Pensions Timebomb In America – "Global Crisis” Cometh

Published here: http://www.zerohedge.com/news/2017-06-30/pensions-timebomb-america-%E2%80%93-global-crisis%E2%80%9D-cometh

Pensions Timebomb - Pensions "Are Going To Be A National Crisis"

- America’s underfunded pension system is “not a distant concern but a system already in crisis”...

- Tax may explode as governments seek to bail out insolvent pension plans

- Illinois, California, New Jersey, Connecticut, Massachusetts, Kentucky and eight other states vulnerable

- The simple mathematical mismatch at the heart of the pension crisis...

- Why the pension crisis really is “America’s silent crisis”...

- Pensions timebomb confronts Ireland, UK and most EU countries

By Brian Maher, Managing editor, The Daily Reckoning

"This is going to be a national crisis..."

“This” being America’s woefully underfunded pension liabilities, according to Karen Friedman. She’s the executive vice president of the Pension Rights Center.

(A place called the Pension Rights Center does in fact exist. We checked.)

MarketWatch columnist Jeff Reeves howls in confirmation that “collapsing pensions will fuel America’s next financial crisis.”

“This is not a distant concern,” warns he, “but a system already in crisis.”

According to data supplied by the Federal Reserve, pensions — public and private combined — were roughly 27% underfunded at the end of last year.

By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss.

The issue, approached from any direction, is an impossible knot… a tar pit… a minotaur’s maze of blind alleys and dead ends.

How has the American pension come to such an estate?

Most public pension systems were built upon the sunny assumption that their investments will yield a handsome 7.5% annual return.

But consider…

The average public pension plan returned just 1.5% last year.

Last year marked the second consecutive year that plans undershot the 7.5% return rate, according to Governing magazine.

The same plans worked an average gain of 2–4% in 2015.

A highly technical term describes the foregoing if it goes on long enough... and we apologize if it sends you to the dictionary:

Insolvency.

Briefly turn your attention to the Golden State, for example. California.

State pensions are only in funds to meet 65% of their promised benefits.

And California pins its hopes on that golden annual 7.5% return to make the shortage good.

But it’s in a devil of a fine fix if the average public pension plan only returns 1.5%.

The math is the math.

California essentially depends on returns 400% above the norm, according to financial analyst Larry Edelson.

But California is by no means alone.

We won’t run the entire roll call of shame.

But the great state of Illinois, for one, risks sinking into a $130 billion "death spiral" from its unfunded pension liabilities, as Ted Dabrowski of the Illinois Policy Institute described it.

S&P Global Ratings has even threatened to downgrade the state's credit score to "junk" status.

New Jersey, Connecticut, Massachusetts and Kentucky are also among the worst deadbeats.

But the problems run from ocean to ocean and south to north.

A report from Moody’s reads thus:

For many states and municipalities, exposure to unfunded pension liabilities is already at or near all-time highs. Since cost burdens are already expected to further increase, pension fund investment performance is critical for the credit quality of many governments.

Not even a "best case" cumulative 25% investment return on public pension plans would stanch the blood flow, according to Moody’s.

They say that best-case 25% would merely reduce pension liabilities a slender 1% through 2019 due to weak contributions and poor past investment returns.

“But I don’t have a pension,” comes your response. “This doesn’t concern me.”

Ah, but have another guess — at least if you swear off your taxes in these United States.

Is it your belief that governments will let their prized public pension plans flop?

There are votes to consider, after all.

Jilted pensioners are capable of generating a good deal of hullabaloo, hullabaloo to which the official ear is exquisitely attuned.

Besides, do you think kind Uncle Samuel will turn the politically strategic states of California and Illinois out on their ears?

As our resident income specialist Zach Scheidt argues:

Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!

“Expect to pay higher state and local taxes for fewer services in the years to come,” adds Larry Edelson, before mentioned.

And:

“Don’t be surprised if authorities of all shapes and sizes — from local governments to national agencies — up the ante to get ahold of your assets any way they can.”

We would have to agree. You shouldn’t be surprised in the least.

And we can scarcely imagine the holy hell that would follow another financial crisis.

Illinois Gov. Bruce Rauner warns the state’s pension crisis is driving his beloved Land of Lincoln into "banana republic" territory.

But we suspect the good governor’s mouth ran away with him here...

Can you imagine comparing the venerable, eminently worthy banana republic... to Illinois?

The pension crisis is truly “America’s silent crisis” and indeed the world's silent crisis.

