Wait till America opens their Q1 401k Investment Statements and see they have lost 35% of their retirement savings. They can blame the Authoritarian Chinese Communist Party..

[0R0 + 6,251]

The issue is that people need to raise cash all at once.

They were "suddenly" told to shut down and their employers were shut down. Some got fired right off the bat, others don't know yet. So they all rush to borrow to bridge their business while revenues are 0. About 2 months is the normal plan. Those that can sell other assets and put into cash. The problem is that there is nobody to take the other side of the trades. The dealers can't because their books are full to the regulatory maximum. They can't trade and back it up with the Fed's repos, the repos are still breaching the regulatory limits and they are not going to take on the legal risk as the Fed can't release them from the other regulators (FASB, OCC, FDIC, SEC, CFPB, Volcker rule) so that leaves only the Fed to stand behind them to buy outright, and to do that they need a loss mitigation fund which only the Federal government can give. 

Dems in congress want all sorts of restrictions on the lending - like fuel efficiency commitments from airlines and other irrelevant issues. So they want intervention in the Fed backstop and lending programs. They are gumming up the works and will be held up to public scorn.

The Treasury has provided some Exchange Stabilization fund money for the backstop so the Fed can proceed already. The big issue is how to produce A grade paper out of junk credit and equities so that the Fed can buy it, While the risk laden CCC portion of the paper gets sold to the public. The banks can be a conduit for this paper but can't hold on to it, due to regulatory issues, and meaning high risk and low prices for the low grade portion. Perhaps Buffet could do some work on that. 

Anyway, by my reckoning the US market needs an immediate $1.5 Trillion  in cash raised (1.1 as 30% of the economy shut down for 2 months, + supply chain upstream $400 B), which for an economy at 270% leverage, call it 3 X that means $4.5 Trillion in assets sold. And similarly in Europe and ASEAN, via the Eurodollar system with the same calculation coming up with $4 to 6 Trillion.

That means that the Fed's program is too small and too much foreign owned assets will stay unsold since the currency swap lines are not priced correctly (by the Fed) so the CBs can't help their domestic banks yet.

Jim Bianco has great explanations of what it going on.

 

[0R0 + 6,251]

3 hours ago, Zhong Lu said:

Also, anyone who knows anything about finance knows that the last 10 years gains in the market was built on leverage and "heads I win, tails you lose" mentality. We're currently in the "tails you lose" component. The government today is just as corrupt as it was in the past.  Nothing has changed.  

Don't drink the cool-aid.  The only thing you can trust a government to do in a crisis is to lie.  Doesn't matter who is in charge.

Not by my calculation.

The market values forward earnings not past ones. They look at the forward margins and estimate sales and the investment cost to make those sales. Companies get valued on the potential before they have made the investment and increased their output of services or goods. As they make the investment their earnings are suppressed and they take on debt. This makes them look expensive, and makes them financially weak due to the large debt they had taken on. When everything suddenly stops in this pandemic then the companies face a sudden breakdown of expected forward sales, unit margins, credit costs and their value plunges appropriately. 

[George8944 + 128]

21 hours ago, Hotone said:

Do you recommend to buy gold?

I believe that some form of hard assets should be a part of every portfolio.  It's the protection against the blackest of all black swans.  When I say "hard assets" I mean physical, touchable assets and not pieces of paper that says you own a future contract or shares in an ETF.

Gold is one of many things that would suffice.  It's dense, doesn't take much space plus I think it will hold some value and be easily traded.  There are other hard assets or precision gems that fit this bill as well.  With recent events, I'm considering adding toilet paper to the list!   

[George8944 + 128]

23 hours ago, Ward Smith said:

So what if my annuity only pays 3% in a down year?

First, what I know about 1035 exhanges can fit in a thimble, but I thought they were for tax-free exchanges between like-kind investments.  (e.g. insurance to insurance).   You probably did your dilegence but I wouldn't think going from a 401K to an annuity is a like-kind transfer.  Now buying an annuity within your 401K is different.  As I said,  my knowledge is thimble size.  I'm sure you know what you are doing in this regard.

