Today one of the greats in the business has given King World News permission to share a crucial piece of information with our global audience. This piece takes a trip down the rabbit hole of money dropping helicopters, followed by debt repudiation.
Bill Fleckenstein (King World News) – It is worth noting, however, that today is a bit of a red-letter day in the annals of monetary experimentation because it marks the beginning of Mario Draghi’s and the ECB’s buying of corporate bonds as part of their roughly 80-billion-euro-per-month (i.e., over $90 billion) monetization scheme…
Continue reading the Bill Fleckenstein piece below…
Owe No You Don’t
On that note, I’d like to share something that the Lord of the Dark Matter wrote today on the endgame of all this monetization, as it picks up on a point that I first began discussing in March (see the March 23 column, and May 11), that being debt forgiveness on the part of central banks who have monetized trillions of dollars’ worth of government debt.
It turns out that there is a bit of a struggle going on between the bank unit of Mitsubishi UFJ Financial Group and the Bank of Japan revolving around negative rates. In fact, the president of Mitsubishi has been a very vocal critical of the BOJ’s negative rate policy, saying that it was crimping interest income and fueling anxiety among companies and households, which is probably all true (and certainly understandable).
Dump and Run
The reason that matters is because apparently that bank unit is considering walking away from being a primary dealer and a couple of others might follow in its footsteps, about which the LODM stated the following: (King World News note: LODM, or Lord of the Dark Matter, is one of Bill’s remarkable sources of information. LODM’s comments are highlighted below in blue, along with Fleckenstein’s in black).
“The three largest primary dealers in Japan would tend to confirm what we’ve known all along. [Drum roll, please.] Namely, there is no exit from the BOJ’s asset purchases. It’s helicopters, followed by repudiation.”
If that thought finally begins to creep into the head of investors worldwide you can expect a radically different landscape. In my opinion that won’t be good for bonds — for reasons previously discussed — and, by extension, other financial assets, though it would quite likely be very bullish for gold. Continuing the LODM’s thought process, he makes the following important point:
“But given everyone knows or suspects that [i.e., repudiation/forgiveness], the inability of the yen to sell off for any length of time is noteworthy don’t you think?”
Putting the “Effed” In FX
He then goes on to say, “If the yen cannot decline versus King Dollar (at least not within the time, balance sheet and P&L horizon of anyone prepared to bet against it) what might it be telling us about the dollar in general?” His conclusion is that it speaks volumes about the supposed strength of green paper.
This is significant because there has been a huge bid in the dollar under the false notion that the Fed had spawned a self-sustaining recovery that would lead to rising rates, and the rest of the world was way behind us. I have spilled a lot of ink on the fallacy of that belief, so that’s not news to readers, but if the dollar starts to weaken that will scramble a lot of people’s positions, on top of all the other crosscurrents we are seeing.
King World News note: KWN would like to thank Bill Fleckenstein for allowing us to share that crucial information with our global audience. The implications of debt “forgiveness” are mind-boggling and will impact major markets in a big way as Fleckenstein noted.
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