NZ Dollar Just Keeps Falling
The weakening New Zealand dollar is again the driving factor for local precious metals prices. The overnight Fonterra auction saw Whole Milk Powder prices plunge a further 10%. The global Dairy Trade Index is now almost back to levels from July 2009!
That saw the dollar drop below 0.68. It fell even lower and as we type it has just bounced off 0.67. So the support level at around 0.66 from right back in 2010 is not far away now.
So that will up the odds of further interest rate cuts and possibly more downside for the NZ dollar yet.
The result is even with US dollar gold weakening, the NZ Dollar gold price is up 1.90% from last week. Now very close to the highs from mid June.
While NZ Dollar silver is only up 0.43% on a week ago. But it remains near the top of the uptrending trading range it has been in.
As noted, unlike local NZ prices, the US Dollar gold and silver prices are looking fairly weak at the moment.
In Ronni Stoeferle’s latest in Gold We Trust report he noted:
“The downtrend hasn’t been broken yet. However, pronounced negative sentiment indicates resignation among gold bulls. We believe a final sell-off is possible. During such a sell-off, the support at USD 1,140 could be tested. A reversal following such a test would be a reliable indication of a primary trend change in the gold market.
Based on the “big picture” analysis that is packed into this report, we see no reason for a change of course: In gold we (still) trust. We are firmly convinced that gold remains in a secular bull market that is close to making a comeback.”
So there is still a chance of a final “washout” in precious metals, but he reckons we are gtting close to a comeback. Good to hear, it’s been a while!
We’ve posted the full report along with an interview with Ronni on the website so we’d highly recommend you check that out. It’s long but at least give it a skim read or listen to the interview.
In Gold We Trust Report 2015 – Ronald-Peter Stoeferle
NZ Credit Growth Running at Fastest Pace Since the Global Financial Crisis
Here in New Zealand the borrowing binge shows no signs of abating. It is close to matching pre Global Financial Crisis levels according to the latest RBNZ numbers.
“Mortgage lending had a whopping month in excess of $1.5 billion of net lending growth. That is the strongest dollar value growth since November 2007. The temperature remains high in the Auckland housing market, with signs of lifting activity elsewhere. Declines in mortgage rates are likely to be playing a part in stimulating the added lending growth,”…
Consumer lending growth is also holding up, at around 6% year-on-year. Seasonally-adjusted monthly household lending growth is the strongest since the end of 2007.”
May Mortgage credit + $1,549 million, +5.4% yoy
May Household credit +0.7% mom, 5.5% yoy
May Business credit 6.1% yoy
May Agriculture credit 6.4% yoy”
If we see even lower interest rates yet – which appears likely, we might see even further increases in borrowing.
Hopefully we don’t see this increase in borrowing end as badly as it has for the 540 student loan holders who filed for bankruptcy last year!
A $17.7 million write off. By the sounds of it mainly because the size of student loans continues to grow.
Advice to the school leavers: Think twice before attending University these days we’d say.
It seems like we might be heading for a decidedly “2 speed” economy. Where asset prices keep rising, while the rest of the country slows up markedly.
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It’s All About Greece
The Greek “crisis” continues to unfold as you’ve no doubt heard.
We haven’t had much to say on it to date expecting that they would yet again kick the can further down the road. However things have certainly gotten much more interesting in the past week. So we thought we’d have a bit of a Greece extravaganza today.
€34 billion (one-fifth of the nation’s deposits) has been pulled out of Greek banks since last November 2014.
Since the Greek’s have not agreed to their lenders demands, the ECB’s Emergency Lending Agreement (ELA) has been ceased, and so the Greek government was forced to declare a bank “holiday” for a week.
A “popular vote” or referendum is due next week, early polls say the Greeks will vote to stay in the Eurozone.
There are a number of scenarios that could play out nicely summarised by D.R. Barton Jr. here.
“So where do we go from here? Three scenarios:
1. A negotiated settlement “on the courthouse step.” The parties make a backroom agreement and Tsipras calls off the referendum vote. This would be temporarily very bullish for equities, it could occur at any time this week, and is essentially another form of “kicking the can down the road.”
2. The game of Chicken continues through a referendum vote and the Greek populace votes “Yes” to accept the lenders’ demands This too would be short-term bullish.