From The Daily Reckoning newsletter

Related Content

85% of Pension Funds Will Go Bust Within 30 Years

Pensions Timebomb in “Slow Motion Detonation” In U.S., EU and Internationally

Investing in Gold In Your Individual Retirement Account (IRA)

News and Commentary

Gold steady on easing dollar, stocks amid hawkish central banks (Reuters)

Technology Shares Lead Stock Rebound; Oil Gains: Markets Wrap (Bloomberg)

Nikkei dives under 20,000 as Asian markets sharply pull back (Marketwatch)

Tech Spoils Bank Party as Stocks, Dollar Slide: Markets Wrap (Bloomberg)

The Yellowstone Supervolcano Has Just Seen 878 Earthquakes in Two Weeks (Science Alert)

Source: Cape Shiller via ZeroHedge

Robert Shiller: "The Index I Invented Is At Levels Last Seen In 1929 And 2000" (Zerohedge)

How owning a home in Britain became a luxury (Moneyweek)

Petrodollar wars - Gold in your custody cannot be hacked, erased, or frozen (Zerohedge)

Should you own bitcoin or gold?  That’s easy (SCH)

Lessons from ten of the greatest trades of all time (Moneyweek)

Gold Prices (LBMA AM)

30 Jun: USD 1,243.25, GBP 957.43 & EUR 1,090.83 per ounce
29 Jun: USD 1,246.60, GBP 959.88 & EUR 1,093.14 per ounce
28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
26 Jun: USD 1,240.85, GBP 975.56 & EUR 1,109.32 per ounce
23 Jun: USD 1,256.30, GBP 987.70 & EUR 1,125.27 per ounce
22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce

Silver Prices (LBMA)

Silver Prices (LBMA)

30 Jun: USD 16.47, GBP 12.69 & EUR 14.44 per ounce
29 Jun: USD 16.83, GBP 12.98 & EUR 14.76 per ounce
28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
26 Jun: USD 16.53, GBP 12.98 & EUR 14.79 per ounce
23 Jun: USD 16.71, GBP 13.12 & EUR 14.97 per ounce
22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce

Recent Market Updates

- London Property Bubble Bursting? UK In Unchartered Territory On Brexit and Election Mess
- Shrinkflation – Real Inflation Much Higher Than Reported
- Goldman, Citi Turn Positive On Gold – Despite “Mysterious” Flash Crash
- Worst Crash In Our Lifetime Coming – Jim Rogers
- Go for Gold – Win a beautiful Gold Sovereign coin
- Only Gold Lasts Forever
- Your Future Wealth Depends on what You Decide to Keep and Invest in Now
- Inflation is no longer in stealth mode
- James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
- Billionaires Invest In Gold
- Brexit and UK election impact UK housing
- In Gold we Trust: Must See Gold Charts and Research
- Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

Read More

Bitcoin to Ether: Welcome to the Vomitorium

Published here: http://www.zerohedge.com/news/2017-06-30/bitcoin-ether-welcome-vomitorium

Volatility is Not Risk....

is a true statement if you manage your bankroll properly.

via Soren K. Group and Marketslant

Volatility is mitigated by bankroll management (VaR). If a security is very volatile, then investors lessen the dollar amount invested as compared to other investments. If someone is speculating or trading, they either lower  trading volume, widen stops, or do some combination of the 2 to mitigate Volatility. This is in part to insulate other positions in the portfolio,in part to mitigate exit liquidity risk, and paramount to managing VaR.

Crypto Prices

• Bitcoin
• Ethereum
• Litecoin
• Monero
• Ripple
• Dash
• Zcash
• Peercoin
• Namecoin

Bitcoin to Ether: Welcome to the Vomitorium

• Wednesday: 255 > 318 = 24% low to high
• Thursday: 318 > 276 = 13% High to Low
• Friday: 278 > 302 = 8.6% low to high

The last week of Ethereum trading as made more than a few people want to wretch we feel. ? So, how does that compare to its big brother  Bitcoin?

BitCoin Volatility Index

Bitcoin Volatility annualized is only 98% today. This is down from a high of 147% about 2 weeks ago according to bitmex

BVOL Index (Annualized Bitcoin Volatility)

• 6/30/2017 .BVOL = 98.74% 
• 6/17/2017 .BVOL = 147.44%

BVOL above uses a 30 day moving average to create their annualized Bitcoin volatility index. They do not have an Ether equivalent index. So we did our own.

Comparing BTC Vol to ETH

Using similar methodology that BVOL does we did our own rough calculations on both cryptos for an electron-to-electron comparison:

1- Ether's vol as measured using a daily chart annualized with a 30 day rolling average is already higher than Bitcoin's.

We see Bitcoin's annualized volatility at around 99% down from a peak 2 weeks ago of 110%.  By comparison, using the same exact method we see Ether's historical volatility as 130%, down from 166% on the day it Bungee jumped to 10 cents.

2- Ether's Vol using a 10 day rolling average has exploded relative to Bitcoin's

If one were to shorten the period form 30 days to 10 the difference and trends would be notable

• BTCUSD = 61% down from 137% 2 weeks ago
• ETHUSD = 137% down from 145% 2 weeks ago

What does it mean? It could mean that Ether is now entering "the show" where it will be more susceptible to comparisons to BTC. 

