Three critical lessons from Europe’s recent mini-meltdown
June 1, 2018
Trying to trace the origins of the latest political crisis in Italy is like… well… trying to trace the origins of the decline of the Roman Empire.
There simply is no good starting point.
You can’t talk about the decline of Rome without a lengthy discussion of how destructive Diocletian’s Edict on Wages and Prices was in the early 4th century.
But you’d have to go further back than that and discuss all the lunatic emperors preceding him, all the way back to Caligula.
Did you know? You can receive all our actionable articles straight to your email inbox... Click here to signup for our Notes from the Field newsletter.
But you can’t talk about Caligula without bringing up the effects of the civil war between Octavian and Marc Antony… which was a direct result of the previous civil war between Julius Caesar and Pompeius Magnus.
Before long you’ve gone back in time more than 500 years trying to figure out why the Roman Empire collapsed.
Modern Italy isn’t so different. After all, this is a country so unstable that it’s had 64 governments in the seven decades since the end of World War II, averaging a new government every 14 months.
That has to be some kind of world record.
And to accurately diagnose how Italy ended up in such dire financial and political turmoil, you’d have to go back a -very- long way.
But for the sake of brevity, we’ll just go back to March. Italy held elections, and the “5-Star Movement” political party won the most seats… but not a clear majority.
This required them to establish a coalition with other political parties, which took weeks of haggling and negotiating.
But finally the 5-Star Movement was able to hammer out a deal and present a formal plan to Italy’s head of state, President Sergio Mattarella.
The President of Italy is almost purely a ceremonial role, like the Queen of England. But he does have the authority to reject key government appointments, including Prime Minister and Finance Minister.
And that’s exactly what he did– specifically opposing the nominee for Finance Minister, an economist named Paolo Savona.
Savona is a huge critic of the euro, and President Mattarella thought him too dangerous for the post.
Again, while the origins are more complicated than that, this is the basic plotline behind the most recent crisis.
Late Thursday night the Italian government announced a compromise, supposedly bringing an end to the uncertainty.
But to me, none of that matters. What I find -really- important is what an enormous impact this soap opera had across the world. And I think there are three critical lessons to take away:
1) On the day that the finance minster was rejected, financial markets worldwide tanked.
Italy’s stock market plunged 5%, which is considered a major drop.
But curiously, the stock market in the US fell as well, with the Dow Jones Industrial Average shedding 400 points. Even markets in China and Japan had significant drops as a result of the Italy turmoil.
Now, it’s easy to see why Italy’s markets fell. And even the rest of Europe. But the entire world?
Granted, a lot of people made a really big deal out of this event, concluding that it signals the end of the euro.. or Europe itself… or some other such drama.
Sure, maybe. But it’s almost impossible to foretell a trend as significant as ‘the end of the euro’ based on a single event.
At face value, the rejection of a cabinet minister in Italy should have almost -zero- relevance on economies as large and diversified as the US, China, and Japan.
To me, this is another sign that we’re near the peak of the bubble… and possibly already past it.
Markets are so stretched, and investors are on such pins and needles, that even a minor, insignificant event induces panic.
And it makes me wonder: if financial markets are so tightly wound that something so irrelevant can cause such an enormous impact, how big will the plunge be when something serious happens?
2) It wasn’t just stocks either. Bond markets were also keenly impacted.
Bear in mind that stocks are volatile by nature; prices move much more wildly than other asset classes.
But bonds, on the other hand, are supposed to be safe, stable, boring assets. Especially government bonds in highly developed nations.
In Italy the carnage was obviously the worst.
Investors dumped the 2-year Italian government bond, and yields (which move opposite to prices) surged from 0.9% to 2.4% in a matter of hours.
Simply put, that’s not supposed to happen. And it hadn’t happened in at least three decades.
Again, though, even in the United States, yields on the US 10-year note dropped 16 basis points overnight, from 2.93% to 2.77% (which means US bond prices increased).
That’s considered MAJOR volatility for US government bonds.
To put it in context, the only day over the past few YEARS that saw 10-year yields move more than that was the day after Donald Trump won the US Presidential Election in 2016.
So it was a pretty big deal.
Again, this leads me to wonder: if safe, stable assets like government bonds can react so violently from such an insignificant event, how volatile will riskier assets be when there’s an actual crisis?
Just imagine what’s going to happen to all the garbage assets out there (like unprofitable, heavily indebted businesses) when a real downturn kicks in.
