Authored by Tuomas Malinen via The Epoch Times,

Cryptocurrencies have been on the doldrums since the ‘Crypto Carnage’ of Spring 2021. Over the weekend, a Bahama-based crypto exchange FTX Exchange collapsed. It will probably not be the last one.

Due to the massive financial speculation, induced by the credit (QE) programs of central banks, the crypto market grew into a hub of speculation. During their first global crash in spring 2021, it was rumored that some players had been engaged in speculation with leverage of 100x. That is, by borrowing 100 times the value of the underlying asset (cryptocurrency) and investing it back into the market. I have to admit that I had never heard of anything similar. In standard economic thinking, leverage of 12x was considered extreme. That “rule of thumb” was shattered in the crypto markets.

Now, the situation is a bit similar but different. Leverage used in the crypto market has most likely fallen from the previous extremes, but now the ‘Ponzi schemes’ are starting to reveal themselves in the crypto markets. Some crypto exchanges seem to have used the money invested there to speculate on assets or to other suspicious activities.

FTX Exchange

To top of it all, the now defunct FTX Exchange released a note on Saturday stating that it had been hacked and hundreds of millions of dollars removed from its accounts. So, the situation with FTX Exchange looks like fraud. It has also been rumored to have dubious connections to the Democratic Party, but that may just be a political gimmick.

The FTX logo is seen on a computer in Atlanta, Ga. on Nov.10, 2022. (Michael M. Santiago/Getty Images)

I and the company I am running, GnS Economics, have warned about the instability of cryptocurrencies for some years. In a special report published in June 2021, we concluded that:

“While the technology itself is promising and even “revolutionary”, its application alone does not add a tremendous amount of value. Nobody owns blockchain technology and anyone can make a new cryptocurrency, and many have done just that. While artificial scarcity is induced by design for particular cryptocurrencies, there is no limit to the potential number of different cryptocurrencies. As a result, new competing cryptocurrencies are popping up with no end in sight. Which—if any—will survive in the medium or long run?”

Controlling Money

When the current carnage in the crypto markets is over, and the dust settles, they are likely to face another existential threat from central banks and governments who want to control money. They may try to regulate the cryptocurrencies that survive the crash to death. Cryptocurrencies have thus, most likely, entered a battle from which only few will survive.

However, I don’t consider the all-but-necessary reshuffling of the cryptocurrency scene as the main foretelling of the current crypto carnage. This is because the collapse of the crypto scene implies that speculation and leverage are being pulled from the financial system, starting from the most-speculative end, i.e., the crypto market.

There are three reasons for this: monetary tightening by the central banks, approaching recession, and the coming winter in Europe.

The last time central banks tried to diminish their global balance sheet, first asset and credit markets nearly crashed (in the turn of 2018/2019), and then the repurchase or repo markets imploded (September 2019). This event ended the global quantitative tightening. Now the central banks are trying to diminish their balance sheets from a much higher level. I wish them the best of luck, but I fear the worst.

A figure presenting the combined balance sheet of the Bank of Japan, European Central Bank, the Federal Reserve, the Fed Funds rate, and the major market events from Jan. 2018 to Dec. 2019. (GnS Economics, BoJ, ECB, Fed)

A figure of the balance sheets of the Bank of Japan, European Central Bank, the Federal Reserve, and the Peoples Bank of China in U.S. dollars. (GnS Economics, BoJ, ECB, Fed, PBoC)

I have been warning about the approaching recession for months. The European Commission now expects the Eurozone to fall into recession by the year-end, and it appears recession is also finally reaching the United States. Recently, FedEx, the global logistic giant, announced it would start furloughing the workforce due to “current business conditions impacting volumes.” There probably cannot be a clearer sign of impending recession that a logistics company announcing workforce diminution during the main holiday season of the year.

According to the forecasts, winter will arrive in Europe (it has been long overdue) this week. It will most likely lead to another spike in energy prices and, in the worst case, to rolling blackouts or even energy lockdowns down the line. An energy crisis is likely (it has already) hit the industrial mainland of Europe, Germany, hard and it will continue to reverberate across our continent.

It is questionable will the financial sector be able to handle yet another series of shocks just three months apart. My fear is that the hit may start the next stage of the economic collapse that began already in 2020.

The fact is that the global financial sector is in dire straits, which is visible when one analyzes the sources of global liquidity (credit). I will return to these issues in more detail in my following posts.

