HyperInflation- 2013 / 2014?

David Knox Barker

The CPI, like interest rates, is following its natural long wave trend. It is on schedule to reverse higher in a new long wave spring in 2013 and beyond. Unfortunately and ironically, the Fed's attempt to produce inflation could prolong the deflation by socializing bad debts and weighing down the U.S. and global economy. The CPI annual rate of change below demonstrates the long wave forces at work.

The natural global long wave disinflation and deflation is in the process of clearing non-viable bad ideas out of the global economy with what Schumpeter called creative destruction. QE wants to keep those bad ideas in business, taking profit and reward away from the more prudent and better ideas in the market. The problem is that central banks are pouring trillions of additional debt into the economy when a long wave spring is right around the corner. This creates a real risk of hyperinflation once the long wave winter season is over and a new long wave spring gets underway, a real life bonfire of the vanities.

Bank Bailout

Martin Armstrong-

The number one question pouring in is about the banks and their profit margin. Yes, the bottom

line remains that the cost of money declines sharply for depositors while the cost of borrowing

rises. Where the value of cash for three years is 0.7% to a depositor, for a fully collateralized

borrower, the cost is about 4%. This is a profit margin for the banks of 571%. In other words, when the discount rate was 17% in 1981, this would have been the equivalent of a prime rate at 9707%. The profit margin at banks has

NEVER been so high. The Fed has increased the profit margins of banks but they in

turn are not accommodating the economy. They require more stringent collateral today than at any

time in the past and want

ZERO risk failing to stimulate anything. Have a brokerage account? Ask the

broker how much he will lend you against fully collateralized shares. You will quickly see that the profit

margins are

EXTRAORDINARYILY high for no risk at all! This is becoming a giant shell game whereby

everyone

THINKS the objective is to “stimulate” the economy, but in reality, it is bailing out the banks

once again covertly by allowing their profit margins to increase dramatically. Therefore, lower interest

rates only widen the spreads increasing profits to the banks while the economy fails to expand

significantly. It has not led to a borrowing boom in the slightest – essential for inflation.

Martin Armstrong on Gold

The critical key to understanding

HOW the

economy functions is this

perpetual shift between

money v assets

– PUBLIC v

PRIVATE

. Simply put,

DEFLATION

prevails as long

as the demand for cash

exceeds that of assets. The

key to the shift in this trend

will be the shift from PUBLIC

assets (CASH) back to

(ASSETS)

PRIVATE. We face

the beginning of this shift

with the

BIG ROLLOVER OF

2012

. In other words, we are

looking at €600 billion in debt

of Italy and Spain for starters

that needs to be rolled over

this year 2012. This is setting

in motion the rise in interest

expenditures in the future

that will blow out the deficits

that is so necessary to create

the

“inflationary” trend that

begins ONLY when the demand for cash shifts back to assets. This is the trend we need to see develop in

Europe that is a leading indicator to the USA trend. It unfolds

when we begin to see interest rates rise

that signals the shift in demand from

PUBLIC back to PRIVATE assets that many will perceive as inflation

and the breakout will then unfold in gold at last. Those who think gold will drop to it 1999 low based

upon the Great Depression ignore the fact the USA was not the debtor then by the creditor much as

China is today. So there will be

NO deflationary collapse any more than there will be a hyperinflationary

blowout. History repeats, but more like a Shakespearian play – the actors keep changing with time

2012 start

A good start to a new year.

I am long,  India long term debt, US equity and increasing India equity exposure on good base breakouts.

There are very few breakouts to new highs but several stocks have bounced off 50% lows. Welcome to the Indian markets.
I am watching the IPOs also. Lets see.

Wish luck !!!

