Rickards: Here’s Where The Next Crisis Starts

Authored by James Rickards via The Daily Reckoning,

So many credit crises are brewing, it’s hard to keep track without a scorecard.

The mother of all credit crises is coming to Chinawith over a quarter-trillion dollars owed by insolvent banks and state-owned enterprises, not to mention off-the-books liabilities of provincial governments, wealth management products and developers of white elephant infrastructure projects.

Then there’s the emerging-markets creditcrisis, with Turkey and Argentina leading a parade of potentially bankrupt borrowers vulnerable to hot money capital outflows and a slowdown of growth in developing economies.

Close on their heels is the U.S. student loan debacle, with over $1.5 trillion in outstanding debts and default rates approaching 20%.

Now we’re facing a devastating wave ofjunk bond defaults. The next financial collapse, already on our radar screen, will quite possibly come from junk bonds.

Let’s unpack this…

Since the great financial crisis, extremely low interest rates allowed the total number of highly speculative corporate bonds, or “junk bonds,” to rise 58% — a record high.

Many businesses became highly leveraged as a result. There’s currently a total of about $3.7 trillion of junk bonds outstanding.

And when the next downturn comes, many corporations will be unable to service their debt. Defaults will spread throughout the system like a deadly contagion, and the damage will be enormous.

This is from a report by Mariarosa Verde, Moody’s senior credit officer:

This extended period of benign credit conditions has helped many weak, highly leveraged companies to avoid default… A number of very weak issuers are living on borrowed time while benign conditions last… These companies are poised to default when credit conditions eventually become more difficult… The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.

Many investors will be caught completely unprepared.

Each credit and liquidity crisis starts out differently and ends up the same. Each crisis begins with distress in a particular over-borrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

The problem is that regulators are like generals fighting the last war. In 2008, the global financial crisis started in the U.S. mortgage market and spread quickly to the overleveraged banking sector.

Since then, mortgage lending standards have been tightened considerably and bank capital requirements have been raised steeply. Banks and mortgage lenders may be safer today, but the system is not.

Meanwhile the Fed is raising interest. It’s undertaking QE in reverse by reducing its balance sheet and contracting the base money supply. This is called quantitative tightening, or QT.

Credit conditions are already starting to affect the real economy. New cracks are appearing in emerging markets, as I mentioned. I also mentioned that student loan losses are skyrocketing. That stands in the way of household formation and geographic mobility for recent graduates.

Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch.

It doesn’t matter where the crisis begins. Once the tsunami hits, no one will be spared.

The stock market is going to correct in the face of rising credit losses and tightening credit conditions.

No one knows exactly when it’ll happen, but the time to prepare is now. Once the market corrects, it’ll be too late to act.

That’s why the time to buy gold is now, while it’s cheap. When you need it most, once the crisis hits, it’ll cost a fortune.

END

Just look at these 3 places were rioting has broken out;

1.Haiti

2. nantes France

3. Portland Oregon

(courtesy Daisy Luther/Organic Prepper blog)

 

Riots: 3 Places All Hell Has Broken Loose In The Last Few Days

Authored by Daisy Luther via The Organic Prepper blog,

A lot of people like to think that the SHTF is some distant thing that probably won’t ever happen. But, in reality, it happens every single day, someplace in the world. Riots have occurred all over the world recently, stranding travelers, destroying property, and causing serious injuries and death.

Here are 3 different places where all hell has broken loose in just the past few days.

Haiti

It’s a bad time to be in Haiti right now. Apparently, an increase in gasoline prices has caused people to take to the street. A number of American missionaries are currently hunkering down in fear for their lives. They’re unable to get out of the country because many airlines have canceled all flights in and out of the country.

Savannah Peek, a missionary with a team from Richmond County, North Carolina, told WSOC said they are terrified for their lives…

…“We heard gunshots start and they were very close,” said Peek. “At this point, we all dropped immediately to the ground. We’re all on our hands and knees. Everyone’s screaming, everyone’s crying.”

Peek said guns were handed out to civilians for protection.

“People started passing out guns to civilians because we thought the (men) were about to break in and rob us, kill us, start a fire. We had no idea,” she said. (source)

The US Embassy in Haiti issued the following alert:

Due to continuing demonstrations, roadblocks, and violence across Port-au-Prince and throughout Haiti, U.S. citizens should continue to shelter in place.  Do not travel to the airport unless you confirmed your flight is departing.  Flights are canceled today and the airport has limited food and water available.