Via Fintek

 As we referenced a few weeks ago, there is a battle between Bitcoin (BTC) and Ethereum (ETC) for cryptocurrency supremacy.  With that, the ETC followers are now finding out what bitcoin found out a long while ago; VOLATILITY.  The one digital currency with more acceptance (deeper market) will be the survivor.

We do not subscribe to the "there will only be one" concept, but the point that ETH is now on the varsity does invite comparisons and more knee-jerk reactions.

Separately, the huge drop in  BTC Vol is worth noting for investors  and traders alike. 

BitCoin at a Crossroads?

One thing is on our radar. While much of ETH recent volatility above BTH's has been specific to ETH the product itself, the precipitous drop in BTC vol is notable. To predict direction using volatility is something we do not do. But to handicap the potential effects in either direction we do attempt.

BTC Bullcase

BTC's Vol slide can be viewed as bullish because more institutional  investors will be permitted by virtue  oftheir by laws to put money into it based on volatility and liquidity. so if volumes go up while volatility drops,  you havea recipe for  institutional acceptance and another run  higher. 

BTC Bear Case

Conversely, and this is especially true in markets that are mature, a drop in volatility after a run up in an asset's price is frequently seen as a pause before a puke. This is because MOMO short term traders  lose patience with the shrinking daily ranges and puke. Silver traders understand this when they say "Sideways is bearish in Silver". 

There are many other ways to handicap future  directional drivers using volatility as the "tell". But these are the ones we subscribe to most. Combined with Option skewness and Implied volatility we can handicap whether or not we should get out of the way of the next move, surf the wave, or trade counter it.  And sometimes we are even right!  

But it could just be nothing to trade off of at this stage of the product's life cycle. We are not playing here. Just watching and seeing if traditional volatility yardsticks are applicable yet.

Read more by Soren K.Group

 

Blockchain Daily News

via Blockchain Daily

Deals, Investments & M&As

Pantera Capital to Raise $100 Million In Investment For ICO Hedge Fund

Pete Rizzo - CoinDesk

The $600m market for initial coin offerings may soon be set to expand.

Investment firm Pantera Capital is launching a new hedge fund focused on investments solely in tokens that power public blockchain protocols.

FAO: Pantera was founded by its CEO, Dan Morehead, a former CFO and head of macro trading at Tiger Management, a hedge fund.

Cryptocurrencies

Burger King To Accept Bitcoin In Russia This Summer

William Suberg - The Coin Telegraph

Russian Burger King restaurants are due to start accepting Bitcoin as a payment method this summer, reports state on Wednesday.

DNT: A few days ago we covered a story about what we can buy with Bitcoin.. Maybe even sandwiches? Yes. And the list that Florin provided is growing...Great! Problem solved.  We can buy a sandwich with Bitcoin. And not only in one place.

Exchanges & Trading Venues

Sell Side Forges Ahead With Ambitions For Live Blockchain

John Brazier - Waters Techology

This week it was the turn of both R3 and the Digital Trade Chain Consortium (DTC) to announce new developments regarding their respective efforts to get DLT live in the capital markets as soon as possible.

FAO: More details about R3’s announcement can be checked in our yesterday’s edition.

Harbour, An Ethereum-based DAO For Managing Token Assets Announces Launch And Releases Technical Specifications

PR Web

Harbour introduces a democratic, community-governed framework to the blockchain ecosystem for managing and holding token assets by harnessing the wisdom of the crowd.

Circle, Blockchain And The Birth Of Social Payments In The UK

Madhvi Mavadya - Forbes

Last month, social payments app Circle made it into the top 20 UK iPhone App Store chart after a period of viral social growth and many young people have started to use the service in a social setting, in the same way Venmo is used in the US.

Vendors

SAP's Chief Strategy Officer Thinks Blockchain Is Not A Zero-Sum Game

Saheli Roy Choudhury, Geoff Cutmore - CNBC

SAP's chief strategy officer: Blockchain is not a zero-sum game and its implementation across various sectors is going to be an overall positive for businesses.

BitPeople

Bitcoin Exchange Operator Tied To Hacks Gets Five-And-A-Half Years U.S. prison

Jonathan Stempel - Reuters

A Florida man was sentenced on Tuesday to 5-1/2 years in prison after pleading guilty to operating an illegal bitcoin exchange suspected of laundering money for hackers and linked to a data breach at JPMorgan Chase & Co.

FAO: Anthony Murgio and his co-conspirators faced accusations of processing millions of dollars into bitcoin through the unlicensed exchange Coin.mx.

