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Global Markets: It's Getting Ugly Out There
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
We also discussed the most critical systemic sources of risk in global markets.
You'd have to be in full denial mode not to see that it's getting ugly out there in global markets: currencies are melting down, trade and shipping are tanking, commodities are swooning and global stock markets are increasingly on central-bank life support.
Gordon Long and I recently discussed just how ugly it might get in a 28-minute video program.
One focus was Gordon's forecast that the market may yet recover from its current downtrend and trace out a M Top: one more buy the dip rally that would then be followed by a bone-crushing downtrend as the wheels completely fall off the global "growth" story.

We also discussed a few of the most critical systemic sources of risk in global markets:
1. There's too much debt globally; public and private debt has skyrocketed since 2008.
2. Mal-investment due to perverse incentives: corporations borrow money for stock buybacks rather than to invest in new productive capacity
3. Stagnant income/revenues: households, companies and nations cannot support more debt
4. The rise of high-frequency trading (HFT) has increased the odds of flash crashes and instability
5. The rising U.S. dollar has triggered capital flight from emerging markets and China
6. China’s economy is grinding to a halt, crushing demand for commodities and commodity-dependent economies
7. Opaque banking: shadow banking in China, dark pools in offshore banking centers, etc. True totals of debt, leverage and the quality of collateral are all unknown
8. Deteriorating collateral globally. How many of the 60 million empty “investment” flats in China can be sold in an illiquid marketplace with little demand for existing housing? What's the real value of assets listed on U.S. balance sheets that are marked to fantasy?
We cover a lot of ground in this program.
It's Getting Ugly Out There (28:20 video, with Gordon T. Long)
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I think we're near the point where all the CB's are going to start unleashing their global thermonuclear money bombs on the world and I expect few survivors........
Elvis died of constipation, too. Nothing that a bit of ColRite can't fix.
Technically he died of a heart attack while taking a shit, but whatever. He was pushing hard, that's for sure.
For an interesting read look at how he spent the last few hours of his life. Crazy stuff.
Elvis is a poster child for the US 1960-2015.
elvis is dead?
Say it ain't so, Joe!
The urge to take a dump is a classic sign of impending heart attack as the vagus nerve runs through the heart to the gut and rectum. As it spasms so does your arse. As a nurse on a cardiac ward if they asked for the commode no one wanted to take it because of the jumping up and down on a chest that would quickly follow ......
God has given us some modicum of insurance against such events. Can't stop the pain wholesale but gold and silver are very good hedges against inflation, hence wealth preservation. But I completely agree with you...we're about to see currency printing orders of magnitude beyond current observations to address the derivative bombs that are about to explode.
_Argenta
There is a lot of truth to your post, but I'm not convinced that helicopter money is coming. It could happen of course, maybe even likely will, but there is something to consider here. If they choose not to print money they get to control when and thus to some degree how the great reset comes about. If they do QE to infinity it will give them more time, but less control over how things unwind. I suppose they could always pull the plug later on too, but the half-life of ZIRP and QE effectiveness has already decayed to the point where it would require such vast amounts of money that they might truly be faced with either hyperinflation or default this time instead of being able to kick the can, in which case default is the cleaner break of the two. And even though there is talk of negative interest rates, I don't think that's an option because then we could have a run on the banks as people wanted to get their money out before they get charged to keep it in the bank.
Something occurred to me the other day that I'd like to toss out. Read that there's a very small amount of cash circulating relative to overall debt/deposits etc. Now I read that there's a push to remove physical cash altogether. As much as we all joke about fiat currency being toilet paper, etc. is it possible that holding physical currency might not be a bad idea? Looks like there could be quite the demand for that under very specific circumstances.
-Argenta
got mine
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute."
William Feather
who are these 'people' that buy and sell in the market?? and when did computers in dark pools have to have something before they sell it?
The #1 reason listed covers all the rest of the points. "There's too much debt globally." 'Nuff said. We like to focus on the public debt, but that's a drop in the bucket compared to private debt.
Our finance system is now global so there's no escape. The system is based on debt at interest. Debt is created first, then money. The money is used to pay off the debt, but not always. And the supply of money has to outgrow the supply of debt in order to pay off the debt and the interest. This can't happen, by definition. Since money is only created out of debt, there can't be more money than debt. The interest isn't in the equation. The equation is fatally flawed.
All the rest of what we see are merely symptoms caused by the myriad ways we try to wriggle around the fundamental self-contradiction of our system. We could get away with it before the system was truly global. We could cheat by getting inputs from outside the system. Now we can't do that anymore, so the system by necessity and its own internal logic has to collapse from the weight of unpayable, and even unserviceable, debt.
Yep. I was a finance major and am a Certified Management Accountant (CMA), but somehow, all the school failed to mention the long term problem with exponential debt. It wasn't until 2008 that I sat down and thought about it - which was a really long time since I had graduated college. I could tell you about bond duration, NPV, IRR, options pricing and all sorts of finance things, but I hadn't considered the inherent long term instability of our monetary system.
See, I know this, but this is why I read the comments section. Every now & then someone puts up a comment that is so concise & clear that I have to save it for future reference. Thanks for your insight swm.
