Perfect Storm!?

Submitted by Tyler Durden on 01/07/2016 17:20 -0500

Submitted by John Rubino via DollarCollapse.com,

One of the (many) fascinating things about this latest global financial crisis is that there’s no single catalyst. Unlike 2008 when the carnage could be traced back to US subprime housing, or 2000 when tech stocks crashed and pulled down everything else, this time around a whole bunch of seemingly-unrelated things are unraveling all at once.

China’s mal-investment binge is crashing global commodities, an overvalued dollar is crushing emerging markets (most recently forcing China to devalue), the pan-Islamic war has suddenly gone from simmer to boil, grossly-overvalued equities pretty much everywhere are getting a long-overdue correction, developed-world political systems are being upended as voters lose faith in mainstream parties to deal with inequality, corporate power, entitlements, immigration, really pretty much everything. For one amusing/amazing example of the latter problem, consider Germany’s response to the mobs of men that suddenly materialized and began molesting women: Cologne mayor slammed after telling German women to keep would-be rapists at arm’s length.

Why do causes matter at times like this? Because where previous crises were “solved” with a relatively simple dose of hyper-easy money, it’s not clear that today’s diverse array of emerging threats can be addressed in the same way. Interest rates, for instance, were high by current standards at the beginning of past crises, which gave central banks plenty of leeway to comfort the afflicted with big rate cut announcements. Today rates are near zero in most places and negative in many. Cutting from here would be an experiment to put it mildly, with myriad possible unintended consequences including a flight to cash that empties banks of deposits and a destabilizing spike in wealth inequality as negative interest rates support asset prices for the already-rich while driving down incomes for savers and retirees.

And with debt now $57 trillion higher worldwide than in 2008, it’s not at all clear that another borrowing binge will be greeted with enthusiasm by the world’s bond markets, currency traders or entrepreneurs. Here’s that now-famous chart from McKinsey:

Easier money will have no effect on the supply/demand imbalance in the oil market, which is still growing. The likely result: Sharply lower prices in the year ahead, leading to a wave of defaults for trillions of dollars of energy-related junk bonds and derivatives.

As for stock prices, in the previous two crises equities plunged almost overnight to levels that made buying reasonable for the remaining smart money. Today, virtually every major equity index remains high by historical standards, so the necessary crash is still to come — and will add to global turmoil as it unfolds.

The upshot? It really is different this time, in a very bad way. And this fact is just now dawning on millions of leveraged speculators, mutual fund and pension fund managers, individual investors and central bank managers. Right this minute virtually all of them are staring at screens, scrolling over to the sell button, hesitating, pulling up Bloomberg screens showing how much they’ve lost in the past few days, calling analysts who last year convinced them to load up on Apple and Facebook, getting no answer, going back to Bloomberg and then fondling the sell button some more. Think of it as financial collapse OCD.

What happens next? At some point — today or next week or next month, but probably pretty soon — the dam will break. Everyone will hit “sell” at the same time and find out that those liquid markets they’d come to see as normal have disappeared and yesterday’s prices are meaningless fantasy. The exits will slam shut and — as in China last night where the markets closed a quarter-hour into the trading session — the whole world will be stuck with the positions they created back when markets were liquid and central banks were omnipotent and government bonds were risk-free and Amazon was going to $2,000.

And one thought will appear in all those minds: Why didn’t I load up on gold when I had the chance?

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Thu, 01/07/2016 - 17:01 | 7013627 Bastiat

Good for you.

Thu, 01/07/2016 - 15:03 | 7012878 besnook

my father had the opportunity to buy a coupla city blocks in akihabara in tokyo post ww2 for a few thousand dolllars. he couldn't because of his security clearance. too bad. i could have been the proud owner of many of you today.

Thu, 01/07/2016 - 16:06 | 7013240 Bastiat

I had a friend who "owned" a beagle but that didn't stop the beagle from pissing on his 7X Stetson one day.