Like many folks, your time line is too short to grasp historically what has happened for the last hundred, hundred-fifty years.  If you're 80 years old, an annuity has it's place.  However if you are a young man with more than 10 years from retirement,  those who took it on the chin with a 40% loss AND did not sell,  will more than over take you by the time they need the money.  Well that's what has happened in every other crash.  Maybe "this time it's different". 

My daughter is in her mid-30's.  My advice to her was don't you dare sell a dang thing.  Keep funding your 401k and don't worry about it.  I'm a few years from retirement so I went to mostly cash in January.   I thought about an annuity for 30 seconds and decided I would rather earn a zero return this year or even next and dollar cost average back into the market. 

This crash is something I've been hoping for, for the last two years.   In the near term, if our fiat currency doesn't collapse, price discovery will happen.  Weak companies will dissolve and we will come out on the other side, smaller, leaner, and much more realistic about value.   That's a foundation on which I can retire.

I'm not saying you are wrong.  I'm just saying it's not something I would do.

[Ward Smith + 6,615]

1 hour ago, George8944 said:

First, what I know about 1035 exhanges can fit in a thimble, but I thought they were for tax-free exchanges between like-kind investments.  (e.g. insurance to insurance).   You probably did your dilegence but I wouldn't think going from a 401K to an annuity is a like-kind transfer.  Now buying an annuity within your 401K is different.  As I said,  my knowledge is thimble size.  I'm sure you know what you are doing in this regard.

Like many folks, your time line is too short to grasp historically what has happened for the last hundred, hundred-fifty years.  If you're 80 years old, an annuity has it's place.  However if you are a young man with more than 10 years from retirement,  those who took it on the chin with a 40% loss AND did not sell,  will more than over take you by the time they need the money.  Well that's what has happened in every other crash.  Maybe "this time it's different". 

My daughter is in her mid-30's.  My advice to her was don't you dare sell a dang thing.  Keep funding your 401k and don't worry about it.  I'm a few years from retirement so I went to mostly cash in January.   I thought about an annuity for 30 seconds and decided I would rather earn a zero return this year or even next and dollar cost average back into the market. 

This crash is something I've been hoping for, for the last two years.   In the near term, if our fiat currency doesn't collapse, price discovery will happen.  Weak companies will dissolve and we will come out on the other side, smaller, leaner, and much more realistic about value.   That's a foundation on which I can retire.

I'm not saying you are wrong.  I'm just saying it's not something I would do.

A 1035 is indeed like for like. A 401k can't be accessed until certain ages are reached. I can have an annuity do the same thing. I picked annuities that have had good returns in up and down years. They've got guaranteed minimums that are better than CD's have delivered. 

Your point about fiat currencies is well taken. I don't know if the Fed can handle this crisis. Years ago all the major central banks started feeding the international monetary fund gold. My guess is when currencies start to collapse, the IMF will step in with an international currency. Think Euro, but worldwide. The globalists have been planning for something like this for a long time. They won't let any crisis go to waste and this crisis is a doozy. 

I've seen what happened to Greek deposits when their Central Bank failed. My money is safer in an annuity than "FDIC guaranteed" deposits. My grandfather had his fortune stolen when Roosevelt made every American a potential Criminal by making ownership of gold illegal. This while our money was gold! That's when we finally went from money to currency. Supposedly it was good as gold, but who got to see the gold? No American did, and gold producers were paid a fixed exchange rate regardless of inflation. Roosevelt was a criminal. 

[0R0 + 6,251]

13 hours ago, George8944 said:

First, what I know about 1035 exhanges can fit in a thimble, but I thought they were for tax-free exchanges between like-kind investments.  (e.g. insurance to insurance).   You probably did your dilegence but I wouldn't think going from a 401K to an annuity is a like-kind transfer.  Now buying an annuity within your 401K is different.  As I said,  my knowledge is thimble size.  I'm sure you know what you are doing in this regard.

