The Next Global Reserve Currency...from Daily Reckoning

June 6, 2015 Chuck Butler places his faith in China’s “treasure chest”... A way to play six emerging market currencies, with no risk... Then, Chuck explains why he believes the yuan will be the next global reserve currency and what it means for your investments...

“Here’s what I didn’t tell you about currency wars...” *The doors will close on this opportunity at midnight on June 11* Jim Rickards just made a major update to his currency wars thesis. As you may know, Jim’s spent the last six months trying to sound the alarm about currency wars. You might have heard the dangers... But Jim has NOT told you about the possible upside to currency wars. Or about a very simple secret called the IMPACT system that he says could unlock this upside... See how Jim Rickards’ IMPACT system works right here...

Baltimore, Maryland June 6, 2015 Dear Reader, “Economists could give you 100 reasons why China will land softly” explained our friend, Chuck Butler, last month, “and another one could give you 100 reasons why not. I simply look at what I call their ‘treasure chest of reserves’ -- nearly $4 trillion. It’s mostly dollar-denominated assets. I also look at the huge, huge pot of gold they have.” Chuck was kind enough to make time to get on the phone and explain his forecast for the Chinese economy, its currency and the impact both will have on the de-dollarization trend underway globally.  His conclusion? Power was shifting from East to the West... and sooner than you might think. Recall the “plateau” version of the future that we examined on Wednesday. It suggested “the whole world will converge toward a plateau of development similar to the life of the richest countries today.”  “It’s a communist country, I understand that” added Chuck. “I don’t ever want to have people think that I'm glorifying a communist country. But what they’ve been able to do over the years is move to a position of power and strength in that they have a huge treasure chest of reserves. “When they have a slowdown in their economy they can just point to that and apply stimulus to get their economy going again. It wouldn’t cause major problems in the country because they wouldn’t increase the debt; they wouldn’t rob Peter to pay Paul. “They would basically take from their reserves and fix the problem. That’s one of the good things that they can do because of their political system. Though, even the U.S. could do that, if, in fact, we weren’t running an $18 trillion deficit.  “That’s why I think that they’ll be able to have a slow landing and transition their economy,” said Chuck in conclusion. “They’ll also be even better prepared to float their currency by the end of this year, back it with some sort of percentage of gold and make it the most attractive currency in the world.” Chuck explains why he believes the yuan will be the next world reserve currency and what that means if you hold dollars, below... Cheers, Peter Coyne for The Daily Reckoning P.S. It’s worth your time to check out the Future Economies MarketSafe CD that EverBank, which Chuck’s a part of, has issues. The only catch is that you’ll need to act quickly to take advantage of it.  Why the rush? According to the mainstream media there’s nothing to worry about -- the U.S. dollar is very strong right now. But, as we’ve explained in these pages before, that’s only because, at the moment, other central banks are printing money at even faster speeds than the Federal Reserve. That can’t last forever. With signs of a slowdown, it could be only a matter of time before the Fed reverses their course and the dollar goes into a steep decline. The only real question is whether we’re in for a slow, steady fall or a sudden collapse. But you can be prepared either way thanks to Chuck and his colleagues at EverBank. With their MarketSafe® Future Economies CD you get exposure to six emerging market currencies -- the Brazilian real, the Chinese renminbi, the Indian rupee, the Indonesian rupiah, the Mexican peso and the Turkish lira. All six are could benefit from a falling U.S. dollar. And as Chuck explained, if the CD matures with just a .01% profit -- EverBank will pay you 10% on your initial investment at maturity. And if the final value exceeds 10%, you’ll get the higher amount. So that’s a potential minimum gain of 10%... and after that the sky’s the limit. Please take a closer look at the fact sheet they’ve created for you. You’ll learn everything you need to know, including some examples of how you could see profits. You need to hurry, though, the funding deadline is June 11. Click here for more info. For sake of full disclosure, we have a marketing relationship with EverBank, but we’d work with them regardless.

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The Daily Reckoning Presents: What comes after the dollar?

