TXRogers wrote: Quiet Weekend. And it’s cool and rainy here on this side of the pond. So why not take a few minutes out to pump our investments in gold, the explorers, and the miners. Not just gems like Novo Resources, but other companies that are involved in the business of seeking out and extracting “true” money. Real money.
I don’t want to dwell so much on the endless ridiculousness of the current Global Equity and Bond markets. Most reasonable investors understand it’s a mess and that a “Come to Jesus” moment seems to be lurking somewhere in our near future. As far as I concerned, the
SmartMarket will eventually convene at the World’s End where we can all enjoy a pint or two. That’s my plan anyway.
What’s far more interesting in this game is not the endless banter on “The End in Near”, but more on how the game can keep changing, extending, and going into overtime. For investors in the junior gold exploration and mining markets, it’s probably more important that the game keeps going than trying to survive a market meltdown. The end of the game can be very painful, and even deadly for some.
Traditionally, where does “money go” when the general equity market structure collapses? Of course, PMs, Sovereign Debt, bonds (some negative), and other risk-off instruments are obvious targets. But are these markets really risk-off these days? And frankly, I find it ironic that the collapse of a debt fueled equity market will result in more gains in the other phony debt markets. Different flavors of unpayable debt (some even negative) once considered risk-off are now as anchored as a fart in a windstorm.
The correlation between a nominally rising US stock market and the expansion of the Federal Reserve balance sheet appears very correlated with a slight lag in time. As predicted, it appears the recent injection of hundreds of billions of fiat US dollars (Not to be called QE) continues to bring the US stock markets to new nominal price highs. Another means to “Japanize the way” through the financial mess that has been constructed since going off the gold standard. So, this idea that investment money is holding the markets up is not correct in my opinion. It is debt disguised as money. These days, the Equity markets are propped up by Global Central Bank paper and unpayable debt. In other words, we are likely not facing a run-of-the-mill cyclical market crash, but the end of the current financial order in the West.
This is the Dystopian Economy in which we currently reside. It’s really never seen such distortions on a global level. And that’s the irony: If our global central banks, politicians, pension fund managers, etc. all concur and measuring economic health via equity markets levels (ie. S&P500, NASDAQ, Dow Jones, and so on), then by their own logic the debt fueled support of these markets is a mandatory course of action. Even a dolt like Trump banks on this concept.
And this brings us all the basic question: When and how will it end? I sure wish I knew. One thing for sure though, there are still more tricks that can be played. Let’s look at the current state of affairs:
https://www.visualcapitalist.com/69-trillion-of-world-debt-in-one-infographic/ https://2oqz471sa19h3vbwa53m33yj-wpengine.netdna-ssl.com/wp-content/uploads/2019/11/world-debt-2019.png [img]https://www.visualcapitalist.com/69-trillion-of-world-debt-in-one-infographic/ https://2oqz471sa19h3vbwa53m33yj-wpengine.netdna-ssl.com/wp-content/uploads/2019/11/world-debt-2019.png[/img]
$69 Trillion of World Debt in One Infographic. Two decades ago, total government debt was estimated to sit at $20 trillion. Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.
Which countries owe the most money, and how do these figures compare? The Regional Breakdown. Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:
Region Debt to GDP Gross Debt (Millions of USD) % of Total World World 81.8% $69,298 100.0%
Asia and Pacific 79.8% $24,120 34.8%
North America 100.4% $23,710 34.2%
Europe 74.2% $16,225 23.4%
South America 75.0% $2,699 3.9%
Africa 56.9% $1,313 1.9%
Other 37.1% $1,231 1.8%
In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%. This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.
World Debt by Country. Now let’s look at individual countries, according to data released by the IMF in October 2019. It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.