3. The Greek citizens vote “No” on the referendum. Here, one of these sub-events happen:
a. The Troika caves in and compromise further on conditions imposed on Greece. The effect would be temporary, initially negative for markets after the vote but would then turn positive after the Troika compromise.
b. The Troika stands firm and we head toward ugly end game of Greece defaulting on debt and having to go back to the drachma to temporarily shore up the national banking system. This is the death spiral alternative and it’s akin to both cars driving off the cliff. Markets will react negatively to this scenario and it could get ugly for at least short while. In the intermediate term, other factors will become more important (especially in U.S. markets) as a new equilibrium takes over.”
So which of these outcomes for Greece is more likely?
Personally we think Greece would have been so much better off if they had gone it alone 5 years ago, done an Iceland and sucked up the pain that would have come in the short term and would by now have come out better off.
But of course that would have required massive change to how the country operates which would have been very hard for the populace to accept.
The trouble now is that it’s not so easy for them to do that as they have been saddled with even more debt. Here’s a great summary of the rock and hard place Greece find themselves in from John Mauldin’s Thoughts from the Frontline:
“If, as is quite possible, the Greeks do not agree to what the Europeans are asking (demanding), that ELA will be shut off precipitously. At that point, all assets of any Greek banks that have access to the ELA will be subject to seizure by the European Central Bank. That includes deposits. Note in the chart below that there are only some €130 billion of deposits versus maybe as much as €110 billion of ELA assistance by the time the ELA is shut off. In addition, most banks have huge nonperforming loans that would far outweigh any of their assets. Also, for the record, it is the Greek central bank that guarantees the ELA.
While deposit insurance will be instituted at some point in the future, it is not existent today. Greek depositors could lose 90-100% of their deposits overnight. Think it can’t happen? Ask Cyprus. I’ve written about the devastation that I witnessed when I went there after the bank defaults. People literally lost their life savings. That is what Tsipras is faced with. If he doesn’t do a deal, Greece is devastated far more profoundly than any people actually contemplate today. Yes, Greece can replace all of those deposits with the “new Drachma,” but what will those drachmas be worth? Or perhaps they could simply renege on the ELA (I am not quite sure of the mechanism for this), but then Greece would be without any access to foreign currency whatsoever. Utter nightmare no matter what you do.”
We read a piece from Jim Rickards last Friday that seemed to make sense to us. In short that Greece will remain in the Euro, regardless of what they may be saying purely for political reasons and because for both parties leaving would just seem too painful:
There Will Be No Grexit
“Greece’s headline drama will unfold the same way it has for the last five years. There will be a lot of turmoil. I’m not saying there aren’t problems in Greece; there are big problems there. But what I’ve said all along going back to 2010 is that Greece isn’t leaving the euro; there will be no Grexit. Nobody’s going to get kicked out or quit.
Now that doesn’t mean everything’s fine in Greece. They could have bail-ins, nationalizations, bond defaults and a lot of economic disruption around the country. None of that is the same as Greece leaving the euro, however. I’m confident in my assessment because this isn’t solely an economic issue; it’s also political.”
He expanded upon this on Tuesday discussing what has been appearing in mainstream media like this New York Times article:
“A ‘no’ vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term but creating the possibility of a rebound in the medium term as the country becomes more competitive with its devalued currency.”
But it ain’t necessarily so — or even likely. “I remind people,” says Jim, “that Cyprus is still in the euro. Bank failure and debt restructuring is not a Grexit.”
That said, Greece could be kicked out of the union by political decision. Or at least EU leaders want Greece to think it’s a possible outcome. “The European Commission chief, Jean-Claude Juncker, has said he feels ‘betrayed’… by Greece in failed debt talks,” reported the BBC this morning. His “message was clear — vote ‘yes’ to our proposals and we’ll support you. Vote ‘no’ and you’ll probably get kicked out of the euro.”
Yet again, Rickards adds some clarity. “I think Germany miscalculated,” Jim explained on Bloomberg this morning, and now “they’ll have to blink and back away. The ECB and Greek plans are not that far apart. I think one side will back down.”