2013- Deflation

Martin Armstrong

This is part of the final stages of DEFLATION. As debt defaulted in 1931, the INFLATIONARY turn around took about two years to unfold. As it stands right now, this downgrade is still reflecting the collapse in asset values. As sovereign debt is downgraded, the resale value of existing debt declines. This not only undermines the banks giving them incentives to avoid sovereign debt investment, but pension funds are hit as their asset values also decline. Thus, this is very much the final stage of DEFLATION. Inflation starts only when the majority of bond holders begin to realize that they are better off with private assets. This will make the shift from PUBLIC to PRIVATE asset investment come alive.

No government debt will be safe! Nobody will ever pay off anything. It is merely a question of time. That appears to be coming next year – 2013. By 2017, we may end up with a new World Monetary System.

2012 bets

Alright....a change of mind maybe........
I bet on the US !

India- Qualified financial investors

VC Circle

Key Highlights of the Proposed New Regime as provided under the Press Release
1.      RBI to grant general permission (i.e. under the automatic route) to QFIs for investment under PIS route similar to FIIs.
2.      The investment by QFIs would be subject to an individual investment limit of 5% of the paid up capital of the Indian company and an aggregate investment limit of 10% of the paid up capital of the company. These limits are over and above the limits applicable in case of investment by FIIs or NRIs under PIS route.
3.      QFIs would be allowed to invest only through a SEBI registered qualified depository participant (“DP”) and all the transactions would have to be made through this DP only.
4.      DPs would be the ones who would be required to ensure that the QFIs comply with the KYC norms and the stipulated regulatory requirements.

Future of FII/sub-account route: Under the current SEBI (Foreign Institutional Investors) Regulations, 1995 (“FII Regulations”), there are stringent conditions imposed on the registration of FIIs and sub-accounts such as if an asset management company or an investment advisor has to be registered as an FII, it has to indicate that it is proposing to make investments on behalf of broad based funds. Further, funds can be registered as sub-accounts only if they fulfill the broad based criteria. Similarly, if an individual wants to register as a sub-account, then inter alia he has to fulfill minimum net worth criteria of USD 50 million.
The recent Press Release does not propose any registration / eligibility requirements upon QFIs. However, as we await the regulatory framework applicable to investments by QFIs, imposition of any such similar onerous conditions on QFIs would make this investment route equivalent with the FII regime and would defeat the intent of liberalization. However, the flip side of the story is that in the above scenario it needs to be seen what remains of the FII route, as entities would prefer to invest directly as QFIs, rather than seeking a registration under the FII route and complying with its cumbersome requirements.
Individual investments possible: Unlike FIIs, where there is a definite intent of SEBI to move towards broad based investments, this QFI regime may provide opportunities to individuals to invest on their own account and thereby facilitate them to hold Indian portfolios distinct from the other investors.
Further, until now SEBI was not comfortable giving sub-account registration to foreign individuals / foreign corporates. However, with the introduction of the new liberalised regime, such foreign individual / foreign corporate may have a new avenue to invest in Indian listed entities.
Investment by NRIs covered or not: The Mutual Fund Circular which brought in the regulatory framework for investment by QFIs into mutual fund schemes did not specifically exclude NRIs from the definition of QFIs, as it did in the case of FIIs and sub-accounts. Thus, NRIs may have been allowed to make investments into mutual funds as QFIs.
The Press Release while explaining QFIs also fails to exclude NRIs from its ambit. However, the Press Release provides that the investment limits prescribed for QFIs shall be over and above the FII and NRI investment ceilings under the PIS. Thus, it has to be seen if the fine print of law relating to QFIs would specifically exclude NRIs from its ambit or would it leave the place for NRIs to make investments into Indian entities as QFIs. Considering that a separate PIS route is already available to NRIs, it is unlikely that NRIs may be allowed to invest through the QFI route.
Key implications of the Proposed New Regime
1.      This move leads to further dis-intermediation of the capital markets for foreign investors who were earlier forced to come through the FII route.
2.      Depending on the eligibility criteria that may be prescribed for QFIs, this could potentially have a knock-on effect on FII and sub-account eligibility criteria leading to easing of the norms for such registrations.
3.      It needs to be seen how the limits are monitored for entities who may also come in under the QFI route.