In the meantime, I am urging everyone to continue preparing for the winter, which may be the darkest we have seen for a very long time.

Wheat prices slid Thursday after a United Nations-brokered deal allowing exports of farm goods from Ukraine was extended for 120 days, reported Bloomberg. 

The Black Sea Grain Initiative was initially agreed upon in July and ended a five-month Russian blockade of Ukraine’s seaports, allowing millions of tons of farm goods to leave Ukraine — a major ag exporter to the world — to countries across Asia, Europe, and Africa. 

“I welcome the agreement by all parties to continue the Black Sea Grain Initiative, “UN Secretary-General Antonio Guterres said in a statement, while Ukraine’s President Volodymyr Zelensky tweeted that Guterres and Turkish President Recep Tayyip Erdogan worked together to extend the deal. He added: “waiting for an official announcement from partners.” 

Grain Deal will be prolonged for 120 days. 🇺🇦 together with @antonioguterres and @RTErdogan made key decision in the global fight against the food crisis. Waiting for official announcement from partners – 🇹🇷 and 🇺🇳.

— Володимир Зеленський (@ZelenskyyUa) November 17, 2022

There was no comment from Moscow, and Russian state-run media Tass said discussions continued.

Last month, Russia suspended its participation in the deal after a swarm of drones targeted at least one Russian warship from the Black Sea navy. Only days later, Moscow rejoined the agreement to allow for the continued export of Ukrainian grain through the Black Sea ‘safety corridor’. 

News of the extension sent grain market prices sliding Thursday morning. Chicago wheat futures fell more than 2%. 

In mid-Oct., Moscow had “repeatedly” voiced concern about the deal because its implementation presented Russian exporters with challenges to sell farm goods and fertilizer into global markets. 

The UN said it’s “fully committed to removing the remaining obstacles to exporting food and fertilizers from the Russian Federation.”

There are still mounting concerns that an ongoing global food crisis could worsen in 2023 and cause continued havoc for emerging market economies. 

Authored by Dave DeCamp via AntiWar.com,

At the end of the Group of 20 summit in Bali, Indonesia, the group released a joint declaration that said “most members” condemned the Russian invasion of Ukraine but acknowledged there are differing views, as Moscow is a G20 member.

The declaration reads: “Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy.”

It added that there were “other views and different assessments of the situation and sanctions. Recognizing that the G20 is not the forum to resolve security issues, we acknowledge that security issues can have significant consequences for the global economy.”

It wasn’t clear if the G20 leaders would issue a joint statement as a previous summit of G20 foreign ministers failed to do so over divisions about the war in Ukraine. Other G20 members besides Russia have been hesitant to condemn the war, including China.

Many members have not followed the US in sanctioning Russia, including China, India, Brazil, and Indonesia.

A day earlier, Russian Foreign Minister Sergey Lavrov, who attended the summit for Vladimir Putin, accused the West of trying to “politicize” the joint declaration, but the Kremlin said Wednesday that it was satisfied with what was released.

“Different approaches and different views on the issue were taken into account and recorded in the declaration,” said Kremlin spokesman Dmitry Peskov.

Xi Jinping and Russian Foreign Minister Sergei Lavrov wear matching shirts to G20 welcome dinner https://t.co/Xq4Ha6374e

— Daily Mail Online (@MailOnline) November 16, 2022

* * *

Below is Article 3 of the final G20 Bali Leaders’ Declaration:

This year, we have also witnessed the war in Ukraine further adversely impact the global economy. There was a discussion on the issue. We reiterated our national positions as expressed in other fora, including the UN Security Council and the UN General Assembly, which, in Resolution No. ES-11/1 dated 2 March 2022, as adopted by majority vote (141 votes for, 5 against, 35 abstentions, 12 absent) deplores in the strongest terms the aggression by the Russian Federation against Ukraine and demands its complete and unconditional withdrawal from the territory of Ukraine. Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy – constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks. There were other views and different assessments of the situation and sanctions. Recognizing that the G20 is not the forum to resolve security issues, we acknowledge that security issues can have significant consequences for the global economy.

