Venezuela Throws In The Towel On Hyperinflation: Will Print 200x Higher-Denominated Bills
Oct 27, 2016 12:43 PM
While several years ago it was perhaps debatable in polite society that Venezuela's socialist economy would collapse ultimately unleashing hyperinflation, any doubt was put to rest early this year when the IMF's own inflationary forecast confirmed as much.
However, while the international community had long accepted the inevitable fate of Maduro's socialist paradise, the local government sternly refused to admit reality and to avoid confirming what the local population already knew, it insisted on keeping the highest denomination bill in circulation at 100 bolivars, whose worth is approximately 8 cents on the black market, turning the most basic transactions into logistical nightmares and saddling banks with crippling money-handling costs. Economists and central bank employees say Mr. Maduro didn’t want to acknowledge the country’s inflation problem by printing bigger notes.
This has finally changed, and as the WSJ reports, Venezuela’s government, slammed by hyperinflation has finally thrown in the towel, and is planning to issue new bills in December with larger denominations—up to 200 times higher than the current biggest bill, according to people familiar with the plans. The move marks an implicit acknowledgment by the government that skyrocketing prices have slashed the value of the currency.
The new coins and notes will go up to 20,000 Bolivars, according to people close to the central bank, the finance ministry, the country’s banks and bill suppliers. This would make the biggest note worth $15 on the black market. And since by doing so the government will tacitly admit that it has lost control over prices, It will also create a self-fulfilling prophecy of even higher prices, sending the country's hyperinflation into overdrive.
As the WSJ adds, earlier this year, the government began informally allowing shops in the outer provinces to sell food at free market prices, reducing shortages at the cost of higher inflation, which the International Monetary Fund expects to rise above 1,600% next year. Further liberalization followed after the state oil company gradually rolled out higher-priced gasoline at gas stations in the border regions to reduce the cost of subsidizing the cheapest car fuel in the world, according to the company’s executives. Venezuela's loss, however, is a big gain for the companies contracted to print the money: In recent weeks, several companies, including U.K.-based De La Rue, the world’s largest commercial printer, won contracts to print the new set of notes, which the government wants in time for the annual December spending spree, according to a person familiar with contract negotiations.
“It’s a very big deal. It’s a big package,” the person said.
Meanwhile, the central bank remains stuck in denial and hasn’t published price statistics for almost two years. Instead, Mr. Maduro has blamed the skyrocketing prices on the “economic war” waged against his government by shopkeepers and financiers. This has forced people to brave one of the world’s highest crime rates by shopping with backpacks full of cash and spend hours lining up outside ATMs, which give out less than $10 per withdrawal. Many provincial banks have reduced daily withdrawals to 30,000 bolivars, which would buy a Venezuelan couple a lunch at a mid-scale restaurant.
Amusingly, as we reported last year, the high demand for nearly worthless currency notes has also presented a financial burden for the cash-strapped government, which also lacks raw materials to print its own money. Since last year, Venezuela has had to pay hundreds of millions of dollars to printing companies to feed its economy with Bolivar currency. The shipments arrived to Venezuela from private printing presses around the world on several dozen windowless Boeing 747 jets. Given the crime risks, the air shipments arrive at the Caracas airport at night before the notes are loaded onto armored trucks and transported to the central bank vaults in Caracas, protected on the 18-mile route by soldiers.
Indicatively, a fully stocked ATM is emptied in just three and a half hours on average now, according to the Venezuelan Banking Association.
The good news for the insolvent nation is that all local denominated debts are now just as worthless as the currency, which incidentally is what the BOJ's Kuroda would call: mission accomplished.
Sadly, Venezuela is the canary in the coalmine for what will happen to all currencies in a world where there is now simply too much debt.
Banks Sounding "RED ALERT" for "Severe" Stock Market Plunge
Post by Newsroom Superstation95.com
- Oct 24, 2016
Yesterday's big stocks drop may have just been the beginning.
Or so says HSBC Holdings Plc technical analyst Murray Gunn. In a new note, Gunn says he is now on alert for a big dip in U.S. equities.
"With the U.S. stock market selling off aggressively on October 11, we now issue a RED ALERT," he writes. "The possibility of a severe fall in the stock market is now very high,"
he adds, noting that volatility has continued to rise since the end of the summer and the recent sell-off was seen across many areas of the market, and not just select groups.
Also causing some concern for Gunn is the intensity of the selling pressure, measured by what's called the Traders Index, an indicator that combines both market breadth and the trading volume of advancing stocks versus declining stocks. The higher the index, the more bearish that day's trading.
