Relative to stock market indices, broad commodity indices are now at their lowest levels since the late-1990s dot com boom. Key commodity price ratios, such as those between precious and industrial metals, are already at levels associated with financial crises such as that of 2008. In other words, there is already ‘blood on the commodity streets’, presenting investors and commodity traders with potentially attractive opportunities.
Today, we now have a financial system that is even more leveraged than in 2007… backstopped by even less high quality collateral. So when the panic hits, the selling pressure will be even MORE extreme.
We continue to be told that the US economy is in recovery and stronger than ever. The press trumpets heavily massaged data (GDP growth and the unemployment number) while ignoring data that clearly indicates the US economy is in the toilet (labor participation rate, median income, etc).
The ultra high end of US housing is now sliding fast, and that unless some other central banks steps up and resumes the injections of some $100 billion in outside money into inflating asset prices such as stocks and billionaire mansions, then all bets are soon off.
China may be doing everything in its power to divert attention from the simple fact that its housing bubble, the largest in the world in terms of both assets comprising it as well as divergence from fair value, has burst. But while there is no clear threshold of what constitutes a bursting bubble when it comes to housing, the latest data out of Soufun, China's largest real-estate website, which said that land sales have dropped a massive 22% to 1.7 trillion Yuan in 2014 so far, is likely as clear an indication as any that Beijing is about to panic. And if that was not enough Bloomberg adds that land sales in 300 cites followed by Soufun fell almost 50% Y/Y to 415.9 billion yuan in 3Q, while residential land sales declined more than 50% to 265.3b yuan in 3Q.
At some point, the markets will call BS on Spain’s dreams of recovery and the bond markets will rebel. When this happens the whole fraud will come unraveled. However it might take a full-scale political crisis before this happens. And by the look of things we’re not far from one.
The key question now is “Can the U.S./global economy handle a meaningful downturn in financial asset prices?” The short answer is that it may not have a choice. The Federal Reserve has done what it can to juice the American economy and has the balance sheet to prove it. Central banks, for all their power, do not control long term capital allocation or corporate hiring practices. Fed Funds have been below 2% for six years. If the U.S. economy can’t continue to grow in 2015 as the Federal Reserve inches rates higher, there are clearly larger issues at play. And those private sector problems will need private sector solutions.
When is the U.S. banking system going to crash? We can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.
"Get To Work Mr. Chinese Chairman": China Set To Fire Its Central Bank Head, Unleash The Liquidity FloodgatesSubmitted by Tyler Durden on 09/24/2014 11:12 -0400
In what is certainly the most impotant news of the day, the WSJ reports that China's long-serving central banker Zhou Xiaochuan, "the face of the Chinese economy to markets globally" is about to be given the boot. According to the WSJ, "Chinese leader Xi Jinping is considering replacing Mr. Zhou, say party officials, as part of a wider personnel reshuffle that also comes after internal battles over economic reforms." And while it is true that at the age of 66, Zhou has passed China's retirement age, and his departure will be spun as an old man spending more time with his family, the reality is that this is part of a major Chinese shift in the "balance of power between reformist and reactionary forces, with the momentum for reforms being eroded by the loss of growth momentum in the economy," said Eswar Prasad, a Cornell University China expert. Zhou's replacement: a career banker, who will do the bidding of, you guessed it, banks, which means "liquidity to the max."
Doesn't get any simpler than this chart showing global monetary policy response to "secular stagnation", i.e., the situation the world finds itself in right now.
Oil and other commodity prices have recently been dropping. Is this good news, or bad? Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared "peak oil" is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. We would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long time – since World War II, at least – is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Back in 1930, Keynes looked out into the future and saw that with the proper management of the economy, monetary policy and the like, the world could attain a type of utopian stasis: Keynes expected growth to come to an end within two to three generations, and the economy to plateau. He referred to this imaginary state of equilibrium as "bliss," noting “thus for the first time since his creation man will be faced with his real, his permanent problem - how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well." However, Keynes did say this would happen if mankind avoided any calamitous wars and if there was no appreciable increase in population. Two more flawed base assumptions there could not have been.
Ever wonder why for the US, it is all about reflating the stock market bubble in order to boost the "wealth effect", if only for a small portion of the population? Or, for that matter, why in China where the Shanghai Composite has gone absolutely nowhere since the Lehman crash (and certainly isn't up some 200% unlike the liquidity-supercharged S&P 500), it is all about preserving the sanctity of the housing bubble? Then the following chart should make it all clear.
Given that all the leading candidates for Global Hegemon are hastening down paths of self-destruction, perhaps there will be no global hegemon dominating the 21st century.
While the rest of the world is focused on what any given "developed" (or Chinese) central bank will do to continue the relentless liquidity-driven rally to new record highs, China has bigger problems as it continues to scramble in its attempts to figure out how to halt the slow motion housing crash that has now firmly gripped the nation. So firmly, that according to overnight data from the National Bureau of Statistics, monthly house prices dropped in some 68 of 70 tracked cities, the most in over three years, since January 2011 when the government changed the way it compiles the data.