Regulation

CFTC Chief Asks Congress For More Money To Oversee Blockchain

Stan Higgins - CoinDesk

The US Commodity Futures Trading Commission (CFTC) has cited the advance of technologies like blockchain in a request to obtain additional funding for oversight activities.
FAO: Seems fair. I remember last year they asked for more funds to watch the activity of HFT (high frequency trading) firms on US exchanges.

SEC Is Still Eyeing To Regulate The ICO Market

Anthony Coggine - The Coin Telegraph

US Securities and Exchange Commission is still eyeing to enforce regulations to Blockchain companies engaged in ICO.
FAO: Interesting to watch this further. I bet they won’t be able to do it in the next 5 years. What do you think? Send me your thoughts.

Japan Looks To Blockchains For More Secure E-government Systems

Nikkei Asian Review

Japan wants to use the data storage technology behind bitcoin and similar virtual currencies to update how individuals and companies interact electronically with government, aiming to bolster information security while cutting administrative costs.
FAO: Read the first two headlines of this section. Now read the headline above. Am I the only one thinking about the growing discrepancy between western and eastern governments when it comes to blockchain?

Startups, Accelerators & Hubs

Blockchain Developer ChromaWay Launches Postchain 'The First Consortium Database'

Ian Allison - International Business Times

Blockchain developer ChromaWay has released Postchain – "the first consortium database" – to combine the power and flexibility of mature, productised databases with blockchain database design.

Associations & Federations

World Economic Forum Publishes Blockchain Governance Taxonomy

Michael del Castillo - CoinDesk

The World Economic Forum has published a detailed white paper arguing that blockchain stakeholders should organize in a way that would dwarf even the largest consortia.

Press release here - via MondoVisione.

FAO: Today’s top story, but added in the proper section...

Analysis

Ethereum Explodes Above $300

Jonathan Garber - Business Insider

Ethereum is exploding higher Wednesday, trading up by 32% at $299.70. It hit a high of $308 earlier in the session.
FAO: Bulls take charge.

Volatile And Interesting Months Ahead For Bitcoin: Charles Hayter On Bitmain's Hard Fork

Sidhartha Shukla - Money Control

Speaking to Moneycontrol Charles Hayter, co-founder and CEO of cryptocurrency data platform CryptoCompare, sheds light on the what Bitmain's proposed hard fork is and what it means for bitcoin, as a technology and on its price.

Other news

Blockchain: Initial Coin Offerings Pull In Millions, But At What Cost?

Joseph N. DiStefano - PhillyDeals

Innovators who want to raise capital in a hurry, for projects based on blockchain electronic record systems and electronic currency platforms, are bypassing initial public stock offerings (IPOs) to pitch quick-buck initial coin offerings (ICOs).

Fanciful Bitcoin Banknotes Show How Digital Currency Might Look In The Real World

NBC

“In some way, the project is a loose data visualization, but I mainly wanted to make the bills be interesting on their own as artworks,” says Matthias Dörfelt, the Los Angeles-based artist who made the notes.

FAO: Florin Adrian Oprea, Editor-in-chief Blockchain Daily News

Read More

What Really Happened When Gold Crashed, Monday June 26?

Published here: http://www.zerohedge.com/news/2017-06-30/what-really-happened-when-gold-crashed-monday-june-26

Let’s establish three facts up front. One, the volume of contracts traded was not “millions” (as at least one conspiracy theorist is claiming). During the 1-minute window when the price of gold dropped from $1,254.10 to a low of $1,236.50 and recovered to $1,247, 18,031 August gold contracts traded. There was negligible volume in the October and December contracts.

Two, the Earth is round. This did not occur while “everyone” was sleeping (as at least one conspiracy theorist asserted). It happened when Europe was open and the UK had come online, at 9:01am British Summer Time (BST). China and Singapore were also open for business at that time.

Three, there was no single large futures trade that “smashed” the price but a large number of smaller trades, with the largest trade being 296 contracts (close to 1 ton or $36 million). The chart below shows milliseconds (1/1000^th of a second) from 9:01:00 to 9:01:30 – 30 seconds.

At this timescale a lot of the trading is computer to computer, a fight between algorithms. We say fight, because the trading wasn’t entirely one way. Some time slots show upticks in price.

So what did happen?

We do not believe that one should try to look at whether spot or futures moved first, to determine which one is the driver of a price move. The timing is very close, due to high-speed fiber optic lines connecting market makers’ servers. And errors in timing, especially of a third party observing from the outside, could be greater than the timing of the events being measured.

We have a better way to answer this question. If the price of spot is falling relative to futures, then we know there was selling of spot. If the price of futures is falling relative to spot, then we know there was selling of futures.

This spread, future price – spot price, is called the basis.

Here is a chart of the gold price overlaid with the August gold basis, showing the London trading day (times are GMT, so the chart beginning at 7am is really 8am as the UK is on daylight savings right now). The crash occurred at 8:01AM GMT, which is 9:01 BST.

