China, Oil, & Markets: It's All One Story

Tyler Durden's picture




 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening.

Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.

And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy.

The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments.

Even if central bankers could ever have ‘lifted’ anything at all (a big question mark), their power to do so is rapidly diminishing. The constraints global developments place on their powers will now be exposed -even more. And of course they’ll try to deny and ignore that, as naked emperors are wont to do.

And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

Oil -both Brent and WTI- have breached the $32 handle, and are very openly flirting with the $20s. China’s stock market trading was halted for a second time this year, just 14 minutes after the opening. This came about after the PBoC announced another ‘official’ devaluation of the yuan by 0.5% (stealth devaluation has been a daily occurrence for a while).

$2.5 trillion was lost in global equities in three days this year even before the Thursday China trading stop and ongoing oil price decline. Must be easily over $3 trillion by now. And counting: European markets look awful, and so do futures.

For the first time in years, markets begin to seem to reflect actual economic activity. That is to say, industrial production, factory orders, exports, imports and services sectors are falling both in China and the US. Many of these have been falling for a prolonged period of time.

In fact, Reuters quotes a Sydney trader as saying: The Chinese economy actually contracted in December. Given what I’ve written in the past year and change about China, that can hardly be a surprise anymore.

What we are looking at is debt deflation, in which virtual ‘wealth’ is being wiped out at a fast pace, and it’s taken some real wealth with it for good measure. It’s not going to be one straight line down, for instance because there are a lot of parties out there who need to cover bets they carry from last year, but it’s getting very hard to see what can stop the plunge this time. Volatility will be a popular term again.

The Fed could lose its last remaining shred of credibility through QE4,5,6 and a 180º turn on the rate hike, but it would lose that last shred for sure. Draghi’s ECB could start buying ever more paper, but they would have a hard time finding sufficient amounts of anything to buy that’s worth anywhere near the written value.

The PBoC can’t really do QE after the $25 trillion post-2008 credit pump, and the yuan devaluation today achieved the opposite of what it was intended for. The BoJ is being severely hampered by the rising yen. We’ll see crazy stuff from the global Oracles, for sure, but in reality they never had anything but expensive band-aids to offer, and they have nothing better now.

Ultimately, if China is a Ponzi (and $25 trillion in credit spent on overcapacity strongly suggests so), then the entire world economy is one. I would very much argue so, and have for years. And we all know what inevitably happens with Ponzi’s.

Economists like to think in cycles, in which things will simply bounce back at some point, but a lot of this stuff will not come back, not for a very long time. I’ve said it before: Kondratieff is also a cycle.

We’re watching the initial stages (though a lot has already vanished behind all sorts of curtains) of a massive ‘wealth’ destruction, a very loud POOF!, ‘wealth’ which can so easily be destroyed because most of it was never real, just inflated soap. It’s time to move to cash if you haven’t already, and if you have enough, perhaps a bit of gold, silver or bitcoin, but do remember those are not risk-free.

It’s tempting to see this as a China problem, but first of all there is no China problem that will not of necessity also gravely affect the west , and second of all when you read, just to name an example, that America’s new jobs pay 23% less than the jobs they replaced, it’s just plain silly to believe that the economy is doing well, let alone recovering.

Which is why a majority of Americans are living paycheck to paycheck, and don’t have enough savings even for a $500 car repair bill. All Ponzi’s burst, they can’t be tapered, and this one we have now is going down in epic fashion because there are no major economies left that are not overburdened by debt.

It’s also tempting, certainly for economists, to see money that’s lost in one ‘investment’ to automatically shift to another, but that’s not what’s happening. Much of it simply evaporates. That’s why investment funds where already in a huge high-yield bind last year, and why you should really worry about your pension fund.

Do prepare for rising taxes and services cuts: governments suffer along with everyone, and because they’re slow and lagging, probably even more so. And governments think they deserve to have their hands in your pockets. Prepare for mass lay-offs too. The consumption model is being broken and dismantled as we speak.

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Thu, 01/07/2016 - 13:45 | 7012331 Bill of Rights
Bill of Rights's picture

-354 DOW....bloody

Thu, 01/07/2016 - 13:49 | 7012356 SethDealer
SethDealer's picture

china syndrome

Thu, 01/07/2016 - 14:04 | 7012456 thesonandheir
thesonandheir's picture

Heard rumours that this 'gold' stuff could be the new bitcoin. Has anyone heard of this stuff, is it safe etc??

 

 

/sarc

Thu, 01/07/2016 - 13:48 | 7012352 WTFRLY
WTFRLY's picture

*eating popcorn*

Thu, 01/07/2016 - 15:50 | 7013166 asteroids
asteroids's picture

Yup, like Stockman and others, sitting completely in cash eating popcorn and laughing.

Thu, 01/07/2016 - 13:49 | 7012354 KnuckleDragger-X
KnuckleDragger-X's picture

It's all interconnected. If you start knocking bricks out of the wall, the wall will eventually collapse. The question now is how many bricks until we reach the rubble stage?

Thu, 01/07/2016 - 16:10 | 7013279 bluskyes
bluskyes's picture

It's like Jenga. The trick is knowing which bricks are tightest.

