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The wisdom of a Russian grandmother: today’s financial bubbles are trouble

With financial uncertainty ahead, good financial advice can come from the unlikeliest of places

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Last February I wrote about an elderly Russian “Znakhar”, which in English would be a person who is a blend of a seer, witch and healer. I run across her in my Moscow neighborhood from time to time and we mostly limit our chats to polite hellos, as metaphysics is not something I hold in high regard. Last year however, she paused and approached me.

“You are that foreigner, no?” I nodded smilingly. “Be ready for very big changes to begin as we approach the middle of this coming March. It is just as well you now live here with us in Russia, you would not want to live elsewhere for a long time to come”.

Curious, I asked what makes her believe that the world outside of Russia will stress out, and why tell me. Not answering directly, she went on to say, “Better you get rid of your “valyuta” (US$/Euros) and turn them into rubles or better still, gold St. George coins. Very big changes are now destined to happen and much will turn upside down, so be ready”. I thanked her for her pithy global commentary and bid her a good day as she shuffled off into the nearby church.

This incident got me thinking a year ago, first why she chose to speak with me and not simply nodded a hello as usual. Secondly, why she chose to deliver her somewhat disturbing opinion to me, “that foreigner”. Since equity and commodity markets are areas where from time to time I am engaged, the first thing that came to mind then was market bubbles… could this uneducated old lady now be analyzing the economic rhythms of the western world, and making her prognosis to me? Furthermore, what elements could be gathering steam now that might prove to be so calamitous? Then thinking… I must be nuts to even dwell on her ramblings.

Since then I have run into her in the local farmers market or simply walking near my home. Today I stopped and chatted since a year had passed since she laid her initial “foreigner” prognosis on me. I asked her “do you still think the world is going to hell in a handbasket?”

She simply looked me in the eye and answered “Most assuredly. The ways of this world are not like a train schedule, nor should you expect them to be. There is no doubt that last winter when we spoke, the changes have begun, and they have been gathering strength. One morning we shall wake up, no doubt surprised that so much has happened and we did not notice the process until it has passed us and we eat its dust”. I thanked her for the wise words and proceeded on my way to the Metro station and my office.

The Russian folklore witch, Baba Yaga

One thing I acknowledge the “Znakhar” does well is that she puts me in a mood to reflect. Undoubtedly we now live in a time when a number of “unquestioned” components of the economic and geopolitical world are under intense re-evaluation; politicians, fake vs. real, the dollar, Euro, central banks, Federal Reserve, QE, ZIRP’s, NIRP’s, Crypto’s, and historically unprecedented debt of all types. Unquestionably a nervous time, and in many ways engendering a Stockholm-like syndrome of denial…. shall we go on as before, what can really happen?

Well, just last week we witnessed rather sudden and sharp global market spasms starting in the US, which may be a prelude to what is likely to repeat. We see interest rates largely rising throughout the world whereas the business culture has grown used to ‘cheap money’ as this past decade’s new normal. Much has been built up on the back of cheap funds and the prospect of paying double or more to settle credits taken is a dismal undertaking. Looking back at rates these past 10+ years, today the downtrend line(s) have been broken, suggesting long-term trend changes.

What has changed in market perception? Following the money is usually a good place to start. One item that sticks out is the interbank lending among US and western banks. Towards the end of 2017 interbank lending sharply dropped. In fact, it dropped to pre-1974 recession levels of approximately $12.7 billion. Since 2008/09 the amount of interbank lending has steadily decreased with the strong possibility that the players were acutely aware of their own, hence their counter-party’s remarkably weak balance sheets.

Whatever the case, the reasons for interbank lending to collapse has two likely reasons, either there is no longer a need for credit, or there is an absence of trust in the interbank lending world. It would seem to me that a lack of trust is the more probable. Remember, the bedrock of fiat currencies is trust.

A further factor to consider is velocity of money. If the markets believe inflation therefore rates are going higher it generates fear or as we used to say “the anxiety quotient”. Fear that financial instruments will be worth less because they are “discounted” against interest rates. There is also the very real anxiety of losses due to bankruptcies whether by an issuer or counterparty. Higher rates also means no more easy ability to refinance or to “roll over” debt”.

It is worth keeping in mind that all fiat currencies are debt based, so the fear factor will be seen expressed not only in the sale of bonds but the underlying currency, be it the US Dollar, Euro, Yen or similar. The velocity of these currencies will turn markedly higher as market participants finally “spend” them to get free of the denominated equities or debt instruments trap.

The markets have changed, and if last week was any indication of things to come it may be only the appetizer. I think most would agree that 2017 and the first month of 2018 were abnormal for equities. Stocks as an asset class were never meant to go straight up without even a smidge of a pullback. That is exactly what happened for an entire year.

What has been the case in the past decade is that the central banks have openly played an unprecedented interventionist role in supporting the commercial markets, some even call this the CB’s ‘Plunge Protection Team’. In the real world, in open markets, when a sell off is in process no investor has the gall, or deep enough pockets to flood markets with buy orders except the central banks, which they quietly did just one week ago. I even heard the term ‘QP’ for Quantitative Propping, no doubt the stepsister of ‘QE’.