Telecommunications services, including Internet and phone lines, have been affected throughout Haiti.  It may be difficult to reach people through normal communication methods.

U.S. Embassy personnel are still under a shelter-in-place order.  The embassy will continue to monitor the situation.

The U.S. Embassy will be closed for routine services Monday July 9.  Non-emergency appointments will be rescheduled for a later date.  The Embassy remains open for emergency U.S. citizen services.

Actions to take:

  • Shelter in place. Do not attempt to travel at this time.
  • Avoid protests and any large gathering of people.
  • Do not attempt to drive through roadblocks.
  • If you encounter a roadblock, turn around and get to a safe area.
  • Let family and friends know if you are safe. (source)

Here’s some shocking video footage of the riots.

France

In Nantes, a city in France, a battle has been going on between African migrants and the French police for days now, after the police shot a 22-year-old migrant named Aboubakar Fofana. The riots went on for 4 days but eased when relatives of the Aboubakar Fofana said they were filing a lawsuit.

Initially, police said that the victim was shot because he tried to run over a police officer with a car. Later, they admitted the shooting was in fact NOT self-defense, but an accident.

The worst of riots looked like a war between police and migrants.

Ouest-France reports:

The police forces were deployed massively in the neighborhoods of the rioters. They fired Molotov cocktails at Breil and Bellevue and responded with tear gas grenades.

In total, 35 vehicles were burned. To prevent a resurgence of fires, since last night, Friday, July 6, the Region has banned the retail sale of fuel and fireworks.

In the Breil district, the beginning of a fire hit a building of the Nantes Habitat social landlord. The damage, however, seems small: except for some traces of fire near the building, only a window is barred by a sign; the building is intact.

“Put your weapons, gang of assassins” or “you are going to be afraid in your houses” are the slogans that were launched to the CRS came to reinforcement in the districts. (source)

According to Zero Hedge, things are only going to get worse in France.

The  GEFIRA team expect riots in France to become more and more violent and eventually lethal. Like most Western European societies and the US, the demographic change and the gradual replacement will come with a hefty price.

There are signs that white French bourgeoisie youth will join the violent protests, like Black bloc and Antifa. (source)

Here’s some video footage of the chaos in Nantes.

Portland

And right here in the United States, violent riots have erupted over the Trump administration, political differences, and immigration policies. Portland has been the heart of many political movements since the election of President Trump, starting the day after the election in which Hillary Clinton suffered a surprise loss.

The riots in the city have been going on for the past couple of months, with some particularly heated moments occurring in early July. A Patriot Prayer rally turned violent when members of Antifa showed up and began pelting them with firecrackers, eggs, and water bottles.

The counterprotesters were identified as the Eugene Antifa, who named their demonstration“Defend PDX: Patriot Prayer’s Violence Must End.”

“It is very important that antifascists keep up the pressure so that we can stop them once and for all,” a Facebook event page for the counterprotest read.

“While many acolytes have broken away from Gibson at this point, the core that remains, largely Proud Boys, have grown increasingly violent,” the page said. “For this reason we must sustain our campaign, and keep up our efforts on as many fronts as possible until they completely cease their despicable activity.” (source)

The demonstrators didn’t hesitate to fight back and police used firecrackers, smoke bombs, flash bangs and “aerial distraction in an attempt to disperse the crowd.

This isn’t the first time the groups have gone head to head. They also became violent toward one another in early June and previously, in 2017. Below is a video of what some people are calling “The Battle of Portland.”

What can we learn from all this?

I’m all for protesting and demonstrating against things that are unjust. The right to peaceful protest is written right into the American constitution.

But what we can all learn from this is how quickly something that starts out as a peaceful protest can be disrupted and turned into a violent riot. It can happen anywhere, at any time, and if you are unfortunate enough to be nearby, it can be a life-threatening emergency in some cases.

Here are the things to remember:

  • Learn to watch the signs and foresee when violence is about to erupt so you can get yourself and your family safely away.
  • Make a plan to keep your family safe during times of civil unrest if it should occur near your home. (This article can help.)
  • Avoid situations that are likely to become violent.
  • Remember that fire is one of the most common weapons used in a riot.
  • If you are traveling when violence erupts, plan to hunker down. Contact the American Embassy for help. DO NOT go to the airport unless you know for sure your flight is definitely taking off.
  • Remember that the police and military may be every bit as violent as the crowd and will not have time to differentiate between you and a protester.
  • If you’re caught in a crowd, move diagonally to get yourself out of the masses. Hold on to children so that you do not get separated.