He offered up at least three ways out…
The Greek people could vote “yes” to the bailout terms on the July 5 referendum…
The Greek government could simply agree to the bailout terms and call off the referendum…
Or the European Central Bank could pay the IMF on Greece’s behalf, seeing how it owes Greece billions for profits on its securities markets transactions.
Either way, “two weeks from now,” Jim concluded on Twitter, “people will think Greece is a musical starring Olivia Newton-John.”
So Rickards thinks it will all be butterflies and rainbows. Well maybe not, but that at least Greece won’t have a majorly contagious effect.
Mish Shedlock also has a couple of reasons why he thinks the Greeks can hang on a while longer in the Eurozone too:
“There are at least two wildcards in play that could prolong things. At the top of the list is Russia. Second in line is the US.
Why? Because the US does not want Greece to form serious ties with Russia.
Also, Merkel does not want Grexit on her watch.
Russia the Key
Meanwhile, and as I have been saying for months, Russia is the Key. Will Russia come to aid Greece with enough money and oil to enable Greece to hang on longer than a few weeks?
I suspect the answer is yes. If so, the price may be sanctions.
EU rules require unanimous agreement on sanctions. I expect Greece to play that card very well. Greece can and likely will torpedo EU sanctions on Russia by the end of the year.
Unless there is an immediate collapse in Greece starting now, look for Russia to keep Greece afloat until sanctions are lifted.”
Why Greece Could Create Next Hitler
Interesting angle on how Greece could create the next Hitler from the National Inflation Association…
“If Greece decides to exit the Euro and return to its historical fiat currency the Drachma, NIA believes that hyperinflation is likely to occur in Greece almost immediately. For the 30 year period of 1971 through 2000, when Greece was using the Drachma – the country experienced an insanely high compound annual price inflation rate of 14.10%. Over the following 15 years, as part of the Eurozone, Greece has experienced a compound annual price inflation rate of only 2.23%. Greece experienced 6.32X higher price inflation with the Drachma than the Euro…
In the 1Q of 2015, Greece’s government debt/GDP ratio reached a record high of 202.34%, up from only 94.98% in 4Q 2008. Most of it is owed to foreigners and denominated in Euros. Therefore, even though returning to the Drachma would give Greece control of its own money printing press – it would not be able to pay off its debt through monetary inflation…
Greece today is facing a situation very similar to Weimar Germany in the 1920s. Including private debt, Greece currently has total debt equal to 320.9% of GDP. Germany in 1922 had war reparation debt equal to 325% of GDP that it was required to repay in gold-backed foreign currency – and couldn’t repay in newly printed fiat Marks.
Germany’s hyperinflation led its middle class citizens to turn to Hitler, who rose to power due to the confusion and devastation of Germans losing all of their savings and wealth as a result of hyperinflation. Greece today has its own neo-nazi politcal party Golden Dawn that now controls 17 seats in the Greece Parliament – making it Greece’s third most powerful party. Golden Dawn was founded in 1987, but up until a few years ago was only supported by 0.3% of the Greek population. Today, Golden Dawn – who has hailed Hitler as a “great personality” – enjoys double digit support and is rapidly gaining power…
A return to the Drachma will not solve anything for Greece and will cause a crisis similar to Germany in the 1920s. Despite being unable to monetize its debt, Greece will be tempted to print money – believing it will provide the economic stimulation it desperately needs. Although the Euro has major foreign demand as a store of value, there would be no foreign demand for the Drachma – and any major money printing will lead to immediate hyperinflation.”
It’s a good point as you might be surprised to know Greece actually has a very well funded military. In fact one of the best funded militaries in Europe, where they spend 4.3% of their budget on defence!
It might seem unlikely but it is a good comparison. A new leader could spring up blaming those “ dirty foreigners” for making Greece repay unfair loans. Who knows what could come as a result of that?
Red Alert for the last 6 months of 2015
Odds favour the Greece crisis being “solved”. Well, at least their day of reckoning being extended. But there are other issues across the globe. We’ve read many reports in recent months of what to look out for particularly around September/October of this year.
Such as the likely reshuffling of the IMF’s special drawing rights to include Chinas currency.
However we wonder with so many warnings if anything will come to pass?
But at some point those giving warnings are likely to be correct. So we have to be ready in advance.