****************************** The Next Global Reserve Currency By Chuck Butler

I will admit some trepidation in beginning this morning’s commentary with such an audacious title, but long-time readers of the Daily Pfennig®newsletter should be neither surprised at my confidence in making such a statement, nor shocked that I would pull no punches in sharing my views on a topic as particular to me as the outlook for the Chinese currency, the renminbi. In late 2008 and early 2009, the Chinese government began signing bilateral currency swap agreements with a number of trading partners, including South Korea, Hong Kong, Belarus and Indonesia. These currency swap agreements essentially provided a medium of exchange directly between the two respective countries, removing the U.S. dollar from the terms of trade.  Shortly thereafter, I authored a letter for a Sovereign Society publication espousing alarm over China’s decision to sign a similar bilateral currency swap agreement with Argentina, China’s first such venture outside its immediate trading area. The significance of this particular currency swap agreement, as I wrote at the time, was that the Chinese government had officially launched its initial salvo against the reign of the U.S. dollar as the world’s reserve currency. Since that time, the People’s Bank of China (PBOC) has entered into 30 bilateral swap agreements with trading relationships across the globe, including some pretty heavy economic hitters joining the ranks under bilateral currency swap agreements with China (Figure #1).  I also made a presentation at a February 2010 conference stating that it was my opinion that the days of the U.S. dollar remaining as the world’s primary reserve currency would end by the close of this decade. With five years remaining in the decade, and based on the progress the Chinese government has made thus far over the last five years, this forewarning may yet prove to be conservative. Source: EverBank Research Team, based on analysis of publicly available data from the Harvard Dataverse Network, People’s Bank of China. Chinese economic liberalization initiatives are certainly not limited to the currency markets. In November 2014, the Chinese government launched a pilot program linking equity markets in Shanghai and Hong Kong, allowing investors the ability to trade directly across the Chinese border in renminbi-denominated stocks, and representing “one of the most significant liberalizations of China’s capital markets in years.” Similarly, China has expanded access to its domestic bond market with the May 2015 approval of an additional 30 large foreign institutions permitted to invest directly in the country’s $5.9 trillion domestic bond market. Moreover, the PBOC has formally requested renminbi inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) reserve basket of currencies, an international reserve asset held by the IMF to supplement member countries’ official reserves.  At present, the four reserve currencies included in the SDR basket are the Euro, Japanese yen, British pound sterling and U.S. dollar. Suffice it to say, the Chinese government has the renminbi on a defined and concentrated path to join the ranks as a world reserve currency.

