was kind enough to send us his just received ConEd bill for the month ended Februery 10. The result speaks for itself. It also speaks for where so much of US household disposable income will go in first quarter. Spoiler alert: not toward discretionary purchases.

 

If readers have more dramatic instances of the “Polar Vortex” invoice shock, please forward them to us at the usual address.

And unfrotunately it will get worse before it gets better. On the back of a rapid decline in the “glut” of low cost natural gas (as stockpiles are drawn down to the lowest level since 2004) and the shift in forecast (that the freezing weather could last well into March), Natural gas futures are soaring (up over 10% today). This is the highest front-month futures contract price since December 2008 as “the possibility of periodic shortages now looms.”

 

 

Charts: Bloomberg

Market Cornered: JPMorgan Owns Over 60% Notional Of All Gold Derivatives | Zero Hedge

Market Cornered: JPMorgan Owns Over 60% Notional Of All Gold Derivatives | Zero Hedge.

Perhaps the only question we have after seeing the attached table, which shows that as of Q3, 2013 JPMorgan owned $65.4 billion, or just over 60% of the total notional ($108.2 billion) of all gold derivatives in the US, is whether the CFTC will pull the “our budget was too small” excuse to justify why it allowed Jamie Dimon to ignore any and all position limits and corner the gold market?

 

And purely as a reference point, the chart below compares the total value of gold held in JPM’s vault (registered and eligible) as of Friday’s closing price with its reported gold derivative notional holdings.

 

Finally, for the purists out there, we realize that gross is not net… until there is a breach in the derivative counterparty collateral chain, and gross becomes net.

Source: OCCComex

How Turkey Put A Prompt End To Its Dramatic Corruption Investigation | Zero Hedge

How Turkey Put A Prompt End To Its Dramatic Corruption Investigation | Zero Hedge.

The main reason Turkey’s government has been roiled with resignations, the Turkish Lira and domestic assets are plunging, the central bank is paralyzed, and pundits are ever more concerned about what the potential contagion effect is should the worst happen to the country, has been an ongoing scandal involving corruption at the very highest echelons of power as we reported late last year. So, what is a perturbed government, on the verge of losing legitimacy and credibility, to do? Well, following Stalin’s advice always works: “no man, no problem“… if perhaps not quite as “terminally” then just as decisively. According to Reuters the corruption investigation has been brought to a screeching halt, after Turkey’s government ‘purged’ both the judiciary and police systems, firing and transferring dozens of judges and officers and making it impossible for any ongoing investigative efforts to continue.

However, this may just be the beginning of Turkey PM Erdogan’s problem: “Turkey’s purge of the judiciary and police has brought a corruption investigation shaking the government to a grinding halt and could undermine confidence in state institutions, senior legal figures and the opposition said on Wednesday.”

Reuters has the details on Turkey’s decisive (if not yet final) “solution” to its problems:

Ninety-six judges and prosecutors were reassigned overnight, the biggest purge of the judiciary since a graft scandal erupted on December 17 with the arrest of businessmen close to Prime Minister Tayyip Erdogan and three ministers’ sons.

 

Erdogan has portrayed the corruption inquiry as an attempted “judicial coup” orchestrated by U.S.-based cleric Fethullah Gulen, whose network of sympathizers, known locally as “Cemaat” (religious community), hold considerable sway in many parts of the state including the police and legal system.

 

The government’s response, transferring thousands of police officers and seeking to tighten its grip on the courts, has brought sharp criticism from the European Union, which Turkey has been seeking to join for decades, and rattled investors, helping send the lira to record lows.

 

“Turkey is ablaze with the justice agenda,” said Metin Feyzioglu, chairman of the Turkish bar association.

 

“Everyone in the country has started to ask when there is an investigation or trial what side the judge, prosecutor or police officer is on,” he said. “The foundation of the state and the country’s legal order has been shaken.”

 

The roughly 120 judges and prosecutors reassigned since the graft scandal broke make up a fraction of the 13,000 working in Turkey as a whole, but the move has put sensitive cases on hold and shaken confidence within the profession.

The government’s party line so far has been simple: as explained before, “Erdogan has portrayed the corruption inquiry as an attempted “judicial coup” orchestrated by U.S.-based cleric Fethullah Gulen, whose network of sympathizers, known locally as “Cemaat” (religious community), hold considerable sway in many parts of the state including the police and legal system.”

As a result, Erdogan decided to simply reassign the entire judicial branch!

Judges and prosecutors across the country – from Istanbul in the west to the southeastern city of Diyarbakir, and from the southern border region with Syria to the northern Black Sea coast – were reassigned in the move announced late on Tuesday.

 

The High Council of Judges and Prosecutors (HSYK), already headed by the justice minister and set to fall further under government control under a ruling party bill before parliament, said the 96 were being transferred to new locations. The government denied involvement.

 

“These appointments have absolutely nothing to do with our ministry. This is completely at the discretion of the relevant (HSYK) chamber,” a senior justice ministry official said.

The police fared similarly:

Nearly 500 police, mostly in Ankara, were also removed from their posts and reassigned on Wednesday, media reports said, bringing the total since December 17 to several thousand. Erdogan’s supporters say the police and judiciary are dominated by Cemaat sympathizers and that the government’s actions strengthen not weaken their independence. Erdogan himself refers to a “parallel state” within the judiciary.

 

But Aykut Erdogdu, the chief corruption investigator for the main opposition CHP, said the purge had become so broad that many of those removed were not even linked to Cemaat.

 

“We’ve reached the point where members of these institutions are unable to do their job,” Erdogdu told Reuters. “More important is the damage done to these institutions. It can take decades to build up competent staff to run the institutions of state. Moreover, it will take years to undo the memory of this among prospective candidates in the future.”

It seems that the people, at least some of then, aren’t buying it:

“While the government claims that it is fighting against a parallel structure, it is actually closing off the corruption investigations … It is taking away those who know their cases best. It causes a great deal of harm,” said Murat Arslan, chairman of the YARSAV association of judges and prosecutors.

 

“It is quite clear there is political intervention here … they are quite clearly intimidating the whole of the judiciary. It is sending the message that ‘you cannot conduct an investigation which touches me’,” he told Reuters.

Welcome to Banana republic status gents… incidentally Turkey is way behind of the US, where no investigation that touches the people in charge is allowed, while any prosecution of corporate CEO that are deemed Too Big To Prosecute is promptly killed by none other than the Justice Department. The corrupt Justice Department.

But importantly, unlike the US where the myth that one party is different than another is just that, in Turkey the people do have the power to replace those in charge:

Erdogan has essentially banished the army from politics in 11 years in power. His popularity seems as yet largely unaffected by the current turmoil and there is no sign of the summer demonstrations that shook his government reigniting on a similar scale. He will, in short, be trusting voters will flee towards the elected power.

And if voters support him, well, they too deserve the government they “pick.”

Into The Gold Labyrinth | Zero Hedge

Into The Gold Labyrinth | Zero Hedge.

Gold_Labyrinth

The surprise of 2014 is gold! The yellow precious metal had its fourth week of gains in a row. It seems like the gold market has been ‘set free’ in 2014. This would mean the end of the cyclical correction, which indicates that the market is ready for the big and final phase of the secular bull run in gold. All of this fits perfectly with everything we have been saying for years about gold.

For those who didn’t notice, please read our free Guide to Gold.

One thing becomes very clear here: gold is moving from the West to the East. Chinese gold import from Hong Kong has been rising dramatically since 2011 and at the same time, the gold price has seen a 30% correction. This brought up a lot of questions from subscribers.

Hong-Kong-China-monthly-net-exports-gold

Source: Toqueville Funds / Bloomberg

“How is it possible that the price goes down when there is huge demand?!” To know the answer you have to look at the futures market. Because that is where the market price for gold is set. Yes, you read it well: paper contracts dictate the price of the physical metal.

Since 2011 there are a lot of ‘sell contracts’ for gold, better known as short positions. This caused huge downward pressure on the gold price. An ideal way for China to buy physical gold cheaply. But the Chinese were not the active shorters. American investment banks did that, with JPMorgan in the lead. JPM, AKA, the ‘banker’ of the US government.

