This page has been archived and commenting is disabled.
Presenting SocGen's "China Syndrome": "The Vicious Cycle Of Lower Demand, Prices And Commodity Currencies"
To be sure, there have been no shortage of narratives that we’ve been keen on presenting, perpetuating, and explaining this year as the series of global ponzi schemes that have been built in the seven years since the crisis continue to unravel.
Of course what’s important to understand here is that contrary to what our mainstream media critics - some of whom are now effectively jobless - will tell you, we aren’t in the business of spinning the narrative.
We’re in the business of helping to explain how things actually work on the Street as well as helping readers get to the bottom of what can sometimes be an impossibly complex geopolitical news cacophony designed to make you believe what the world’s most powerful governments want you to believe. So when we run headlines like this one: “Bloomberg’s Commodity Index Just Hit 21st Century Low”, it’s important to understand that we’re not using hyperbole for the sake of using hyperbole. We’re simply alerting those who frequent these pages to a very serious dynamic that in fact is now one of the driving forces behind global economic outcomes.
In short, the global commodities rout that's unfolded in the wake of the death of the petrodollar and the demise of the Chinese growth machine has served to wreak havoc on EM commodity currencies and now threatens to plunge the world into crisis and forever delay "liftoff" in the US.
Through it all, one thing that readers and (some) analysts have noted is that even as it becomes clearer and clearer that central banks and the paper they print are on their way to having zero credibility with anyone, commodities (so, the things people actually use and the things that actually have intrinsic value) have literally collapsed when priced in terms of worthless fiat paper.
SocGen calls this the “China Syndrome” and we present the following analysis for readers to consider on the way to determining if the rout in the prices for materials that the world actually needs is justified, or whether perhaps it is just a casualty of another nefarious feedback loop gone awry...
»
- 12733 reads
- Printer-friendly version
- Send to friend
- advertisements -
Even Scooby-Doo understands the problem:
Negative feedback loop + tight coupling = Ruh Roh!
Over-shoot toward the down-side.
Compressive collapse. And nobody is ready. Nobody can even think about it. This bitch can unwind in a blink and vanish with hardly a trace --forever.
SocGen, DoucheBank, GlenCored...things appear to be coming to a head. It would be epic if all three went BK the same evening.
Ever more we are seeing diverging economic activity from financial valuations...and I think the why is pretty simple.
The US millennial population is just a smidge larger than the boomers, but said otherwise there is very little net population GROWTH. This is true globally and true for the US.
The US core population (15-64yr/olds) grew annually by 1.5 to 2.6 million persons from '90-'09 (annual growth peaking in 1997). These high and low core population growth periods nearly perfectly correlated with FFR changes and federal deficits (low population growth periods met w/ FFR cuts and large federal deficits and vice versa). The GROWTH of the US core population has slowed to about 750k this year (a 2/3rd's growth deceleration from peak) and will slow to near zero (annually) over the next decade (these assumptions are based on continued lax immigration policy and net immigrant inflows).
http://bit.ly/1Kzcfrc
Globally, population has grown by 2 billion since 1990...but the 0-5yr/old population segment (headwaters of true population growth) has risen by a mere +16m...all of the remaining 1.984 billion of the population "growth" is simply all other segments living longer...an aging pig through the python.
The world is the changing from high population growth to low population growth...this is why CB's have become the dominant players in markets and why they will never (not in our lifetime) be able to "normalize".
http://seekingalpha.com/article/3556596-forget-peak-oil-its-all-about-peak-population-growth
This is why no "free-market" will be allowed to find true valuations between growing numbers of sellers and declining numbers of willing and able buyers. Decelerating population growth in the US and globally mean NIRP is about 99.9% guaranteed to implement in 2016.
Central Banks are running their printing presses 24x7 with the hope of stoking inflation. Perversely, their ZIRP policies are generating the exact opposite: deflation. The number one mandate of CBs is to make it easier to service yesterday’s debt, aka the CB's famous ~2% inflation target, which destroys over 20% of the purchasing power of money every decade. But does so gradually such that everyone being robbed doesn't realize it and is not motivated to protest their slow impoverishment. It’s the way to keep the Ponzi scheme of ever-expanding debt from collapsing. Since the vast majority aren’t increasing their income, inflation is the only way to enable them to keep servicing their debts.
It's too late, the CBs have doubled down too many times on this strategy. But some are waking up to the fact that their misguided aim to generate inflation with ZIRP and QE to the moon actually does the opposite. ZIRP and QE-infinity causes overinvestment, then malinvestment which leads to excess productive capacity, overproduction and oversupply. Oversupply puts downward pressure on prices. That spurs a vicious cycle where the central banks print more money to try to create inflation, which puts more cash into the accounts of the leveraged speculating community producers and the criminally insane investment bankers and round and round we go down the rabbit hole.
I think you have the tail wagging the dog. Tougher economic conditions led to slower population growth. See US Great Depression 1930s.
No, too much jargon. When supply is up, prices go down. When demand is up, prices go up. But no, we need to mix in a bunch of PhD hooey to validate our PhDs.
People who built companies and used cash built this country, regardless of mythology. Jobs paid with debt/credit are killing it. But most have no choice but to get a job. Thank you communists.
Where you are in the life cycle will determine your income/rent requirement. No job delivers a profit, because they all come with a demand that you use associated credit. Look at the towns that meet your income/rent requirement, choose one, and take the job offered, which occupies as little of your time as possible and gains you skill. Start a business.
At one time, a good strategy.
No more.
Everything depends on discretionary spending, and most folks are busted beyond the essentials.
We're done...
...all we have left is clock watching.
m
But we need lower rates so we can finance more oversupply!
Remember, boys and girls! Business starts with a "b" and ends with a "s."
I understand negative feedback loops but I'mstruggling with the impact of a lower CLP on the copper price. How does it impact it? How does a decrease in the value of the peso cause the copper price to fall further?
The simple answer
we have a anti-small-business
guubbermint
China syndrome has burned
the foundation under the
whole system
"if the rout in the prices for materials that the world actually needs is justified, or whether perhaps it is just a casualty of another nefarious feedback loop gone awry..."
BOTH. The end result of massive malinvestment bubble demand from China causing massive overbuilding of commodity extraction capacity in EMs and all of the other related bubbles that bubble causes within EMs.
Central Planning strikes again.