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So why the “sudden” push for the Chinese government to open its capital markets, enter into bilateral currency swap agreements, and challenge the U.S. dollar on its leadership position as the global reserve currency?  The situation reminds me of the old financing adage: You should buy assets that appreciate and lease assets that depreciate. The PBOC appears ready to begin leasing U.S. dollars! Quite simply, the PBOC may be weary of holding U.S. dollar reserves in order to conduct global trade, given the manner in which U.S. bureaucrats and monetary officials have been managing internal finances. The Chinese government certainly seems to feel confident that the time has come for the renminbi to take a leadership role on the reserve currency stage, and with good reason. The Chinese economy is now the largest economy in the world, passing the United States at the end of 2014 based on IMF estimates. China is also the world’s largest exporting economy, trading $2.3 trillion in merchandise exports relative to U.S. exports of $1.6 trillion. Gross national savings in China now represent 49.5% of Chinese gross domestic product (GDP), compared with U.S. savings at just 17.3% of GDP. China surpassed the United States in terms of manufacturing in 2010, and is now the world’s largest manufacturing nation with nearly $3 trillion in annual production output, compared with roughly $2.4 trillion in U.S. output. In fact, one-in-four automobiles sold worldwide are now manufactured in China. The Chinese economy is also the world leader in gross value of agricultural output for rice, wheat, potatoes, corn, peanuts, tea, millet, barley, apples, cotton, oilseed, pork and fish. Based on Organisation for Economic Co-operation and Development estimates, the Chinese government provided farmers $165 billion in agricultural subsidies (2012 estimate), relative to Japan’s $65 billion and the United States’ $30 billion in agricultural subsidies. By acquiring nearly $4 trillion in reserves of foreign exchange and gold, guess where China ranks in terms of global reserves?  You got it: No.1. China is also the world’s largest producer of gold, more than twice the production in the U.S., and is also now the world’s largest importer of gold placing the country ahead of India. Of course, the Chinese economy is not performing without challenges. Some observers contend that the renminbi may be at risk due to the Chinese economy slowing lately. However, prior to the current era of monetary intervention, economies would naturally cycle through periods of expansion and contraction. Moreover, the financial law of large numbers contends that large entities growing rapidly cannot maintain high growth rates in perpetuity. Critics also point to recent accumulations in local Chinese government debt, but as I pointed out in a recent Daily Pfennig®article, it makes perfect sense for a government to accumulate debt in a low interest rate environment.  The difference, however, between China’s debt accumulation and the U.S. debt accumulation is first, China has been investing in infrastructure with presumably positive investment returns, and second, the Chinese government has $4 trillion in reserves to help offset this increase in debt, as needed. In analyzing the progression toward a free floating and tradable renminbi, I would expect the sequence of events to unfold as follows: China continues to open its capital markets to foreign investment. Investors provide additional liquidity to the Chinese economy through bond purchasing.  The IMF accepts the renminbi as one of its reserve currencies in the SDR – which, coincidentally, is rebalanced at the end of 2015 – under the condition that the PBOC eliminates the renminbi peg to its current basket of currencies. Then the renminbi becomes a floating currency, and the Chinese government subsequently allocates a percentage of its massive gold reserves (and other hard assets) as backing to the outstanding currency float. Under this type of scenario, the renminbi may have a real opportunity to become one of the most attractive major currencies in the world relative to its fiat currency contemporaries. Furthermore, if the renminbi is successful in becoming a reserve currency in the IMF’s SDR reserve basket, the IMF will be required to purchase an estimated $1 trillion in renminbi for the SDR holdings, also potentially driving up the value of the renminbi, assuming the currency is floating at that point. Clearly, it could be an interesting environment for the renminbi. On an interrelated point, a fully floating renminbi could have far-reaching consequences for the U.S. dollar, particularly if or when the renminbi eventually assumes a position as a global reserve currency. Once global trading partners are no longer required to trade exclusively in dollars, countries will similarly be released from requirements of holding massive amounts of dollars in reserve, and eventually, the dollar could get sold.  Could this be the Minsky moment that would place the U.S. in the same predicament that Britain found itself after losing its reserve currency status? Time will certainly tell. However, in this given scenario, U.S.-based asset values and interest rates could potentially be in for a tough run if this were to unfold. Before I end, I want to emphasize that this view is my personal take on how things could unfold for the Chinese renminbi and the U.S. dollar.  Obviously, in today’s dynamic world, any number of scenarios is possible, which means I could completely miss the mark. But, to me, there just doesn’t seem to be much left in the tank, and you can count on us to keep a close eye on future events. Time will tell if I’m right or wrong. Regards, Chuck Butler for The Daily Reckoning P.S. The funding period on our the Future Economies MarketSafeCD ends on June 11. It’s a five-year U.S. dollar CD that has a semiannual pricing based on an index. It doesn’t pay interest. What happens is that every six months we stop and take the prices of all the currencies in the CD -- which include the Brazilian real; the Chinese renminbi, the Indian rupee, the Indonesian rupiah, the Mexican peso and the Turkish lira -- and we record them. At the end of the CD we add up all those six-month prices and if the average price over that period of time is greater than the initial price, that increase is yours. And if it’s below the original price, you get your all of your principal back.  And it has an added kicker to it. It has what’s called a jump-note feature. All that means is that if the currencies only manage to gain, let’s say, 0.2% or even 0.1%, or anything above zero, then you automatically get a 10% return on your principal at maturity. But if it’s above 10%, if the actual return is above 10%, then you get whatever it is. So let’s say those the average price over the five years is a return of 20%, then that’s your return. But if it’s 9%, you get 10% instead. There are a few more details. The minimum funding amount is only $1,500. And of course EverBank is a Member FDIC.  Keep in mind; you cannot withdraw this money during the five years, so it has to be money that you’re not going to have any use for. The only way you can withdraw it is if you die, and nobody wants to see that anyway. The MarketSafe CDs are also IRA eligible, so you can put them in your IRA. There’s also a deadline to get in on our newest Future Economies MarketSafe CD. Again, the funding period ends on June 11.

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig®newsletter, Chuck has a career in investment services and currencies spanning 35+ years.

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Graveyards of nuclear submarines....

