Global Economy

"Something happened  The August turbulence in global markets has produced significant shifts, including a 6.6% fall in equity prices. The currencies of emerging market countries have depreciated substantially against the G-4, while emerging market borrowing rates for sovereigns and corporates have moved higher. Global oil prices have been whipsawed as have G-4 bond yields. The speed and magnitude of these movements is reminiscent of past episodes in which financial crises emerged or the global economy slipped into recession. However, nothing appears to be breaking."

For the moment, to paraphrase Alexander Solzhenitsyn, the “permanent lie [has become] the only safe form of existence”.

But the world cannot postpone, indefinitely, dealing decisively with the economic, resource management, social and political challenges we face.

Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."

Simply put, a perfect storm of failing trends...

You can't say Nassim Taleb didn't warn you: the outspoken academic-philosopher, best known for his prediction that six sigma "fat tail", or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb. The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.

It is undeniable; the final collapse triggers are upon us, triggers alternative economists have been warning about since the initial implosion of 2008. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily... In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used.

Two years ago, when we first profiled Japan's mysterious "Mister Watanabe" daytrader - aka CIS - we thought it may just all be a hoax. But, as his claims this week that he made $34 million trading the panic on Monday - "I do my best work when other people are panicking," Bloomberg reports, CIS - who claims JPY20bn AUM, has become a cult figure among Japan’s tight-knit community of day traders. Notorious for lines like "Not even Goldman Sachs can beat me in a trade," CIS drops some knowledge this week on how he has become so successful... "Buy stocks that are being bought, and sell stocks that are being sold." Just don't tell Cramer.

Since the GFC, 'The Great Wall of Money' that Bretton Woods II has furnished via its vendor-financing relationship, has masked the deleveraging of our world economy. The Great Wall is about to collapse and fall.

"Despite a slight tightening in the maize carryover, global grain stocks are forecast at 447m t, a 29-year peak."

Lost in all the stock market focus is the renewed disaster being signaled across credit markets, “inflation” expectations in particular. Here oil prices and the “dollar’s” darkening intersect with credit and broad financial settings. Quietly, market-based measures of the anticipated future “inflation” path have crashed. It can no longer be transitory, which extrapolates nowhere good for monetary policy, orthodox economics and the actual global economy. The theme for several years now has been that “they don’t know what they are doing” and once more we find that proven by “unexpected” events that were perfectly predictable outside the orthodox bubble.

• Global Stocks Struggle to Shrug Off China Fears (WSJ)
• Brief Respite Ends for European Stocks Amid Renewed Retreat (BBG)
• Stock futures rise after China injects $21.8 billion (Reuters)
• China turmoil needn't rattle BOJ, yen rise not a worry: Abe adviser (Reuters)
• Stock-Market Tumult Exposes Flaws in Modern Markets (WSJ)
• Dollar gains as stocks recover, lessens safe-haven bid for yen (Reuters)

Every Federal Reserve Chair since 1979 has faced a notable challenge in the first 12-20 months of their tenure – something akin to capital markets “Bullies” hazing the new kid at school. Paul Volcker had the 1979-1980 Iranian oil shock/recession, Alan Greenspan the 1987 Stock Market Crash, and Ben Bernanke the 2007 Financial Crisis. Their responses shaped market perceptions about Federal Reserve priorities and set the stage for the remainder of their tenures, from Inflation-Fighting Volcker to Save-the-World Bernanke. Now, it is Chair Yellen’s turn...

"I have a gut feel the recent wild swings are a precursor of a more insidious trend... which is definitely not going to be our friend!"

"I do not believe that the global economy is healing. I believe that the global economy is heading into a slump once again... It's not a pretty picture. All those people who say they will buy... I wonder if they still have money?"

So now comes the era of gluts, shrinking profits and a drastic deflation of the giant financial bubble that the world’s central banks have so foolishly generated. And this time they will be powerless to stop the carnage. Yet the beleaguered central bankers will launch desperate verbal and market manipulation ploys to brake the current sell-off and thereby preserve the bloodied remnants of their handiwork.  When in response the gamblers make their eighth run at buying a dip that is now rapidly turning into a crater, it will be an excellent time to sell anything in the casino that isn’t nailed down.