We urge you to turn off your ad blocker for The Telegraph website so that you can continue to access our quality content in the future. The shortest and most accurate answer to the question is that nobody knows whether we are facing a Minsky Moment. A “Minsky moment,” named after economist Hyman Minsky, refers to a sudden market collapse following an unsustainable bull run, which in this … As the high-profile economist David Rosenberg has repeatedly pointed out, there is a $4 trillion trifecta occurring presently. Paul Krugman once uttered the phrase “We are all Minskyites now” on the basis of the Great Recession of 2008–9 appearing to have been caused by occurrences in the financial sector. That is the moment when asset … – it did. But if this diversification strategy accelerates, as is likely, it could trigger a shock in the US Treasuries market, possibly leading to a sharp economic slowdown in the US. “The big picture view of this situation is that we have companies repurchasing their shares at a fever pitch while insiders are dumping said shares at an equally feverish rate,” states the blog, adding that the “death-knell of buybacks” could be the high corporate debt levels compared to the rest of the economy (US companies are currently sitting on nearly $10 trillion in debt, close to half (47%) the value of the rest of the economy). According to a blog by Evergreen Gavekal, a registered investment advisor (RIA), while there is nothing inherently wrong with share repurchases (reducing a company’s outstanding shares makes each dollar of earnings more valuable on a per share basis, which is good for investors), the problem is that companies are borrowing at an alarming rate in order to repurchase their own shares. The Guardian reported the German economy flat-lined to 0% growth in the fourth quarter - side-swiped by lower exports on account of trade tensions, and a slowdown in consumer and government spending. Tweet on Twitter . AOTH/Richard Mills is not suggesting the transacting of any financial instruments but does suggest consulting your own registered broker/financial advisor with regards to any such transactions, To contact us please email rick@aheadoftheherd.com, Ahead of the Herd A Minsky Moment is coming for gold 2020.02.20 “Minsky Moment” refers to the idea that periods of bullish speculation will eventually lead to a crisis, wherein a sudden decline in optimism causes a spectacular market crash. This essay will primarily attack Minsky’s Financial Instability Hypothesis and the so-called Minsky moment. The one thing you can say for sure about Minsky Moments is that they happen at the most inopportune times. Arguably, the US political system is already broken, which substantially ups the chance of some kind of clash with one of these four powers. Import prices would skyrocket too, the result of a low dollar, hitting consumers in the pocket-book for everything not made in the USA. To elevate debt to dangerous levels to enable share repurchases—which usually lowers profits because of the increased interest costs—is the antithesis of judicious corporate stewardship. 2878. Tech Stocks Once Again Driving Gains. "In terminology, it would be a climate ‘Minsky’ moment; a sudden realisation that enormous change needs to happen in a short period of time. Mr Carney, who is now the Special Envoy for Climate Change and Finance at the United Nations, said: “The biggest risk is inaction today. The particulars are relatively unimportant and change … Since then buybacks have been a popular tool for management to stuff cash back into the company, indirectly, by reducing the share float. Right, so now that we have a good base understanding of ‘Minsky Moments’ and the ‘Kindleberger-Minsky’ model, we’ll dive into a set of links focusing on examples of these theories in history. In 2008 interest on the national debt was $253 billion, and consumed 8.5% of the federal budget. High US stock market performance is masking another economic indicator, that has fallen to its lowest level since 2016 - the purchasing managers index. impermanence. 7. Riding on one of the biggest technology shifts in decades, the Cloud applications market is expected to post a 10% growth rate annually over … It’s vital that the sector moves away from short-term interests and towards long-term value creation and sustainable recovery which benefits people, the economy, and the planet.”. We have an unpredictable president in the White House that has already done much damage to the world economy, hurt the relationship between the US and China, and now appears heading towards a global currency/ trade war wherein everybody dukes it out over who can devalue and out-export the other. But that all changed in 1982 when the SEC legalized them. If the US election descends into partisan rancor, chaos, disputed vote tallies, and accusations of “rigged” elections, so much the better for America’s rivals. In the first quarter of 2019, world debt hit $246.5 trillion, reversing a trend that started in the beginning of 2018, of reducing debt burdens, when global debt reached its highest on record, $248 trillion. From 2500 in September the BDI has plunged over 80% to 434, meaning the cost of shipping is one-sixth what it was 5 months ago. According to the SEC, insiders typically sell five times as much stock in the eight days after a buyback announcement as ordinary days. At the same time, gold mining equities, as measured by Sprott Gold Miners ETF (SGDM) are up 39.52% YTD. Minsky Moment refers to the onset of a market collapse brought on by the reckless speculative activity that defines an … They’re finding their answer in what they wear, in what they eat and in how they travel, but I think the big new revelation is they’re going to find it in where they invest their money.”