Thu, 01/07/2016 - 16:17 | 7013333 besnook

that's why i only buy 3x.

Thu, 01/07/2016 - 14:50 | 7012794 USSLiberty

Is it time now to load up those credit card balances, mortagage the house, take out car loans; and buy physical in their place, then declaring bankruptcy?

Thu, 01/07/2016 - 14:53 | 7012817 Batman11

Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.

The end result 2008.

With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.

Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.

The broad brush effect has blown bubbles everywhere.

We know what comes next.

Thu, 01/07/2016 - 14:54 | 7012827 NEOSERF

What's different this time is that now this collapse for the first time in the last 5 years has made it to our local news...right after the $675M Powerball story commercial

Thu, 01/07/2016 - 14:55 | 7012830 Batman11

The timeline for the collapsing global economy.

Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

Japan then had the rest of the world to trade with that was still doing well but it never really recovered.

US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

US banks used complex financial instruments to spread this problem throughout the West.

Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone covered up the problems with loose monetary policy.

Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.

The BRICS nations are now heading for recession.

Doesn’t look good does it.

Thu, 01/07/2016 - 15:01 | 7012864 LawsofPhysics

Correct. In short GLOBAL WEIMAR.

Prepare.

Thu, 01/07/2016 - 15:43 | 7013135 Farmer Joe in B...

That's why the world's central banks have been printing in a concerted effort. By coordinating simultaneous devaluations, they seem to think they may be able to avert the "global weimar" scenario.

This, of course, is a fools game.

At the end of the day, it will be a dick-measuring contest about who owns the most gold to decide the future world reserve currenc(ies).

The US will not accept this, as we will be exposed to have a very short and unsightly stub of a cock (no/phony gold reserves).

Nuclear war.

Have a nice day...

Thu, 01/07/2016 - 15:47 | 7013152 LawsofPhysics

no nuclear war, but definitely selective culling. It has already begun.

Thu, 01/07/2016 - 14:56 | 7012840 jubber

Wowo #DXY getting whcked here LOD...Gold spike time?

Thu, 01/07/2016 - 15:07 | 7012909 fatlibertarian

If they just "suspend" circuit breakers then they risk all traders filing for the exits this week before the breakers are turned back on.

Thu, 01/07/2016 - 15:22 | 7012984 Son of Captain Nemo

What a great read this is for "synthesizing" the obvious!

Let's label it "Stupid Banker Tricks" when all the other distraction(s) no longer work and the only thing left is to pull the plug!

Don't ya kinda wish right about now we could have thrown an entire government in jail or worse for bankrupting us after this?.. And then doing it again 7 years later with the bank bailouts!

With the money we've spent on the destruction and deaths of 4 Middle East and 1 Eastern European countries we could have silenced the naysayers by building 50 World Trade Center Towers employing 4 times the workforce we have now to build them and flown 150 brand spanking new Boeing 757s into them to prove to the majority chowder heads that all 50 of them would still be standing!!!

With that said... You gotta wonder what "pulling the plug" is going to look like when it finally happens in the final act!

Certainly hope we're rewarded with some kick ass fireworks displays!!!

Thu, 01/07/2016 - 15:47 | 7013149 joseJimenez

Does "Pulling the plug" have some counter party risk? Like... Pulling the trigger?

Thu, 01/07/2016 - 16:57 | 7013604 Son of Captain Nemo

Does "Pulling the plug" have some counter party risk? Like... Pulling the trigger?

"Trigger" and "fireworks" in some cases (especially the one we are all now facing) may not be suitable for use in the same sentence given a discrete level of ambiguity to their prescribed meaning(s)!

I'll leave it by stating be careful what you wish for!...

I have this feeling that it's going to be every man, woman and child for themselves in America given our disdain for the "rule of law" and the pathological liars and psychopaths we habitually place in charge of our most cherished freedom!