Like many folks, your time line is too short to grasp historically what has happened for the last hundred, hundred-fifty years.  If you're 80 years old, an annuity has it's place.  However if you are a young man with more than 10 years from retirement,  those who took it on the chin with a 40% loss AND did not sell,  will more than over take you by the time they need the money.  Well that's what has happened in every other crash.  Maybe "this time it's different". 

My daughter is in her mid-30's.  My advice to her was don't you dare sell a dang thing.  Keep funding your 401k and don't worry about it.  I'm a few years from retirement so I went to mostly cash in January.   I thought about an annuity for 30 seconds and decided I would rather earn a zero return this year or even next and dollar cost average back into the market. 

This crash is something I've been hoping for, for the last two years.   In the near term, if our fiat currency doesn't collapse, price discovery will happen.  Weak companies will dissolve and we will come out on the other side, smaller, leaner, and much more realistic about value.   That's a foundation on which I can retire.

I'm not saying you are wrong.  I'm just saying it's not something I would do.

You should be aware that the American stock market experience is quite unique. Post bubble stock markets hardly ever recover in the rest of the world, not in real terms. Harry Dent has lived off his observation of the correlation of the consumer and income growth age group /cohort numbers with stock markets. Industrialized countries hardly ever have a rebound in that age group once it falls. Only the US Australia and Canada France and UK had rebounds, Everyone else ends up with an upside down pyramid (Japan, Korea, Germany, Italy, Spain, China, Russia). Canada's was far from complete despite large immigration. Immigration helped with the US demographics in a procyclical manner, as high growth periods see large rises in immigration and economic quality of immigrants, while those fall off in numbers and economic potential when the US is stagnant. 

The second issue is that the stock market reflects also the huge global earnings growth of US corporations as during the small Gen X generation couldn't maintain the kind of spending levels their much bigger older and younger cohorts had. That kind of opportunity is not available unless India (and Indonesia and Philippines) sharply changes its state and national level structural impediments to investment and disinterest in broad education and business modernization. As the rest of what used to be emerging markets are actually "newly industrialized" and have already reached inverted demographics. 

 

[0R0 + 6,251]

16 hours ago, George8944 said:

I believe that some form of hard assets should be a part of every portfolio.  It's the protection against the blackest of all black swans.  When I say "hard assets" I mean physical, touchable assets and not pieces of paper that says you own a future contract or shares in an ETF.

Gold is one of many things that would suffice.  It's dense, doesn't take much space plus I think it will hold some value and be easily traded.  There are other hard assets or precision gems that fit this bill as well.  With recent events, I'm considering adding toilet paper to the list!   

Gold behaved quite well and provided liquidity and sustained value, and will continue as the rush to squish down currency values continues with the economic rescue and financial expansion to sustain spending while production is curtailed, Which bodes well for forward inflation.  Monetary growth is going to continue growing into the future to counter the slowing consumption wave in OECD+China except for the NAFTA region, where credit expansion will fuel consumption. As in China, where they have rolled over the entire debt structure of the country without any interest payments during the epidemic and recovery there will be an inflationary burst at the base of the consumption pending items - food. Food inflation in China is now 20%. The country is now in a food deficit. Other countries that are food deficient will see this as well. Muted versions of this will be seen in the big food exporters. 

The exodus of supply chains out of China will be inflationary as well. The demand for industrial investment and diversion of investment from new production to duplication of existing production capital in China will reduce the efficiency of the global supply chains as they consolidate regionally. It will be a period of inflation  despite the inverted consumption demographics.  

So gold looks to be a good idea, particularly for holdings of physical gold which skirt the dangerous increase of global leverage during this monetary emergency blow  out where it is increasingly important to hold assets that are not other's liabilities. Particularly not those of sovereigns.