. An oil price shock caused by a geopolitical event … There is no way paper can be "improved" as money. “Reaching $23 trillion in debt on Halloween is a scary milestone for our economy and the next generation, but Washington shows no fear," The Hill quoted Michael Peterson, CEO of the fiscally conservative Peter G. Peterson Foundation. During the 2008-2009 global economic and financial market crisis, we painfully learned about a Minsky moment. In our recent article we said we believe the global economy has reached an inflection point. These trading nations, and even their individual businesses that import goods into the US, are now vulnerable to being tariffed on targeted imports - an amount that will make imports sell for more than their US counterpart. aheadoftheherd.com As Minsky observed, a period of placidity starts with firms borrowing money but being able to cover their borrowing with cash flow. Not only is shareholder value being destroyed through copious share buybacks, there is also record insider selling going on. Some industries, and us at AOTH, believe this aggressively protectionist stance will lead to currency wars and turn the $6 trillion per day global currency market into a new battleground for Trump’s trade wars. Ahead of the Herd newsletter, aheadoftheherd.com, hereafter known as AOTH. A “Minsky Moment” crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and institutional investors. Print Friendly. That, combined with persistent trade barriers that are keeping the Chinese economy weak, could result in China dumping US Treasuries. Things aren’t much better with the Democratic Party, though. “The impact of the virus on the global economy is going to be significantly more than what people are expecting, and when the global economy goes south, the Fed steps in,” BNN Bloomberg quoted Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut. Gold’s Minsky Moment will come when everyone realizes that the paper monetary system, and its reserve currency the US dollar, has no intrinsicvalue, and therefore can no longer be trusted - when money is worth nothing but the paper it’s printed on, and previously rejected … Hyman Minsky, if he were still alive, would have some interesting observations about Australia in 2020. A Minsky Moment is coming for gold Richard (Rick) Mills, Ahead of the herd via Gold Seek “Minsky Moment” refers to the idea that periods of bullish speculation will eventually lead to a crisis, wherein a sudden decline in optimism causes a spectacular market crash. Share. Eventually companies in these countries would begin to suffer, plus all other nations that trade with the US, like Canada and Mexico. After the SEC changed the rules to allow buybacks, hundreds of companies starting using them. William Rhodes. Before long the recession in the US would spread like a cancer, to the rest of the world. Consider what happened to gold when Iran countered the assassination of its top military commander with missile strikes against two Iraqi bases housing US troops.Gold futures jumped to a six-year high of $1,613.30 an ounce, as fear and uncertainty over what comes next had investors piling into the precious metal. Minsky’s name usually surfaces when the markets suffer reversals, the largest of these eponymously termed a “Minsky moment.” A “Minsky Moment” crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and institutional investors. Expressions of opinion are those of AOTH/Richard Mills only and are subject to change without notice. AOTH/Richard Mills is not a registered broker/financial advisor and does not hold any licenses. Updated February 21, 2020. rose just 1.3% in 2019 - well short of the 6.4% and 4.4% of 2017 and 2018. Russian hackers are known to have interfered in the 2016 election. You agree that by reading AOTH/Richard Mills articles, you are acting at your OWN RISK. Markets facing a possible 'Minsky moment,' strategist says. A dysfunctional polarity of views that has become the norm in US politics. Additionally, I’ve included articles on the origins and development of ratings agencies. BY Trey Reik | Tuesday, August 20, 2019 pdf version. Linkedin. But instead of selling Treasuries and converting dollars into renminbi, causing the latter to rise, choking off Chinese exports, Roubini points out the Chinese could instead convert their dollars into gold. One of the most alarming sign of the world economy’s malaise is the Baltic Dry Index chart. Named after economist Hyman Minsky, the theory centers around the inherent instability of stock markets, especially bull markets such as the current one that has been in place for over a decade. By Albert Pang-August 5, 2016. We’ve noticed the partisanship, the bickering, the impasses, the sheer hatred of the other side, is worse under Trump, who certainly fanned the flames of discord to get elected, and continues to blow on them, knowing that divide and conquer is his best path to re-election in 2020. From Lance Roberts at realinvestmentadvice.com:. Our Planet: Too Big to Fail airs on the 18th September. The former Bank of England governor has made an intervention on climate change, Secondary schools to extend Christmas holidays by a week to enable rollout of mass testing, 'We would have finished the job': Putin denies Russia involvement in Navalny poisoning, Have you had a treatment or operation cancelled due to Covid? Goods benefiting from weak currencies, representing each and every one of America’s trading partners, could be recipients of duties or countervailing duties, equal to the difference between the weaker currency and the US dollar - in other words, eliminating that country’s currency advantage. Ahead of the Herd Twitter. That’s what we need to avoid, which is why we need to start moving today.”