Thu, 01/07/2016 - 20:08 | 7014572 gcjohns1971

What about pulling the finger?

Go ahead.

Pull it.

If you dare.

Thu, 01/07/2016 - 15:38 | 7013109 Cycling Fish

He who panics first does best...

Thu, 01/07/2016 - 15:44 | 7013124 Grandad Grumps

There is no catalyst when it is just the enactment of a "plan".

QE made it possible and the decision to pull the floor out from underneatht the Ponzi was the inflection point. It was all planned. Albeit, if one has to point to one symptom of the cause, it would be the intentional, systematic and non-market driven walk down of commodities, which pulled massive amounts of collateral out of the world and left those holding the collateral over-extended to the banks.

The parasite population has grown too large and if there will be a culling of the worker population, you can bet there will be a corresponding culling of the parasites... to keep things in balance.

Thu, 01/07/2016 - 16:16 | 7013327 SMASH THE CONTR...

THE BEGINNING OF THE END!!!http://www.weather.com/news/news/oklahoma-earthquake-swarm-fairview-janu...!!!!AND THERE SHALL BE EARTHQUAKES IN ONE PLACE AFTER ANOTHER!!!20 minutes ago 3.3 magnitude, 5 km depth

Fairview, Oklahoma, United States about an hour ago 3.1 magnitude, 5 km depth Fairview, Oklahoma, United States about 2 hours ago 3.4 magnitude, 16 km depth Virgin Islands about 2 hours ago 3.0 magnitude, 13 km depth Virgin Islands about 3 hours ago 4.9 magnitude, 20 km depth Ancud, Los Lagos, Chile about 3 hours ago 4.6 magnitude, 71 km depth Gorontalo, Gorontalo, Indonesia about 3 hours ago 4.2 magnitude, 198 km depth Jurm, Badakhshan, Afghanistan about 4 hours ago 4.9 magnitude, 97 km depth Maug Islands, N. Mariana Island about 4 hours ago 4.5 magnitude, 10 km depth Saposoa, San Martín, Peru about 5 hours ago 3.6 magnitude, 5 km depth Fairview, Oklahoma about 6 hours ago 3.3 magnitude, 24 km depth Tortola, British Virgin Islands about 8 hours ago 5.1 magnitude, 10 km depth North Of Ascension Island about 8 hours ago 3.5 magnitude, 5 km depth Fairview, Oklahoma, United States about 8 hours ago 3.0 magnitude, 4 km depth Fairview, Oklahoma, United States about 8 hours ago 3.4 magnitude, 13 km depth Virgin Islands about 9 hours ago 3.0 magnitude, 52 km depth Tortola, British Virgin Islands about 9 hours ago 3.1 magnitude, 16 km depth Virgin Islands about 9 hours ago 3.0 magnitude, 36 km depth Tortola, British Virgin Islands about 9 hours ago 3.1 magnitude, 35 km depth Tortola, British Virgin Islands about 10 hours ago 3.0 magnitude, 39 km depth Tortola, British Virgin Islands about 10 hours ago 3.4 magnitude, 17 km depth Virgin Islands about 10 hours ago 3.0 magnitude, 65 km depth Tortola, British Virgin