We see a clear picture: as the price falls, so does the basis. This move was led by selling of futures. No, not a massive conspiracy. Indeed not massive at all.

And it should be noted that the basis did not move all that much. 10 bps. This suggests that though the move may have been driven by futures, there was plenty of selling of metal too.

Of course, if people were buying metal even holding the price constant while some nefarious party was selling futures, such that futures went down by $14, there would be nearly a $14 backwardation in the August contract. That is over 1%, or about 6% annualized.

Now let’s look at the silver price along with the September silver basis, which behaved differently.

A 25-cent drop in price and a 15 bps drop in the basis also seem moderate. Futures sold off a bit, but the selling was by no means exclusive to paper.

And then, an hour later, look at the basis action. Someone—or many someones—is bidding up paper. Buying the dip. However, that had no impact on price, so there was also selling of metal. An hour after the buying began, it subsided. But then began anew. And for the next 5 hours, we see sufficient buying of silver paper, that the basis is pushed up above where it had started even though price peaked below the start and then subsided another nickel.

This is what it looks like when exuberance in the futures market meets selling of physical metal. Especially from around 13:30 GMT.

We call ‘em like we see ‘em.

 

Monetary Metals will be exhibiting and FreedomFest in Las Vegas in July. If you are an investor and would like a meeting there, please click here.

 

© 2017 Monetary Metals

Read More

London Property Bubble Bursting? UK In Unchartered Territory On Brexit and Election Mess

Published here: http://www.zerohedge.com/news/2017-06-29/london-property-bubble-bursting-uk-unchartered-territory-brexit-and-election-mess

- London property bubble bursting? UK in unchartered territory on Brexit and election mess
- Evidence of downturn in London housing market
- Over 75% of London homes now selling below asking price
- Prime north London property down 6 per cent annually
- House prices have not fallen for three consecutive months since the 2009 crisis
- Bank of England report expresses worry over UK property market
- ‘Adverse shock’ to UK economy may amplify negative feedback loop
- Increased political and economic uncertainty has weakened fragile London buyer sentiment
- Bank of England Financial Stability Report: "Mortgages are the largest loan exposure for UK lenders"
- BOE FSR refers to a "self-reinforcing feedback loop" that, if triggered, would cause another 2008-style crisis in the UK

Is the London property market heading for tough times? The most recent housing figures and a new Bank of England report suggest it may well be.

Recent figures show that 77% of London houses sold in May went at below asking price, up from 72% in April. London as the capital of UK reflects international market but international investors have major concerns over uncertainties namely Brexit and the current state of the government. As a result London house prices are rising at their weakest rate in five years (if they are rising at all).

In prime estate London things are particularly bad, with prices in prime north and north west London falling by 6% in the last year.

Across the country, price drops in May signalled the third consecutive monthly drop, something which has not been seen since the 2009 crisis. Banks are well aware of what this could mean for them and as a result are now offering mortgages that scream ‘bubble bursting!’

Rates for 90% loans have tumbled to as low as 1.9% for two-year deals and just 2.55% for five-year fixes.

Yet, cheap mortgages are not enough. Buyers are getting worried whilst homeowners increase their desire to sell their properties, CityAM reports:

‘prospective buyers registering with estate agents fell from 381 people per branch in April to 350 in May, although that was up from 304 at the same time last year. The number of homes available rose 11 per cent to 40 per branch, up from 37 per branch in May last year.’

Danger for mortgage holders

Of course one of the major threats to the property market is not only the affordability of housing but the cost of borrowing.

The BoE’s Financial Stability Report draws attention to just how sensitive the country is to interest rate rises. Not only was ‘80% of new mortgage lending in 2016 either on a fixed rate for a period of less than five years or on a floating rate’ but ‘"mortgages are the largest loan exposure for UK lenders.’

This means that the next rate decision by the MPC in August will not only be taking into account concerns over the growing rates of real inflation but also the impact of a potential rate rise on millions of UK homeowners.

Should a rate rise occur then we will likely see a downward spiral which will leak into the rest of the economy. As homeowners struggle to keep up their unaffordable mortgage payments they will delay defaulting on their homes and instead avoid paying other debts such as credit cards and car loans.

Of course, a rate rise is not the only concern right now. Just the simple matter of having an economy with jobs so homeowners can actually pay their mortgages is a pretty key thing to try and manage. One of the more concerning charts in the BoE’s report is the representation of what would happen if UK unemployment increased from just below 5% as it is currently, to 8%.

This small move in unemployment would result in twice the number of households who have high debt service ratios — the most fragile mortgages out there. The estimate is represented by the yellow diamond in the chart above.

Adverse Shock? Which one to pick?

In the FSR from the BoE, an ‘adverse shock’ is referred to. It is this which will impact jobs, push up rates and ultimate lead to a negative feedback loop that will ‘amplify a downturn’.