Rank Country Debt to GDP Gross Debt ($B) % of World Total #1 United States 104.3% $21,465 31.0%
#2 Japan 237.1% $11,788 17.0% #3 China 50.6% $6,764 9.8%
#4 Italy 132.2% $2,744 4.0%
#5 France 98.4% $2,736 3.9%
#6 United Kingdom 86.8% $2,455 3.5%
#7 Germany 61.7% $2,438 3.5%
#8 India 68.1% $1,851 2.7%
#9 Brazil 87.9% $1,642 2.4%
#10 Canada 89.9% $1,540 2.2%
#11 Spain 97.1% $1,386 2.0%
#12 Mexico 53.6% $655 0.9%
#13 South Korea 37.9% $652 0.9%
#14 Australia 41.4% $588 0.8%
#15 Belgium 102.0% $543 0.8%
In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018. If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.
Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%
Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China, which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.
The good old USofA actually is only half as bad as Japan when it comes to Debt to GDP. Which leads one to wonder on how long this current surrealness can continue. How have those crafty Japanese Central Bankers – the poster boys for managing debt - propped up their zombie economy for so long? Because I am sure the US FED and ECB are fully cognizant of the details.
The Nikkei Asian Review explains it all too well:
The Bank of Japan will overtake a state-run pension fund as the top shareholder in Tokyo-listed companies as early as 2020, Nikkei calculations show, as concerns rise regarding the central bank's outsize role in the nation's capital market. The BOJ held over 28 trillion yen ($250 billion) in exchange-traded funds as of the end of March -- 4.7% of the total market capitalization of the first section of the Tokyo Stock Exchange. Assuming that the bank maintains its current target of 6 trillion yen in new purchases a year, its holdings would expand to about 40 trillion yen by the end of November 2020. This would place it above the Government Pension Investment Fund's TSE first-section holdings of more than 6%. The BOJ has likely also become the top shareholder in 23 companies, including Nidec, Fanuc and Omron, through its ETF holdings. It was among the top 10 for 49.7% of all Tokyo-listed enterprises at the end of March. Japan's capital market used to be characterized by a complex web of cross-shareholdings, with banks and insurers playing the leading role over retail investors. This was followed by a period when foreign investors rapidly expanded their presence. Now, the BOJ is ushering in a new age for the Japanese market. The central bank is snapping up stocks to keep the market stable and raise inflation toward its 2% goal. "We will support forward-looking economic activity by companies and households," BOJ Gov. Haruhiko Kuroda told lawmakers Tuesday. High stock prices do have a significant positive effect on the economy, encouraging investment and lifting public sentiment. But significant side effects could come from having the BOJ, which is not an investor simply chasing high returns, as the top player in the equities market. The bank's ETF program "is eroding market discipline as companies are rewarded simply for being in major market indexes, rather than for having new business strategies or offering more dividends," the Organization for Economic Cooperation and Development said in a country survey published Monday, citing a previous Nikkei report. "We can try to motivate employees through stock-based compensation, but that's not much of an incentive to do better when we know share prices likely won't fall because of the BOJ's purchases," an executive said. A drop in share prices, which would squeeze the central bank's capital, could also erode confidence in the yen. "If the Nikkei Stock Average falls below about 18,000, the market value of the ETF holdings would fall below their book value," according to Deputy Gov. Masayoshi Amamiya. And unlike bonds, ETFs lack maturities. The bank will have to sell them back to the market if it decides to decrease its holdings -- but slowly and carefully to keep from driving prices down. And there we see a glimpse of what may be next. Is a new age for the Japanese stock market the next phase for the US and EC markets? Who knows, not I. There is a hell of lot to lose if this game ends unexpectedly, and in the wrong way.
One thing is certain, it is much easier for our politicians and bankers to officially complete the highjack of our equity markets backed by more debt fueled instruments than to face the dire alternatives. They could never manage the social and economic carnage of what may be the mother of all market crashes, and they know it.
We'll discuss it at the World's End during Happy Hour. Which may still be some time away. I hope they accept credit. Maybe even 0.1 mm grains of gold.
Tx