Earlier this month, Ben Laidler, global equity strategist at HSBC Holdings Plc told Bloomberg TV in an interview that the stock market is exposed to "a dangerous combination" of risk factors that investors aren't looking at closely enough. Reasons for his caution included high earnings expectations, economic-policy uncertainty as well as the upcoming U.S. election and the Italian referendum. "We think markets are pretty vulnerable," he concluded.
Other firms have issued similar warnings, with Citigroup Inc. Head FX Strategist Steven Englander telling clients that investors aren't adequately hedging U.S. election risk and technical analysts at UBS AG calling for a top in the S&P 500 following the recent bond market sell-off that pushed yields on the benchmark 10-year U.S. Treasury above 1.7 percent.
The key levels that Gunn and his team are watching are 17,992 in the Dow Jones Industrial Average and 2,116 in the S&P 500. "As long as those levels remain intact, the bulls still have a slight hope," they write. "But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast," they conclude.
Derivatives–The Mystery Man Who’ll Break the Global Bank at Monte CarloNote: Permission to reprint, repost or forward the following article in full is granted, but only if it is not edited or excerpted.
(This article was first posted to www.SurvivalBlog.com on Sept. 25, 2006.)
Derivatives–The Mystery Man Who’ll Break the Global Bank at Monte CarloBy James Wesley, Rawles — Editor of www.SurvivalBlog.comWhen I do radio interviews or lecture presentations, I’m often asked: “Mister Rawles, what do you see as a likely ‘worst case scenario’?” People expect me to say “a full scale nuclear exchange in World War III” or, “a stock market crash”, or “a flu pandemic”, or “a sudden end to the current real estate bubble.” But most of them are surprised when I respond: Economic collapse triggered by the popping of the derivatives bubble. Many people that are involved in the periphery of the investing world–including most small investors–have never even heard of derivatives. They may have heard of ‘hedge funds”, but they don’t understand what they are. Yet in terms of the sheer number of Dollars, Yen, and Euros traded, these investments represent the biggest financial market of all.
What are derivatives? The Derivatives Primer sums it up nicely in one sentence: “Derivatives are financial contracts designed to create pure price exposure to an underlying commodity, asset, rate, index or event.” Another way of putting is it is that a derivative contract is a secondary or “derived” wager on the future price of an investment in an underlying market. It is much like the futures markets for stocks, bonds, and commodities. But a derivative can be something even more speculative. A derivative can be a bet on a incremental market change in yet another bet on an incremental change–in effect a hedge on a hedge, or bet on a bet. Derivatives are traded globally, and are less regulated than other financial markets. All traders like to hedge their bets. And these days they typically use exotic derivative contracts to do so.
Derivative contracts can be traded in just about anything: stock, bonds, commodities, credit, interest rates, or currencies. You can place a derivative bet on next year’s price of QQQ (the aggregate price of all NASDAQ stocks), or you can place a bet on the price of tea in China. A corporation can make a forward rate agreement (FRA), predicting the interest rate that it will pay on money that it plans to borrow for a factory expansion in two years. An agreement to borrow or lend a certain amount of principal at a specified interest rate and time.You can bet on the future of the futures market in pork bellies. Economist Robert Chapman summed it up best when he wrote: “The point everyone misses is buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing.”
How big is the derivatives universe? As William Shatner would say: “Big, reaalllly big!” The scary thing is that the volume of derivatives trades is much larger than their underlying markets. To give you some perspective, here is a quote from economist Gary Novak, “The total annual product of the globe is around $30 trillion. I estimate that the total value of the global real estate is around $50 trillion. A few years ago, Alan Greenspan said the amount of derivatives on the books was $200 trillion. More recently, the figure was stated to be $300 trillion. Now, someone is saying $770 trillion.” That’s a lot of zeroes.
Economist Robert Chapman was one the first to warn the public about the full implications of the derivatives bubble. More recently, there have been many others, most notably by Michael J. Panzner, (best known as the author of Stock Market Jungle), who last year penned The Coming Disaster in the Derivatives Market. In a July, 2003 commentary titled “He’s Forever Blowing Bubbles” (about Alan Greenspan), Dr. Gary North encapsulated the greatest risk of the ever-expanding hedge trading universe: “The derivatives market is an interconnected system of debts and credits that are based mainly on expected earnings of assets of all kinds. Sellers of expected earnings discount them in a highly leveraged financial futures market. Winners and losers offset each other in any transaction. It’s a zero-sum game: for every loser, there is a winner, assuming – the central assumption on which our civilization rests – the loser pays off. If he doesn’t, “the knee bone’s connected to the thigh bone; the thigh bone’s connected to the hip bone.” It’s cascading cross defaults time!”