The best thing you can do is avoid trouble. The second best thing you can do is know how to handle it if trouble comes to you.

END

The Bank of Canada hikes by 25 basis points which causes the Loonie to rise despite poorer economic conditions.  The bank signals for more rate hikes

(courtesy zerohedge)

Bank of Canada Hikes Rates By 25bps, Loonie Rises On Hawkish Take

The Bank of Canada raised the overnight rate by 25bps to 1.5%, in line with consensus estimates.

In justifying the move, the Bank said it expects the global economy to grow by about 3.75% in 2018 and 3.5% in 2019, adding that the US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar. It warned that this is “contributing to financial stresses in some emerging market economies” suggesting that Canada was dragged into the rate hikes rather than welcoming it.

In other words, the BOC hopes that demand from the U.S. will trump the drag on trade from tariffs the two neighbors, as well as the uncertainty over the future of Nafta.

It also noted that while oil prices have risen, the Canadian dollar is lower, reflecting broad-based US dollar strength and concerns about trade actions, noting that “the possibility of more trade protectionism is the most important threat to global prospects.”

Perversely, even as the BOC hiked rates, it warned that household spending is “dampened by higher interest rates and tighter mortgage lending guidelines.”

Curiously, despite market concerns, the BOC raised its Q2 GDP forecast to 2.8% from 2.5% previously, with Q3 seen at 1.5%; The bank also raised the potential output growth to 1.8% in 2018, and 1.9% in 2019 and 2020.

Commenting on the ongoing trade war with the US, the BOC estimates US tariffs on steel and aluminium will reduce level of real Canadian exports by 0.6%, with the impact expected to be felt in H2 2018. Meanwhile, Canadian counter measures estimated to reduce real imports by 0.6% starting Q3, while tariffs will temporarily boost inflation in Q3 2019.

The statement also points to potential for more trade risk: “As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports. This effect is now judged to be larger, given mounting trade tensions.”

The BOC also said that it will take a gradual approach, guided by incoming data.

Some other notable highlights from the report:

  • BOC raises potential output growth to 1.8% in 2018, 1.9% in 2019 and 2020
  • BOC says CPI inflation expected to edge up further to 2.5%, before settling back to 2% in H2 2019
  • CPI and core CPI remain near 2%, consistent with with an economy operating close to capacity
  • Says wage growth running about 2.3%, slower than expected in a labour market with no slack

* * *

So is the report hawkish or dovish? According to some the former prevails due to the following:

  • No new dovish language, with the guidance unchanged from “higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.”
  • The latest projection incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada. “Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest.”
  • A upward revision to Q2 GDP from 2.5% in April to 2.8% in the July update
  • And a stronger read on the economy: “In the first quarter of 2018, business investment and exports were more robust than anticipated. Stronger levels of spending are expected to persist over the projection horizon, partly reflecting higher oil prices, even with the larger impacts from both trade policy uncertainty and tariffs.”

The loonie’s kneejerk reaction has been to rise modestly, higher by 40 pips against the USD to 1.3100, reflecting what appears a victory for the hawkish take, at least initially.

end

Trump demands countries to pay 2% of their GDP immediately and then it should be raised to 4%

(courtesy zerohedge)

Trump Slams NATO: “Pay 2% Of GDP IMMEDIATELY” Or Even 4%

Update: One look at the ‘family’ photo and it’s clear there are a lot of ‘gaps’ between these alliance leaders…

 

*  *  *

President Trump is, rightly, stirring the pot in Europe today, reportedly demanding that NATO leaders increase their defense spending targets from 2 to 4%, according to the Bulgarian president.

“President Trump, who spoke, raised the question not just to reach 2%, today, but set a new target – 4%,” Bulgarian president Rumen Radev told reporters, according to Reuters, citing BNR public radio.

“NATO is not a bourse a which one can buy security. But yes, on the other hand, President Trump is right, as each country should build its effective capabilities, and the unwillingness with which Bulgaria spends money on defense is obvious.”

As a reminder, US only spends 3.57% of GDP (which is the most), and as one French official noted, “it wasn’t a demand, rather just a mention.”.