Edited March 24, 2020 by 0R0

[Yoshiro Kamamura + 274]

Panicking old-timers see this virus outbreak as the end of the world, people with vision as an opportunity. Changes that must be implemented anyway if human civilization wishes to survive facing threats like climate change, extinction of plant and animal species our food production depends on, waste and toxicity of industrial production, etc., and that would never have been implemented willingly by the current ruling plutocracy (masquerading as democracy) are suddenly happening because of this event. Car production is down - very good, exactly what is needed, airlines crashing - even better, cooling down of the global economy whose significant "product" is garbage landfill anyway, just because a handful of ruling psychopath whip everyone to production frenzy to earn a few dollars more.

"Business as usual" is not sustainable. Our scientists, the brightest minds humanity has, are telling us so every day. We need all the help we can get. 

[Gerry Maddoux + 3,627]

^

Relax. The Saudis and Russians may feel perfectly free to pump and dump and in the process destroy their countries' economy. Russia requires $54 oil to break even and KSA needs $85. Putin just became president for life but MbS is in serious jeopardy. 

The US should immediately impose a 25% tariff on Saudi oil. Either that or a complete embargo. I'm also fine with a NOPEC, which would ruin the country. What MbS did is unconscionable, and he must pay the penalty for taking advantage of a sickened world. 

And he will. He has at long last painted himself into a corner. In the end, demand will eventually pick up and in about a year we'll have the glut cleaned up. By then, almost certainly, something global and violent and disruptive will have occurred in the oil world. 

[George8944 + 128]

19 hours ago, Ward Smith said:

My grandfather had his fortune stolen when Roosevelt made every American a potential Criminal by making ownership of gold illegal

Not only did he confiscate everyones gold, but then he threw salt in the wound by devaluing the dollar.

I think the FED will handle this crisis ONLY because everyone else is in the same boat.  Trust is relative and amongst central bankers I think they all agree, "I won't call your bluff if you don't call mine."   As long as nobody blinks they can run up their balance sheets a few trillion dollars more.   Unfortunately companies and individuals don't have the same luxury.  Debtor demand to be paid.

Ignoring the debt issue.  I'm becoming more optimistic once this passes we will come out of it a stronger economy. 

[George8944 + 128]

7 hours ago, 0R0 said:

The exodus of supply chains out of China will be inflationary as well

I totally agree with your view on China.  I think they are in very big trouble.  My main fear is a trapped animal will fight to the death.  I don't know how this will manifest itself through their political oligarchs, but I don't expect them to fade away quietly.   China is the second largest economy in the world so any pertubation they encounter will have its after shocks around the world.

[Ward Smith + 6,615]

35 minutes ago, George8944 said:

Not only did he confiscate everyones gold, but then he threw salt in the wound by devaluing the dollar.

I think the FED will handle this crisis ONLY because everyone else is in the same boat.  Trust is relative and amongst central bankers I think they all agree, "I won't call your bluff if you don't call mine."   As long as nobody blinks they can run up their balance sheets a few trillion dollars more.   Unfortunately companies and individuals don't have the same luxury.  Debtor demand to be paid.

Ignoring the debt issue.  I'm becoming more optimistic once this passes we will come out of it a stronger economy. 

https://brrr.money/

[George8944 + 128]

12 minutes ago, Ward Smith said:

https://brrr.money/

Ward - the money is fiat, so its value is based more on trust, than rarity.  The gig won't be up until other countries fail to believe in our economy.

If China's economy falters badly after this Covid-19 virus, which I think it will, our status as the world's reserve currency can go on for decades more.  Not that our dollar is so great, but because there is nothing close to it. (Ignoring gold.) 

China has been a net seller of dollars for the last several years.  Now they have nothing to trade and realize everything they need to buy is priced in dollars.  My prediction is they will start selling their huge stash of gold for dollars.   Potentially, this could keep gold prices in check as more physical bullion floods the market.   This will be one very interesting year.

I did like the site.

[0R0 + 6,251]

2 hours ago, George8944 said:

I totally agree with your view on China.  I think they are in very big trouble.  My main fear is a trapped animal will fight to the death.  I don't know how this will manifest itself through their political oligarchs, but I don't expect them to fade away quietly.   China is the second largest economy in the world so any pertubation they encounter will have its after shocks around the world.