. This article has presented some of the “Minsky Moment” scenarios that could set the gold price on a tear the likes of which we’ve never seen. The way we see it, buying gold or silver bullion is one of the best ways to take a defensive position during what could be the beginning of an all-encompassing trade war and a truly global, and a round of highly competitive currency devaluations, wherein the winner is the biggest loser. When companies are repurchasing shares at one of the highest levels ever relative to the size of the US economy, and also compared to cash flow, they are almost certainly destroying long-term value for their shareholders. That worked pretty well after the financial crisis, when the world economy was more or less back on track, with no tit-for-tat tariffs impeding international trade, and the US dollar still carrying enough heft and respect to enjoy exorbitant privilege. Bloomberg ran a story saying it could infect a shocking two-thirds of the globe. In no event should AOTH/Richard Mills liable for any direct or indirect trading losses caused by any information contained in AOTH/Richard Mills articles. And while there are grounds for optimism regarding a trade war resolution, the coronavirus has thrown a spanner into the Phase 1 trade agreement signed on Jan. 15. He explained: This is a real generational shift, that my children are saying ‘what can I actually do in order to make a difference?’. All eyes are on the coronavirus and its economic repercussions, particularly on the Chinese economy and the economies of China’s closest trading partners. The same thing could happen again in 2020 - possibly from China as retribution for the US being a trade irritant. AOTH/Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. bfmDB9.jpg … The IHS Markit PMI in January fell to a three-month low - from 52.4 in December to 51.7 - barely holding above 50; any reading below 50 indicates poor economic conditions. The growing debt burden is not just a US phenomenon; it’s global. A "Minsky Moment" crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken on by both retail and … This can’t go on forever. Without the finance sector getting on board to help tackle the root causes of the climate and nature crisis, things will only get worse. Last year the Treasury Department came out with a report that recommended 21 trading partners should face scrutiny over their currencies - they include China, Germany, Japan, South Korea, Ireland, Italy, Malaysia, Vietnam and Singapore. www.aheadoftheherd.com, US companies are currently sitting on nearly $10 trillion in debt, China’s copper buyers asked Chilean miners to delay shipments, the IMF lowered its 2020 global growth forecast, the cost of shipping is one-sixth what it was 5 months ago, 21 trading partners should face scrutiny over their currencies, how this extreme polarization is killing America, evident since the first debates last summer, growing debt burden is not just a US phenomenon, Euphoria – extended credit to evermore dubious buyers, Profit taking – insider/ trader aka ‘smart money’ cashes out. As investors, the best way to protect ourselves against a global (or regional, depending on where you live) calamity that even a large cache of US dollars could fail to provide, is to own gold. In 1997 buybacks surpassed dividends as the main way companies redistribute funds to investors. By reading/using this AOTH/Richard Mills website/newsletter/article, and whether or not you actually read this Disclaimer, you are deemed to have accepted it. How else can one explain the above chart? One signal of a potential reduction, beyond the 1 to 2 quarter-point cuts already priced into the market, is the spread between 2- and 10-year Treasury yields, currently at the flattest level since November. Two years ago, Zhou Xiaochuan, then China’s central bank governor, told a press conference at the 19th Communist party Congress in Beijing that too many procyclical factors in the economy and excessive optimism risked generating “accumulating contradictions that … So far, China and Russia’s shift into gold has occurred slowly, leaving Treasury yields unaffected. – it did. If so, safe-haven assets like gold and silver will surely go ballistic, hence the title of today’s article, ‘A Minsky Moment is coming for gold.’. Subscribe . China’s home prices have fallen and large swathes of Chinese industry have not re-opened after Chinese New Year because migrant workers, afraid to return to the cities, are staying in their home villages. AOTH/Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. The Minsky Moment touted by Mark Carney, seen here on Jan. 21, 2020, took a long time to come. White swans include the US rivalries with China, Russia, Iran and North Korea: These countries all have an interest in challenging the US-led global order, and 2020 could be a critical year for them, owing to the US presidential election and the potential change in US global policies that could follow. Earlier this month, China’s copper buyers asked Chilean miners to delay shipments due to port shutdowns. Let’s take a look at where we are in Minsky’s model of the credit cycle. We’ll get to that but first, consider the defensive stance being taken by gold-backed ETFs and central banks. 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