Consumerism and nuclear proliferation have converted the world into one vast waste dump yard. With evolution of humankind its increasing reliance upon inorganic way of life is threatening the very foundations of the organic planet earth. The quantum and degree of waste is directly proportional to the complexity of human life. In simpler societies, the most of the waste was organic and was recycled back to the earth without any toxicity. As society developed and progressed, the amount of processed waste increased which had higher content of inorganic material which was not readily assimilated by mother earth. 

Earliest societies lived closer to earth, in mud houses…defecated on earth…waste mostly food leftovers was given to cattle or strewn on the ground. The waste was bio degradable and hence posed no environmental risk. Gradually with development, the defining inflection point being the industrial revolution, the complexity of waste changed. Industrial scrape and refuse became a watershed in the history of waste. Large scale production of steel, textiles...led to discharge of various effluents like hazardous chemicals, gases, lead...from the factories, mills into the land dumps, lakes, rivers, seas, atmosphere... 

Along with urbanisation, there came the concomitant disposal of human waste. This waste compounded in complexity over time during past few centuries... excreta, food, paper, bottles, tin cans, plastics, electronics... The earlier urban conglomerates had open drains which were most harmful for our health and living conditions with overpowering stench...even today many old cities have open drains...

Next the was the problem of final disposal of these waste from drains etc...these often discharged into lakes, rivers, streams, seas, land dumps...which in turn increased the toxic levels of these water bodies and land...leading to diseased fish, animals, birds who fed on these waters and land...finally carrying the poison into humans who fed on the fish and used the water...thus the poison multiplied in the atmosphere, land, water and in our bodies and other living creatures...

Atmospheric pollution is reaching alarming levels especially in Asia. India and China have some of the most polluted cities in the world. Cars, factories, coal fuel...contribute to this hazard which is threatening living conditions. Rising migration to cities is also aggravating this crises. 

Several cities have started segregation of waste into food, paper/dry, plastics/glass...but its not easy to discipline all to follow the rules. Segregation of waste at source is the only way to recycle waste properly converting food etc to compost, paper / glass and plastic for further recycling..even in some advanced countries like USA they do not have at source segregation of household waste... 

Humankind’s insatiable hunger for energy has now lead to unthinkable levels of contamination of the seas, land through oil spillages, train accidents...and newest hazardous element of the block to join this waste race is deadly radiation from discarded nuclear rods of nuclear plants..the nuclear arms race between the nuke powers has now lead to new dilemmas resulting from disposal of the aging nuclear submarines..basically nuclear waste like rods and submarines were supposed to be buried in deep sea much below sea bed...

The other scourge emanating from our fascination for modern life, insane consumerism is indiscriminate use of plastics....the use of which has compounded geometrically over the past half century...and thereafter electronics...now plastic and e waste disposal is also becoming a global problem. Many countries have resorted to disposing off the plastic in rivers and seas which have affected marine life. Several species have dwindled. 

Humankind’s waste has now reached space. Several old satellites and old space stations are floating debris in space. Some of them will pose problems in future to space flights...but the most frightening waste problems are the several nuclear submarine graveyards of the developed nations littered in the oceans along with the millions of tons of plastic. Anthropocene  humans have reduced the planet to a graveyard of waste through their throwaway lifestyles. 

Notes from America...31st may 15

31st may 15
in view of climate change, extreme climate, geological changes...risks of most places in the world have increased. the recent increases in snow storms in the east coast of usa, drought in california, floods in texas...generally used to make me pessimistic about long term climate stability in usa. i used to think that perhaps for indians like us india is perhaps better especially where i am living now ie bengaluru. but the recent heat waves in india, pollution in the cities and lowering of aquifer levels have made me think otherwise.

for the first time i feel, chicago could be one of the best and safest places in usa and maybe in the world. chi has lots of fresh water, its away from the east coast storms, tornadoes of mid plains...though it has harsh winters, still i feel its the best bet in usa. maybe if my daughter and her family stay on here it would perhaps be a good choice in these uncertain times...and a more terrifying future...



24th may 15
one of the main reasons why america has become the most influential country in the world over the past 50 years or so is due to the set of factors listed below. though china and india dominated the world in terms of gdp (together about 50% of global gdp) for about 1700 years since birth of christ, still they could not dominate the globe to the overpowering extent usa has because they did not have the support of the same factors which usa had.

