There is an economic and financial trainwreck rumbling through the world economy. Namely, the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles. The resulting deflationary spiral will suck the global economy into its vortex. And Wall Street will go down for the count because this time the Fed will be utterly powerless to reverse the tide.
Characterizing the upward transfer of virtually all American wealth to a handful of oligarchs a “recovery,” represents a grotesque insult to the english language as well as common sense. The writing was on the wall from the very beginning. We knew as soon as TARP passed that we as society would regret the day we bailed out the bankers who destroyed the world economy. It didn’t take long.
After a week of relentless FX volatility, spilling over out of China and into all other countries, and asset products, it was as if the market decided to take a time-out overnight, assisted by the PBOC which after three days of record devaluations finally revalued the Yuan stronger fractionally by 0.05% to 6.3975. And then, as a parting gift perhaps, just as the market was about to close again, the Chinese central bank intervened sending the Onshore Yuan, spiking to a level of 6.3912 as of this writing, notably stronger than the official fixing for the second day in a row. In fact the biggest news out of China overnight is that contrary to expectations, the PBOC once again "added" to its gold holdings, boosting its official gold by 610,000 ounces, or 19 tons, to 1,677 tones.
On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable. As we recently noted, students and former students across the country owe more than $1.2 trillion in college loans - doled out by our government in the name of helping high school graduates further their education, and as Bill Ackman so eloquently put it earlier this year, "there’s no way they’re going to pay it back." But at this point, extra funding is backfiring. Half of young graduates are either unemployed or only working part-time, which is a startling sign that the jig is up. In conjunction with the poor economy, new technology, developing markets killing jobs, and the massive increase in applicants with degrees, the value of college degrees is drastically falling in the economy of today. College is in a bubble, and it is going to pop soon...
"John and Volcker discussed all the pitfalls of Keynesian and monetarism and Volcker didn’t rule out an eventual collapse of the dollar and second deflationary depression. I remember Volcker asking John when he would begin dropping short term rates and John commented that rates would have to drop soon or else the economy would fall off a cliff. It’s interesting that it wasn’t long after our session that rates started to come down. John Exter spelled out his scenario for Volcker and warned him of how badly the Keynesian experiment would end if it went on for an extended period of time. Volcker just sat there and listened and showed his concern."
All of this raises an interesting question about the future of the US dollar. Because if an economy as large and powerful as China’s has had to concede defeat, does this mean that “King Dollar” will rule forever? No chance.
After years of moving lower, the past two quarters have seen a marked increase in Commercial & Industrial Nonperforming Loans.
Between a rather alarming three-day plunge and rampant accusations that Beijing entered the global currency wars solely to export China’s deflation and prop up its flagging economy, the PBoC had apparently seen enough. Cue an ad hoc, "forceful" press conference. Here is the full breakdown.
Asset price inflation, a disease whose source always lies in monetary disorder, is not a new affliction. It was virtually inevitable that the present wild experimentation by the Federal Reserve - joined by the Bank of Japan and ECB - would produce a severe outbreak. And indications from the markets are that the disease is in a late phase, though still short of the final deadly stage characterized by pervasive falls in asset markets, sometimes financial panic, and the onset of recession.
For a few days, Fox News didn't know how to handle Donald Trump's "blood" comments about one of the network's favorite anchors. Then someone woke up and realized that if you're Fox, being boycotted by the GOP frontrunner simply isn't tenable.
The overnight market has been a repeat of yesterday's action, when following China's repeat 1.6% devaluation of the CNY (which was to be expected since the PBOC made it quite clear the fixing would be based off the market value, a value which continues plunging), the second biggest in history following Monday's 1.9% plunge, traders appeared stunned having believed the PBOC's lies that the devaluation was a one-off and as a result the E-Mini tumbled overnight, and is now 30 points lower from last night's PBOC fixing announcement, trading at around 2058, and far below the "magical" 200-DMA support line, which has now been solidly breached.
On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable. Students and former students across the country owe more than $1.2 trillion in college loans, and as Bill Ackman so eloquently put it earlier this year, "there’s no way they’re going to pay it back." Now, one Boston-based hedge fund is building a short position on what it says is "runaway inflation in post-secondary education."
As we first warned in March, and as became abundantly clear over the weekend Beijing had no choice but to join the global currency wars, as the yuan's dollar peg will ultimately prove to be too painful going forward. And sure enough this evening the PBOC weakens the Yuan fix by the most on record.
- China Rattles Markets With Yuan Devaluation (BBG)
- China Move Sparks Wave of Yuan Selling (WSJ)
- China's devaluation raises currency war fear as Greece strikes deal (Reuters)
- Protests return to Ferguson streets, state of emergency declared (Reuters)
- Heavily armed 'Oath Keepers' inject new unease to riot-hit Ferguson (Reuters)
- Greece Secures Bailout Deal After All-Night Talks in Athens (BBG)
- U.S. Identifies Insider Trading Ring With Ukraine Hackers (BBG)
Housing is a very important component of any economy, and often an indicator of the well-being of a society. In the US, housing has been deteriorating since the sub-prime crisis. The changes are not only cyclical but structural. Past experiences need to yield to an objective analysis of where we are heading. Here is the way we see it...