Michael Snyder of the Economic Collapse blog has issued a “red alert for the last 6 months of 2015”. He also gave a summary of what some prominent individuals have been warning about recently:
Of course I am not the only one that is sounding the alarm about what is coming. Just consider what some very prominent individuals have been saying recently…
Ron Paul has just released a new video in which he warned all of us to “prepare for a bear market in bonds“.
Carl Icahn says that financial markets are “extremely overheated—especially high-yield bonds“.
Max Keiser recently told Alex Jones that a great financial collapse is coming.
Martin Armstrong says that his Economic Confidence Model predicts that the “Big Bang” is coming in “2015.75“.
Jeff Berwick of the Dollar Vigilante says that “we’re getting very, very close to the next crisis collapse” and he has specifically pointed to the month of September.
James Howard Kunstler has predicted that stocks are going to “crater in Q3 as faith in paper and pixels erodes“.
Lindsey Williams recently sent out an email alert in which he warned that his elite friend has told him that “they have a World Wide Financial Collapse scheduled between September and the end of December 2015“.
Gerald Celente has warned about “the Great Panic of 2015“.
Bill Fleckenstein has said that 2015 could be the year of the “big accident“.
Ray Gano has stated that we will see a financial collapse “probably starting in the third quarter of 2015″.
Legendary investor Jim Rogers recently said that he believes that “we will see some kind of major, major problems in the world financial markets” within the next year or two.
Alex Jones recently released a video in which he explained that he recently received “two different calls” from “extremely prominent wealthy people” warning him about what is coming by the end of this year and asking him why he isn’t leaving the United States “before October”.
Bible prophecy expert Joel C. Rosenberg has posted an ominous message on his personal blog in which he warned that “something is coming” and that “we must be ready”…
When I read what Rosenberg wrote, it struck me that it was precisely how I have been feeling too.
In my entire life, I have never had such an ominous feeling about any period of time as I have about the last six months of 2015. Like Rosenberg, I feel a “tremendous sense of urgency”, and I feel a great need to warn as many people as I can.”
That’s a lot of warnings! The trouble is when you read/listen to the alternative media, it can seem like these warnings are everywhere, so our first thought is perhaps nothing will happen when they are so widespread.
However if you take a step back and look at what is coming out of the mainstream media, other than worrying about Greece, there are no such warnings.
The debt certainly continues to get racked up as you can read in one of the articles on the website this week:
The Coming Liquidation
So who knows about the timing, but the monetary chickens will come home to roost at some stage.
Three Steps to Prepare for a Financial Disaster
So how best to prepare? Jeff Clark in the Growth Stock Wire offered 3 suggestions this week on the back of the bank holiday in Greece:
“…frankly, I’m more than a little afraid something similar could happen here [in the USA].
Granted… our banking system is not on life support. But it’s inflicted with the same virus of debt that’s taking down Greece right now (and threatening the banks of Spain, Italy, and Portugal). Maybe we can get through it just fine. Or maybe it’s just a matter of time before we face the same sort of crisis.
Either way, it helps to be prepared for the worst. Just as you prepare for a hurricane, an earthquake, or any other form of natural disaster, you should also prepare for a financial disaster.
- Have enough cash on hand to cover necessary expenses for a few days or weeks. Don’t rely exclusively on credit and debit cards.
- Spread your money around in different banks and different brokerage firms. That way, if the government limits how much money you can take out of any one bank, you’ll have access to several times that amount.
- Own at least some gold and silver as alternatives to the dollar.
None of these ideas are “extreme” suggestions that are difficult to do. I’m not talking about building a bunker in your backyard and buying weaponry to protect yourself from zombies. This is basic stuff that will get you through a short-term financial emergency. “
You know where to find us if you still need some gold and silver. Both remain in a steady (but largely unnoticed) uptrend in NZ dollars too.
On top of this we’d suggest you probably want a supply of food, water (water filters) and petrol/diesel for a few weeks at least.
We can help out with the first two over on our sister site: Emergency Food NZ
Even if a financial disaster doesn’t happen, we should have these on hand anyway in case of natural disasters. So it’s insurance either way.
Preparation also means having basic supplies on hand.
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