The bank states, a ‘feedback loop between house prices and credit also arises in a downturn. An economic slowdown can reduce house prices. Due to the role of housing as collateral, lower house prices reduce the demand for, and supply of, credit. Expectations of further price reductions, which can result in sales of houses at heavily discounted prices (‘fire sales’), can further amplify house price falls, reinforcing the adverse feedback loop. The resulting deterioration in borrowers’  and lenders’ resilience will intensify a downturn.’

Brexit is the most obvious adverse shock for the UK economy at present but this does not mean that homeowners should take comfort from Mrs May’s positive negotiations. The truth is, we have no idea what the final Brexit package will look like or (more importantly) how it will really affect the UK economy.

The UK and its homeowners are at a real risk of being blinkered by Brexit. The FSR is clearly trying to present the divorce from the EU as an ‘adverse shock’ (they have a special section on Brexit) but readers must remember this is not the only threat to the bubble. As we explained in yesterday’s comment on shrinkflation in relation to price inflation, the issues in the housing market have been there for many years.

Brexit is the latest scapegoat for the struggling housing market. One headline in a local London rag reads, ‘Brexit to blame: prime north London property down 6 per cent annually.’

Yes, Brexit may well be the final trigger, but the pieces were all lined up for the gun to fire.

News and Commentary

Gold steady as dollar hovers near ten-month lows (Reuters)

Financial stocks lead Asian market gains (Marketwatch)

Central Banks Roil Markets as Stocks, Euro Jump (Bloomberg)

Wall St. higher as banks rise; ECB comment reassessed (Reuters)

Mortgage applications drop 6% as wealthy buyers ‘step back’ (CNBC)

Gold Retains "Buying Power" As "Real Money"  - Bonner (Bonner & Partners)

The Super Bubble Is In Trouble (Mises)

Jim Grant Explains The Gold Standard (Zerohedge)

Bank Of England Orders Banks To Boost Capital To "Protect From Rising Risks" (Zerohedge)

Pending Home Sales Tumble in May for Third Straight Month (Forbes)

Interview with Goldcore at Mining Investment Europe (YouTube.com)

Gold Prices (LBMA AM)

29 Jun: USD 1,246.60, GBP 959.88 & EUR 1,093.14 per ounce
28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
26 Jun: USD 1,240.85, GBP 975.56 & EUR 1,109.32 per ounce
23 Jun: USD 1,256.30, GBP 987.70 & EUR 1,125.27 per ounce
22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce
21 Jun: USD 1,247.05, GBP 989.04 & EUR 1,118.98 per ounce

Silver Prices (LBMA)

29 Jun: USD 16.83, GBP 12.98 & EUR 14.76 per ounce
28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
26 Jun: USD 16.53, GBP 12.98 & EUR 14.79 per ounce
23 Jun: USD 16.71, GBP 13.12 & EUR 14.97 per ounce
22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce
21 Jun: USD 16.51, GBP 13.03 & EUR 14.81 per ounce

Recent Market Updates

- Shrinkflation – Real Inflation Much Higher Than Reported
- Goldman, Citi Turn Positive On Gold – Despite “Mysterious” Flash Crash
- Worst Crash In Our Lifetime Coming – Jim Rogers
- Go for Gold – Win a beautiful Gold Sovereign coin
- Only Gold Lasts Forever
- Your Future Wealth Depends on what You Decide to Keep and Invest in Now
- Inflation is no longer in stealth mode
- James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
- Billionaires Invest In Gold
- Brexit and UK election impact UK housing
- In Gold we Trust: Must See Gold Charts and Research
- Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”
- 4 Charts Show Gold May Be Heading Much Higher

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

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Shrinkflation – Real Inflation Much Higher Than Reported

Published here: http://www.zerohedge.com/news/2017-06-28/shrinkflation-%E2%80%93-real-inflation-much-higher-reported

• Shrinkflation - Real inflation much higher than reported and realised
• Shrinkflation is taking hold in consumer sector
• Important consumer, financial, monetary and economic issue being largely ignored by financial analysts, financial advisers, economists, central banks and the media.
• Food becoming more expensive as consumers get less for price paid
• A form of stealth inflation, few can avoid it
• Brexit is the scapegoat for shrinkflation by the media and companies
• Consumers blame retailers rather than central banks
• Gold hedge has doubled in value since 2007 
  

Editor: Mark O'Byrne

Shrinkflation: no one left untouched

600 new words entered our official lexicon this week as the Oxford English Dictionary announced the latest new additions to their online records.

One of the words reportedly up for consideration was shrinkflation. It did not make the final cut and as a result continues to be defined by the authority as ‘a portmanteau, made from combining shrink: ‘to become or make smaller in size’, with the economic sense of inflation: ‘a general increase in prices and fall in the purchasing value of money’.