JPMorgan built up an historical short position over the years. But at the same time, the bank was bringing in more and more physical gold to store it in its vault below the famous Chase Manhattan Plaza in New York. Where does this gold come from? Just look at the chart for the registered physical gold at warehouses with the COMEX, the American futures market.

COMEX warehouse gold

Source: 24hGold

The COMEX has been sucked dry in the last year. You will never guess who recently signed a sale agreement for the JPM building in the center of New York, underground gold vaults included… yes, you got it, the Chinese!

Those who want an even better view, should check out the next photo of the new situation in NY.

JPMorgen Chase Manhatten Building now belongs to the Chinese

(H/t Koos Jansen)

Yes, that is correct, the vaults of the Fed are right across from the Chase Manhattan Plaza. Coincidence? We do not think so… But the reserves in the US are naturally insufficient to satisfy the Chinese hunger for gold. The effect of the price correction made sure that the ‘weak hands’ in the gold market let go of their gold. Weak hands is a synonym for (small) investors.

Since the rise of the SPDR Gold Trust ETF (GLD) in 2007, more and more investors committed larger amounts of capital to the gold ETF. At the peak of the market there were 1,300 tonnes of gold in GLD, more than countries like China. That was also not part of the Chinese plan. You probably understand by now where this is going. When the gold price got shaken up, those same investors stepped out of GLD.

Meanwhile, more than 500 tonnes of gold was pulled out of GLD, which implies that the ETF has less than 800 tonnes of gold today.

GLD tonnage gold holdings

Where did all this GLD gold go? From the vaults in London, to the smelters in Switzerland to the depots in… Hong Kong! And now we are full circle again: the enormous transfer of gold from Hong Kong to China. All of this – large scale price manipulation in combination with huge gold transfers – is not a walk in the park. All parties need to cooperate.

So it would be hard to imagine that it did not happen with the approval of the US government and the Fed. And probably forced by China! Let us clarify that. China has stopped buying US debt since 2011. That was also the moment that the Fed needed to jump in to support the market. After QE we quickly saw QE2, QE3…

QE Fed base

Without these actions from the Fed there would not have been a single buyer of US Treasuries, which would probably mean the end of the American empire. China wanted, or rather demanded, its gold from the West! You can say many things about the Chinese but they certainly are not dumb.

The Chinese realized that for years they received a poisoned gift from the Americans. Only through the acquisition of gold, both world powers would be on a ‘level playing field’ again. Of course, we do not know where this level playing field is, but we do assume that China has more or less reached it. How much gold landed in China since 2011, is very hard to determine. In 2013 alone, more than 2,000 tons was transferred from Hong Kong to China. And this is just one of the import routes. China is not just buying gold from its own gold mines, but is also directly or indirectly the largest customer of most gold producers. All melted gold also found its way to China.

In short, China was the gold market in the last two years!

However, we are spotting a few signals indicating that China is releasing its grip on the gold market. Not only has the continuous drain from GLD stopped, but we also read that China has started buying US Treasuries again. Even more, the Chinese portfolio of US government bonds is at record levels! Now you also know why the American central bank suddenly started ‘tapering’, or scaling back the buyback program of US debt.

Does China have enough gold then? It would not surprise us.

A small calculation taught us the following:

  • The US owns more than 8,000 tonnes of gold while the yearly US GDP is just shy of 16 trillion dollars. The yearly GDP of China is a little over 8 trillion dollars, almost half. You would expect then that the level playing field for gold in China hovers around 4,000 tonnes.
  • The official amount of gold in the Chinese central bank is still 1,054 tonnes today, but because of the huge gold transfers these last years, we expect that China is close to its golden level playing field.

We do admit, it is a lot of information to digest, but it is extremely important! You have to understand that the US, with the largest pile of debt in the world, would be helped hugely by a higher gold price. The higher the value of gold, the lower the real value of their debt. We have the feeling that if China loosens its grip on the gold market, the gold price can move up quite fast. There is nothing that America wants more and China is now well-hedged.

Where can the gold price go to then? Another small calculation to help us out…

The historical ratio of the monetary base of the Fed teaches us that a gold price of 5,000 to 7,000 dollars/ounce should be enough for the US to make its debt bearable again. From the current level this means at least a quadrupled gold price. For most people this seems improbably high, but do not forget that since the start of the secular trend in gold, its price already went 5x higher. Also in the 70s, the gold price skyrocketed in its second phase from 100 dollars to 850 dollars per ounce in barely four years!

As for now, we’re in the midst of the bottoming proces with gold. Once this proces ends- lets say above 1,300 dollars – the gold price could see a voilent upswing towards 1,550 dollars, where the next battle field arrives for gold. We prefer to play the next U-turn in gold with a selection of quality gold stocks, as the current leverage to the gold price – risk/return – is the best in years, even decades!

Download our Free ‘Guide to Gold’

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“China Expected To Announce It Has More Than Doubled Its Gold Reserves”, Shanghai Daily | Zero Hedge

“China Expected To Announce It Has More Than Doubled Its Gold Reserves”, Shanghai Daily | Zero Hedge.

The topic of China’s below the radar accumulation of gold is nothing new: first revealed here in September 2011 as part of a Wikileaks intercept, watchers of Chinese gold imports have been stunned by the ravenous pace with which Chinese customers have been gobbling up both domestic and foreign gold production month after month. One needs merely to glance at the net imports of gold just through Hong Kong to get a sense of just how much gold has flowed into the country which has now surpassed India as the largest buyer of gold.

But the biggest question mark since 2009, when China gave its last official gold holdings update, has been how much gold has the People’s Bank of China accumulated. One thing is certain: it is well more than the official number of just ovef 1000 tons.

Recall the confidential memo revealed through Wikileaks:

According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.

In other words, between 2009 and 2011, China’s gold reserves had increased according to internal data. One can assume they have increased substantially since then, however the PBOC, judiciously, has refused to provide an updated amount of its gold holdings for five years in a row: after all why buy at higher prices (if the world knows that the PBOC is buying at any price), when it can buy cheaply?

However, the period of stealth – and cheap – accumulation may be ending. At least according to the largest English-language portal in East China: Shanghai Daily.

The website, which cites an analysis by Jeffrey Nichols of American Precious Metals Advisors, reports that the Chinese central bank is about to announce its gold holdings have nearly tripled from 1054 tons to 2710 tons.

From Shanghai Daily:

China may soon announce an increase in its official gold reserve from 1,054 tons to 2,710 tons, Jeffrey Nichols, managing director of American Precious Metals Advisors, said.

 

The People’s Bank of China has not reported any increase in official gold holdings since 2009, when the central bank said the official reserve was at 1,054 tons, which accounted for only about 1 percent of its multi-trillion foreign exchange reserves.

 

The PBOC has been “surreptitiously” adding to its official gold reserves. It has bought a total of 654 tons in 2009 through 2011, another 388 tons in 2012, and more than 622 tons last year, mostly from domestic mine production and secondary supplies, Nichols said in a commentary posted on NicholsOnGold.com yesterday.

 

Central bank purchases comprise the smallest fraction of global gold demand — less than 10 percent.

 

“If China announces an increase in gold reserves, there would be an immediate drag-up force in the gold market,” Albert Cheng, managing director of the industrial association World Gold Council for the Far East, told Shanghai Daily.

 

China is the biggest gold consumer and producer in the world.

 

Combined demand in China in the first three quarters amounted to 821 tons and the demand for the whole last year is expected to exceed 1,000 tons, according to the council’s earlier statements.

Oh well: the period of quiet accumulation was fun while it lasted.

That said, we for one would be happy if Nichols is wrong, and if the PBOC were not to announce any time soon it has become the fourth (or third, or second) largest official holder of gold in the world. Because unlike clueless, momentum-chasing traders everywhere, it is always better to buy lower than higher: a concept which the entire Western “developed” markets and the HFT algos and sophisticated “hedge fund” investors that trade them, have either forgotten or never grasped to begin with.

Can We Be Sure The War On Drugs Is Worth Fighting? | Zero Hedge

Can We Be Sure The War On Drugs Is Worth Fighting? | Zero Hedge.

