The Fed Is Creating Enormous Financial Instability

Today John Mauldin warned King World News that the U. S. Federal Reserve is creating enormous instability in the global financial system. Mauldin, who is President of Millennium Wave Securities, also cautioned that if things spin out of control, “the central bank doesn’t have any weapons.”

Mauldin: “I’ve been doing a lot of thinking about the future. I’m in the process of finishing up a book with the co-author of ‘End Game.’ We have a book coming out this fall called, ‘Code Red.’

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We are writing about quantitative easing, currency wars, and the next 5 years. The upshot of it is that our current policies in both governments, and in central banking, are coming to a point that it’s (actually) increasing the instability of the system….

“As an example, Bernanke gave a hint that they might begin to reduce the amount of money they are injecting into the system and the stock market just threw up. So within a week there were like 6 or 7 Federal Reserve types that were out saying, ‘No, no, no. That’s not what we meant.’

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/17_Mauldin_-_The_Fed_Is_Creating_Enormous_Financial_Instability.html

Hinde Capital On China, Gold, AndThe Continuing Unravelling Of Our Monetary Order

The global crisis is a financial crisis driven primarily by global trade and capital imbalances; and Hinde Capital believes the crisis is in full swing again and asset prices are in danger of falling globally. Money is less effective at catching the falling knife. Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear a re-run of the EM crises of old. They are right. This is not (just) going to be an EM crisis. The disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system. Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

Via Hinde Capital,

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Over the past four decades the global economy has largely experienced prolonged imbalances, with countries running large current account deficits in symbiotic relationships with those running large surpluses. In our recent HindeSight Investor Letter – Top of the BoPs (below) – we revisit our long held belief that the current monetary order as defined by a constellation of exchange rate arrangements between the major global currencies, and which maintained these imbalances artificially, has led to excessive global liquidity and credit creation. This in turn drove a litany of asset price bubbles.

The bursting of these asset bubbles has continued in a series these past two decades, each one’s demise leading to more disruptive policy responses which have only succeeded in igniting yet more bubbles, only for those too to fail.

Finally in 2008 we witnessed the finale of decades of credit creation, rising in what appeared to be a crescendo of credit excess and widespread asset booms. We saw this event as the death throes of an unstable monetary regime, only then to see an unprecedented global reaction by policymakers in a coordinated fashion to keep the global system alive. For a moment here today, there are those who dare to believe they have succeeded, with rising equity markets a testimony to a reviving global economy. Nothing could be further from reality.

We stand by our assessment that the disproportionate reaction of central bankers and policymakers alike has merely succeeded in compounding and exacerbating the error of this highly imbalanced monetary system. Recent events in emerging countries are a manifestation of the continuing unravelling of our monetary order.

In the 1980s it was a hike by the US Fed that triggered the LatAm crisis. Today, the mere whisper of tighter monetary conditions in the US, vis-a-vis a tapering of QE has led to higher bond rates globally. Note tapering is not the same as hiking interest rates.

The consequences of multiple rounds of QE have heightened global risks as it has both exacerbated ‘currency competition’ and hot capital flows into countries seeking desperately for a return both from income and capital growth. This has created major distortions in term rates, equity and bond values, driving them artificially high in price.

These distortions have created risks far greater than the fragilities of EM countries of yesterday years. The system of credit creation has produced unstable growth underpinned with collateral which is both mobile and suspect in its integrity.

Investors have nowhere to turn, emerging market countries growth is faltering in response to export disadvantages brought about by rampant G10 currency devaluations. China is finally succumbing to its side of the global imbalance excesses. First it was the deficit nations now it’s the turn of the creditor nations to falter, primarily China.

Trade flow reversals are leading to massive capital outflows out of EMs and the question remains: will the central banks of these countries sell their FX reserves, UST- bonds and euro government bonds (bunds) to finance this surge in outflows?

It is not clear that renewed global central bank liquidity provision will even stabilise a situation we see as growing dire by the day. China is the driver. All eyes on china.

We believe the bursting of the ‘Great Bond Bubble’ will lead to a formative and substantial rise in gold as official money, institutional and investor money seeks an asset that can protect us all from a global default and resetting of the monetary order. The time to buy gold is fast approaching, if that time is not already upon us.

HindeSight Investor Letter June 2013 – Top of the BoPs


Source: http://www.zerohedge.com/news/2013-07-15/hinde-capital-china-gold-andthe-continuing-unravelling-our-monetary-order

The Secret To How Eric Sprott & I Became Wealthy

Today one of the wealthiest people in the financial world spoke with King World News about how he and Eric Sprott became so wealthy. Rick Rule, who is business partners with billionaire Eric Sprott, also spoke about one of the greatest opportunities that he has seen in his entire career. Below is what Rule had to say in his interview.

Rule: “You know, Eric, it’s funny because right now I am up in Vancouver, and looking at the despair in the professional investment community and juxtaposing that with the strange elation that I feel has caused me to feel very contemplative.

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One of the things that occurs to me is that this is my fourth major market cycle. The three previous down-cycles that I’ve been through previously were the cause of my personal wealth, and Eric Sprott’s personal wealth….

“It’s interesting that at age 60 I have a lot more patience than I did when I was age 30. And I think one of the things that’s happening right now is the fact that markets and conditions have caused me to be a 3-to-5-year thinker, and most of the people I compete with, who are 20 years younger than me, have a 2-to-3-week time frame.

And the idea that somebody who has a 2-to-3-week times frame can compete with somebody who has a 3-to-5-year time frame is very problematic. What Eric and I are trying to do in very crass terms is go from being quite wealthy, to being ludicrously wealthy.

But the reality is that we are competing with people who are trying to make payments on their 2nd house at Whistler. In other words we are competing with people who are trying to live rich as opposed to being rich, which constrains them to a very, very short time frame.

Certainly I feel bad about having paid $3 for some stock that is selling at 60 cents, but it’s not the first time I’ve ever done that, and it’s certainly not the last time I am going to do that. But what I can tell you is that the money I’ve made in my life has come about through the aggressive deployment of capital at times like these.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/15_Rick_Rule_-_The_Secret_To_How_Eric_Sprott_%26_I_Became_Wealthy.html