3) Perhaps most importantly, nobody saw this coming.
Even just six months ago, it’s doubtful anyone would have predicted that the rejection of Italy’s finance minister would cause a global financial panic.
And yet it happened.
This is one of the most critical lessons of all: whatever causes the next major downturn can be something completely obscure and unpredictable. And no one realizes it until it’s too late.
Central Banks Are Going to Have to “Pull the Plug” on Stocks
It’s no secret that Central Banks have been funneling liquidity both directly and indirectly into stocks. However, what most investors don’t realize is that this liquidity pump is about to end.
Because the endless streams of liquidity (Central Banks continue to run QE programs of $100+ billion per month despite the global economy stabilizing) have unleashed inflation.
Forget the “official” date. That stuff is all propaganda. Take a look at what is happening in the bond markets which trade based on inflation in the real world.
When inflation rises, bond yields rise. And right now, sovereign bond yields are rising around the world.
The yield on the US 10-Year Treasury has broken its 20-year downtrend.
The US is not alone… the yield on 10-Year German Bunds has also broken its downtrend.
Even Japan’s sovereign bonds are coming into the “inflationary” crosshairs with yields on the 10-Year Japanese Government Bond just beginning to break about their long-term downtrend.
Because if bond rates continue to rise, many countries will quickly find themselves insolvent.
Globally the world has added over $60 trillion in debt since 2007… and all of this was based on interested rates that were close to or even below ZERO.
Central Bank cannot and will not risk blowing up this debt bomb. So they are going to be forced to “pull the plug” on liquidity and “let stocks go.”
Put simply, if the choice is:
1) Let stocks drop and deal with complaints from Wall Street…
2) Let the bond bubble blow up, destabilizing the entire financial system and rendering most governments insolvent…
Central Banks are going to opt for #1 Every. Single. Time.
On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s in terms of Fed Policy when The Everything Bubble bursts.
It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:
Chief Market Strategist
Phoenix Capital Research
Thank You Kent Lamberson
India Russia & China are Ditching the Dollar
Catherine Austin Fitts – Enormous Level of Ignorance & Lawlessness in America
Published on Apr 21, 2018
Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says she sees an “enormous level of ignorance about how money works.” So, what can the average guy do to protect himself and his family? Fitts says, “You want to get as resilient as possible. You cannot solve a political problem with a financial solution. When we are talking about the level of lawlessness that we are seeing around the country now, it gets very granular on how you protect yourself. So, you want to get as resilient as possible, and you want to get as low of an overhead as possible and as low of debt as possible. If your income depends on the U.S. government, you want to make sure you have alternatives.” Join Greg Hunter as he goes One-on-One with financial expert Catherine Austin Fitts of Solari.com, home of “The Solari Report.” Donations: https://usawatchdog.com/donations/
Interest Expenditures Will Now Exceed Military Spending – We are being Walled-In by our Own Debt
Blog/Sovereign Debt Crisis
POSTED APR 16, 2018
BY MARTIN ARMSTRONG
I have been warning for years at the World Economic Conferences that interest expenditures will reach the point that they will crowd out everything else. Well at last, as we enter 2019 and the War Cycle heats up, interest expenditures will now EXCEED even military spending. Welcome to the SOVEREIGN DEBT CRISIS. I have also stated for years that we elect people to run a government with absolutely NO QUALIFICATION whatsoever. There were people who want Oprah to run for President because she is (1) black and (2) a woman. This is the standard of expertise far too many people apply when it comes to politics. I have also made the analogy that this is like asking a cab driver to conduct open-heart-surgery on you because he smiles nice and holds a good conversation.
Historically, society has always gone through a major debt crisis. Perhaps that is why the Bible talked about a debt jubilee where debt is simply forgiven even 49/50 years. One question that jumps out at us is rather blunt. Does the Old Testament Debt Jubilee present a solution to our modern financial crisis? The mere fact that this is in the Bible suggests that there must have been major debt crisis even before the Bible. We do know that Hammurabi’s Law Code imposed regulation on interest. It also imposed Contract Law and required people to reduce agreements to writing that were witnessed. By implication, such a law must have meant that one person said he lent money and the other denied it. We have legal records that have survived from Babylon which even demonstrate they had an active futures market where people bought a crop for future delivery creating even options.