Actually it is a matter of how well Xi manages to control things internally. The CCP is trying to figure out its way out of the situation going to world engagement, which is no longer going to be on its terms, or maneuvering into a closed system like a high tech version of N Korea, which a large portion of the Politburo want. A good compromise for them is to incorporate Russia into their supplier and consumer but there is little Russia can offer as an export market, vs. the rich resources it can offer. So China has unfavorable solution to its trade for incoming commodities (food too) from Russia with little to pay with but for investing in the country at a loss. 

[0R0 + 6,251]

2 hours ago, George8944 said:

Ward - the money is fiat, so its value is based more on trust, than rarity.  The gig won't be up until other countries fail to believe in our economy.

If China's economy falters badly after this Covid-19 virus, which I think it will, our status as the world's reserve currency can go on for decades more.  Not that our dollar is so great, but because there is nothing close to it. (Ignoring gold.) 

China has been a net seller of dollars for the last several years.  Now they have nothing to trade and realize everything they need to buy is priced in dollars.  My prediction is they will start selling their huge stash of gold for dollars.   Potentially, this could keep gold prices in check as more physical bullion floods the market.   This will be one very interesting year.

I did like the site.

China has been a net loser of capital for nearly a decade. They can strike a pose as to having accumulated gold and oil as assets, but Chin'a gold acquisition has stopped 5 or 6 years ago. Swiss refiners point to gold arriving from the east rather than the usual travel from the West. There is a detailed post I put on somewhere on the forums as to China's fight to hold on to its dollar reserves.Exporters are not exporting goods per se, but their capital. The proceeds don't make it back to China. And the forex borrowing of their corporations, real estate in particular, are straining their current accounts. But the biggest chunk of outflows was from outgoing tourism.  

 

[George8944 + 128]

On 3/25/2020 at 12:58 AM, 0R0 said:

Chin'a gold acquisition has stopped 5 or 6 years ago.

yes, because China is now the largest gold producer in the world.  They don't need to acquire outside their borders.   

I haven't heard they have trouble holding onto dollars.  Given that we are their largest trading pratner and pay in dollars, that's a bit suprising.  However, in the last decade they have been on a gowth binge and it takes dollars to buy the stuff they need like oil and other commondities so maybe it is so. 

We need to take note of this.  Once we lose our Reserve Currency (RC) status, we will be like them with the new RC of the times.

[0R0 + 6,251]

13 minutes ago, George8944 said:

yes, because China is now the largest gold producer in the world.  They don't need to acquire outside their borders.   

I haven't heard they have trouble holding onto dollars.  Given that we are their largest trading pratner and pay in dollars, that's a bit suprising.  However, in the last decade they have been on a gowth binge and it takes dollars to buy the stuff they need like oil and other commondities so maybe it is so. 

We need to take note of this.  Once we lose our Reserve Currency (RC) status, we will be like them with the new RC of the times.

That isn't their problem.

Their problem is capital flight. They have a serious problem. The export proceeds do not show up in the SAFE stats, and they have a giant Errors and Omissions line on the BOP reports sucking dollars out. Look back to my older postings on China's financial conditions. SAFE is trying to raid forex accounts of Chinese in HK, and broke into several banks to get the info and are trying to extort their exporters into repatriating the dollars.

Their exports right now are not a happy picture. Down 35% last month on outgoing container shipping, expected down 45% in March. When they arrive, they are quarantined for 2 weeks, then may or may not get unloaded at the CA ports. 

https://www.wsj.com/articles/coronavirus-rattles-shipping-industry-as-supply-shock-moves-to-demand-decline-11585249552

Word is that they are having trouble raising cash but don't want to reduce their reserves at the Fed. 

They also have to quarantine incoming ships because they had quarantined their people so well that there is no herd immunity. Contrast that to 40% metro NYC positive tests and 20% in CA.