Did you know the war on drugs is founded on racist principles? Prof. Stephen Davies shows the historical thought process behind banning drugs. One of the main reasons drugs were banned initially is because people were concerned drug use would lead to interracial relationships. Can you imagine someone making that argument today? Yet it was a principle reason for some of the laws banning drugs that we still have. Other reasons for banning drugs included fear of conspiracies and the misguided notion that the government somehow has a right to the productivity of its citizens. All three of these reasons are truly absurd, but all three were historically used as arguments that contributed to the war on drugs. If these are the arguments on which the drug war is founded, can we be sure it’s a war worth fighting for?

 

Bank of America Is Actively Preparing For The Chinese January 31 Trust Default | Zero Hedge

Bank of America Is Actively Preparing For The Chinese January 31 Trust Default | Zero Hedge.

Last week we were the first to raise the very real and imminent threat of a default for a Chinese wealth management product (WMP) default – specifically China Credit Trust’s Credit Equals Gold #1 (CEQ1) – and its potential contagion concerns. It seems BofAML is now beginning to get concerned, noting that over 60% of market participants expects repo rates to rise if a trust product defaults and based on the analysis below, they think there is a high probability for CEQ1 to default on 31 January, i.e. no full redemption of principal and back-coupon on the day. Crucially, with the stratospheric leverage ratios now engaged in such products, BofAML warns trust companies must answer some serious questions: will they stand back behind every trust investment or will they have to default on some or potentially many of them? BofAML believes the question needs an answer because investors and Trusts can’t have their cake and eat it tooThe potential first default, even if it’s not CEQ1 on 1/31, would be important based on the experience of what happened to the US and Europe; the market has tended to underestimate the initial event.

For those who have forgotten, below is a quick schematic of what a WMP looks like:

And as we previously noted,

…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).

Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.

Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.

So the PBOC’s efforts are merely exacerbating the situation for the worst companies… and as BofAML notes below, this is a major problem…

The 3bn CNY Beast Knocking
via BofAML’s Bin Gao

CNY stands for the currency, and also a beast

CNY represents China’s official currency. It also stands for Chinese New Year, the biggest holiday for the country and the occasion for family reunions and celebration. But less familiar for many, however, the Year (?) itself actually stood for a beast which comes out every 365 days and eats everything along the way from bugs to humans. The holiday tradition started as a way for people to fend off the beast by getting together and lighting up the firecrackers.

At the same time, custom dictated that people also to paid their due to avoid becoming the beast’s target. In particular, it has been a tradition to settle all debt before the New Year. From the perspective of such folk culture, the trust product Credit Equals Gold #1, referred as CEQ1 hereafter, by China Credit Trust planned poorly for having the maturing date on the New Year, leaving a 3bn CNY beast running wild.

High probability for the trust product to default

Though the term default is used quite frequently, there are actually confusions on what constitutes a default in this case when talking to investors and especially onshore investment professionals. To simplify the issue, we define a default as failing to pay the promised contractual amount on time.

The product, CEQ1, is straightforward. It is CNY3.03bn financing with senior tranches of CNY3bn and junior tranche of CNY30mn. In principle, the senior tranches are also equity investment, but the junior tranche holder pledged assets for repurchasing senior investment at a premium. The promised rate was indexed to PBoC’s deposit rate with a floor for three classes of senior tranches at 9.5%, 10% and 11%, paid annually (detailed structure is illustrated below).

In a sense, the product is in technical default already. The last coupon payment in December, with nearly all the money (CNY80mn) left in the trust account, came in at only 2.7%, falling far short of the promised yield. The bigger trouble is the CNY3bn principal payment, along with the delinquent coupon, on 31 January.

We see high probability of default on 31 January

Political or economic consideration: ultimately, given the government’s strong grip on financial institutions, default may be a political decision as much as an economic decision. From that perspective, CEQ1 would be a good candidate for default. The minimum investment in CEQ1 is CNY3mn, much more than the typical amount required for other trust investment and 75 times of per capita GDP in China. If defaults were to be used to send a warning signal to shadow banking investors, this group of rich investors may have been a good target because the government does not need to worry too much of them demonstrating in front of government offices.

Timing: there is never a good timing for deleverage because of risks involved. But the current job market situation provides a solid buffer should defaults and subsequent credit contraction slow down the economy growth. The government planned 9mn jobs last year; instead it has created more than 12mn by November. So the system could withstand a potential shock.

Financial capability: China Credit Trust has a bit over CNY10bn net assets, which some analysts cite as evidence of the trust company’s capability to fully redeem the product first and recover from the collateral asset later. However, the assets might not be liquid enough, so the net asset is not the best measure. Based on its 2012 annual report, the company has liquid asset of CNY3bn and short-term liability of CNY1.35bn, leaving liquid accessible fund of CNY1.65bn at most. ICBC for certain has much deeper pocket, but it has declared that it won’t be taking major responsibility.

Career concern: To certain extent, the timing was unfavorable for another reason, the ongoing anti-corruption campaign. It is reported that there are around 700 investors involved. On CNY3bn senior tranche investment, it averages CNY4.3mn per investor. We do not know the exact identity but with CNY3mn entry point, we know no one is a small-scale investor. Legally unjustified, if either China Credit Trust or ICBC decided to pay 100% with their capital, the decision maker would have to ensure that he does not have any business deals with any of the 700. Because if he does, his career or even his freedom could be in jeopardy in the current environment of ongoing anti-corruption campaign and strict scrutiny of shady deals/personal favors.

Questionable asset quality and uncertain contingent claim: There are cases in the past of near default, but most of them involved collateral of real estate assets, which have at least appreciated over the years. The appreciation of collateral assets makes it easier for the third party to step in by paying back investors and taking over the collateral assets. This particular product involves coal-mining assets whose value has been decreasing over the last couple of years. Moreover, there have been multiple claimants on these assets, as exemplified by the sale of Yangjiagu coal mine. Although the mine was 51% pledged through two levels of ownership structure, only 20% of the sales proceed accrued to trust investors (Exhibit 1 above). Such a low percentage would be a deterrence and concern to whoever contemplating a takeover of the collateral assets.

Other cases less relevant: In the past, one way to deal with the issue was for banks to lend to shareholders of the existing collateral asset owners for them to payback investors, with explicit or implicit local government guarantees. Shangdong Hailong’s potential default on bond was avoided this way last year. However, in the current case, the owner has been arrested for illegal fund raising, making the past precedence less applicable.

Putting all the above reasons together, we think there is a high probability for CEQ1 to default on 31 January, i.e. no full redemption of principal and backcoupon on the day.

Immediate impact would be for China rates curve to flatten

The case has been widely covered in the media. However, many still believe one way or the other the involved parties will find a last minute solution to fully redeem the maturing debt. So if the trust is not paid, we believe it will be a big shock to the market.

China rates market reaction, however, might not be straightforward. On the one hand, default would likely lead to risk-averse behavior, arguing for lower rates. On the other hand, market players would likely hoard cash in such an event, leading to tighter liquidity condition and pushing money rates higher.

We think that both movements are likely to ensue initially, meaning higher repo/SHIBOR rates and lower CGB yield if default were to realize. We suggest positioning likewise by paying 1y IRS and long 5y CGB. On the swap curve itself, we think the immediate reflection will be a bear flattening move.

Interestingly, an informal survey conducted on WeChat among finance professionals suggests the same kind of repo rate reaction (Chart 1). We think this survey is important because we believe these investment professionals will likely behave accordingly because the default event is not priced in and hard to hedge a priori.

Trust company can’t have their cake and eat it too

Of course, we can’t rule out that the involved parties do find a solution to avoid default. However, with a case as clear cut to us as this one favoring default, we believe such outcome would send a strong signal to investors that the best investment is to buy the worst credit.

Thus, we believe the near term market reaction with no default would be for the AA credit to shine brightly since this segment has been under pressure for quite some time. Trust investment would be met with enthusiasm and trust assets would likely expand further.

However, we see a fundamental problem in the industry; the leverage ratio has gone to a level which requires investors and trust companies to answer some serious questions: will trust company stand back behind every trust investment or will trust company have to default on some or potentially many of them? We believe the question needs an answer because the trust companies can’t have their cake and eat it too.