Islands about 10 hours ago 4.0 magnitude, 5 km depth Fairview, Oklahoma, United States about 10 hours ago 3.2 magnitude, 56 km depth Tortola, British Virgin Islands about 10 hours ago 3.6 magnitude, 16 km depth Rio Dell, California, United States about 10 hours ago 3.0 magnitude, 13 km depth Tortola, British Virgin Islands about 11 hours ago 3.7 magnitude, 5 km depth Fairview, Oklahoma, United States about 11 hours ago 3.0 magnitude, 10 km depth Tortola, British Virgin Islands about 11 hours ago 3.3 magnitude, 6 km depth Fairview, Oklahoma, United States about 11 hours ago 3.0 magnitude, 52 km depth Virgin ISLAND about 11 hours ago 3.1 magnitude, 11 km depth Tortola, British Virgin Islands about 11 hours ago 3.1 magnitude, 27 km depth Virgin Islands about 11 hours ago 3.7 magnitude, 19 km depth Tortola, British Virgin Islands about 11 hours ago 3.4 magnitude, 24 km depth Virgin Islands about 12 hours ago 3.4 magnitude, 24 km depth Virgin Islands about 12 hours ago 3.5 magnitude, 8 km depth Fairview, Oklahoma, United States about 13 hours ago 4.6 magnitude, 607 km depth South Of Fiji Islands about 13 hours ago 3.2 magnitude, 5 km depth Alva, Oklahoma, United States about 13 hours ago 4.3 magnitude, 17 km depth Rio Dell, California, United States about 13 hours ago 3.0 magnitude, 3 km depth Fairview, Oklahoma, about 14 hours ago 3.0 magnitude, 58 km depth Tortola, British Virgin Islands about 14 hours ago 3.3 magnitude, 5 km depth Fairview, Oklahoma, United States about 14 hours ago 3.4 magnitude, 5 km depth Fairview, Oklahoma, United States about 14 hours ago 3.4 magnitude, 5 km depth Fairview, Oklahoma, United States about 14 hours ago 4.8 magnitude, 5 km depth Fairview, Oklahoma, United States about 14 hours ago 4.4 magnitude, 5 km depth Fairview, Oklahoma, United States about 15 hours ago 3.3 magnitude, 15 km depth Rio Dell, California, United States about 15 hours ago 3.0 magnitude, 46 km depth Tortola, British Virgin Islands about 15 hours ago 3.0 magnitude, 24 km depth Virgin Islands about 16 hours ago 3.2 magnitude, 45 km depth Tortola, British Virgin Islands about 16 hours ago 4.9 magnitude, 25 km depth Andreanof Islands, Aleutian Island about 16 hours ago 3.0 magnitude, 57 km depth Tortola, British Virgin Islands about 17 hours ago 3.2 magnitude, 5 km depth Edmond, Oklahoma, United States about 18 hours ago 3.0 magnitude, 42 km depth Tortola, British Virgin Islands about 20 hours ago 4.2 magnitude, 131 km depth Bima, West Nusa Tenggara, Indonesia about 20 hours ago 3.0 magnitude, 38 km depth Puerto Rico about 22 hours ago 4.6 magnitude, 92 km depth Vinchina, La Rioja, Argentina about 22 hours ago 3.3 magnitude, 38 km depth Virgin Islands Damn

