Supply Chain Slump

"Worse Than The Great Recession"

Q1 SECTOR PERFORMANCE

James Rickards:

“The only way every currency can get cheaper at the same time, is not against themselves, but against Gold!”

James Rickards, Chief Global Strategist at West Shore Funds and a widely renowned author is interviewed by FRA Co-founder Gordon T. Long in which they discuss Jim’s just released book The New Case for Gold. They also delve into issues concerning the false perceptions of the world switching back to a Gold Standard and the reasons for a suspected G-20 stealth “Shanghai Accord”.

THE NEW CASE FOR GOLD

James Rickards suggests that there is a new case for Gold and points out that everyone thinks that what they own currently, in terms of stocks, bonds and other financial securities, is actually only “electronic digits” representing claims on assets. The new reality of Cyber war and Cyber attack suggests the real possibility of a single group of people or political regime hacking U.S servers. The potential exists today for investors to lose wealth and there will be almost nothing any one can do to bring back that money, at least in any realistic period of time. Physical Gold cannot be hacked nor simply be erased from the world’s ledger. It is the most tangible and secure way of preserving wealth and James recommends a portfolio with at least 10% being allocated to physical Gold.

Being outside the system, and being non-digital are the two main reasons that smart investors economists suggest will ensure having some sort of security for your wealth. Gold meets both these requirements and in the next big financial crisis will provide you with insurance for the rest of your portfolio.

“They’re not going to bailout the system; they’re going to lockdown the system”

OUTSIDE THE BANKING SYSTEM – The Best Kind if Insurance

The financial system is inherently unstable based on:

1-Complexity Theory and

2- Financialization,

Gold acts as an insurance policy no matter what happens:

1-Inflation,

2-Deflation,

3-Bank failures, and

 4-Bail-ins.

Gold is always gold – It’s outside the banking system, can’t be reproduced by fiat,  It cannot be “hacked”.

“It is one of the few asset classes that perform well in both inflation and deflation. That is the best kind of insurance,”

Jim talks to FRA about methodically dispelling the decades old arguments and fallacies associated with going back to the Gold Standard.  He additionally dispels myths such as:

• That John Maynard Keynes Called gold a “barbarous relic” (he didn’t),
• That there is not enough gold to support finance and commerce (there is, it depends on the price),
• That the gold supply does not grow fast enough to support world growth (it does if we are looking at real growth),
• That gold caused the Great Depression (it didn’t, it was the Fed in charge of managing the money supply),
• That gold has no intrinsic value (it doesn’t but neither has the theory of intrinsic value).

GOLD IS STILL A MONETARY ASSET & REAL MONEY

Rickards feels that over 40 years of “un-education or mis-education” has resulted in the new generation of economists and youth not understanding the importance or the value behind why gold is so important for our economy.  We cannot blame the new generation for this gap inn their knowledge. We have not been teaching Gold as money in university curriculum and along with myths created about gold have virtually disowning it from economic thinking.

“The only way every currency can get cheaper at the same time is not against each other, but against Gold.”

Gold is the one form of monetary value that can’t fight back which is why they have completely stopped educating the U.S public on Gold as a whole.

A POST MONETARY RESET – Gold after the Next Crisis

The current financial system is inherently unstable and may soon have to be reformed. Gold will play a prominent role, if that happens.

The IMF is the third largest holder of official gold reserves after the United States. Gold is at the very center of international finance as the International Monetary Fund (IMF) with its Special Drawing Rights (SDR) reserve currency is regaining prominence. In addition, the current valuation of the SDR could not be calculated without using gold, even though one has to go back to the 1970s to understand why.

China is not only acquiring vast quantities of physical gold, it is also going through the hassle of infiltrating the London gold market and simultaneously setting up its own clearing mechanism in Shanghai. Russia has boosted its gold to GDP ratio to 2.7 percent, higher than the United States percentage of 1.7 percent.

All powers are acquiring gold to have some bargaining power when the international financial system will be reformed.

“The gold to GDP ratio will be critical when the monetary system collapses because it will form the basis for any monetary reset and the new ‘rules of the game.’”

Why? After redistributing the official gold holdings and having monetized everything from bonds to stocks, the world’s governments and central banks won’t have a choice left other than to devalue paper money compared to gold, the same trick President Roosevelt used during the great depression and with the same objective of getting rid of an unsustainable debt burden.