BTFD there's another rally coming. YeeeeeeeHaaaaaaa.and then the crash. Sounds like the question of "is Greece going to default?" Of course not. All the Greeks will be dead and Greece will be doing just fine. This is the banksters way. Its what banksters do.
Just wait until Germany is on life support. Car sector crumbling and "refugees" milking their system dry. ECB can't print as much as that is going to cost.
Greece is so last year. Germany is the next big domino to fall. Just wait.
I think CHS has now fully jumped the Snyder...
Majority Free For All
For those who haven’t figured it out, America can no longer project power, because it doesn’t have a viable economy, because it has no labor. The bill for all the promises is due and America can’t pay, because its income and multiplier, the NPV foundation for its actuarial Ponzi, is a scam, and has been since before most were born.
The Fed has simply been diluting the standard of living with Wall Street paper, and the audience, always voting for something for nothing, thinks it’s a neat trick. Communists competing to get the most out of nothing, but getting in the way and charging a toll from the top down, in the form of real estate inflation, is not an economy.
National Security begins with a viable economy, not a nuclear bomb, a stupid computer, or a communist leader to push the button. Even now, the majority believes that labor can be replaced by a machine, because it can be replaced by a machine, like we are all going to collect a check and the last one out turns off the lights. How stupid is that?
What you are looking at is a free-for-all, as China and Russia enter the vacuum, again. Now, all the nation/state middle classes are fighting over nothing, but a perception, and will remain in denial until they themselves are run over by tanks.
The corporations can only print falling living standards because they are bloated full with dead weight, which has eliminated labor market elasticity, and its companion, economic mobility. Worthless money can go anywhere at any time, but the middle class is completely immobilized by its own communist regulation.
Politics is about promising something for nothing and getting the majority to vote for it. Everyone is responsible so no one is responsible, except the poor smucks ending up in jail for a make-believe infraction, for which the judges print $750 per day per head, to pay themselves and the rest of the ensemble.
Once again, the empire has caught itself in its own catch-22. Kissinger and Nixon cut a deal for their overlords with the communists, which was just an extension of the one cut by Wilson, Roosevelt and Truman, new world order always the same as the old. By definition, the global economy is a closed system, which cannot work.
Silicon Valley is simply making the extortion racket more efficient, and it’s the prototype being copied all over the world. What kids will do for a free, catered lunch, following the example of their parents, go to a make-work job and get deeper in debt, depending on the wealth effect, in the form of real estate inflation, to pay the bills. That is not Democracy.
Humanity controls nothing, but a false perception of itself. Yea, go to Africa for labor, and put all the worthless paper in India’s stock market, like that hasn’t been tried, in a world full of rocket scientists breeding stupid, and giving corporations a tax credit to reproduce it in a positive feedback cycle.
All the Fed can do now is raise the rate to 3%, like tomorrow, and that’s just to feed the perception. The real work would begin there, and there’s no one to do it. America, you are on your own, and it’s not going to be pretty. After enough robots have killed each other, the natural economy will reboot itself, and the planet will once again have proven that humanity is a threat only to itself.
Finance has been headed for a cliff for quite some time, and demographics long before that. Carson sees no relationship between vaccination and autism because he isn’t looking, at anything but a report generated for the purpose, like all political wanna-bees, doing what they are paid to do, with inflation.
Who would you hire to build the bomb/technology to end WWIII? That’s the to-be. Build the bridge. If you look, you will see that all the pieces are already there. You are the abutment.
Carson is one of those really smart dumb folk that understand that they just need to be the controller of information... a nerdy power ape
few people know this but i actually do believe in TA but only recognize one pattern as being indicative of future trends. i call it the schnauzer formation. it has a corollary and that is btfd. both appear to have broken down over the summer which is definitely bad Juju for equity prices. [/bs]
US market just finishing up its obligatory "last squeeze". Looks like we're going to end solidly red today, and then crash Monday.
STFRips
"One focus was Gordon's forecast that the market may yet recover from its current downtrend and trace out a M Top: one more buy the dip rally that would then be followed by a bone-crushing downtrend as the wheels completely fall off the global "growth" story."
Yeah...and the fucking sky is falling too...DOW up +187 at 12:30PM...Woo Woo Woo!!!
Millions of "refugees" a.k.a. ordinary migrant workers are looking for a new home and health care and education - for the children - in the best zip codes on the planet.
All the while moronic politicians are fighting to keep the multicultural dream alive and use even more moronic laws to make citizens' lives hell and rewarding said migrants with showers of tax dollars.
Yeah, it's all fucked up. You're on your own and your government does not work for you. Governments have no clue. Government is by extension your enemy, the enemy of the private sector and every entrepreneur on the planet.
Fine, I always knew I was my own worst enemy and if the enemy of my enemy is my friend, then all my enemies are my friends and all my friends...enemies.
I dont want to be a friend of government, rather eat barbed wire.
Very confusing...
MT PART 4 COMING. ( MONETARY TEASING ) 250 billion per month and what ever it takes.