One of the earliest Debt Crisis in recorded history that is well documented by contemporary writers was the Debt Crisis in Athens of 354BC. Corruption between government and the bankers is nothing new. The banks were the Temples since money was donated to the gods who had no use for it. Typically, the government would borrow from this hoard of Temple money to fund wars. The priests became the bankers. In Athens during 354BC, there was one of the early banking crisis events involving what we would call the Secretary of the Treasury so to speak and his banking friends. The money grew to a vast sum in the Temple which kept all these donations in the Opisthodomos. The Temple was not earning interest on its hoard of money which just sat there funding the lavish lifestyle of the priests. The treasurer agreed to lend the money to personal banking friends who would then pay the treasurer interest that he could then personally put that in his pocket. When the banking crisis hit and there was a liquidity problem, the banks could not repay the loans to the Temple.
Most of the loans were going to real estate. When the business cycle hit and real estate turned down, people could not pay their debts and could not sell the property in a down market. Suddenly, the bankers could not repay the priests so they then tried to cover up their scheme by setting fire to the Opisthodomos. Nevertheless, the scheme was detected and the Treasurers of the Temple of Athena were seized and imprisoned, about 377-376BC. In 1989, government ministers of Crete pulled the same scam. They were depositing government funds in the Bank of Crete and interest was being diverted to themselves. It was the failure of the Bank of Crete that exposed the scam (See NY Times, 9/21/89, A14; 9/27/89, A3). So you see, history repeats like a Shakespeare play – just the actors change over the centuries while the storyline remains unchanged.
Obviously, debt and contracts have been around for thousands of years. Is there a dramatic and simple way out of all this? Some argue that there is a “debt jubilee” they take from the Old Testament book of Deuteronomy, the concept derives from the biblical injunction for a day of rest one day out of every week, a “sabbath” day. There appears to be a fractal system which is laid out in the Bible. The next injunction is for a Sabbath year every 7th year. Here, people are to not work. The next injunction appears on the year after the 7th of those sabbatical years, i.e. the 50th, (one year after the 49th). This is where we find there would be a jubilee year during which any slaves would be emancipated and everyone would return to their land and family to live off of natural providence. A clear implication of this teaching is that all obligations, including debt obligations, would be forgiven in the process. I do find it curious that this lines up fairly closely with the Economic Confidence Model (ECM) and its 6 waves of 8.6-year intervals which build up to major events every 51.6 years. Is the Bible saying that there is a debt crisis every 50 years where the solution is to default on all debts? The next 51.6-year target on the ECM will come in 2032 and our model does show that the West will yield the crown of the Financial Capital of the World to China. So does the Biblical Debt Jubilee suggest we “should” forgive all debts at the 50th interval of the 7th year or does it forecast that debts will be forgiven simply because everything will crash at that point?
I have further warned that our elected officials could not even run a bubblegum machine as a business. When they spend all the money they took in on themselves, they have nothing left to buy more gum to refills the machine. Their solution is just to raise taxes and refill the machine and spend it all again on themselves with lavish perks and pensions. The Sovereign Debt Crisis is alive and well. This is now when it is going to begin to surface to where it will become more obvious to people around the world. Indeed, I am off to Europe today for this very reason with two weeks of meetings. The risk is beginning to become obvious as interest expenditures will crowd out everything other areas of spending. Governments will try to keep the debt revolving by raising taxes and this will only further reduce both the economy and our living standards. We are being walled-in by our own debt with no place to go except default if we do not act NOW!!!!!!!
Rob Kirby - Money Needed For Hyperinflation Already Printed
Published on Mar 31, 2018
Forensic macroeconomic analyst Rob Kirby says “All the money needed for hyperinflation has already been printed.” Kirby contends, “It’s kind of like having a nuclear war, and people say where are the bombs going to come from? The bombs are going to come out of their silos. What people can’t believe or can’t wrap their head around is the notion and the fact that there’s $21 trillion or more that’s been ‘siloed.’ The money has been created and siloed. We know it’s been created because we know it flew through the books of the Department of Defense (DOD) and the Department of Housing and Urban Development (HUD). That’s just two government agencies. . . . We’re talking about tens of trillions of dollars. We don’t know exactly where they are or who controls them. . . . This is why you want to own some tangible stuff. This is why you want to own physical bullion, such as coins and bars, and you want to have them in your control.” Join Greg Hunter as he goes One-on-One with Rob Kirby of KirbyAnalytics.com. Donations: https://usawatchdog.com/donations/ Stay in Contact with USAWatchdog.com: https://usawatchdog.com/join/
Believe it or not, for every minute that goes by, our federal government’s financial sinkhole grows deeper by about $10 million! The U.S. public needs to know the current and future issues concerning the U.S.’s finances.