Thu, 01/07/2016 - 17:48 | 7013820 Skiprrrdog

LEARN TO SWIM BITCHES...

Fri, 01/08/2016 - 11:26 | 7017292 dorane

Here's the ticket:
http://hisz.rsoe.hu/alertmap/index2.php

Thu, 01/07/2016 - 16:16 | 7013329 SMASH THE CONTR...

Thu, 01/07/2016 - 16:28 | 7013404 Gene Watson

The exits will slam shut, like in the movie Carrie.

Thu, 01/07/2016 - 18:54 | 7014238 August

You know, I've lived my whole life based on that movie.

Or maybe it was Easy Rider. I forget.

Thu, 01/07/2016 - 16:47 | 7013539 Magooo

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

THE PERFECT STORM (see p. 58 onwards)

The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

Thu, 01/07/2016 - 16:55 | 7013592 Cloud9.5

The German Army predicted that the wheels would come off due to oil somewhere between 2015 and 2020. This is just getting started. Momentary upticks will not end the trend.

Thu, 01/07/2016 - 18:21 | 7014085 The Dogs of Moar

I must disagree

this latest global financial crisis is that there’s no single catalyst ... this time around a whole bunch of seemingly-unrelated things are unraveling all at once.

Back in the day, the DJIA could move every stock market on the planet, and when it went from 6500 to 18,000 in the face of the US's pathetic economy, that was its last hurrah. Now the Shanghai Composite is moving into the alpha dog's position.

Everyone is familiar with Carl von Clausewitz's famous aphorism

"War is the continuation of politics by other means."

I would amend that 19th century truth into a 21st century one:

"War and economic manipulation are the continuation of politics by other means."

What do I mean?

Since 2005, China’s currency has appreciated 33% against the US dollar and the first devaluation (February 18, 2014)

I don't think it was a coincidence that four days before Yanukovych fled, Kiev that the PBOC began hitting the West by devaluing the yuan.

Federal Reserve data published late on February 18 reveals China dumped about $75 billion in US bonds in the last six months of 2014. The action explains why interest rates on US Treasury bonds jumped by 23 percent since January, and economic indicators show the US economy growth is slowing and worldwide deflation is accelerating.

The yuan is down from a high of 6.02 to the dollar to 6.55 now.

August 11 (2015) marked the largest single drop in the yuan in20 years.

the territorial disputes in the South China Sea were a major topic of discussion at the various ASEAN meetings last week, from the ASEAN foreign ministers’ meeting to the ASEAN Regional Forum (ARF). China, which had previously requested that ASEAN stay awayfrom the topic entirely, was not pleased to be so criticized (both obliquely and directly).

And there were talks about the Trans Pacific Partnership and the probable exclusion of China from. The soon to be largest economy on the globe with the powerhouse currency (not for buying things, rather for hitting competing economies upside the head, is letting everyone know who's the economic boss.

When you get right down to it, John, the causes of these things aren't unrelated at all.

Thu, 01/07/2016 - 19:08 | 7014299 SgtShaftoe

It's lilke the old days of ZH again. Is Marla still around to spin up the soundtrack for us to listen to?

Thu, 01/07/2016 - 20:02 | 7014550 Chuckster

The FED(as much as I hate it) did keep the ship afloat.....until now. Maybe we should all be thankful. Stay tuned for a couple of hours....the Chinese market may resolve the issue tonight.

I stocked up on some extra food today. Study Wolf Messing...he was one hell of a physic. It appears his predictions for 2016 were right on target. Let Europe worry about Europe. We have more than enough problems here. Boys will be boys?

Fri, 01/08/2016 - 00:52 | 7015651 dchang0

These are ALL related. They are ALL the consequence of central planning.

Central planning of currencies.

Central planning of markets.

Central planning of business investments.

Central planning of regulations.

Central planning of the use of force.

Central planning of culture.

Central planning of countries.

In each seemingly different case, it all comes down to a few people making decisions for a much larger group, and these few people allowed their desire to remain in power to distort their decision-making, resulting in eventual collapse for the entire group.

Crowds (hive minds) are always better at getting the most accurate, closest picture of reality than small subsets of the crowd who will necessarily have much more limited information. Thus, the best decisions for a large collective are going to come from when the largest possible percentage of that collective are involved in decision-making, either as disparate individuals or through some sort of truly representative political process.

Fri, 01/08/2016 - 06:39 | 7015989 lucky and good

Sadly, when low rates are coupled with a massive expansion of new money creation, growing credit spawns debt that at some point overwhelms us and cannot be repaid. At that point low rate policies yield diminishing returns that have compared to pushing on a string. Often this results in a slew of defaults that clean out the system. It is not uncommon during that time to see falling prices in both commodities and goods reflecting a lack of demand or temporary supply imbalance

A word of caution, in a complicated world future inflation is difficult to predict, we should not be deceived or led to believe that lower oil and commodity prides will in themselves bring about deflation. The supply imbalance will correct itself. When that happens prices tend to rapidly adjust to what I will call the "new reality of the day". The article below questions if the power of low interest rates and all the benefits garnered from them are now behind us.

http://brucewilds.blogspot.com/2016/01/has-power-of-low-interest-rates-been.html

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