According to Itau BBA:
http://is.gd/XzTkOs
The Big Fear
Thus, Fed announcement day arrived with most equity markets up 5%-10% off the late August lows, commodity prices higher and rates priced for Fed action. The main concern coming into the Fed meeting was not that the Fed would hike; it seemed quite clear that it would not go against virtually the entire global economic policymaking community and raise rates. No, the concern was that the Fed would stand pat and stocks, rather than rally, would sell off.
Lo and behold, that is exactly what happened, and that is why we need to be very, very concerned about how things move from here. It remains unclear whether the equity market reaction to the Fed decision was (hopefully) just a classic case of buy the rumor (no hike) and sell the news, or something much worse, namely that investors might be starting to price in policymakers? loss of control – The Big Fear.
The Big Fear of policymakers losing control has been lurking underneath the global equity market for years, underpinned as markets have been by central bank support. Think of it this way: there are two global growth drivers: China and the US. Recently, the competence of the policymaking community in both countries has been called into question, suggesting a possible loss of faith in policymakers, which if true is very worrisome, thus the Big Fear concept.
Why is the Big Fear so worrisome? It’s simple. If investors lose faith in policymakers and decide that cash or bonds are a better place for their money, then stocks are likely to sell off much further. How much further? One never knows, but maybe asking a few questions might help. First, at what level does the S&P need to be for the Fed to engage in QE 4? Second, what S&P level will be considered cheap (keep in mind 2016 E estimates need to come in sharply)? I don’t know the answer to either question, but it seems reasonable to expect that the S&P would need to go much lower than the 1870 level it bottomed at in late August or the 1830 level of a year ago.
The economic implications of such a sell-off would likely be a US and global recession. Such an environment could create a negative feedback loop between financial markets and the real economy, which policymakers would find very difficult to break.
It seems clear that the Fed will not raise rates this year, neither next month when they meet again nor in December, which is the last meeting of the year. Will they raise rates in 2016? From this armchair, the odds are against it, as the forces of recession gather while the forces of reflation stagnate. On this front, one has to question the Fed's 2016 inflation forecast of 1.6%, up from 0.4% this year. The Fed’s crystal ball has been mighty cloudy for years, but this forecast takes the cake.
A look at the global economy helps explain why. Four factors stick out: excess debt, an absence of inflation, insufficient demand and excess supply of raw materials and manufactured goods. None of this is new – what is new is how the various hopes and remedies have fallen short while the problems deepen. The toxic combo of excess debt and disinflation is one powerful reason why the Fed did not move, and excess supply in commodities and manufactured items (look at the PPIs around the world) is another. The global economy needs demand-creation or production shut-ins, and to date both have been lacking.
There are small signs that the commodity complex is starting to finally adjust, with closures, dividend cuts and stock issuance in the mining sector and talks about talks in the world oil market. However, the manufacturing segment of the world economy is quite far behind the commodity segment, suggesting that China's need to shift excess production will ensure manufactured-goods disinflation for the foreseeable future.
One can wish for inflation and for the Fed to be able to hike, but one also needs to be focused on the realities of the current global economy. Where is the demand going to come from? Who is going to shut in production? Let?s look at the three main economic regions: Asia, Europe and the Americas. Asia is likely to be a source of manufactured-goods disinflation as it seeks to rebalance itself to a China that is a competitor first, a customer second. Japan's recovery is sputtering; it will continue QE while a fiscal stimulus package seems quite likely in the months ahead. Europe remains quite weak, and with the refugee issue now occupying policymakers, ECB-led QE seems the only game in town.
The Americas is a concern. South America is in a deep funk, whether it is Mexico's subpar growth rate, Brazil's political and economic travails, Andean copper dependency or the impact of weak oil on countries such as Colombia or Venezuela. All this is pretty well known.
The US is most worrisome because of its combination of still-high equity prices and a very bare policy toolbox to confront any economic weakness. How bare? Well, monetary policy is on hold, and the bar to QE4 is likely a much lower S&P. What about US fiscal policy, one might ask? Great question. Here is the only thing one needs to know about the US presidential election process: it takes fiscal policy flexibility away and locks it in the freezer until late 2017, two whole years from now. In other words, at a time when the US economic expansion is close to seven years old, with the Fed on hold, incomes flat, debt levels high, a strong dollar and absolutely no inflation, fiscal policy is locked away for the next two years at least!
By the way, the UK confronts similar issues and could possibly be a canary in the coalmine for US monetary policy – QE for the people on BOTH sides of the Atlantic perhaps? The UK's negative rate discussion is likely to move across the pond over the next quarter or so. One other way of thinking about it is this: which comes first, the end of ECB QE or QE4 in America? I would go with the latter.
How does one vanquish the Big Fear? With aggressive policy action on the demand-and-supply side. What is the likelihood of that? Exactly. Seen in this light, it makes perfect sense for investors to worry that policymakers no longer have their back, and thus they take some money off the table. One analogy is that the US economy is like a ship that has engine trouble, is drifting towards the rocks and is left to hope that the wind shifts and takes it away from the reef…. not exactly a bull-market, high-valuation tableau. Hope is not a strategy.