Robots fight weeds in challenge to agrochemical giants
MAY 22, 2018
Ludwig Burger, Tom Polansek
YVERDON-LES-BAINS, Switzerland/CHICAGO (Reuters) - In a field of sugar beet in Switzerland, a solar-powered robot that looks like a table on wheels scans the rows of crops with its camera, identifies weeds and zaps them with jets of blue liquid from its mechanical tentacles.
Undergoing final tests before the liquid is replaced with weedkiller, the Swiss robot is one of new breed of AI weeders that investors say could disrupt the $100 billion pesticides and seeds industry by reducing the need for universal herbicides and the genetically modified (GM) crops that tolerate them.
Dominated by companies such as Bayer, DowDuPont, BASF and Syngenta, the industry is bracing for the impact of digital agricultural technology and some firms are already adapting their business models.
The stakes are high. Herbicide sales are worth $26 billion a year and account for 46 percent of pesticides revenue overall while 90 percent of GM seeds have some herbicide tolerance built in, according to market researcher Phillips McDougall.
“Some of the profit pools that are now in the hands of the big agrochemical companies will shift, partly to the farmer and partly to the equipment manufacturers,” said Cedric Lecamp, who runs the $1 billion Pictet-Nutrition fund that invests in companies along the food supply chain.
In response, producers such as Germany’s Bayer have sought partners for their own precision spraying systems while ChemChina’s Syngenta [CNNCC.UL], for example, is looking to develop crop protection products suited to the new equipment.
While still in its infancy, the plant-by-plant approach heralds a marked shift from standard methods of crop production.
Now, non-selective weedkillers such as Monsanto’s Roundup are sprayed on vast tracts of land planted with tolerant GM seeds, driving one of the most lucrative business models in the industry.
‘SEE AND SPRAY’ But ecoRobotix www.ecorobotix.com/en, developer of the Swiss weeder, believes its design could reduce the amount of herbicide farmers use by 20 times. The company said it is close to signing a financing round with investors and is due to go on the market by early 2019.
Blue River, a Silicon Valley startup bought by U.S. tractor company Deere & Co. for $305 million last year, has also developed a machine using on-board cameras to distinguish weeds from crops and only squirt herbicides where necessary.
Its “See and Spray” weed control machine, which has been tested in U.S. cotton fields, is towed by a tractor and the developers estimate it could cut herbicide use by 90 percent once crops have started growing.
German engineering company Robert Bosch here is also working on similar precision spraying kits as are other startups such as Denmark's Agrointelli here
ROBO Global www.roboglobal.com/about-us, an advisory firm that runs a robotics and automation investment index tracked by funds worth a combined $4 billion, believes plant-by-plant precision spraying will only gain in importance.
“A lot of the technology is already available. It’s just a question of packaging it together at the right cost for the farmers,” said Richard Lightbound, Robo’s CEO for Europe, the Middle East and Africa.
“If you can reduce herbicides by the factor of 10 it becomes very compelling for the farmer in terms of productivity. It’s also eco friendly and that’s clearly going to be very popular, if not compulsory, at some stage,” he said.
‘PAUSE FOR THOUGHT’ While Blue River, based in Sunnyvale, California, is testing a product in cotton fields, it plans to branch into other major crops such as soy. It expects to make the product widely available to farmers in about four to five years, helped by Deere’s vast network of equipment dealers.
ROBO’s Lightbound and Pictet’s Lecamp said they were excited by the project and Jeneiv Shah, deputy manager of the 152 million pound ($212 million) Sarasin Food & Agriculture Opportunities fund, said the technology would put Bayer and Syngenta’s crop businesses at risk while seed firms could be hit - albeit to a lesser extent.
“The fact that a tractor and row-crop oriented company such as John Deere did this means it won’t be long before corn or soybean farmers in the U.S. Midwest will start using precision spraying,” Shah said.
While the technology promises to save money, it could be a tough sell to some U.S. farmers as five years of bumper harvests have depressed prices for staples including corn and soybeans. U.S. farm incomes have dropped by more than half since 2013, reducing spending on equipment, seeds and fertilizer.
Still, the developments are giving investors in agrochemicals stocks pause for thought, according to Berenberg analyst Nick Anderson. And agrochemical giants are taking note.