1. lead the world in innovation. hence all the applied products were sold across thev world.
2. most of the biggest brands came out of usa like coke, levis, microsoft, apple, and so on.
3. hollywood movies mesmerised the world through their broader appeal even though european movies were superior in content and style.
4. rock and roll music conquered the world spawning rock based local music all over.
5. with aid of satellites tv broadcasting reached all corners of the globe. 
6. marketing and advertising reached their peak in usa since the 1950s.
7. the internet also emanated from usa, hence its stranglehold upon the medium. 
8. with nuclear superiority became the world's policeman. 
9. since it was the richest country, it became the dream destination to emigrate to. 
10. its fast food like mcdonald's, pizzas, burgers become most popular all over.
11. its large cars since the 50s influenced car designs all over excepts europe.
12. its computers and laptops were the first, mainly through microsoft's windows and office software, though now many other countries have excelled.
13. perhaps the most tectonic product to set the world on fire was apple's iphones and ipads which their pioneering touch screens have set the standards. 

tbc

15th may 15
today the influence america has on rest of the world is beyond all imagination. its very difficult to separate what is not american in most countries. americanism has intertwined itself into the very entails of each country. in any sphere you select, there will be some link to usa. Some of the major reasons why us is such a dominant force in the world whether all countries like it or not are:

1. 140 years of continuous innovation in all spheres which has ensured that the products are now sold in all countries 
2. complete dominance in armaments whereby it is the largest seller of arms in the world except one or so odd year. 
3. entertainment also is the biggest influencer. hollyhood had shaped most global cinema. 
4. IT industry hub is in us. all the top companies are american like apple, google, microsoft, IBM....
5. it has the highest representation in the fortune 500.
6. it has the largest space research set up NASA, 

it is a veritable power house which sets the pace of economic development,

tbc

12th may 15
since 2010, this is my 7th trip to usa in 6 years visiting my daughter and son-in-law in chicago. most of the time we are perched up in their 41st floor apt in downtown chicago next to the river and near millennium park. our main objective is to visit our our only child. even she had been in timbuktu, we would have still visited her religiously once ever year or more.

only because it happens to be the imperial united states it provides me an opportunity to observe the greatest ever empire for the past 150 years from close quarters. we are lucky we stay in chi town downtown one of best places in world to stay. the people are multi cultural and extremely polite.

its not that i like living in cities having lived in large indian cities since the age of 9 months. but am fairly trapped in cities since my wife is gotten used to large cities. now in fact want to go back to my roots in the ancestral village in odisha.

and now my daughter having being brought up in the downtown of Kolkata wants to continue the same in chicago and inflict the same on her daughter born this year and hence our rather long visit of almost six months.

this particular trip though i was busy with the coming of my granddaughter, i was reading daily the wsj, one of the finest newspapers ever. got sucked into its groove and enjoyed it immensely since it vibed with my research bent of mind and synched with my psycho intellectual world view.

basically i have been an american from the early 60s hearing paeans of  usa from a close uncle of mine who stayed with us. soon i became a kennedy fan. was deeply affected by his assassination. cried. it was indeed camelot for me the first family of us. next the hero worship focussed upon robert kennedy. another part of me died when he was assassinated in 1968. a hollowness permeated my life. my american dream was shattered with the blood spattered body of bobby kennedy.

by 1970 after school, one was sucked into the sweet wafting smoke out shiva's chillum from the cosmic crushed leaves of ganja. its was the height of the anti establishment movement in us and first gen of flower power youth from america flocked into india and kathmandu. it was indeed the age of hippies and beads experimenting with mind bending herbs, opiates, chemical like amphetamine and acid. blowing out ones mind each day was the sole purpose of existence. subjecting the soulmind to the most severe contortions of the space time continuum was the motto of our group...brothers.

along with this intense self realisation process, there was a parallel intellectual development which questioned all existing mores and conditioned lives of parents and money based social hierarchical structure. gurus who lead my life were alvin toffler, ronald laing, beatles, bob dylan, john lennon, traffic, manfred mann chapter III, andy warhol, jrr tolkien, grateful dead, ken kesey, jean paul sartre, albert camus, allen ginsberg, carlos castaneda, woodstock, hitchcock, steinbeck,

shoulder length hair was an index of commitment to the revolution. six acid trips took one where few dare to trod...time stretching towards eternity...dalian face, melting scenes...swimming through complex music of manfred mann chapter III...snakeskin garter...et all....a staunch anti establishment american. that is how effectively us has americanised the world. levis, coke, larger than life cars, rock music, hollywood, gangsters....the list goes on....

to be continued.... 

never too old to rock n roll…. Golden age vs digital age of singularity..