For the industry, the AUM/equity ratio has nearly doubled from 23 to 43 in less than three years during the period of 4Q2010 to 3Q2013 (Chart 2). Some in the industry has argued that one should only count the collective trusts since other trusts are originated by non-trust players like banks. Thus, trust companies have no responsibility for paying investors other than collective trusts.

We see two problems.

Even if we accept the trust companies’ argument, it is still questionable whether trust companies would be able to pay even a reasonable amount of default. The growth of leverage on collective trusts was much more aggressive. Collective trust AUM/equity ratio was 2.7 in 1Q2010 and 4.7 in 4Q2010 (Chart 2). It rose to 10 by 3Q2013, more than doubled in less than three years and more than tripled in less than four years. Along the way, the average provision has dropped from 84bp to 34bp when measured against collective AUM.

As the case of CEQ1 illustrates, as long as full redemption is on the table, no involved party could walk away totally clean. CEQ1 is a case of collective trust, but the ICBC still faces the pressure to pay. If the bank is being pressured to pay in the case of collective trust default, trust companies will likely be pressured to pay as well should some non-collective trusts get into trouble. If trust companies are on the line for the total AUM, their financial condition is even shakier, with average provision covering barely 7bp of total AUM as of 3Q2013.

On longer term market trend

Based on the analysis in the above section, we see a possibility for trust companies to have to let some trust products default with such high leverage and so few provisions. This is especially likely the case given that there will be more and more trust redemption this year and next year as a result of the fast expansion of this industry over the last couple of years and short duration of such products.

The heaviest redemption in collective trusts this year will arrive in the 2Q (Chart 3). Given that the financial system is stretched thin and there were more cases of near defaults on smaller amount of redemption last year (three cases in December alone), we believe some form of default is almost inevitable in the near term.

The potential first default, even if it’s not CEQ1 on 31 JANUARY, would be important based on the experience of what happened to the US and Europe; the market has tended to underestimate the initial event. Over the last year, China appeared to be mirroring what happened in the US during 2007, the spike of money rate (much higher repo/SHIBOR), the steepening of money curve (14d money much more expensive than overnight and 7d), and small accidents here and there (junior tranches of a few wealth management products offered by Haitong Securities losing more than 60%, a few small trusts and now CEQ1’s redemption difficulty).

Theoretically, China’s risk is best expressed using a China related instrument, but we also think the more liquid expression of China goes through the south pacific. The following points list our longer views on China and Australia rates.

  • We have liked using Australia rates lower as a way to express our China concern and we continue recommending doing so as a theme.
  • We recommend long CGB and underweight credit product. The risk for such positioning in the near term is no CEQ1 default. But we believe any pain suffered due to overt market manipulation to avoid default will be short lived since it has become much harder to keep the debt-heavy system in balance and the credit spread is bound to widen.
  • After a brief flattening on CEQ1 default, we see swap curve steepening as being more likely on more default threatening growth leading to easy monetary policy and more issuance going to the bond market.
  • We look for higher CCS rates due to the fact that the currency forward will more likely start expressing the risk.

As Michael PettisJim ChanosZero Hedge (numerous times),  George SorosBarclays, and now BofAML have explained… Simply put –

“There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.”

The “eerie resemblances” – as Soros previously noted – to the US in 2008 have profound consequences for China and the world – nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector.

Germany Has Recovered A Paltry 5 Tons Of Gold From The NY Fed After One Year | Zero Hedge

Germany Has Recovered A Paltry 5 Tons Of Gold From The NY Fed After One Year | Zero Hedge.

On December 24, we posted an update on Germany’s gold repatriation process: a year after the Bundesbank announced its stunning decision, driven by Zero Hedge revelations, to repatriate 674 tons of gold from the New York Fed and the French Central Bank, it had managed to transfer a paltry 37 tons. This amount represents just 5% of the stated target, and was well below the 84 tons that the Bundesbank would need to transport each year to collect the 674 tons ratably over the 8 year interval between 2013 and 2020. The release of these numbers promptly angered Germans, and led to the rise of numerous allegations that the reason why the transfer is taking so long is that the gold simply is not in the possession of the offshore custodians, having been leased, or worse, sold without any formal or informal announcement. However, what will certainly not help mute “conspiracy theorists” is today’s update from today’s edition of Die Welt, in which we learn that only a tiny 5 tons of gold were sent from the NY Fed. The rest came from Paris.

As Welt states, “Konnten die Amerikaner nicht mehr liefern, weil sie die bei der Federal Reserve of New York eingelagerten gut 1500 Tonnen längst verscherbelt haben?” Or, in English, did the US sell Germany’s gold? Maybe. The official explanation was as follows: “The Bundesbank explained [the low amount of US gold] by saying that the transports from Paris are simpler and therefore were able to start quickly.” Additionally, the Bundesbank had the “support” of the BIS “which has organized more gold shifts already for other central banks and has appropriate experience – only after months of preparation and safety could transports start with truck and plane.” That would be the same BIS that in 2011 lent out a record 632 tons of gold…

Going back to the main explanation, we wonder: how exactly is a gold transport “simpler” because it originates in Paris and not in New York? Or does the NY Fed gold travel by car along the bottom of the Atlantic, and is French gold transported by a Vespa scooter out of the country?

Supposedly, there was another reason: “The bullion stored in Paris already has the elongated shape with beveled edges of the “London Good Delivery” standard. The bars in the basement of the Fed on the other hand have a previously common form. They will need to be remelted [to LGD standard]. And the capacity of smelters are just limited.”

So… New York Fed-held gold is not London Good Delivery, and there is a bottleneck in remelting capacity? You don’t say…

Furthermore, Welt goes on to “debunk” various “conspiracy websites” that the reason why the gold is being melted is not to cover up some shortage (and to scrap serial numbers), but that the gold is exactly the same gold as before. Finally, to silences all skeptics, the Bundesbank says that “there is no reason for complaint – the weight and purity of the gold bars were consistent with the books match.” In conclusion, Welt reports that in 2014 “larger transport volumes” can be expected from New York: between 30 and 50 tons.

Here we would be remiss to not point out that the reason why the German people and the Bundesbank have every reason to be skeptical is that as Zero Hedge reported exclusively in November 2012, before the Buba’s shocking repatriation announcement and was the reason for the escalation in lack of faith between central banks, it was the Fed and the Bank of England who in 1968 knowingly sent Germany “bad delivery” gold.  Which is why we have a feeling that the pace of gold transportation will certainly not accelerate until such time as the German people much more vocally demand an immediate transit of all their gold held at the New York Fed: after all, it’s there right – surely the Bundesbank can be trusted to melt the gold (if any exists of course) into London Good Delivery or whatever format it wants.

Unless of course, the gold isn’t there…

From November 9, 2012:

Bank Of England To The Fed: “No Indication Should, Of Course, Be Given To The Bundesbank…”

Over the past several years, the German people, for a variety of justified reasons, have expressed a pressing desire to have their central bank perform a test, verification, validation or any other assay, of the official German gold inventory, which at 3,395 tonnes is the second highest in the world, second only to the US. We have italicized the word official because this representation is merely on paper: the problem arises because no member of the general population, or even elected individuals, have been given access to observe this gold. The problem is exacerbated when one considers that a majority of the German gold is held offshore, primarily in the vaults of the New York Fed, and at the Bank of England – the two historic centers of central banking activity in the post World War 2 world.

Recently, the topic of German gold resurfaced following the disclosure that early on in the Eurozone creation process, the Bundesbank secretly withdrew two-thirds of its gold, or 940 tons, from London in 2000, leaving just 500 tons with the Bank of England. As we made it very clear, what was most odd about this event, is that the Bundesbank did something it had every right to do fully in the open: i.e., repatriate what belongs to it for any number of its own reasons – after all the German central bank is only accountable to its people (or so the myth goes), in deep secrecy. The question was why it opted for this stealthy transfer.

This immediately prompted rampant speculation within various media outlets, the most fanciful of which, of course, being that the Bundesbank never had any gold to begin with and has been masking the absence all along. The problem with such speculation is that, while it may be 100% correct and accurate, there has been not a shred of hard evidence to prove it. As a result, it is merely relegated to the echo chamber periphery of “serious media” whose inhabitants are already by and large convinced that all gold in the world is tungsten, lack of actual evidence to validate such a claim be damned (just like a chart of gold spiking or plunging is not evidence that a central bank signed the trade ticket, ordering said move), and in the process delegitimizing any fact-basedinvestigations that attempt to debunk, using hard evidence, the traditional central banker narrative that the gold is there and accounted for.