In a monetary reset, gold will be the chips that are used to play a game of poker. Russians, Chinese and even the Iranians are stock piling gold because of this fear. If Gold has a role in the future monetary system, Gold’s price has to go up. Gold cannot multiply at the alarming rate that we will need it for. But we can always increase the price which is why the current monetary system will fail in terms of Gold in the future and will still hold the parity between money supply and demand. James expects a price target of $10,000 for the future if this falls in line.

“You want some assets in TANGIBLE ASSETS!”

James new book The New Case for Gold is available in stores and online now and provides an in-depth analysis on the old and new reasons for why Gold is a necessity in our upcoming monetary system.  As always for more analysis and interviews follow us on twitter @FRAuthority or Subscribe to our YouTube channel, Financial Repression Authority for weekly interviews.

Abstract Writer: Saad  Gohir  [email protected]

Video Editor: Min Jung Kim [email protected]

Wall Street Rushes to Aid CLO Market as New Rules Cloud Outlook

• JPMorgan, Citigroup and BofA explore arranging new financing
• Funding would allow managers to put up less of their own cash

Wall Street is moving to prop up the $881 billion market for leveraged loans by helping the largest buyers of the debt overcome tougher regulations.

JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. are among banks exploring ways to arrange a type of financing for managers of collateralized loan obligations that would help them comply with the rules, according to people with knowledge of the matter. The funding would allow managers to put in less of their own capital to conform with so-called risk retention rules that require them to keep some skin in the game to avoid excessive risk-taking.

The banks have a very good reason to help. CLOs purchased more than 60 percent of leveraged loans last year and if they aren’t able to get off the ground, that could jeopardize buyout deals that have relied on the backing of credit markets. CLO issuance has already plunged to its slowest pace in more than four years and making it easier for managers to comply may help revive the market.

“Risk retention and the financing solution is part of a bigger puzzle for the whole leveraged-finance universe,” said Maggie Wang, Citigroup’s head of U.S. CLO research. “If CLO issuance falls, it will have a major impact on the loan market."

Vertical Strip

CLOs pool high-yield corporate debt that are often sold to finance some of the largest buyouts. The bundled debt is sliced into securities of varying risk with ratings that range from AAA down to B. The new risk-retention rules, a part of the Dodd-Frank reform, require CLO managers to hold 5 percent of their deals. 

A manager can do this either by buying up 5 percent of the junior-most portion, known as the equity tranche, or by purchasing a little bit of each portion of the CLO structure -- or the so-called vertical strip -- to make up its 5 percent holding.

The banks are offering to raise money from investors to help provide the vertical-strip financing for CLO managers, the people said, asking not to be identified as the information isn’t public. One option the lenders are discussing is arranging financing for the safest portion of the vertical-strip, leaving the CLO manager having to look after the rest, the people said.

Smallest Check

Banks may be willing to provide financing for between five and 12 years, the people said. Longer-term financing that more closely matches the maturity period for the vehicles is better for CLO managers so they can avoid the risk of having to refinance before their fund matures.

Without the financing from the banks, the manager of a $500 million CLO might have to put in $25 million to comply with the rules. That’s five times as much as the $5 million the same manager may have to tip in if it can secure financing for most of the vertical strip, the people said.

“This is the path to the smallest check for a manager to write,” said Oliver Wriedt, co-president of CIFC Asset Management. “The reason this financing solution is a hot topic is because poorly capitalized CLO managers and their underwriters want to find access to market.” 

Representatives for JPMorgan, Citigroup and Bank of America declined to comment.

New CLO sales plunged to $8.2 billion in the first three months of the year, its slowest stretch since 2012. That follows nearly $100 billion of CLO sales in 2015 and a record $124 billion in 2014.

Bank of America cut its CLO issuance forecast for the year to $45 billion, less than half the total in 2015. JPMorgan analysts said it could fall to as low as $35 billion, after loans last year suffered their first downturn since 2008 and as managers grapple with the new rules.

Funding discussions between banks and CLO managers come as firms including Leon Black’s Apollo Global Management LLC raise fresh capital to address the new rules.

“Financing will be a big part of the solution,” said David Preston, an analyst at Wells Fargo & Co. “It will certainly help CLO managers continue issuing deals."

One Junk Bond Analyst's Catastrophic Forecast For What Is Coming

April Retail Sales Plunge Most Since 2005

Something ugly this way comes. As we noted last week, despite proclamations that any weakness in US spending or economic data is merely seasonal or transitory, BofA's credit and debit card spending data revealed that sales were notably weak. Today we get further confirmation of what Retail ETF investors have been seeing for a while as Johnson-Redbook reported a 2.8% plunge in Same-Store-Sales - the worst start to an April since 2005.