Thu, 01/07/2016 - 13:51 | 7012365 conraddobler
conraddobler's picture

3 down days going into a weekend close?

If it happens tomorrow then the PPT may have decided to rlease the Kraken!

starting to look early waterfallishy.

Thu, 01/07/2016 - 13:52 | 7012382 Boing_Snap
Boing_Snap's picture

WTI oil is falling sharply since US based oil producers can now sell outside the country, that dragged Brent down directly after the announcement. Just another deflationary act that is adding to the collapse.

Still no real panic yet on Wall St., volumes are low, when you see those traders in the background on CNBC busy and nervous then we may be approaching the high volume sell offs that will be closer to the bottoms in the markets.

Thu, 01/07/2016 - 14:01 | 7012440 LawsofPhysics
LawsofPhysics's picture

Yes, they can.  Of course the truth is America is still a net importer. Still importing over 7 million barrels per day.  We are much better refiners and export the distillates and by-products (for now).

Thu, 01/07/2016 - 13:55 | 7012398 SILVERGEDDON
SILVERGEDDON's picture

The sound of one toilet flushing.

Thu, 01/07/2016 - 14:00 | 7012430 LawsofPhysics
LawsofPhysics's picture

LOL!  If indeed "we are all in this together", then how come only a select few have access to all the FREE (ZIRP) money that they want?!?!?

 

See the real problem yet?

Thu, 01/07/2016 - 14:19 | 7012576 obelix
obelix's picture

There's no doubt Russia is the main target.
Washington has promised Riyadh that if it can keep the oil price depressed for as long as it takes then it will make up the deficit in either ca$h or cut-price arms, at a later date.
The US taxpayer will pick up the tab.

 

Thu, 01/07/2016 - 14:24 | 7012607 Troy Ounce
Troy Ounce's picture

 

 

"Gold & silver are not without risk"...

 

Huh?

 

 

Thu, 01/07/2016 - 14:34 | 7012682 besnook
besnook's picture

confiscation by .gov or your neighbor.

Thu, 01/07/2016 - 14:33 | 7012669 besnook
besnook's picture

oh, c'mon. this is nothing a few trillion extra printed fiat can't cure. you have no faith in math.

Thu, 01/07/2016 - 14:37 | 7012694 will ling
will ling's picture

......can't fool all-of-the-people, all-of-the-time.

Thu, 01/07/2016 - 14:36 | 7012697 besnook
besnook's picture

i have a green stock today. the heavily shorted shares are rising because the shorts see better pickings somewhere else. i'll take it.

Thu, 01/07/2016 - 14:39 | 7012720 o r c k
o r c k's picture

I hear helicopters.

Thu, 01/07/2016 - 15:12 | 7012937 besnook
besnook's picture

when you look at the chart from 1997 to catch the boom and bust of the .com bubble and the mortgage bubble you might notice the mortgage low was lower than the .com bubble. does this mean this bottom wil be lower than the mortgage bubble?

Thu, 01/07/2016 - 15:30 | 7012964 Sorry_about_Dresden
Sorry_about_Dresden's picture

This market turmoil is intentional. They know the end is near to their ponzi scheme and they are positioning themselves for obscene profit, obscene bonuses, they will be fully vested in precious metals ( see PM prices going up) and they are shorting treasurys, yields going up.

The primary dealers, FRBNY owners, have left the building are fully cashed out and have rehinged exit doors to open inward. Just got confirmation that all of my 401K, minus ther 24% I gladly gave Uncle Sam, is in my checking account and I have been making the rounds to atms and grocery stores that will give me cash back stocking up on canned goods. I am set for months.

I am ready for next week's extended bank holiday. Haircut on deposits etc. I won't be joining you in line at the atm for your restricted withdrawal with the new 10% fee...haircut. I will be lending borrowers, with acceptable portable collateral, $20 for a one week at a  term for $30 repayment in 7 days. If you don't pay I will melt your wedding band down and shot if you fuck w/ me.

Have a great REAL depression.

Looking for partners in a high end taylor business because I have access to rolls of kevlar that I will sandwich in between the fabric of suit cloths to make bullet proof, Armani style, suits.

Any good taylors out there want to make a shitload of money? I have colleagues at DuPont and can get lots of kevlar on a net 30 basis. PM me if you are interested and have capital and want to business w/ the only people out there that will have any currency. I should be ablre to get better terms when liquidity evaporates.

Cash is KING people. 

You heard it here first! Good luck!

Thu, 01/07/2016 - 15:53 | 7013183 LawsofPhysics
LawsofPhysics's picture

Actually a good plan.  Good cobblers and taylors are hard to find regardless.  Was considering such a suit, to accomodate a couple other "accessories" as well.

Thu, 01/07/2016 - 16:52 | 7013576 Sorry_about_Dresden
Sorry_about_Dresden's picture

Sounds like a plan. We should keep in touch. I also have B.S. chemeical engineering degree, and all my books and notes on industrial inorganic and organic chemistry, 15 years in water treatment and could be a valuable asset when the internet goes dark and no one has any reference material. Even have Perry's Chemical Engineering complete reference with all kinds of physical property data. What we used before the internet was ubiqioutous. If the deal goes down I assure you the internet will also....Knowledge is power!

Do NOT follow this link or you will be banned from the site!