Never in history has so much money been magically created in so short a time. The money exists and the corresponding debts are in place which seem to indicate a fertile field for inflation. In simpler financial times when money was linked to gold, we could expect at some point in these current circumstances a massive deflation.

Today however, when gold has been replaced by debt and fiat currencies, the result will again be a deflation but of a different sort. The deflation will be in currencies and credit versus gold. To those holding currencies and debt, it will feel like acute hyperinflation. Assets that derived their value from investors borrowing to purchase will deflate against gold; while quite probably still inflate against struggling fiat currencies.

In closing, I tip my hat to the “Znakhar” if for no other reason than the fact that she got me thinking on the truly interesting times we are living in, and wondering when the much touted inflection point may arrive. She may have the “crystal ball”, but I can do one better by trudging to my local Sberbank (savings bank) branch here and place a ruble order for a gold St. George coin or two, maybe that will help.

Paul Goncharoff is an American business executive working in Russia.

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Constantinople: Ukrainian Church leader is now uncanonical

October 12 letter proclaims Metropolitan Onuphry as uncanonical and tries to strong-arm him into acquiescing through bribery and force.

Seraphim Hanisch

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The pressure in Ukraine kept ratcheting up over the last few days, with a big revelation today that Patriarch Bartholomew now considers Metropolitan Onuphy “uncanonical.” This news was published on 6 December by a hierarch of the canonical Ukrainian Orthodox Church (running under the Moscow Patriarchate).

This assessment marks a complete 180-degree turn by the leader of the Orthodox Patriarchate of Constantinople, and it further embitters the split that has developed to quite a major row between this church’s leadership and the Moscow Patriarchate.

OrthoChristian reported this today (we have added emphasis):

A letter of Patriarch Bartholomew of Constantinople to His Beatitude Metropolitan Onuphry of Kiev and All Ukraine was published yesterday by a hierarch of the canonical Ukrainian Orthodox Church, in which the Patriarch informed the Metropolitan that his title and position is, in fact, uncanonical.

This assertion represents a negation of the position held by Pat. Bartholomew himself until April of this year, when the latest stage in the Ukrainian crisis began…

The same letter was independently published by the Greek news agency Romfea today as well.

It is dated October 12, meaning it was written just one day after Constantinople made its historic decision to rehabilitate the Ukrainian schismatics and rescind the 1686 document whereby the Kiev Metropolitanate was transferred to the Russian Orthodox Church, thereby, in Constantinople’s view, taking full control of Ukraine.

In the letter, Pat. Bartholomew informs Met. Onuphry that after the council, currently scheduled for December 15, he will no longer be able to carry his current title of “Metropolitan of Kiev and All Ukraine.”

The Patriarch immediately opens his letter with Constantinople’s newly-developed historical claim about the jurisdictional alignment of Kiev: “You know from history and from indisputable archival documents that the holy Metropolitanate of Kiev has always belonged to the jurisdiction of the Mother Church of Constantinople…”

Constantinople has done an about-face on its position regarding Ukraine in recent months, given that it had previously always recognized the Metropolitan of Kiev and All Ukraine of the Ukrainian Orthodox Church-Moscow Patriarchate as the sole canonical primate in Ukraine.

…The bulk of the Patriarch’s letter is a rehash of Constantinople’s historical and canonical arguments, which have already been laid out and discussed elsewhere. (See also here and here). Pat. Bartholomew also writes that Constantinople stepped into the Ukrainian ecclesiastical sphere as the Russian Church had not managed to overcome the schisms that have persisted for 30 years.

It should be noted that the schisms began and have persisted precisely as anti-Russian movements and thus the relevant groups refused to accept union with the Russian Church.

Continuing, Pat. Bartholomew informs Met. Onuphry that his position and title are uncanonical:

Addressing you as ‘Your Eminence the Metropolitan of Kiev’ as a form of economia [indulgence/condescension—OC] and mercy, we inform you that after the elections for the primate of the Ukrainian Church by a body that will consist of clergy and laity, you will not be able ecclesiologically and canonically to bear the title of Metropolitan of Kiev, which, in any case, you now bear in violation of the described conditions of the official documents of 1686.

He also entreats Met. Onuphry to “promptly and in a spirit of harmony and unity” participate, with the other hierarchs of the Ukrainian Orthodox Church, in the founding council of the new Ukrainian church that Constantinople is planning to create, and in the election of its primate.

The Constantinople head also writes that he “allows” Met. Onuphry to be a candidate for the position of primate.

He further implores Met. Onuphry and the UOC hierarchy to communicate with Philaret Denisenko, the former Metropolitan of Kiev, and Makary Maletich, the heads of the schismatic “Kiev Patriarchate” and the schismatic “Ukrainian Autocephalous Orthodox Church” respectively—both of which have been subsumed into Constantinople—but whose canonical condemnations remain in force for the canonical Ukrainian Orthodox Church.