A tryst with destiny. Went to a steve winwood concert at Chicago theatre. Been listening to winwood since my teens for the past 45 years or so – starting from the great blindfaith album where other legends like eric Clapton, ginger baker and ric grech also performed, then the super group band traffic with jim capaldi, ron wood and dave mason. Winwood performed a lot of the traffic classics like low sparks….it was indeed a nirvanic experience. Winwood was 67, I am 63 and about 75% of the audience was above 60.

It was strange how an aging audience gathered for an aging rock star. Presently the rolling stones are touring us for the nth time I guess. Today sir mick jagger is 72+ and he is still belting out the best rock n roll live gigs. Indeed an aging society still hearing their childhood and teen idols now half a century later. Strange but true.

This has set me thinking that maybe there is something magical, exclusive, perennial, epochal during that age of the 50s and the 60s decades post world war II. For the moment sticking to good old rock n roll, more than half of the highest selling bands belong to that era: beatles, elvis, Elton john, led zeppelin, pink floyd and rolling stones. Apart from these highest selling bands, there are some iconic bands like jethro tull, bob Dylan, Manfred mann, Santana, miles davis, …the list goes on…the most seminal bands really belonged to that golden era…subsequent music had their roots in all these bands..compared to that era the past half century has hardly spawned half a dozen bands of that caliber...

The best of music equipment started in that era. The first stereos made their entry in the 60s in Kolkata. Now they say the best music is from analog vinyl records heard on stereos with transistor diodes.

Now coming to movies, there was an amazing bunching of the most seminal directors and actors during the 1940s to 60s. there are very few directors in the same class as chaplin, jean luc goddard, Ingmar bergman, Truffaut, passolini, fellini, kurosawa, satyajit ray, Alfred Hitchcock, Louis malle, Antonioni, Bunuel, hitchcock and the list is unending…their film techniques with very basic equipment was most pioneering. Their leading actors are yet to be matched in virtuoso. Its not that there aren’t great directors and actors since then. But the auteur of the celluloid of that era have not been matched even though filming techniques and digital editing have made it much easier to create movies with greater range of visuals, colours… in a sense there are probably a lot of real great cinema being created now with directors like Kieslowski, ceylan, coen brothers…..an endless list…

Next if we take up books…here the field is vast…the greatest ever could be Shakespeare, dickens, Dostoevsky…all of them pre 20^th century…these three are giants…till 60s in the 20^th century…some more existentialist and magic realism greats like Sartre, kafka, camus, marquez,…post 60s…few like kundera, saramago….i would say that in books too…the seminal ground broken by the existential writers is yet to be matched be later writers…

There is a need for an invariant measure of rating mechanism which can rate artists spread over several decades or centuries. Some of the parameters in the model could be:

1.    No of books

2.    Copies sold

3.    Translated into how many languages

4.    Whether taught in universities

5.    Critical books on author, his books

6.    Movies made from books

7.    Plays made from  books

8.    Whether started new school of writing

9.    No of authors influenced by books.

The above is a simple outline of a rating model. It will need weights and scores. This can be suitably adapted for cinema, music, etc.

Apart from the arts discussed above, we have seen that even in sports, cricket, space exploration, the records notched during the earlier era has seldom been exceeded except in incremental terms. These areas also owe their breakthrough performances during those golden years.

The one mile four minute barrier was broken only the 1950s by Roger Bannister. Since then the record has been improved by 17 seconds in 60 years. The incremental improvement been tardy.  In the marathon for men, since 1964 the record has been reduced from 2:12 hrs to 2:02 hrs inspite of all the improvements in healthcare and training techniques. Breakthrough records came in long jump when bob beamon broke the record by almost 2 ft in 1968, since then there has not been much improvement. Similarly in high jump after Fosbury there has not been much progress.

