Jim Sinclair interview with Greg Hunter

Very interesting interview between Greg Hunter and Jim Sinclair, a must watch.

The base case of gold going up is because of a loss of confidence in the U.S. dollar. This loss in confidence will accelerate when business conditions worsen. Let me just give 3 recent examples of worsening conditions.

1) ADP unemployment numbers signal that the unemployment rate is going up. With just 130000 jobs added the latest month we cannot keep pace with the growing population, which expands at around 170000 a month. So you can be sure that the unemployment picture is going to deteriorate.

2) The pending home sales have been worsening for the fourth consecutive month, due to higher mortgage rates. Not a great investing environment for the real estate market, right?

3) The durable goods orders posted a big decline the latest month (if Boeing's one time sales is taken out of the picture), how can stocks keep going up at this pace?

South-Korea days 7-11: Hot Pot Every Day

The final week in Korea wasn't what I expected. I had expected fashionable people with classy outfits, but it turned out that a huge part of Korea is pretty poor. So we wandered through the deserted China-like villages. Only the capital Seoul had a bit of flair in it.

I'm a vegetarian, Korea doesn't like vegetarians. Every day I had to eat "hot pot". Basically they put a bowl of flavoured water in a big bowl in front of you. It looks like this.

What they put in it is: carrots, cabbage, mushrooms. That's what I ate for 5 days with a bit of rice. It doesn't have a lot of variety in it, but it sure is healthy. That's why Asians are so skinny.

Another day, I visited Everland and boarded on the T-Express, Korea's most famous wooden roller coaster.

The last day we visited Seoul, that was a pretty fine place to do shopping. One of the hotels we stayed in, looked like a psychiatric institution.

They have huge shopping malls like Shinsegae, with over 13 floors.

The small streets are just like Hong Kong, with a flair of Japan in it.

QE Goes Into Hyperinflation Mode

There is this question on how long QE can continue to raise equity prices. Do you think this can go on till infinity?

Of course not, first off, I showed with the Potemkin anti-rally that the Dow Jones hasn't been rising along QE. But more importantly, we need to watch what the U.S. dollar is doing.

That's why I made this chart to show the Dow Composite Index, weighed to the U.S dollar index ( blue line). You can see the blue line has been flat lately, even though the Dow Composite went up ( green line). That's because the U.S dollar has been going down recently (TWEXMMTH). The red line shows the expanding Fed balance sheet.

We need to keep monitoring this, because once the green and blue line diverge from each other, we're basically going into hyperinflation mode.

Hong Kong day 6: Mainland China's Increased Consumption

Today we went to Hong Kong's Ocean Park. This park features many aquatic creatures and shows to watch and has a lot of other attractions like roller coasters, water rides, giant swings, gravity simulators...

You can go there by taking the metro to Admiralty and then taking the bus to Ocean Park. I went there on a Tuesday. What struck me was that there weren't a lot of people there. I could just go on a roller coaster without waiting. What struck me even more was that all people there were basically mainland China visitors. There were very few people from Hong Kong.

The most obvious cause is that the Yuan has been appreciating a lot, so all those mainland China people go visiting Hong Kong. A few years earlier it was the Hong Kong people who visited mainland China, that doesn't happen anymore.  The yuan appreciated in just a few years time from 106 RMB exchangeable to 100 HKD, to 78 RMB exchangeable to 100 HKD. That's an appreciation of 30% in favour of the RMB.

But enough babbling, here are some breathtaking videos. Other than exotic birds, giant fishes, jelly fishes, sea lions, dolphins, tortoises, monkeys, spiders, snakes,

I saw panda's.

I saw penguins.

I saw otters.

I took the cable car.

Hong Kong day 5: McDonald's technological advancement

Another technological advancement in Hong Kong is the Octopuscard. You basically link your bank account to this card and then you pay for everything at the movies, stores, transports and restaurants without having to input your passcode, nor do you have to do any recharging. This makes everything much faster, more efficient and more accurate.

I wish we had this in the western world.

Next on, we went to the Admiralty's park of Hong Kong. The most beautiful place there is the aviary where you can walk in the habitat of the exotic birds. I found a very weird tree there.

Hong Kong day 4: Mahjong Birds

Not much happened on day 4, but I got to see a bunch of what I call Mahjong birds. Mahjong is a very famous game in Hong Kong and one of those tiles has a Mahjong bird on it.

I also came across some voodoo practices.

U.S. Debt Crosses 17 Trillion

As predicted before, the debt ceiling would be raised and now the treasury is going to issue an enormous amount of debt. The debt will now spike a lot to get the budget in order for the whole year of 2014. The Federal Reserve will now buy up all this debt and the U.S dollar is set to weaken as China will reduce its purchases of this debt. Evidence is to be found in the Chinese rating agencies. For example Dagong downgraded U.S. debt.

Just after the debt ceiling deal on 17-oct-2013, the debt increased from $16.7 to just over $17 trillion.

This is what it looks like. You can see that the slope is higher as usual as they are in need of cash.

Hong Kong day 3: The Great Basin's Secrets

The third day was a day full of walking. We went up to the Great Basin to look at the lakes and springs. It was a 4 hour walk across the mountain. People walk their dogs here, away from the busy streets.