The first really big indication of the potential risk of derivatives came in 1999, when the heavy-into-hedges trading firm Long-Term Capital Management (LTCM) collapsed. At the time, they were carrying $1.4 trillion (that’s trillion with a “T”, not “B” for billion) in derivatives on their books. But LTCM had only about $4 billion in net asset value, with assets totaling over $100 billion. Again they had about $1.4 TRILLION in derivatives bets on the table when the house of cards collapsed. They were quietly and quickly bailed out in joint effort between the U.S. Federal Reserve and some big banks, minimizing the public outcry. (Unlike the Enron collapse, with the LTCM collapse, few small investors were hurt.) In testimony before congress about the LTCM mess, former Fed chairman Al Greenspan noted ominously: “…on occasion there will be mistakes made, as there were in LTCM and I will forecast without knowing who, what or where, that there will be many more. I would suspect there are potential disasters running into a very large number, in the hundreds.”
Robert Chapman pointed out that had not the Federal Reserve and the big lenders stepped in on the LTCM debacle, the markets would have had to absorb an $80 billion hit. At the time that LTCM went down in ’99, only six banks had notional derivatives exposure above $1 trillion. But there are now dozens and perhaps a hundred or more private banks, investment firms, central banks, and national governments with that much derivatives exposure.
Before the 1999 LTCM debacle, there were some forewarnings of derivatives disasters:
The global derivatives universe hums along nicely in times like these–in times like we’ve had since 1988. There are no nasty LTCM-type headlines. In such times market changes are gradual and incremental. For example, a derivatives trader makes a tidy profit when he bets that the Dow Jones will be 2.2% higher next year instead of the generally expected 1.9% Or another bets that higher fuel costs will put the pinch on bird guano miners in the South Pacific, curtailing their annual profits. What the hedge book boys have never encountered is a market with huge swings–something like the equities markets of the 1929 to 1935 era. If that volatility were to occur today, many derivatives traders would surely be wiped out. Their losses would be monumental. Again, we are talking about somewhere between $300 trillion and $770 trillion presently on the casino table. These are boggling figures. The risks, in absolute terms, are incalculable. Don’t forget that directly or indirectly, central (“state”) banks and national governments themselves are now inextricably tied to the derivatives trading universe. They are not just “dabbling in derivatives”. Rather, they are in derivatives up to their necks. If and when the global derivatives bubble ever pops, it may topple not just trading companies like Goldman Sachs, or corporations like GM, Daimler-Chrysler, or RCA, but entire nations. I’m not kidding.
The derivatives market was relatively small when the U.S. markets had their last big hiccup in 1987, and it was even smaller when the commodities markets went through their last big spikes in 1978 to 1981. The whole derivatives universe has grown up since then. So we are in essentially uncharted waters, with no way to predict the effects of huge markets swings on the derivatives markets. The hedge boys will be entering terra incognita. The big market swings will blind-side the hedge traders. Some will get hurt very badly. The implications could be huge.
As another precursor of trouble ahead, the latest hedge fund fiasco was reported in September of 2006 by Bill Bonner and Lila Rajiva: “Hedge fund Amaranth Advisors [an Energy derivatives firm] managed to lose $4.6 billion – about half its entire value – in a matter of just a few days through a sensational miscalculation of the price of natural gas futures in the spring of 2007. Today’s news tells us the figure has now grown to $6 billion.”
Protect Yourself with Tangible Investments
The early 21st Century may go down in history as the era of the Derivatives Implosion. Because of their derivatives books, some major corporations may go down in flames, wiping out investors. Entire currencies might even cease to exist. Protect yourself. Diversify out of dollar denominated paper investments. Hedge into tangibles like silver and gold. Buy some productive farm or ranch land with plentiful water where you’ll fare better if the power grid goes down. For some detailed guidance on both tangibles investing and physical survival, www.SurvivalBlog.com
In closing, my advice is to do your own form of hedging: Hedge against the future follies of the big hedge funds by diversifying out of dollars and into tangibles. You can expect trouble to occur when you start to see radical swings in interest rates or in the stock and bond markets. I predict that someday there will be big, bad, financial news about derivatives in the headlines. How big? Reaalllly big.
Disclaimer: I’m not a registered investment adviser. I’m just an individual investor with my own opinions.
James Wesley, Rawles is a former U.S. Army Intelligence officer and a noted author and lecturer on survival and preparedness topics. He is the author of “Patriots: A Novel of Survival in the Coming Collapse” and is the editor of SurvivalBlog.com–the popular daily web journal for prepared individuals living in uncertain times.