With homebuilder sentiment collapsing, it should be no surprise that analysts expected housing starts and permits to tumble in October, and they were right with starts dropping 4.2% MoM and permits down 2.4% MoM…

Source: Bloomberg

That pushed the total number (SAAR) of building permits (forward looking) to its lowest since Aug 2020…

Source: Bloomberg

Breaking down the numbers, we see single-family housing starts plunge 6.1% MoM and single-family permits tumbled for the 8th straight month. Multi-family starts and permits also both fell (-0.5% MoM and-1.9% MoM respectively)…

Source: Bloomberg

Single-Family starts (SAAR) are at the lowest since May 2020…

Finally, given the further plunge in homebuilder future sales expectations, it appears housing starts have a long way to fall before any balance is found…

Source: Bloomberg

And that means dramatic pain ahead (and even, perversely, higher home prices as supply is constrained).

St. Louis Fed President James Bullard did what he does and unleashed another barrage of hawkish torment for the believers in a pause or pivot.

And while several other Fed speakers have said similar things this week, Bullard turned the dial up to ’11’.

“Even under these generous assumptions, the policy rate is not yet in a zone that may be considered sufficiently restrictive,” Bullard said Thursday in Louisville, Kentucky at an event hosted by Greater Louisville Inc.

“To attain a sufficiently restrictive level, the policy rate will need to be increased further.”

Bullard presented charts showing a sufficiently restrictive rate might be between about 5% and 7%, though he didn’t spell out in his prepared remarks what rate level he favored…

His comments shifted rate-trajectory expectations hawkishly higher…

The reaction is notable as stocks are getting slammed…

Treasury yields spiked (especially at the short-end)…

And the dollar is spiking…

Bullard closed by saying: “It is possible that increased financial stress could develop,” but offered no ‘…and then what’…

BULLARD CITES POLICY RULES SUGGESTING RATES OF BETWEEN 5%-7%

They really want 1MM layoffs every month

— zerohedge (@zerohedge) November 17, 2022

Authored by John Cody via Remix News,

The German meat industry has warned of impending supply bottlenecks, especially concerning pork, and a board member is putting at least some of the blame on Germany’s current left-wing government, which is well-known for its attacks on meat and efforts to transition to a plant-based food supply.

“In four, five, six months, we will have nothing on the shelves,” predicts Hubert Kelliger, head of group sales at the large butcher Westfleisch and also a member of the board of the Meat Industry Association (VDF), according to Die Welt.

One of the main factors affecting Germany’s meat supply, according to Kelliger, is the reduction of fattening pigs from livestock farmers. Others farmers have simply given up on production and are going bankrupt.

“That inevitably means there will be less stock in the coming months,” said Kellinger, which could result in consumers seeing more empty shelves but also a significant increase in prices.

“Whether that will be 20, 30, or 40 percent cannot be quantified today — but it will increase significantly again,” said Kellinger. Such an increase would already be on the back of already substantial increases. Germany has experienced an overall 40 percent increase in food prices this year, including a 73 percent increase in potatoes. Further price jumps ahead could be disastrous for German consumers.

However, a dramatic increase in meat prices may actually fit with the agenda of the German government, which has been actively promoting a switch to a plant-based diet. Kellinger was not short on criticism for the government on the subject.

“The current federal government would like to abolish animal husbandry and switch the diet in Germany to vegetables and oatmeal,” he said; he, however, warned that despite ideology from the government, “it’s also a fact that over 90 percent of people in Germany still buy and eat meat.”

To back up his claim, he referred to analyses by GfK consumer researchers. In addition, a survey from 2016 found that 83 percent of Germans eat meat several times a week and over a quarter of the German population eats meat every single day.

Kelliger also slammed Federal Minister of Food and Agriculture Cem Özdemir, from the Green Party, for promoting a meat tax.

“We should eat less meat overall and make sure it comes from animals that are kept in a species-appropriate manner,” Özdemir told t-online.

He advises “adapting meat consumption to planetary boundaries and for the sake of our health.”

While Green politicians have condemned meat eating, the social reality is different, with nearly the entire German population eating meat on a regular basis. However, agricultural and green policies are stifling German meat production, making Germany wholly dependent on meat from foreign countries; this is creating a new dependence similar to Germany’s reliance on Russian gas, which turned out to be a catastrophic mistake.

“Germany is now the largest meat importer in Europe,” says Gereon Schulze-Althoff, VDF board member and senior sustainability and quality manager at the slaughterhouse Tönnies. “We are now at a point where we can calculate when we will no longer be able to provide ourselves with meat.”

By Russell Clark, author of the Capital Flows and Asset Markets blow and formerly CIO of Horseman Global

F@&K LANDLORDS

As mentioned in a previous post, when I have looked at previous right to left, and left to right political swings, they seem to happen globally, and they seem to happen roughly at the same time. A global shift left happened in the 1930s, and kept shifting until 1970s, when it began to shift back to the right. We are now well into a shift back to the left, that began in 2016. As also highlighted, modern democracies are filled with checks and balances to slow political shifts, but they still happen.