Bayer, which will become the world’s biggest seeds and pesticides producer when its acquisition of GM crop pioneer Monsanto completes, teamed up with Bosch in September for a “smart spraying” research project.
The German partners plan to outpace rivals by using an on-board arsenal of up to six different herbicides and Bayer hopes the venture will prepare it for a new commercial model - rather than cannibalizing its current business.
“I would assume that within three years we would have a robust commercially feasible model,” Liam Condon, the head of Bayer’s crop science division said in February.
“I’m not concerned in terms of damping sales because we don’t define ourselves as a volume seller. We rather offer a prescription for a weed-free field, and we get paid based on the quality of the outcome,” he said.
Bayer agreed to sell its digital farming ventures, including the Bosch project, to German rival BASF as part of efforts to win antitrust approval to buy Monsanto. But BASF will grant Bayer an unspecified license to the digital assets and products.
BASF said the Bosch precision spraying collaboration was very interesting but it was too early to comment further as the transaction had not completed.
‘PART OF THE STORY’ Syngenta, which was an investor in Blue River before Deere took over, said the advantages of the new technology outweighed any potential threats to its business model.
“We will be part of the story, by making formulations and new molecules that are developed specifically for this technology,” said Renaud Deval, global head of weed control at Syngenta, which was bought by ChemChina last year.
While it has no plans to invest directly in engineering, Syngenta is looking into partnerships where it can contribute products and services, Deval said.
Still, Sarasin’s Shah said the big agrochemical firms would need to accelerate spending on getting their businesses ready for new digital agricultural technology.
“The established players need to invest a lot more than they currently are to be positioned better in 10 years’ time. The sense of urgency will increase as farmers start to adopt some of the more advanced kits that are coming out,” he said.
The prototype of an autonomous weeding machine by Swiss start-up ecoRobotix is pictured during tests on a sugar beet field near Bavois, Switzerland May 18, 2018. REUTERS/Denis BalibouseMichael Underhill, chief investment officer at Capital Innovations, also said the major players may be underestimating the potential impact on their pesticides businesses.
“Precision leads to efficiency, efficiency leads to decreased usage, decreased usage leads to decreased margins or margin compression, and that will lead to companies getting leaner and meaner,” said Underhill.
He said the GM seeds market would also take a hit if machine learning takes over the role genetic engineering has played so far in shielding crops from herbicides’ friendly fire.
“Instead of buying the Cadillac of seeds or the Tesla of seeds, they may be buying the Chevy version,” Underhill said.
NEW WEAPONS The advent of precision weed killing also comes at a time blanket spraying of global blockbusters such as glyphosate is under fire from environmentalists and regulators alike.
More than 20 years of near-ubiquitous use of glyphosate, the active substance in Monsanto’s Roundup, has created resistant strains of weeds that are spreading across the U.S. farm belt.
Regulators have raised the bar for bringing blanket chemical agents to market and the fear of toxic risks has been heightened by the debate over the potential impact of glyphosate on health.
Michael Owen, associate chair at Iowa State University’s Department of Agronomy, reckons it would now cost agrochemical giants up to an almost prohibitive $400 million to develop a next-generation universal weedkiller.
Bayer’s Condon said in the current environment precision spraying could well be the final blow to further attempts to develop new broad-spectrum or non-selective herbicides.
“Everything that comes tends to be selective in nature. There won’t be a new glyphosate. That was probably a once-in-a-lifetime product,” said Condon.
For now, the industry is reviving and reformulating older, broad-spectrum agents known as dicamba and 2,4-D to finish off glyphosate-resistant weeds - and it is selling new GM crops tolerant to those herbicides too.
Slideshow (16 Images)Precision spraying could mean established herbicides whose effect has worn off on some weeds could be used successfully in more potent, targeted doses, said Claude Juriens, head of business development at ecoRobotics in Yverdon-les Bains.
But experts say new products will still be needed for the new technology and some chemical firms are considering reviving experimental herbicides once deemed too costly or complex.
“Because we’re now giving the grower an order of magnitude reduction in the amount of herbicide they’re using, all of a sudden these more expensive, exotic herbicides are now in play again,” said Willy Pell, Blue River director of new technology.
“They’ve actually devoted resources to looking through their backlog, kind of cutting room floor, and rethinking these different materials with our machine in mind,” he said.
The Economic Collapse: Are You Prepared For The Coming Economic Collapse And The Next Great Depression?