“No one likes to admit defeat. But global policymakers, who continue to insist that there’s more they can do to revive growth and inflation, are starting to sound like Monty Python’s Black Knight (click to see video)..."
Governments and central banks would very much like to frighten people away from cash, but that only underlines its value under the current circumstances. Cash is king in a deflation. The powers-that-be know that, and would like the available cash to end up concentrated in their own hands rather than spread out to act as seed capital for a bottom-up recovery. Holding on to cash under one’s own control is still going to be a very important option for maintaining freedom of action in an uncertain future.
In this letter we are taking up the ambitious goal of painting a picture of the global economic landscape as we see it, in order to walk you through the investment process that we been fine tuning for this less-than-exciting picture.
The outlook for the US economy is deteriorating, yet the Fed is trying to raise overnight rates to keep unseen inflation from rising. Success in its strategy could force consumption lower, unemployment higher, and exacerbate real output contraction. The market, however, should not underestimate the Fed’s power based on its apparent incompetence.
"So we have a choice, either we continue down the road of negative rates to Fantasy Land, where central banks own all the stocks and bonds and asset prices always rise, but real wages and average living standards always fall, or we take our chances on a different path that leads to reality, however unpleasant the transition may be. I for one would choose the latter, but it looks like I won’t have much company."
Global economies have enjoyed a perfect storm of positive demographic trends over the past 3 decades. Deutsche warns that "extrapolation of the last 35 years could be the most dangerous mistake made by investors."
Obama wants to placate public discontent and Turnbull wants to “civilize capitalism." Instead of trying to “civilize capitalism”, we suggest we try capitalism and free marketsinstead of massive amounts of QE, central bank sponsored wealth inequality schemes, bank bailouts, and manipulations of every asset class on the planet, coupled with free handouts to millions of refugees at the expense of everyone else.
With the US taking the day off to celebrate the unofficial end of the summer, global markets have been relatively quiet, aside from the dramatic moves in the energy sector over the past few hours, where crude soared in early trading as reported previously on a much-hyped joint statement by the energy ministers of Saudi Arabia and Russia, only to see the spike fizzle.
Roughly at the same time as China's now infamous snub of Obama's arrival at Hangzhou for the G-20 summit, Chinese officials had no such problems greeting Russian president Vladimir Putin with full honors, whose arrival - on the red carpet - took place without a glitch.
The G20 meets in tech hub Hangzhou, China, at an extremely tense geopolitical juncture. China has invested immense political/economic capital to prepare this summit. But most of all China will seek greater G20 backing for the New Silk Roads – or One Belt, One Road (OBOR), as they are officially known – as well as the new Asian Infrastructure Investment Bank (AIIB). However, the US hyperpower – not the Atlanticist West, because Europe is mired in fear and stagnation - “proposes” the current neocon/neoliberalcon status quo...
"We're in a cycle of lower prices for some time to come (months or even years) certainly until we work through the inventory overhang of 140 million barrels. There really no justification in history or logic for a return to oil prices of $60 or $70/bbl... But we're deferring investments in proven reserves... So, there is going to be a time, no matter how weak the economy is, no matter how much we can't change this, we're going to end up with insufficient to meet our most basic, fundamental transport and manufacturing needs. When that happens, we'll see a moon-shot in oil prices."
As momentum builds in the developing deflationary spiral, we are seeing increasingly desperate measures to keep the global credit ponzi scheme from its inevitable conclusion. Credit bubbles are dynamic - they must grow continually or implode - hence they require ever more money to be lent into existence. As the peak of a credit bubble is reached, all these necessary factors first become problematic and then cease to be available at all. Past a certain point, there are hard limits to financial expansions, and the global economy is set to hit one imminently.