The global crisis is a financial crisis driven primarily by global trade and capital imbalances.  This is the macro theme we have pursued these past 7 years. We believe the global crisis is in full swing again and asset prices are in danger of falling globally.   Money is less effective at catching the falling knife.  Emerging market countries are exhibiting the signs of crisis-like price action associated with deteriorating balance of payment balances, even though many have built up significant foreign exchange reserves.   Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear are-run of the EM crises of old.  They are right. This is not (just) going to be an EM crisis. Recent events portend a far more serious crisis is at hand; the unraveling of our global monetary system.

Ben Davies of Hinde Capital’s full MUST READ letter on the unraveling of the global monetary system is below:

Warbird launch

 

HindeSight Investor Letter June 2013 – Top of the BoPs

 

Silver Buffs Generic Add2

  1. this piece was grind to read but spells out how China’s shadow banking, debt inflation, balance of payments and interest costs of tremendous Ponzi-like debt loads may spell very serious hard times for this country.  This economic engine is slowing due to slowdowns in Europe and the US.  Those markets have driven China into a huge foreign currency reserve position with low yields and no good way to extricate itself. It’s like a Potemkin village of 1,300,000,000 people.
    The BRICS are hitting hard times.Their export connection to China is weakening, affecting their economies, particularly Brazil with inflation and interest rate costs increases. There are not as many good quality resource buys in the market now.  China is buying 1,000 tons of gold at a whack but shifting from a global exporter of goods, importer of currency is not making it easy to shift to an internal growth model with growing consumer strength. China has bond and real estate bubbles that are supported by very thin strings.  China will be the balance of payments problem child for a while and it will affect us all. I do not know how this will shake out but it sounds pretty serious for all of us.

  2. Funny Charlie,
    my eyes don’t like small print either. This article was written in a manner that is way above my paygrade.  But along  with the denninger video, it helps connect the dots with the problems of liquidity, solvency or lack thereof, national debt, recessions, depressions and the huge burden of lousy jobs markets weighing on the average Joe or Jane.
      The governments throughout the world play like the Titanic band.  The US is a major offender with a guiltiness that is cosmic since we are the reserve currency of the globe. I guess you could call us the conductor of that band.   Keep stacking

  3. Ed  I wonder about China.  When compared to Greece, it’s gigantic.  Greece ‘only’ has 250 billion in debt and $1.25 trillion in derivative danger’
    CHina has a shadow banking of $25 trillion, internal debt of $11 trillion or more, $3 trillion in reserve currencies and an opaqua banking system subject to misreporting and massive fraud in the strengths and weaknesses of its loan portfolios.
    Greece, that little bitty place, has the power to gut every larger bank in Europe including most of the equity of the ECB.  The derivatives extend across the pond to the US  Our TBTF banks have billions and even tens of billions in Greek Derivatives and billions in these totally worthless bonds.  Greek is back to the trough for a few more billion Euros that might not be provided and Greece is a total mess with 30-60% unemployment
    So almost anything would trip up Greece with massive inpacts across the world’s banking systems  China is so large I can’t even begin to calculate what would happen if they had a system failure  There must be tens of trillions in derivs and trillions in bad loans.  Since they are no longer th ebig engine that could—pull the world along.  If they get sick we’ll all feel it and feel it hard. Hinde seems to think theire systemic risks are top on the list of the banking offenders.  I would not argue with that summation.

    • Interesting… verrrry interesting.  One thing that confuses me in this is the term “shadow banking”.  Aren’t all bankers crouching and hiding in the darkness of shadows like life-sucking vampires?  Are there any non-reformed bankers standing proudly in the full light of day?  Banking always seems to me like government; working best at the lowest and most local level and then becoming exponentially worse as they scale up.

  4. Ed    I researched shadow banking in China.
    First off, I don’t use Google anymore. They are cooperating with NSA to compile dossiers on the google users. Certain words and phrases are key to starting or adding to a Google user’s dossier   McAlvany Report went over that in detail
    I use http://www.startpage.com   Their system does not allow tracking of user’s searches
    Shadow banking in China is about $6 trillion in size, a volume that’s 70% of the Chinese GDP. It consists of equity firms, private equity lenders, private client funds, financial firms,  wealth management companies and even pawn shops  They acquire their funds from private sources, individuals, corporations or short term commercial paper. They loan to developers, local governments and businesses at higher rates with shorter term payback periods and offer their clients certain fixed returns on invested capital.  They are non-traditional non-state owned lending firms.
    They are largely unregulated and most of the time there are only best guesses as to their lending recipients and sources of funds.
    Their payback terms, usually shorter in term than most banks, presents a continuing risk of default and repayment at agreed upon terms.  This is making for a serious situation in  CHina and the recent Shibor rate increase was as a result of fear and uncertainty about which of the these shadow banks as well as some larger industrial banks would survive the recent credit lockup of last month. 
    The PBOC stepped in to help with liquidity when the lock down started.  It was somewhat similar to the Lehman crash and well covered but a couple of large banks were on the tipping point including Ag Dev Bank. Bank of China and China Everbright Bank  Their problems required hundreds of billions of Yuan to bring their liquidity back up to safe level and meet their obligations.

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