And hard evidence, or better yet a paper trail of inconsistencies, is absolutely paramount when juxtaposing the two most powerful forces of our times: i) the central banking-led status quo (which isde facto the banker-led oligarchy whose primary purpose in the past several centuries has been to accumulate as much as possible of the hard asset-based fruits of people’s labor, who toil in exchange for “money” created out of thin air – a process which could be described as not quite voluntary slavery, but the phrase would certainly suffice), and ii) “everyone else”, especially when “everyone else” still believes in the supremacy of democratic forces, accountability, and an impartial legal system (three pillars of modern society which over the past 4 years we have experienced time and again have been nothing but mirages). Because without hard evidence, not only is the case of the people against central bankers non-existent, even if conducted in a kangaroo court co-opted by the banker-controlled status quo, it becomes laughable with every iteration of progressively more unsubstantiated accusations against the central banking cartels.

Finally, when it comes to cold, hard facts, which expose central banks in misdeed, even the great central banks have to be silent silent, as otherwise the overt perversion of justice will blow up the mirage that modern society lives in a democratic, laws-based world will be torn upside down.

And while others engage in click-baiting using grotesque hypotheses of grandure without any actual investigation, reporting or error and proof-checking to build up hype and speculation, which promptly fizzles and in the process desensitizes the general public and those actually undecided and/or on the fences about what truly goes on behind the scenes, Zero Hedge travelled (metaphorically) in space – to London, or specifically the Bank of England Archives – and in time, to May 1968 to be precise.

While there we dug up a certain memo, coded C43/323 in the BOE archives, official title “GOLD AND FOREIGN EXCHANGE OFFICE FILE: FEDERAL RESERVE BANK OF NEW YORK (FRBNY) – MISCELLANEOUS”, dated May 31, 1968, written by a certain Mr. Robeson addressed to the BOE’s Roy Bridge as well as its Chief Cashier, and whose ultimate recipient is Charles Coombs who at the time was the manager of the open market account at the Fed, responsible for Fed operations in the gold and FX markets.

This memo, more than any of the other spurious and speculative accusation about Buba’s golden hoard, should disturb German citizens, and of course the Bundesbank (assuming it was not already aware of its contents), as the memo lays out, without any shadow of doubt, that the BOE and the Fed, effectively conspired to feed the Bundesbank due gold bars that were of substantially subpar quality on at least one occasion in the period during the Bretton-Woods semi-gold standard (which ended with Nixon in August 1971).

The facts:  

At least two central banks have conspired on at least one occasion to provide the Bundesbank with what both banks knew was “bad delivery” gold – the convertible reserve currency under the Bretton Woods system, or in other words, to defraud – amounting to 172 barsThe “bad delivery” occured even as official gold refiners had warned that the quality of gold emanating from the US Assay Office was consistently below standard, and which both the BOE and the Fed were aware of. Instead of addressing the issue of declining gold quality and purity, the banks merely covered up the refiners’ complaints 

It is this that the Bundesbank, the German government, and the German people should be focusing on. If in the process this means completely ridiculing the Buba’s “she doth protest too much” defense strategy that what is happening in the media is a “phantom debate” as per Andreas Dobret’s recent words, so be it. In fact, one may be well advised to ignore anything Buba has said on this matter, because in attempting to hyperbolize the matter out of irrelevancy, the Buba is now cornered and will have no choice now but to explain just what the true gold content of the gold even in its possession is, let alone that which is allocated to the Buba account 50 feet below sea level, underneath the infamous building on Liberty 33.

Full May 1968 memo from the BOE to the NY Fed: highlights ours:

MR. BRIDGE

THE CHIEF CASHIER

U.S. Assay Office Gold Bars

1.  We have from time to time had occasion to draw the Americans’ attention of the poor standards of finish of U.S. Assay Office bars. In addition in 1961 we passed on to them comments from Johnson Matthey to the effect that spectrographic examination did not support the claimed assay on one bar they had so tested (although they would not by normal processes have challenged the assayand that impurities in the bar included iron which caused some material to be retained on the sides of crucible after pouring.

2. Recently, Johnson Matthey have put 172 “bad delivery” U.S. Assay Office bars into good delivery form for account of the Deutsche Bundesbank. These bars formed part of recent shipments by the Federal Reserve Bank to provide gold in London in repayment of swaps with the Bundesbank. The out-turn of the re-melting showed a loss in fine ounces terms four times greater than the gross weight loss. Asked to comment Johnson Matthey have indicated verbally that:-

(a) the mixing of “melt” bars of differing assays in one “pot” could produce a result which might be a contributing factor to a heavier loss in fine weight but they did not think this would be substantial ;

(b) a variation of .0001 in assay between different assayers is an extremely common phenomenon;

(c) over a long period of years they had had experience of unsatisfactory U.S. assays

3. It is not, however, possible to say that the U.S. assays were at fault because Johnson Matthey did not test any of the individual bars before putting them into the pot.

4. The Federal Reserve Bank have informed the Bundesbank that adjustments for differences in weight and refining charges will be reimbursed by the U.S.Treasury.

5. No indication should, of course, be given to the Bundesbank, or any other central bank holder of U.S. bars, as to the refiner’s views on them. The peculiarity of the out-turn will be known to the Bundesbank: it has so far occasioned no comment.

6. We should draw the attention of the Federal to the discrepancy in this (and any similar subsequent such) result and add simply that the refiners have made no formal comment but have indicate that, although very small differences in assay are not uncommon, their experience with U.S. Assay Office bars has not been satisfactory.

7. We hold 3,909 U.S. Assay Office bars for H.M.T. in London (in addition to the New York holding of 8,630 bars). After the London gold market was reopened in 1954 we test assayed the bars of certain assayers to ensure that pre-war standards were being maintained. It might be premature to set up arrangements now for sample test assays of U.S. Assay Office bars but if it appeared likely that the present discontent of the refiners might crystalise into formal complain we should certainly need to do this.  In the meantime I would recommend no further action.

31st May 1968

P.W.R.R.

To summarize: Bank of England discovers discrepancies with US Assay Office gold bars, notifies the NY Fed that its gold bars have major “bad delivery” issues, but, and this is the punchline, on this occasion, we’ll keep it quiet, because the Bundesbank got these bars. This is merely one documented assay occasion: one can imagine that of the hundreds of thousands of gold bars in official circulation, the “good delivery” quality of bars outside of the US, and perhaps BOE, official holdings has progressively declined over the decades of Bretton Woods. One can also only imagine what has happened to all those “good delivery” bars currently held by the Fed as custodian at the NY Fed. Literally: imagine. Because there is no way to check what the real gold consistency of these gold bars is, and whether the refiners found ongoing future inconsistencies with “good delivery” standards of bars handed off to other “non-core” central banks. And, yes, without further evidence the above is merely speculation.

As to the remaining relevant facts: the US ran out of good delivery gold in March 1968 and only had coin bars remaining. Which is why it closed the gold pool and went to a two-tier price system. The Bundesbank went on to cover some of the outstanding gold debts of the Fed to the gold pool. Subsequently, the US then did several deals with the BOC to get a substantial amount of gold to pay back the Bundesbank which was sent over to England from March until June 1968. One can, again, only speculate on the quality of said gold. The Fed then created unsettled accounts to account for these transfers between itself and the Buba.

In light of the above facts and evidence, one can see why the Buba is doing all in its power to avoid the spotlight being shone on the purity of its gold inventory: after all the last thing the German central banks would want is someone to go through the publicly available archived literature, to put two and two together, and figure out that it does not take one massive “rehypothecation” (see “to Corzine”) event for German gold credibility to be impaired: all it takes is death from a thousand micro dilutions over the decades to get the same end result. Because chipping away one ounce here, one ounce there for years and years and years, ultimately adds up to a lot.