China, with less checks and balances, can move much more quickly – and offers us view on the future here in the west. President Xi has proclaimed a policy to stop housing being used for speculation. Chinese policy has not been a happy policy for Chinese property developers.

I was talking to a friend in London, whose landlord was asking for 50% increase in rent. I asked how they justified such a big increase, and he said that the landlord needed rent to rise that much to pay their mortgage. As they had owned this property for a number of years, the implication was that the landlord was using the rent to pay an interest only mortgage and spending the rest. Searching Tiktok for “renting in london” will produce a stream of angry videos. The problem is that if you look at UK house prices, and compare to rent CPI, you can see that ever lower interest rates have acted to keep rent CPI under control.

To put it another way, rising mortgage rates create rising rents. The US National Association of Realtors calculate a qualifying income, that is the minimum income you need to qualify for a mortgage. With rising house prices and now rising mortgage rates, the qualifying income has risen from USD50,000 to over USD90,000 in two years.

Part of me looks at this and says well this is very bullish for landlords. A lot of potential homebuyers will be priced out of the market, and will need to become tenants, and rents will need to rise – which is what we are already seeing in London. The problem of course is that real incomes in the UK have not risen since 2007.

Asking more rent from people that have not seen a wage increase in 15 years seems politically toxic to me.

The current UK government is hoping to adopt the austerity policies of the Cameron era, that is to push real wages down, to make the UK more competitive and to keep interest rates down. There are what I would call pro-capital policies, and I would suggest they are dead in the water.

Nurses, postal service and train drivers have all announced strike actions, and personally I don’t blame them. How big is this strike action going to be? The OECD used to keep a track of days lost to industrial disputes but stopped publishing the data in 2011. The units are thousands – so peak strikes in 1979 cost nearly 12 million working days in September of 1979. How does current proposed strikes compare? The UK has 5.7 million public sector workers, with 1.88 million in the NHS alone. Assuming 20% participation, and with a seven-day strike, you easily get numbers seen in the early 1970s, with more than 7 million working days (of course a larger population now makes it not a perfect comparison), but we are talking big numbers.

Politicians being politicians will do whatever they need to do to stay in power.

Berlin has had rent controls in place since 2015 which has survived numerous legal challenges. Mayor of London, Sadiq Khan has spoken positively of rent control. Given that rising interest rates are actually pushing up rents – the opposite of the Bank of England’s intention, new policies are required. Rent control seems a vote winner to me, which makes it likely. Or in other words – fuck landlords.

Via Remix News,

Nearly seven out of ten French people believe that the state should adopt a stricter policy regarding the reception of migrants, according to a poll by the CSA institute for CNEWS published on Tuesday.

A total of 67 percent of French people want a tougher immigration policy, a topic that remains at the heart of the current national debate after the country received boat migrants for the first time in its history and following the murder of 12-year-old Paris girl Lola, has was raped, had her throat slashed, and was stuffed in a suitcase by an Algerian illegal migrant.

Respondents to the survey were asked: “Would you like France to have a much stricter policy regarding the reception of migrants (i.e. to welcome fewer of them on our territory)?”

To this question, 67 percent said “Yes” while 33 percent of respondents said “No.”

The poll shows that men are more in favor of a firmer policy in terms of welcoming migrants on French territory than women — 69 percent of men surveyed answered favorably compared with 65 percent of women.

Opinions differed greatly by age with the 18-24 age bracket in favor of a more lenient approach (52 percent said “No”), while 73 percent of those aged 65 and older backed stronger border control. Overall, 72 percent of the over-50s are in favor.

When taking into account the political leanings of those surveyed, there is a striking divide between the left and the right — nearly two-thirds of those polled who feel aligned to the left (60 percent) are opposed to a tougher migration policy.

The figure rises to 64 percent among supporters of La France insoumise and 62 percent among those close to the Europe Ecologie Les Verts (EELV) party.

On the right, the situation is quite different — 94 percent of French people close to the right want to be stricter about the reception of migrants. A total of 97 percent of National Rally supporters want stricter immigration controls, as do 91 percent among Les Républicains voters.

It is not the only poll showing the French opposed to mass immigration, with past polls consistently showing the vast majority of French want a halt to immigration.