"There Will Be Panic???"
by Tyler Durden
Oct 19, 2016 12:30 PM
Submitted by Mac Slavo via SHTFPlan.com,
Legendary investor Doug Casey has a keen eye for capital markets, wealth preservation strategy and the many manipulations being used by financial elites to strip the wealth of entire nations. One year before global financial markets collapsed he warned that an economic and geo-political storm was coming. Now, nearly a decade on, he says that things are about to get a whole lot worse:
Where are we right now?
In 2007 I used the analogy that we entered a gigantic financial hurricane and we went through the leading edge of it in 2007, 2008, 2009 and 2010. We’ve been in the eye of the storm since then… and it’s a huge hurricane with a big eye… they’ve papered it over with trillion of currency units… not just the U.S… China, Europe, Japan, all the little countries… they’ve all done the same thing, foolishly.
Now, as we speak, we’re moving into the trailing edge and it’s going to be much worse, much longer lasting, and much different than the unpleasantness that we experienced back in 2008… so hold on to your hat.
In his latest interview with SGT Report Casey discusses what you’ll never get in a 30-second mainstream soundbite, including the upcoming Presidential election, suppression of alternative news media, the coming crash, hyperinflation, and preservation strategies your financial adviser won’t give you until after the panic starts: https://youtu.be/bBHIvi1FgpE
Casey warns that what we have seen in Venezuela with people queued up in mile-long lines for food could become a reality in the United States as well, highlighting the fact that most of the money printed by the Federal Reserve has yet to hit the retail market. But when it does, look out, because the monetary collapse that follows will appear almost out of nowhere and take everyone by surprise:
The problem with all this money creation is that most of it hasn’t come down to the retail level. Most of it has stayed in the financial and capital markets… So, real estate is overpriced everywhere… stocks all over the world are in a bubble… bonds are in a super bubble.
.. nobody knows for sure, but let’s say there are 10 trillion U.S. dollars outside of the United States… but foreigners don’t have to use those dollars like Americans do because we have to settle in U.S. dollars… at some point when the panic hits they’re going to unload those U.S. dollars… so there will be much more paper money that will come back into this country and inflation could explode upwards… and very quickly.
With the many asset bubbles blown by the Federal Reserve and their central bank counterparts around the world, finding low priced assets may be a difficult proposition. But there is still one asset class that’s been ignored by most retail investors:
We’re almost in an area that seems metaphysically impossible where there is nothing that’s cheap… there really are no bargains except for the precious metals… they’re the only bargains I can think of… and the mining stocks…
The best and safest and highest potential place for your money now is the precious metals and you should have them in your own physical possession.
Because remember, gold and silver are the only financial assets that are not simultaneously someone else’s liability… That’s critical when most of the world’s financial institution are insolvent.
We’re in for real trouble.
As one of the world’s foremost experts in precious metals and resources, Casey suggests that we will see massive upside movement in gold and silver, and by extension, even bigger moves in the mining companies that pull them out of the ground:
The bottom came in January of this year. It was like a compressed spring. Everybody hated these stocks and nobody even wanted to talk about them… the fact that they’ve come up considerably since January, I think they have a long way to go because the basic dynamics that underlie gold are much more powerful than they’ve been almost any time before… I think it’s going to triple or quadruple in real terms… if that happens these stocks can catch fire.
If we get a mania in gold, and I think we’re likely too, it’ll be driven by both fear, as the economy falls apart, and greed as it goes higher… and prudence as people want to conserve assets.
If you get a mania in gold you’re going to get a super-mania in these little mining stocks… When the public gets interested in them and starts moving money into them it’s going to be like the contents of Hoover Dam trying to get through a garden hose… This has happened numerous times since 1970… These small stocks, as a group, regularly move up 10-to-1 with individuals companies moving up 50 to 100 times… I think it’ll happen again this time. This is a very good time to be positioned in them.
Make no mistake. There will be panic. And it will be epic.
As stock and bond markets around the world buckle we will see unprecedented capital outflows, the speed of which will be unbelievable to most.
8 States Where Obamacare Rates Are Rising by at Least 30%
One state approved average increases of 76%.
The Affordable Care Act is getting a lot less affordable for many Americans. The landmark law, better known as Obamacare, has meant that 20 million previously uninsured people now have health coverage. Many of them have purchased insurance through state or federally run marketplaces. But insurance companies have been abandoning these marketplaces left and right because they say it’s difficult to turn a profit, and the insurers that remain are asking for steep price increases all over the country.