The hierarchs of the Serbian and Polish Churches have also officially rejected the rehabilitation of the Ukrainian schismatics.

Pat. Bartholomew concludes expressing his confidence that Met. Onuphry will decide to heal the schism through the creation of a new church in Ukraine.

The Ukrainian Orthodox Church under Metropolitan Onuphry’s leadership is recognized as the sole canonical Orthodox jurisdiction in Ukraine by just about every other canonical Orthodox Jurisdiction besides Constantinople. Even NATO member Albania, whose expressed reaction was “both sides are wrong for recent actions” still does not accept the canonicity of the “restored hierarchs.”

In fact, about the only people in this dispute that seem to be in support of the “restored” hierarchs, Filaret and Makary, are President Poroshenko, Patriarch Bartholomew, Filaret and Makary… and NATO.

While this letter was released to the public eye yesterday, the nearly two months that Metropolitan Onuphry has had to comply with it have not been helped in any way by the actions of both the Ecumenical Patriarchate and the Ukrainian government.

Priests of the Canonical Church in Ukraine awaiting interrogation by the State authorities

For example, in parallel reports released on December 6th, the government is reportedly accusing canonical priests in Ukraine of treason because they are carrying and distributing a brochure entitled (in English): The Ukrainian Orthodox Church: Relations with the State. The Attitude Towards the Conflict in Donbass and to the Church Schism. Questions and Answers.

In a manner that would do any American liberal proud, these priests are being accused of inciting religious hatred, though really all they are doing is offering an explanation for the situation in Ukraine as it exists.

A further piece also released yesterday notes that the Ukrainian government rehabilitated an old Soviet-style technique of performing “inspections of church artifacts” at the Pochaev Lavra. This move appears to be both intended to intimidate the monastics who are living there now, who are members of the canonical Church, as well as preparation for an expected forcible takeover by the new “united Church” that is under creation. The brotherhood characterized the inspections in this way:

The brotherhood of the Pochaev Lavra previously characterized the state’s actions as communist methods of putting pressure on the monastery and aimed at destroying monasticism.

Commenting on the situation with the Pochaev Lavra, His Eminence Archbishop Clement of Nizhyn and Prilusk, the head of the Ukrainian Church’s Information-Education Department, noted:

This is a formal raiding, because no reserve ever built the Pochaev Lavra, and no Ministry of Culture ever invested a single penny to restoring the Lavra, and the state has done nothing to preserve the Lavra in its modern form. The state destroyed the Lavra, turned it into a psychiatric hospital, a hospital for infectious diseases, and so on—the state has done nothing more. And now it just declares that it all belongs to the state. No one asked the Church, the people that built it. When did the Lavra and the land become state property? They belonged to the Church from time immemorial.

With the massive pressure both geopolitically and ecclesiastically building in Ukraine almost by the day, it is anyone’s guess what will happen next.

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Ukrainian leadership is a party of war, and it will continue as long as they’re in power – Putin

“We care about Ukraine because Ukraine is our neighbor,” Putin said.

RT

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Via RT…


Russia’s President Vladimir Putin has branded the Ukrainian leadership a “party of war” which would continue fueling conflicts while they stay in power, giving the recent Kerch Strait incident as an example.

“When I look at this latest incident in the Black Sea, all what’s happening in Donbass – everything indicates that the current Ukrainian leadership is not interested in resolving this situation at all, especially in a peaceful way,” Putin told reporters during a media conference in the aftermath of the G20 summit in Buenos Aires, Argentina.

This is a party of war and as long as they stay in power, all such tragedies, all this war will go on.

The Kiev authorities are craving war primarily for two reasons – to rip profits from it, and to blame all their own domestic failures on it and actions of some sort of “aggressors.”

“As they say, for one it’s war, for other – it’s mother. That’s reason number one why the Ukrainian government is not interested in a peaceful resolution of the conflict,” Putin stated.

Second, you can always use war to justify your failures in economy, social policy. You can always blame things on an aggressor.

This approach to statecraft by the Ukrainian authorities deeply concerns Russia’s President. “We care about Ukraine because Ukraine is our neighbor,” Putin said.

Tensions between Russia and Ukraine have been soaring after the incident in the Kerch Strait. Last weekend three Ukrainian Navy ships tried to break through the strait without seeking the proper permission from Russia. Following a tense stand-off and altercation with Russia’s border guard, the vessels were seized and their crews detained over their violation of the country’s border.

While Kiev branded the incident an act of “aggression” on Moscow’s part, Russia believes the whole Kerch affair to be a deliberate “provocation” which allowed Kiev to declare a so-called “partial” martial law ahead of Ukraine’s presidential election.

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When Putin Met Bin Sally

Another G20 handshake for the history books.

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Via Zerohedge


In the annals of handshake photo-ops, we just may have a new winner (much to the delight of oil bulls who are looking at oil treading $50 and contemplating jumping out of the window).

Nothing but sheer joy, delight and friendship…

…but something is missing…

Meanwhile, earlier…

Zoomed in…

And again.

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