We eagerly look forward to the Buba’s next iteration of self-defense. We can only hope that this one does not include a reference to a “phantom debate”, to “East German terrorist Simon Gruber” or toGoldfinger, as it will merely further destroy any remaining credibility the Bundesbank may have left in this, or any other, matter.

What do I believe about the world complex? Or, why I think a collapse is inevitable.

Last evening (January 12, 2014) I sat down to create a compilation of beliefs I hold about the world complex. The first twenty that popped into my head were pretty easy with the last few (I only went as far as once through the alphabet) requiring a little thinking. In no particular order I offer this quickly composed list with some links to articles/websites to support them:

ECONOMY/FINANCES

a)     Economic markets are rigged.

  1. http://www.zerohedge.com/news/2013-12-11/are-markets-rigged
  2. http://www.zerohedge.com/news/2013-06-12/summarizing-known-rigged-markets
  3. http://www.zerohedge.com/news/2013-06-11/wmreuters-busted-latest-market-rigging-and-collusion-scandal-foreign-exchange

b)    Gold has been moving from the West to the East.

  1. http://www.zerohedge.com/news/guest-post-world’s-gold-moving-west-east
  2. http://www.zerohedge.com/news/2013-12-19/chinese-dont-want-dollars-anymore-they-want-gold-londons-gold-vaults-are-empty-why
  3. http://www.zerohedge.com/news/2013-05-08/chinese-gold-imports-soar-monthly-record-insatiable-demand

c)     The world’s primary reserve currency never lasts forever.

  1. http://www.zerohedge.com/news/2014-01-10/todays-reserve-currency-tomorrows-wallpaper
  2. http://www.zerohedge.com/news/2013-07-06/bundesbank-warns-chinas-currency-its-way-becoming-global-reserve-currency
  3. http://www.zerohedge.com/news/2013-10-13/guest-post-how-much-longer-will-dollar-be-reserve-currency

d)    Central banks have been coordinating their monetary policies from interest rates to ‘money printing’ to ‘forward guidance’ that is resulting in currency devaluations

  1. http://www.zerohedge.com/news/here-comes-mother-all-rumors-g-20-sources-say-central-banks-preparing-coordinated-action
  2. http://www.zerohedge.com/news/goldman-todays-coordinated-central-bank-bailout-it-isn’t-enough-save-anyone-or-solve-averything
  3. http://www.zerohedge.com/news/2013-10-03/guest-post-rise-and-fall-monetary-policy-coordination

e)     Central banks have been monetizing sovereign debt through increased holdings of government bonds.

  1. http://www.zerohedge.com/news/2013-01-07/japan-may-or-may-not-mint-quadrillion-yen-coins-it-will-monetize-european-debt
  2. http://www.zerohedge.com/news/ecb-monetizes-another-€10-billion-piigs-debt-trichet-says-prudent-ecb-not-fed
  3. http://www.zerohedge.com/news/2012-10-20/presenting-all-us-debt-thats-fit-monetize

f)     Sovereign nations are in extreme debt.

  1. http://en.wikipedia.org/wiki/Government_debt
  2. http://www.economist.com/content/global_debt_clock
  3. http://www.tradingeconomics.com/country-list/government-debt-to-gdp

g)    Private households are in extreme debt.

  1. http://www.oecd.org/std/fin-stats/
  2. http://www.zerohedge.com/news/2013-06-04/debt-nations
  3. http://www.economist.com/blogs/graphicdetail/2013/06/focus-1

h)    All fiat currency experiments eventually end.

  1. http://dailyreckoning.com/fiat-currency/
  2. http://www.youtube.com/watch?v=Oql8CTy6AcA
  3. http://georgewashington2.blogspot.ca/2011/08/average-life-expectancy-for-fiat.html

i)      Robotic technology is replacing increasing number of jobs.

  1. http://www.news.com.au/technology/science/robots-to-replace-almost-50-per-cent-of-the-work-force/story-fn5fsgyc-1226729696075
  2. http://robotswillstealyourjob.tumblr.com/post/48210312400/robots-are-taking-our-jobs-and-we-will-take-their
  3. http://www.amazon.com/Jobocalypse-Human-Jobs-Robots-Replace/dp/1482701960

j)      There exist trillions of dollars of IOUs supporting the financial system.

  1. http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html
  2. http://theeconomiccollapseblog.com/archives/the-coming-derivatives-panic-that-will-destroy-global-financial-markets
  3.  http://moneymorning.com/2011/10/12/derivatives-the-600-trillion-time-bomb-thats-set-to-explode/

k)    Unemployment has skyrocketed across western nations, especially for the young (under 25).

  1. http://www.theguardian.com/commentisfree/2013/nov/14/youth-unemployment-wreck-europe-economic-recovery
  2. http://business.time.com/2012/11/05/why-the-u-s-has-a-worse-youth-employment-problem-than-europe/
  3. http://www.workopolis.com/content/advice/article/study-why-youth-unemployment-in-canada-is-here-to-stay/

ENERGY

l)      Production of conventional oil has begun to decline.

  1. http://www.oildecline.com/
  2. http://www.theguardian.com/environment/earth-insight/2013/dec/23/british-petroleum-geologist-peak-oil-break-economy-recession
  3. http://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields

m)   New technologies and dirtier sources are being increasingly required to sustain fuel production.

  1. http://www.peakoil.net/future-oil-production-in-canada
  2. http://www.ft.com/cms/s/0/d005f176-4ad8-11e3-8c4c-00144feabdc0.html
  3. http://www.theoildrum.com/node/10017

n)    Fuel production barely sustains demand.

  1. http://omrpublic.iea.org/balances.asp
  2. http://www.economist.com/blogs/dailychart/2011/06/oil-production-and-consumption
  3. http://www.eia.gov/todayinenergy/detail.cfm?id=12891

o)   The Shale Oil Revolution is not.

  1. http://shalebubble.org/drill-baby-drill/
  2. http://www.resilience.org/stories/2013-10-21/major-study-projects-no-long-term-climate-benefit-from-shale-gas-revolution
  3. http://mondediplo.com/2013/03/09gaz

p)    Models of future fuel production rely on significant ‘yet-to-be-discovered’ sources.

  1. http://www.abo.net/en_IT/publications/reportage/togo/togo_1.shtml
  2. http://seekingalpha.com/article/236162-iea-forecast-economy-depends-on-yet-to-be-found-oil
  3. http://www.jeffrubinssmallerworld.com/2010/11/24/even-the-international-energy-agency-forecasts-peak-oil/

q)    Fossil fuel extraction, transportation, and use have polluted the planet with numerous toxins.

  1. http://www.ec.gc.ca/energie-energy/default.asp?lang=En&n=1F4E5D8A-1
  2. http://www2.epa.gov/nutrientpollution/sources-and-solutions-fossil-fuels
  3. http://www.ucsusa.org/clean_energy/our-energy-choices/coal-and-other-fossil-fuels/the-hidden-cost-of-fossil.html

ENVIRONMENT

r)     Climate extremes are increasing in frequency, duration, and magnitude.

  1. http://www.theguardian.com/environment/2013/dec/18/2013-extreme-weather-events
  2. http://www.climatecommunication.org/new/articles/extreme-weather/overview/
  3. https://www.ipcc.ch/pdf/special-reports/srex/SREX_FD_SPM_final.pdf

s)     Polar ice caps are melting.

  1. http://www.nrdc.org/globalwarming/qthinice.asp
  2. http://www.dw.de/polar-ice-sheets-melting-faster-than-ever/a-16432199
  3. http://uk.news.yahoo.com/what-if-the-world-s-icecaps-melted-overnight–120351663.html#PK3eE9D

t)      We are experiencing peak water.

  1. http://www.wired.com/science/planetearth/magazine/16-05/ff_peakwater?currentPage=all
  2. http://www.bloomberg.com/news/2012-02-06/peak-water-the-rise-and-fall-of-cheap-clean-h2o.html
  3. http://www.princegeorgecitizen.com/article/20130606/PRINCEGEORGE0304/306069987/-1/princegeorge/peak-water-limiting-energy-production

u)    Deserts are expanding.