In order for a word to be accepted into the OED it must have been in use for at least five years. But the latest list suggests that this isn’t the case and exceptions can be made. The inclusion of ‘superbrat’, a word which is usually associated with the behaviour of John McEnroe in the 1970s, actually dates back to the the 1950s.

Yet, shrinkflation continues to elude the world’s authority on the English language. This seems bizarre to us given both the word and the phenomenon and something consumers have been experiencing for a number of years.

Although it is understandable in the context of an important consumer, financial and economic issue which is being largely ignored by financial analysts, financial advisers, economists and the media.

We first covered the shrinkflation phenomenon back in 2014 when we reported how  Dr. Philippa Malmgren had highlighted this ‘shrinkflation’ trend in a new book.

Shrinkflation: a new phenomenon?

As we mentioned last week, shrinkflation is a phenomenon that is not unique to the current financial crisis. In 1916 The Seattle Star ran a front-page story on the issue, ‘“[Inspectors] went from bakery to bakery Thursday checking up on the bread situation…And here is what they found: ten-cent loaves of bread have shrunk from 32 ounces to 22 ounces, and standard 5-cent loaves, that used to weigh 16 ounces, now average 11 ounces.”

Search Graph for Shrinkflation (Google)

Granted, back in 1916 the word ‘shrinkflation’ was not in use but it had a place firmly in the economy. Use of the word shrinkflation has been picking up pace since at least 2012. We can see this by the examining the search history for the phrase on Google.

You can clearly see a peak in the search for the term in November 2016. It was at this point when news of the newly designed Toblerone hit the British newspapers. Mondelez, Toblerone’s manufacturers had announced they would be reducing the bars from 170 grams to 150 grams in the UK which would affect the shape.

Mondelez’s justification for the change was due to an uptick in ‘many ingredients’ prices’, the company specifically blamed the drop of the euro against the Swiss franc in January, and an increase in cocoa prices over the last three years.

Cocoa Prices - Money Week

It’s not just Toblerone fans who are feeling the pinch on chocolate bars. Creme Eggs and Quality Street (other British high street favourites) have been shrinking, with price remaining the same.

Other household items and food prices have also been affected.

Brexit is the scapegoat

Even though we can go back nearly 100 years to witness shrinkflation and see evidence of it in our household items and online searches, it is only in the last year that manufacturers and the media have managed to find a reason for its existence.

Brexit is being blamed - as it is being blamed for a number of woes being experienced in the UK at present.

Brexit seems to be bearing the brunt of the blame for the recent shrinkages, thanks to the impact of the referendum of the price of sterling. You don’t need to have a PhD in economics to understand the effect this has on prices.

12 months since the vote sterling is still weak, it is 15% down against the US dollar, and 14% against the euro. Things are expected to get worse, with HSBC analysts expecting the pound to hit parity with the euro by the end of the year.

There is little doubt that a weak currency will impact the cost of raw goods and materials which make up chocolate bars and other items. However shrinkflation existed even when the pound was strong.

No sign of easing up

In 2015 the Irish Times reported on this very topic and referred to a 2014 Which? survey:

Aunt Bessie’s Homestyle Chips were reduced in size from 750g to 700g, while a box of Surf with Essential Oils washing powder fell in size from 2kg to 1.61kg. In 2014 there was 750g of mixed vegetables in a Birds Eye Select bag; today it is 690g. Cif Actifizz Multi-Purpose Lemon Spray and Domestos Spray Bleach Multipurpose Cleaner were reduced in size from 750ml last year to 700ml today…

‘The shrinkage does not end there. In previous years, Which? has recorded one- litre tubs of Carte D’Or ice cream turning into 900ml tubs, while a litre of Innocent smoothies became 900ml. Magnum ice creams, which used to be 360ml, are now 330ml, and the size of a bar of Imperial Leather soap fell from 125g to 100g, a reduction of 20 per cent…

‘The list goes on. A packet of 48 Persil washing tablets turned into a packet of 40, a decline of 16.6 per cent, while 56 Pampers Baby Wipes used to be a packet of 63, an 11.1 per cent reduction.’

This was well before the EU referendum. It was impossible to blame a weak currency, instead this was and remains all about the impact of real inflation on consumer prices. This is despite having been told for years that inflation was very low.

UK Inflation Expectations (FT)

Inflation expectations are relatively low amongst households in the UK, EU and U.S.

Only now are we beginning to see both officials and individuals wake up to the presence of inflation in the UK. In May consumer prices accelerated faster than BoE expectations. They hit a four-year high of 2.9% and are expected to exceed 3% in the coming months.

In the UK, there are some concerns and dissent has increased in the BoE’s monetary policy committee (MPC) over the suitability of its record low interest rate policy in regard to rising inflationary pressures. It has been some time since we have seen any sign of concern regarding inflationary issues, from members of the MPC.