In Michigan, for example, state officials just approved price hikes of 16.7%, on average, for individuals purchasing health insurance in 2017 through the state’s Affordable Care Act exchange. Individual buyers can expect average increases of 20% in Colorado, meanwhile, and price hikes of 19% to 43% in Iowa next year.
Such price increases are actually on the low side compared with states like Minnesota and Oklahoma, where individual plans will shoot up 50% or more on November 1, which is when signups for 2017 coverage on marketplaces are opened.
According to the independently run, impressively comprehensive website ACASignups.net, the average increase for individual plans purchased through Obamacare marketplaces will be about 25% next year. This doesn’t mean that everyone will be paying 25% more for health insurance in 2017. Not remotely.
The increases don’t apply to the vast majority of Americans, who get health insurance through work—and have their premiums partially covered by their employers. The figures cited also don’t factor in how most individual plans purchased via Obamacare marketplaces are subsidized by the government. Nearly 85% of the plans purchased through marketplaces receive premium subsidies because those being covered don’t surpass certain income thresholds.
This is all true. Yet it’s also true that for Americans who don’t get insurance through work, and who make too much money to qualify for federal subsidies, the cost of health coverage is about to soar dramatically, with premiums sometimes rising $1,000, even over $2,000 for the year. The list below is not comprehensive. It’s just a sampling of states where regulators have already approved some astronomical price increases for individual health plans next year.
Individual plan premiums from Blue Cross Blue Shield—the only company offering individual plans in the state in 2017—will rise an average of 36% next year. Roughly 165,000 Alabama residents bought insurance through the marketplace in 2016. The new price hikes come on the heels of BCBS increasing premiums 28% from 2015 to 2016 for individual plans purchased through the marketplace.
Humana sought a price increase of a whopping 65% for individual plans sold on the marketplace in 2017, while other insurers planned smaller increases ranging from 7% to 44%. Altogether, the price increases will average 32% for 2017, according to ACASignups.net.
Throughout Illinois, the price of health care premiums will increase 40% to 50%, on average, for plans purchased on the individual marketplace. Average price increases for mid-level Silver and the lowest-price Bronze plans are both increasing 44% for coverage in 2017.
For an example of how the increases translate to monthly bills for those purchasing insurance on the marketplace, a 21-year-old nonsmoker in Illinois will see the monthly premium for a Silver Plan rise 36% next year, from $229 to $312. That’s the equivalent of paying nearly $1,000 extra for the year, from $2,748 in 2016 to $3,744 in 2017. The price increase would be higher for an older (presumably less healthy) individual, especially if that person is a smoker.
Read Next: One-Third of Counties Will Have Just One Obamacare Insurer by 2017
Minnesota: 50% to 67%
“Rising insurance rates are both unsustainable and unfair,” Minnesota Commerce Commissioner Mike Rothman said in late September, while releasing the details of individual health plan increases purchased on the marketplace. “Middle-class Minnesotans in particular are being crushed by the heavy burden of these costs. There is a clear and urgent need for reform to protect Minnesota consumers who purchase their own health insurance.”
He said that the individual marketplace was “on the verge of collapse,” and that the “rates insurers are charging will increase significantly to address their expected costs and the loss of federal reinsurance support.” The result is that premiums for the estimated 250,000 Minnesotans who buy individual insurance will rise 50% to 67% in 2017, though many of these individuals will receive subsidies to offset the price hikes. If individuals in Minnesota earn $47,520 or more annually, or families earn $97,200 or more, however, they are on the hook for the entire price increase if they’re insured through the state marketplace.
Individual health insurance rate increases range from 12% to 50% for Nebraskans purchasing on the marketplace in 2017, for an average premium increase of about 35%.
Individual Obamacare premiums rose 35% in 2015. That sounds pretty steep, but it pales in comparison to the 76% price increase, on average, the Oklahoma Insurance Commission expects for individual premiums in 2017.
According to HealthInsurance.org, “Oklahoma’s average rate increase for the individual market is by far the highest in the country for 2017.”
Pennsylvanians who purchase individual Obamacare insurance without subsidies will pay 33% higher premiums, on average, for 2017. As a result, the cheapest plan from Geisinger for a 40-year-old nonsmoker will cost $441 per month next year, up from $247 in 2016. For the year, that’s an increase of about $2,300, from $2,964 to $5,292.
Read Next: At Least 1.4 Million Americans Are About to Lose their Obamacare Health Plans
Tennessee: 44% to 62%
For 2017, the state approved individual plan increases of 44%, 46%, and 62% from Humana, Cigna, and Blue Cross Blue Shield, respectively. The state’s head insurance regulator approved the price increases in August after describing Tennessee’s individual marketplace as “very near collapse.”