  1. http://www.nature.com/climate/2009/0909/full/climate.2009.84.html
  2. http://www.bbc.co.uk/learningzone/clips/desertification-expansion-of-the-sahara-desert/1498.html
  3. http://www.globalpost.com/dispatch/news/science/131211/waterless-world-inner-mongolia-desert-wasteland

v)     Sea levels are rising.

  1. http://pri.org/stories/2014-01-10/sea-levels-rising-uk-starting-let-go-some-its-coastline
  2. http://ocean.nationalgeographic.com/ocean/critical-issues-sea-level-rise/
  3. http://www.env.gov.bc.ca/cas/adaptation/sea_level.html

w)   Honeybees have been decimated by human chemical use.

  1. https://www.commondreams.org/archive/2008/05/24/9177
  2. http://www.businessinsider.com/the-world-without-honeybees-2013-6
  3. http://www.prnewswire.com/news-releases/honeybee-population-decline-and-its-devastating-effects-are-topic-of-vanishing-of-the-bees-82364717.html

LIBERTY

x)    Governments are spying on their citizens.

  1. http://www.theguardian.com/world/2013/dec/02/revealed-australian-spy-agency-offered-to-share-data-about-ordinary-citizens
  2. http://www.theguardian.com/world/2013/dec/02/revealed-australian-spy-agency-offered-to-share-data-about-ordinary-citizens
  3. http://www.canada.com/nationalpost/news/story.html?id=dae581de-2490-45f8-90c7-919d01fbd4f4

y)    Governments are spying on each other and themselves.

  1. http://www.globalresearch.ca/nsa-spying-on-congress-to-manipulate-intimidate-blackmail-top-government-and-military-officials/5364273
  2. http://www.cbc.ca/news/politics/new-snowden-docs-show-u-s-spied-during-g20-in-toronto-1.2442448
  3. http://www.nytimes.com/2013/12/21/world/nsa-dragnet-included-allies-aid-groups-and-business-elite.html?_r=0

z)     Governments are manipulating the data they provide to the public.

  1. http://www.businessinsider.com/government-data-manipulation-pricestats-argentina-inflation-2012-10
  2. http://www.wealthdaily.com/articles/unemployment-data-manipulation/4767
  3. http://www.zerohedge.com/news/2013-11-19/government-investigate-government-over-jobs-manipulation-report

I know many people would prefer to hear a message of hope but when these ‘realities’ exist I can’t help but be fairly pessimistic about our chances of a ‘sustainable’ future or a ‘soft landing’ for our economic woes. Unless some unforeseen miracle can save us from ourselves, I can only conclude that the day of reckoning is quickly approaching; it’s a matter of when, not if. Some event, minor or major, will be that snowflake that begins a cascading collapse of our interrelated, complex world. And by collapse, I mean a sudden, devastating drop in the standard of living (similar to Dimitry Orlov’s Five Stages of Collapse) OR an elongated, slow contraction (similar to James Howard Kunstler’s The Long Emergency or John Michael Greer’s The Long Descent); to me, these are not too dissimilar and require simply a change in time perspective to interpret the change as either ‘sudden’ or ‘lengthy’.

To quote William Catton Jr., from his book Overshoot: “…the pressure of our numbers and technology upon manifestly limited resources has already put out of reach the previously acceptable solutions to many of our problems. There remains steadfast resistance to admitting this, but facts are not repealed by refusal to face them. On the other hand, even the ‘alarmists’ who have been warning of grave perils besetting mankind have not fathomed our present predicament…” (p. 5).

Update 1. January 17, 2014

1.  Far more ‘paper’ precious metals exists than actual ‘physical’ metal in existence (a type of ‘fractional reserve’ banking):

2. Large Western financial institutions (i.e. U.S. Federal Reserve; Bank of England) have sold/leased their gold holdings and misled their clients about this:

3. The United States government and/or people within it have carried out domestic assassinations of numerous leaders:

4. The Fukushima Daichii Nuclear Plant disaster is far worse than the corporate media is letting on:

5. ‘Democratic’ countries are becoming more secretive and totalitarian through ‘legislation’:

Interesting thoughts: Murray Rothbard, Anatomy of the State (ISBN 978-80-87888-43-8):
“…the government is not ‘us.’ The government does not in any accurate sense ‘represent’ the majority of the people…Briefly, the State is the only organization in society which attempts to maintain a monopoly of use of force and violence in a given territorial area; in particular, it is the only organization in society that obtains its revenue …by use of complusion; that is, by the use and the threat of the jailhouse and the bayonnet. Having used force and violence to obtain its revenue, the State generally goes on to regulate and dictate the other actions of its individual subjects…The State provides a legal, orderly, systematic channel for the predation of private property; it renders certain, secure, and relatively ‘peaceful’ the lifeline of the parasitic caste in society….The State has never been created by a ‘Social Contract’; it has always been born of conquest and exploitation…”

Feel free to offer some further ‘beliefs’, and three ‘credible’ links, in the comments. I will update the list periodically.

Cheers,

Steve

2013 Greatest Hits: Presenting The Most Popular Posts Of The Past Year | Zero Hedge

2013 Greatest Hits: Presenting The Most Popular Posts Of The Past Year | Zero Hedge.

The fifth anniversary of Zero Hedge is just around the corner, and so, for the fifth year in a row we continue our tradition of summarizing what you, our readers, found to be the most relevant, exciting, and actionable news of the year, determined objectively by the number of page views. Those eager for a brief stroll down memory lane of prior years can do so at their leisure, by going back in time to our top articles of 200920102011 and 2012. For everyone else, without further ado, these are the articles that readers found to be the most popular posts of the past 365 days.