Which confirms the chart below shows the seasonally adjusted retail sales ex-autos measure from the BAC aggregate card data was unchanged SA in March, leaving the 3-month moving average to decline 0.2%. While a part of this weakness owes to a continued decline in gasoline prices. We find that retail sales ex-autos and gasoline was up 0.3% mom SA, which continues to be in a downward trend.

This confirms the downward revision to the Census Bureau data in January which made government data more consistent with the BAC internal data. According to Bank of America, "we therefore also look for only a slight improvement in March Census Bureau sales, in a similar pattern as the BAC internal data" which means that Q1 GDP is weak for a very specific reason: consumer spending remains anemic.

And as Credit Suisse notes, Retail stocks remain under pressure... XRT has seen shares outstanding drop by 65% since July 2015 and by 25% in the last week hitting a 52 week low.

Investors redeeming positions in the ETF on the back of GAP same store sales of -6% for March (leading to a 13.84% pullback on Friday and 20% over the past 5 days).  L Brands also disappointed on Friday falling 4.34% after announcing a restructure (GS downgraded them today and was negative on the space).  The XRT has fallen around 4% in the last week, breaking the 200 day moving average recently.

FL, NKE, UA, and LULU weakness appears to be driven by concerns around 1. Women’s athletic apparel slowing concerns and 2. Basketball footwear slowing concerns (MSCO cautious on UA yesterday)

And Luxury retail hit on LVMH #s... and even Prada is under pressure - Prada Yields to Lower Asia Demand With Lower-Priced Bags

In the words of Prada SpA Chairman Carlo Mazzi, value for money is the way ahead. After posting its lowest profit in five years on slowing Asian demand, the Italian leather-goods maker on Monday announced a turnaround plan that includes offering more lower-priced handbags in the 1,200-to-1,400 euro range ($1,370-to-$1,600). If you’re still priced out, there’s always Prada stock, trading at a discount to its peers, and down nearly 50 percent in the past year in Hong Kong.

US Retail Sales Tumble Into Recession Territory Driven By Auto Sales Plunge

After stumbling sideways around unch MoM for 3 months, US retail sales tumbled 0.3% in March (considerably worse than the 0.1% MoM gain expected) confirming BofA's credit card data as we warned. March's print is practically the weakest month since Feb 2015 and is unlikely to get much better given the dismally weak start to April, as we noted here. After 3 months of low-base bounce in YoY retail sales, March saw it collapse back to just 1.7% YoY - deep in recession territory.

March Retail Sales plunge...

The string of misses for Control Group Retail Sales continues...

As Auto Sales collapse 2.1% MoM... which should not surprise since US Auto Sales (SAAR), via WARD's Automative Group, tumbled 3.5% YoY to end March - the biggest YoY plunge since July 2009 (pre-Cash-for-Clunkers)...

and perhaps just as problematic, Restaurants tumbled 0.8% - where all the hiring has been.

and if you are hopeful about April, Johnson-Redbook reported a 2.8% plunge in Same-Store-Sales - the worst start to an April since 2005.

Finally, as Goldman notes, weakness in auto sales and production could be an unwelcome headache for the manufacturing sector. Growth in auto output has accounted for 40% of the increase in manufacturing production since January 2012, not including spillovers to related sectors (Exhibit 4).

The total effect is likely bigger, as spillovers from auto manufacturing can be significant:

• producing $1 of motor vehicle output requires $1.8 dollars of output from all other industries - the highest “multiplier” of any sector in the economy (according to the BEA’s input-output accounts).

Although prospects for the manufacturing sector have started to look brighter, a pullback in motor vehicle activity could limit the extent of any rebound.

Crude Loses Key Technical Support As BNP Sees Oil - Revisiting The Year's Lows

Ahead of a producer gathering in Doha on 17 April aiming to freeze output, recent comments by Saudi Arabia indicate that the Kingdom’s participation is conditional on that of other producers, including Iran. That effectively puts a nail in the coffin of the Feb-Mar oil price rally. Iran will not accept a freeze of its output until such time that lost market share, due to US and EU sanctions, is reclaimed.

In the meantime, key non-OPEC producers like Russia are posting new record highs in output. A production freeze from Russia will not help tighten global oil balances.

Global oil balances will witness sizeable implied inventory builds in H1’16, suggesting that the price of oil can easily revisit the lows seen earlier this year.