recovery

The signs of deflation are now flashing all over the globe and the possibility of an associated financial crisis is now dangerously high over the next few months. Our preferred model for how things are going to unfold follows the Ka-Poom! Theory, which states that this epic debt bubble will ultimately burst first by deflation (the "Ka!") before then exploding (the "Poom!") in hyperinflation due to additional massive money printing efforts by frightened global central bankers acting in unison. First an inwards collapse, then an outwards explosion.

Good news! Bad news is again great for stocks, and overnight we had just the right amount of bad news from Japan, China and Europe to send stocks surging on the first day of the final quarter.

Either, a) BLS payrolls data is entirely 'made-up', or b) US jobs are being created in some other regions than the six major Fed surveys. Either way, this chart will strike fear into the heart of Janet Yellen as she 'hopes" for some cover for her rate-hike... before the whole house of cards collapses...

"We are seeing more globalization as Southern California has become a destination for international buyers," said Mark Hughes, chief operating officer with First Team Real Estate, covering the Southern California market. "Eighty percent of new construction in Irvine last year was sold to Chinese buyers. International buyers are driving home prices up and sometimes out of reach for many local residents."

With the fiscal picture looking increasingly precarious and confidence collapsing, we bring you the latest from the frontlines of the EM meltdown. In short, Brazil is falling apart at the seams. Now, who wants tickets to the 2016 Olympic Games in Rio?

During the "recovery" from the Great Recession, the land of Lincoln had more people enter the food-stamps program than start jobs. Food-stamps growth in Illinois has outpaced jobs creation by a 5-4 margin... and stunningly, has put 25 people on food stamps for every manufacturing job created during the recession recovery.

When a lot of Keynesian cowbell doesn't work, the only cure for the deflationary fever must be more Keynesian cowbell which explains why Japan is about to double down on Abenomics, and why the ECB will almost invariably expand PSPP now that the deflationary boogeyman is back in Europe. Indeed, S&P is now out calling for ECB Q€ to last for nearly two years longer than originally planned and for the size of the program to be expanded to a Dr. Evil-ish €2,400,000,000,000.

Terrible economic news is wonderful news for markets, all over again, and with the worst S&P500 quarter since 2011 set to close today, some horribly "great" news is just what the window-dressing hedge funds, most of whom are deeply underperforming the broader market (not to mention Dennis Gartman) ordered.

The United States government deliberately hid “the worst nuclear disaster in U.S. history,” according to experts and an in-depth investigation by NBC4 Southern California. Whistleblowers have also come forward to expose the little-known catastrophe, which occurred north of Los Angeles in 1959 and leaked over 300 times the allowable amount of radiation into surrounding neighborhoods. That contamination is now linked to up to a 60% increase in cancer in the area, but the government still refuses to acknowledge its colossal mistake.

When you tell people in self denial the market could drop 40% in a few months, they think you are crazy. They declare this could never happen. They would get out of the market before it would fall vertically. Their memories are conveniently short as their normalcy bias and cognitive dissonance blind them to what happened over three months in 2008/2009. We wonder how many willfully ignorant investors can handle a 50% to 70% haircut in their 401k, especially if they are over 50 years old. We wonder how much angrier the populace will become when the current recession results in more job losses, bankruptcies and revelations of Wall Street malfeasance. Beware of the bear.

As WSJ reports, "Bank of America Corp. is expected to announce layoffs in its global banking and global markets unit as early as Tuesday, according to people familiar with the matter."

• Commodities in crisis as Asian shares tumble and shipper files for bankruptcy (Reuters)
• Global Rout Eases as S&P 500 Futures Advance With Oil, Glencore (BBG)
• Chinese Stocks Decline Most in a Month in Hong Kong on Economy (BBG)
• India cuts interest rates by more than expected (BBC)
• Glencore Rebounds as $50 Billion Plunge Is Seen as Excessive (BBG)
• How Congress May Have Saved Goldman Sachs From Itself (BBG)

It was a tale of two markets overnight: Asia first - where all commodity hell broke loose - and then Europe (and the US), where central banks did everything they could to stabilize the already terrible sentiment.

The U.S. dollar is looking good worldwide and, in fact, so is gold - it’s just that, at present, the dollar is in the number one spot. But, unlike gold, the dollar is at risk. U.S. debt has placed it in a precarious position from which it will most certainly fall. The dollar is not a truly strong currency; it is essentially, “the best looking horse in the glue factory.” It will be the last to go, but it will indeed go. We may have a bit of time before that happens. Whether it’s measured in months or years, we can’t be certain. A gold mania is not imminent, but we believe it is inevitable.