These mountains hold many secrets. We find here big spiders, butterflies, huge ants, weird plants, shrines, cliffs, small pathways.

Along the way you will see the skyscrapers beneath you.

Hong Kong day 2: Nightlife

Today, we explore Hong Kong's nightlife. The shops in Hong Kong are always open till late in the evening as government intervention is kept to the minimum. Shops will only close at 22:00. People keep roaming the streets late in the evening.

Every time I visit Hong Kong, I go to Tsim Sha Tsui to watch Hong Kong island from the other side as the light show starts at 20:00.

After the show, I head back to Hong Kong island with the ferry, which costs only $0.25 a trip. By the way, the bus only costs $0.4 to go from one side of the island to the other side. The metro costs $0.7 to do the same. That's free market economics.

Hong Kong day 1: Overpopulation

I'm on holiday in Hong Kong. I can say that the economic conditions here are very good. Yesterday, I saw a person buy physical gold at a bank and the most funny thing is that the gold counter was right next to the foreign exchange counter. Yes, gold is money and is considered to be equal to currency, but non-devaluable.

On my first day I went up the mountain of Chai Wan, a view you won't see a lot.

Next on, I went to buy some groceries at a local department store. It was fully packed as usual.

To go from one place to another, we use the metro. This is by far the best invention of Hong Kong.

You can also take the bus.

Or the tram.

Shopping is quite an endeavour on itself.

Because there are a lot of people, consumption is prevalent here.
You can't cross the street without touching someone.

U.S. Treasury Bills: Canary in the Coal Mine

Here we see the 1 month, 3 month and 1 year treasury bill yields.

You see that little spike at the end of the chart? That's the 1 month T-bill yield and it's the canary in the coal mine for the longer maturities.

1 month yields were higher than 1 year yields, indicating default risk.

U.S. Treasury Yields Vs. German Treasury Yields

A rather insignificant correlation, but a correlation nevertheless.

U.S. bonds Vs. German bonds have started to follow each other very closely since 1992. I see an arbitrage opportunity in this. Whenever both graphs diverge from each other, you sell one and buy the other.

For example, now is the time to sell German bonds and buy U.S. bonds.

IMF has plans to impose 10% tax on deposits

What happened to Cyprus, doesn't stay in Cyprus. We already warned everyone about this in this article. What they do to Cyprus, they will do to every European country. That was my statement.

And here we finally have it. The IMF is setting up plans to impose a 10% tax on the savings of citizens of European countries.

After citing their colleagues, IMF economists are throwing themselves into the water. "The tax rate needed to bring debt ratios (relative to GDP) to the level of the end of 2007 would require a tax of about 10% of all households with positive net savings." These calculations, we specify the IMF has been made to 15 countries in the euro zone. Let us recall that such arguments are intended merely suggestions to "theoretical" character. They are no less iconoclastic. But is it soft solutions leveraging outside of inflation, the most hypocritical of all?

 I wonder what will happen to the deposits of the European banks. If I had savings in the bank, I would take them out of the bank and store them at home or buy gold.

=> And yes, the bank deposits are falling.

China Gross Gold Imports Rise in August 2013

China is on pace to grow its gold reserves once again. There is no stopping of the gold imports to China.

Net imports, after deducting flows from China into Hong Kong, were 110.2 metric tons, from 113.2 tons a month earlier, according to calculations by Bloomberg. Mainland buyers purchased 131.4 tons in the month, including scrap, compared with 129.2 tons in July, data today from the Hong Kong government showed.

Potemkin "Anti"-Rally

Remember the Potemkin Rally (Dow Jones Divided by Fed Balance Sheet)? 

The stock market's performance is depending on the Fed's expanding balance sheet. That is apparent from the flat line since 2008.

But more recently, we see that the curve is trying to roll over to the downside. What this means is that the expansion of the Fed balance sheet is not enough to sustain a rally in stocks.

Translated: "we need more QE."

What Will Happen When Debt Ceiling Isn't Raised?

The government shut down on October 1, 2013. Some 800000 government workers are sent home without pay, but might get paid if a bill is created and passed to pay them for their lost time. During the last shutdown, in 1995 and 1996, Congress later passed legislation that made workers whole for the days they were furloughed. But today, at least 535 federal workers at Congress will get paid, for doing nothing, except for sabotaging the country's core. It is estimated that the GDP would decline $1.6 billion/week or $83 billion/year. The U.S. GDP growth is 2%/year or $300 billion/year. So for example, if the government would shut down for a month, you wouldn't be growing 2%/year, but 1.8%/year. Hardly noticeable...

On the other hand, we have a more significant date: 17 October. This is the day where the debt ceiling will be breached. That's a more serious thing to consider. When the debt ceiling isn't raised, there is the imminent problem of maturing debt. The short term maturities are going to be the ones that default first. Chart 1 gives the T-bills with their maturity date. Those that mature on 17 October have a spike in yield. You will see that those yields are skyrocketing every day closer to the debt ceiling default date of 17 October. So the market is anticipating an outright default. This will have severe implications on credit transactions all over the world as noted by Bill Gross.

Chart 1: T-bills

So what will the Federal Reserve do if we were to breach the debt ceiling, instead of raising the debt ceiling?

Go here to find out.