Meanwhile in households it looks like it has taken the appearance of a chocolate bar to drive the message home that businesses are experiencing price pressures. Unfortunately this has merely come out as anger towards companies rather than the central banks and governments who are ultimately responsible for this inflationary issue.

Unjust for consumers or time to take responsibility?

Which? magazine and consumer action groups have tried to bring retailers to account for what are considered to be misleading practices.

In Ireland, the Consumer Association’s Chief Executive stated

“I don’t know if we can say consumers are being deliberately misled but they are being put in a position where it becomes very difficult to make informed decisions."

“I think the worst example of this is the widespread shrinking of products. The content gets smaller but the price and the packaging stays the same. These are price increases by stealth, and by any measure inflation of this nature is abnormal in the current environment. I think they are appalling.”

As we have seen with quantitative easing, bank bailouts and the overall financial crisis consumers seem to be relatively disinterested in fighting back against these practices that ultimately cost them more.

A YouGov survey found that 46 per cent those polled would prefer to pay more for an item than see it shrink. Yet 36 per cent said they'd be satisfied if the pack got smaller, but the price stayed the same.

The same survey run by YouGov Portion Sizes and Health found that firms risk losing over a third of their customer base if they cut pack sizes by 15 per cent.

While there is uproar on Facebook pages about this topic, the concerns of some consumers are not being voiced by politicians, economists, central bankers or the media.

Depite the zeitgeist of the moment, this isn’t about retailers taking advantage of consumers. Shrinkflation is a very serious byproduct of a practice which has been going on for many years now.

Shrinkflation is just inflation in stealth mode and is the consequence of currency debasement on a scale that the world has never seen before.

It brings the economy’s problems literally to the kitchen table.

We are finally at a point where those who have so far been apparently untouched by the financial crisis i.e. the middle classes who still have jobs, they have seen their homes increase in value and they still go abroad twice a year, are beginning to see their cost of living increase.

As are the working classes, pensioners and those on low salaries or fixed incomes.

They will soon recognise that no one is left unharmed by the monetary and economic policies which followed the financial crisis.

Easy monetary policy is wealth ignorant. It gives little regard to how you spend your money and where you hold your cash. That’s why savers have to make room for those real assets which cannot be shrunk down and magicked away.

Investments such as gold and silver by their very nature are immune to the shrinkflation effect and are an important hedge against it.

Next time you’re considering that bar of Toblerone at the supermarket checkout, just imagine how much is missing compared to when you would have bought with the proceeds of your first payslip.

Then consider how much a bar of gold would have changed since then, the fact is that it hasn't. You would still have the same sized bar, with the same gold content and it is worth a lot more now.

Gold in USD - 10 Years

Gold is twice the price it was before the crisis in 2007. While many household goods and products are higher in price or the same price but a much smaller size.

Shrinkflation is happening and real inflation is much higher than is being reported or people realise.

Your purchasing power and your wealth can be preserved from the ravages of shrinkflation, just don’t expect it to happen courtesy of central banks and governments.

News and Commentary

Gold prices firm on weaker dollar, equities (Reuters)

Ransomware virus hits computer servers across Europe (Bloomberg)

Not another financial crisis in ‘our lifetimes’: Fed’s Yellen (Reuters)

UK consumer confidence plunges after May's election flop (Reuters)

75% of London homes now selling below asking price (City A.M. )

Markets Have Nothing Left to Fear But Fearlessness Itself (Reuters)

Real reason central bankers don’t want to raise interest rates (Moneyweek)

Brexit One Year Later, in Five Charts (Goldseek)

London's Palladium Market's Metal Shortage, Structure, and Irregular Appearance (Safe Haven)

Why Institutional Investors Are Buying Gold Again (Goldseek)

Gold Summer Doldrums (Investing.com)

Gold Prices (LBMA AM)

28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
26 Jun: USD 1,240.85, GBP 975.56 & EUR 1,109.32 per ounce
23 Jun: USD 1,256.30, GBP 987.70 & EUR 1,125.27 per ounce
22 Jun: USD 1,251.40, GBP 988.36 & EUR 1,120.13 per ounce
21 Jun: USD 1,247.05, GBP 989.04 & EUR 1,118.98 per ounce
20 Jun: USD 1,246.50, GBP 981.99 & EUR 1,117.24 per ounce

Silver Prices (LBMA)

28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
26 Jun: USD 16.53, GBP 12.98 & EUR 14.79 per ounce
23 Jun: USD 16.71, GBP 13.12 & EUR 14.97 per ounce
22 Jun: USD 16.58, GBP 13.09 & EUR 14.85 per ounce
21 Jun: USD 16.51, GBP 13.03 & EUR 14.81 per ounce
20 Jun: USD 16.59, GBP 13.10 & EUR 14.88 per ounce

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Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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