In cricket, probably what don bradman showcased in 29 test matches, 52 centuries at an astronomical average of 99 runs per innings can never be surpassed. Nowadays with greater commercialization, techniques, technology…sports has become more dehumanized and lacks the spirit of human endeavour.

In space exploration US took a leap by placing a man on moon in 1969. Indeed it was an epochal event for mankind. But since then there has not been any such sheer breakthrough. Similarly in science since Einstein there has not been any greater scientist.

Since the 80s or so, we have made giant advances in technology, computers, internet, biogenetics, medical sciences, robotics, telecommunication like mobiles…  in a way for most us born till 1970 or so, the earlier 50s/60s were a golden era. But for the millennials the digital era is the greatest. They are truly natural born digitalists. They will be the true inheritors of the age of singularity…

Financial Fiction…fi-fi...a new genre

Strange are the ways of the world. The financial world is experiencing weird inconceivable situations which are akin to loss of gravity and matter floating over the surface of the earth. Truly dark holes of space…anti matter…anti gravity…its fi-fi like sci-fi or cli-fi…..financial fiction is the new norm…

1.      Global economy facing secular stagnation with a glut of most commodities like oil,  iron ore, cotton, apart from the classical factors of production like capital, debt and labour which resulting in low economic growth rates, low inflation and low interest rates and yield scenarios. Policy makers in the developed economies, namely, US, Europe and Japan have been struggling to revive the moribund economies and stimulate effective demand.

   

2.      Several countries being sucked into the whirlpool with high debt/GDP ratios, fiscal deficits, default in debt payments. Total debt comprising government, corporate and consumer debt in US risen to $ 25 bn from $ 17 bn in 2008, ie to 181% of GDP from 167%. Corresponding figures in Europe are 204% from 180% and China 241% from 134%.

3.      Corporate sector too reeling under high debt-equity ratios. More so with currency fluctuations and sovereign debt markets in negative zone, many are further leveraged. Corporate sector resorting to dubious quarterly accounting shenanigans in order to meet the expectations of the ever greedy investors.    

4.      Debt markets are awash with several European economies issuing debt at negative yields or real rates of interest.

5.      Gradual bankruptcies among increasing local government and municipal bodies.

6.      Global banks paying billions of dollars in penalties to regulators and in pay backs to customers till today.

7.      Credit raters also paying hefty penalties for deliberately mis-rating bonds.

8.      Short term objectives of performing well at stock markets driving corporate quarterly earnings and leading to questionable accounting practices.

9.      Derivatives balloon becoming bigger by the day totaling $ 700 bn, which is 10 times the cumulative GDP of the world around $ 70 bn.

10.   Most developed economies growth rates are near 0 or below one in real terms.

11.   Stock markets everywhere touching respective all time highs. More worrisome about 40% of all trading in US taking place away from the regulated public exchanges in high frequency trading dark pools.

12.   Currency wars after Swiss franc delinked from euro and global currency markets a veritable casino.

13.   Property bubbles in world top cities and some emerging markets reaching frightening proportions.

14.   Gold still holding centre stage as the most valuable asset class even tough dollar appears to be most valuable currency and parking ground for funds.

15.   Commodities in excess supply and entering age of uncertainty with decline in appetites of China and few others due to global slowdown leading to lower prices and raising sceptre of deflationary processes.

16.   Agricultural prices stagnant though supplies abundant.

17.   Ironically during period 2000-14, global wealth rose more than 100% from $ 117 trn to $ 266 trn, indicating huge build up of savings and capital resulting in low interest rates which has also blunted the tools of monetary authorities.

18.   This has been accompanies by inordinate increases in supply of workers mainly due to higher automation and robotisation in factories leading to rise in painful unemployment. In many countries this has squeezed the middle class and skewed the income distribution further impacting adversely effective demand which comes from a strong middle class.

19.   Inventories of oil, coal, cotton, iron ore, manufactured products and automobiles are at all time highs.

20.   China’s cooling demand with lowest GDP growth of 7% in 20 years has been one of major contributory factors.

21.   Looks like most of the advanced economies have entered into long tunnels of stagnation and abysmally low rates of growth, interest rates and inflations which Japan entered in early 1990s. Europe is very much in the tunnel and US is fairly in though it’s in a denial mode. China could be about 10-15 years away from it and India probably about 25 years. The ultimate state of all economies is the steady state where growth tapers off into a plateau.