White House spokeswoman Sarah Sanders confirmed that:

“During the president’s remarks today at the NATO summit, he suggested that countries not only meet their commitment of 2 per cent of their GDP on defence spending, but that they increase it to 4 per cent,” Sanders said after the closed-door meeting of NATO leaders.

NATO Secretary General Jens Stoltenberg was reluctant to endorse such a move.

“I will focus on what we have agreed and we have agreed that we committed to the pledge increasing defense spending to 2 percent,” he told reporters. “And let’s start with that. We have a way to go.”

“We do have disagreements, but most importantly, we have decisions that are pushing this alliance forward and making us stronger,” Stoltenberg said.

“At the end of the day, we all agree that North America and Europe are safer together.”

And then President Trump doubled-down on his earlier shot at Germany:

“Germany, as far as I’m concerned, is captive to Russia because it’s getting so much of its energy from Russia,” Trump told NATO Secretary General Jens Stoltenberg in a fiery on-camera exchange that was among the harshest in the history of the post-World War II alliance.

“We have to talk about the billions and billions of dollars that’s being paid to the country we’re supposed to be protecting you against,” Trump said, referring to European purchases of Russian natural gas.

Blasting “What good is NATO if Germany is paying Russia billions of dollars for gas and energy?”

Trump then returned to the broader NATO membership, asking “Why are their only 5 out of 29 countries that have met their commitment? The U.S. is paying for Europe’s protection, then loses billions on Trade.”

Trump ended with ALL CAPS: “Must pay 2% of GDP IMMEDIATELY, not by 2025.

Donald J. Trump

@realDonaldTrump

What good is NATO if Germany is paying Russia billions of dollars for gas and energy? Why are there only 5 out of 29 countries that have met their commitment? The U.S. is paying for Europe’s protection, then loses billions on Trade. Must pay 2% of GDP IMMEDIATELY, not by 2025.

As a reminder, NATO members agreed in 2014 to spend at least 2 percent of their respective GDP on defense by 2024. The goals are also for each country’s own defense budget, not payments into the alliance.

 

One glance at the current spending levels and it is clear that Trump is right.

Infographic: Expenditure Of Nato Countries In 2016 | Statista

You will find more infographics at Statista

As we noted previously, Trump is quite right that America’s NATO allies, particularly Germany and Canada, don’t spend enough on defense.  Germany is reported to have less than twenty operational tanks. Canada’s armed forces appear to be smaller than the New York City police department.

But the Europeans ask, ‘defense against whom?’   The Soviet Union was a huge threat back in the Cold War when the mighty Red Army had 55,000 tanks pointed West.  Today, Russia’s land and naval power has evaporated.  Russia has perhaps 5,500 main battle tanks in active service and a similar number in storage, a far cry from its armored juggernaut of the Cold War.

More important, Russia’s military budget for 2018 was only $61 billion, actually down 17% from last year.  That’s 4.3% of GDP.  Russia is facing hard economic times.  Russia has slipped to third place in military spending after the US, China and Saudi Arabia.   The US and its wealthy allies account for two thirds of world military spending.  In fact, the US total military budget (including for nuclear weapons and foreign wars) is about $1 trillion, 50% of total US government discretionary spending.

In addition, Russia must defend a vast territory from the Baltic to the Pacific.  The US is fortunate in having Mexico and Canada as neighbors.  Russia has North Korea, China, India, the Mideast and NATO to watch.  As with its naval forces, Russia’s armies are too far apart to lend one another mutual support. Two vulnerable rail lines are Russia’s main land link between European Russia and its Pacific Far East.

Infographic: The U.S. Is Pouring Money Into Air Bases Flanking Russia | Statista

You will find more infographics at Statista

Trump’s supplemental military budget boost this year of $54 billion is almost as large as Russia’s entire 2018 military budget.  As for Trump’s claim that Europe is not paying its fair share of NATO expenses, note that that Britain and France combined together spend more on their military forces than Russia.

In Europe, it’s hard to find many people who still consider Russia a serious threat except for some tipsy Danes, right wing Swedes, and assorted Russophobic East Europeans.  The main fear of Russia seems concentrated in the minds of American neoconservatives, media, and rural Trump supporters, all victims of the bizarre anti-Russian hysteria that has gripped the US.

Still, it all seems smiles in Brussels for now…

 

end