  • In 25th place, with just over 100k reads, was the extended profile of the puppetmaster of the biggest geopolitical event of 2013, the false flag-driven Syran conflict which nearly escalated into the world’s first YouTube “justified” world war pitching the US-led west against the Russia-led east, the Saudi intelligence chief: Prince Bandar, exposed in “Meet Saudi Arabia’s Bandar bin Sultan: The Puppetmaster Behind The Syrian War.” The war was avoided with a last minute gambit by Putin, which lead to a historic detente between the US and Iran, as well as an unprecedented breakdown in US relations with its long-time middle east allies Saudi Arabia and Israel. Look for the Middle East to make geopolitical headlines in the new year since the underlying issue – Europe’s dependence on Gazprom – remains entirely unresolved.
  • The 24th most popular article hardly needs an explanation: “The Chinese Don’t Want Dollars Anymore, They Want Gold” – London’s Gold Vaults Are Empty: This Is Why.” The only comment here is that like above, the trend of gold’s transfer from West to East, started in earnest in late 2012, and peaking in 2013, is sure to continue in 2014 when the liquidation of paper gold in Western capital markets will afford Chinese buyers with ever more attractive prices at which to purchase physical gold
  • In 23rd spot an “Unidentified Navy Officer summed it all up” when he said that “I didn’t join the navy to fight for Al Qaeda in a Syrian civil war.” It is understandable why over 106,000 people agreed with the message
  • The 22nd most popular article looked at “What Happened The Last Time We Saw Gold Drop Like This?” which compared the fall in the price of gold in 2013 to previous historic occasions, most notably the months just before the collapse of Lehman. For now, courtesy of the $170 billion in liquidity injected by the Fed and the BOJ, “this time has proven different.” But with the Fed now tapering, how much longer will the illusion persist? We, like everyone else, look to 2014 for the answer.
  • With 108k views, the 21st most read post of 2013 revealed the “Photos And Video Of the Boston Bombing Suspects“, culminating the most violent terrorist event in years, and one which brought back vivid memories of the events from September 11
  • It may seem like a distant memory now, but the shocking announcement from mid-March in which Cypriot deposits were confiscated without a warning, reverberated across Europe and all insolvent banking systems, especially since it is now the blueprint of how banks will impair depositors going forward. Then again, with over 112k reads of our summary “For Everyone Shocked By What Just Happened… And Why This Is Just The Beginning” we reminded our readers that the deposit confiscation event of 2013 was predicted on these pages nearly two years earlier, and explained why, indeed, this is just the beginning of the great balance sheet rebalancing. For now Europe has managed to hide its hundreds of billions in bad loans under the couch; 2014 will be a different story. Look for the Cyprus “blueprint” to see a much wider acceptance in the coming year.
  • In 19th spot, mother nature reminded everyone with a “Stunning Time-Lapse Video Of 2-Mile Wide Oklahoma Tornado” that despite their sense of omnipotence, the central planners better pray each and every day that in a world priced to beyond perfection, that there are no material natural disasters. Because 10 out of 10 times, a liquidity tsunami generated from a central bank’s printer is powerless to withstand a natural one, as the Fukushima catastrophe reminds us each and every day with headlines of its ever deteriorating radiation “containment.”
  • A long-time favorite of readers, Kyle Bass’ Japan thesis came one step closer to fruition when earlier this year Japan went all in on its great reflation experiment, described in “Kyle Bass Warns The ‘AIG’ Of The World Is Back“, a presentation seen by over 114K readers. So far Abenomics has been a failure with wages contracting, import food and energy prices soaring, a record trade deficit (yes, Abenomics was supposed to boost net exports), and of course Fukushima in the background, but for now everyone has a rampaging Nikkei to be easily distracted by. With Abe’s popularity finally tumbling, will his second tenure as Prime Minister be cut short, and would his departure finally force Japan to cross the event horizon of no return? This is but another question which we hope 2014 will answer.
  • In 17th spot, we revealed some very disturbing trends in US energy consumption with “These Charts Better Not Reflect The True State Of The US Economy.” Because while the shale revolution may have revealed a (transitory) marginal source of oil, what remains unknown is why demand for energy in the US economy is tumbling in parallel. Unless, of course, the narrative about a US recovery has been a lie from the beginning…
  • With 121k reads, in the 16th top spot another post that needs no explanation was “Stunning Images From China: Ten Thousand People Waiting In Line To Buy Gold“. Perhaps the only article that could beat this one is “Ten thousand hedge fund managers waiting in line to sell GLD”
  • There are stereotypes about others, and then there are stereotypes about America. Which perhaps explains why over 121k people eagerly read “10 Things Most Americans Don’t Know About America.” We can only hope they learned something.
  • It may be forgotten now, but the biggest story of early 2013 was the Bundesbank’s shocking announcement in mid-January that it would proceed to repatriate some 700 tons of its gold held in central bank vaults in New York and Paris. Of course, the events described in “It Begins: Bundesbank To Commence Repatriating Gold From New York Fed” and read by 127k people, could be seen coming by Zero Hedge readers from a mile away: after all it was this website that repeatedly warned in late 2012 about the trials and tribulations that had surrounded the official German gold hoard. We can only hope that we were in some part responsible for the Buba’s correct decision to repatriate its gold. Then again, as we updated last week, having collected only 37 tons of gold in one year (out of 700), Germany will really have to pick up the pace if it hopes to have recourse to its hard currency before it is no longer a matter of convenience but one of survival.
  • The 13th top article of the year was the release of the list with “132 Names Who Pulled Cyprus Deposits Ahead Of “Confiscation Day.” It appeared the Cyprus deposit confiscation was not a complete secret to everyone, but then again the Animal Farm “new normal” justice in which some are more equal than others is hardly a surprise to anyone these days.
  • And speaking of confiscation, the 12th most read article of 2013, with 131k views was “Poland Confiscates Half Of Private Pension Funds To “Cut” Sovereign Debt Load.” It would appear that wealth transfer, first voluntary and then, not so much, will be an increasingly prevalent theme of the “recovery”…
  • But the biggest stunner in this category was the impromptu announcement itself when on March 16, “Europe Does It Again: Cyprus Depositor Haircut “Bailout” Turns Into Saver “Panic”, Frozen Assets, Bank Runs, Broken ATMs.” Don’t worry though: Europe is now fixed, it is recovering, and, if one believes the continent’s unelected leaders, all shall forever be well. We are confident 2014 will show otherwise.
  • The 10th most read article in 2013 dealt with the bedrock of the New Normal – the dollar’s reserve currency status, and rather, its gradual disintegration as China increasingly makes itself heard. It made itself heard loud and clear to the 142k readers who clicked on “Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility.” The loss of USD-reserve status will be yet another theme to keep a close eye on in 2014 and onward.
  • Showing just how reliant on welfare the US has become was top article #9 in which a leaked USDA memo hinted of a “Foodstamp Program Shutdown Imminent” which grabbed the attention of 148k readers. For now SNAP as it is better known has been merely “tapered”, not fully shut down, although ensuing Walmart stampedes driven by EBT card glitches provided a glimpse of just had bad things could be if indeed nearly 50 million Americans suddenly found themselves without government backstops
  • The troubles of the poor were hardly an issue for the 8th most popular article of 2013 in which we asked if “The Russians Have Already Quietly Withdrawn All Their Cash From Cyprus?” Once again it was the middle class that got shafted, while those who could fly in and out on private jets appear to have gotten away unscathed. This is certainly the prevailing theme of the past five years and one which will accelerate into the future.
  • 152k people read the breaking news from April when “Large Explosions Reported At Boston Marathon; Numerous Injuries And Casualties.” The focal point of all watercooler talk for the next several weeks, the analogies to terrorist attacks in the past were unavoidable even if the motivations behind the attacks turned out to be far less nefarious and organized than initially feared.
  • 2013 was the year in which the largest US city (to date) filed bankruptcy. However it was “25 Facts About The Fall Of Detroit That Will Leave You Shaking Your Head” that was read by 154k people, that made this the 6th most popular article of 2013.
  • 2013 was also the year in which the stock market finally took out its previous, 2007 highs, driven entirely by the unprecedented expansion of both the Fed’s and the Bank of Japan’s balance sheets. What over 163k found curious, however, were the other economic comparisons to “The Last Time The Dow Was Here…” Needless to say, there is nothing in the economy that would justify a market at the current levels, or even levels far lower, if it were only up to the economy. Luckily, there Fed is always there to lend a helping hand. And what can possibly go wrong…
  • 2013 was not only the year of the Fed’s QEternity: it was also the year in which Japan went all in with its own reflation experiment. However, all will be for nothing unless the troubling facts revealed in “Why Have Young People In Japan Stopped Having Sex?” remain unresolved. Because at its core, Japan’s crisis is a demographic one, and at the current pace of social aging, there will be no Japan left in several decades. Unfortunately for Kuroda, he can’t print babies.
  • The third most popular article of 2013 was posted almost exactly a year ago, when it “Put America’s Tax Hike In Perspective.” Over 171k people realized just how meaningless in the grand scheme of things was America’s grand bargain achieved last year at this time, over much stock market huffing and puffing. Then again, the fact that all major decisions in the US are put in the can that is later kicked down the street is also no news to anyone. The only thing in the here and now is theatrics, theatrics and more theatrics…
  • The second most popular post of 2013, with nearly 200k reads, was our succinct summary of the US “recovery” laid out in “People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels.” We are happy that by now everyone has finally understood that plunging unemployment at the expense of a collapsing work force is nothing to be proud about.
  • And in the top spot, with nearly 300k reads, our most read article was the satirical, sarcastic look at the Egyptian counterrevolution titled “Egyptians Love Us For Our Freedom.” Turns out…they don’t. But they certainly appreciate the irony of two-faced, hypocritical US foreign policy which was humiliated and left in tatters both in Egypt and in every other place around the globe where either Hillary Clinton or John Kerry came, saw and promptly departed in the past year.

So what to make of the world as we enter 2014?

With nearly $2 trillion in emergency liquidity pumped by the world’s two largest central banks – more than has been injected ever before – the entire world is floating on an ocean of excess liquidity, which for now has succeeded in masking just how ugly the truth beneath the calm surface is. Sooner or later, the tide comes out, as it always does, and the naked are revealed for all to see. However, this time it will be the very final backstoppers of the status quo regime, the central banking emperors of the New Normal, who are finally exposed as wearing absolutely nothing. What happens then, and when that happens, is anyone’s guess. We, however, will be there to document every aspect of it.

Finally, and as always, we wish all our readers the best of luck and success in 2014, and leave everyone with a promise of what we can be 100% sure of: Zero Hedge will be there each and every day helping readers expose, unravel and comprehend the fallacy, fiction, fraud and farce that the system is reduced to (ab)using each and every day just to keep the grand tragicomedy going for at least one more day.

 

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