Guest Post: Bad Economic Signs 2012

Tyler Durden's picture

Submitted by Brandon Smith from Alt Market

Bad Economic Signs 2012


In January of this year, I wrote an analytic financial piece entitled ‘Baltic Dry Index Signals Renewed Market Collapse’:

In that article I discussed the record breaking low hit by the BDI and its implications for the global economy; namely, that it signaled a steep decline in true demand around the world for raw materials used in the manufacture of consumer goods, and that similar declines in the BDI’s past have almost always prophesized a crisis event in financial markets.  The mainstream media attempted to write off the implosion of the BDI as a fluke, tied to the “overproductions of cargo ships”, instead of a warning sign of deteriorating demand.  Of course, the past 6 months have proven that assertion to be entirely false.

Manufacturing has tumbled in the U.S., the EU, and Asia simultaneously as orders drop back to the dismal levels last seen in 2008-2009 after the credit crisis first took hold:

Despite the astonishing amount of manipulation that goes into our fiscal system by major banks, there are still a few fundamental rules to economics that never change.  The bottom line?  Demand around the world is derailing, hinting at a broad spectrum disintegration of public buying power.  Where demand goes, so goes the economy.

As I have pointed out in the past when explaining the importance of the BDI, crashes in the index are usually made visible on mainstreet around 8 months to a year after the event.  That is to say, the economies of multiple nations move into a widely felt crisis event around 8 to 12 months after the BDI crashes. 

There is a strange delayed reaction between the initial exposure of weakness in the financial system and the public’s realization of the truth, sort of like Wile E. Coyote dashing off a cliff in the cartoons only to continue running in mid-air above the abyss below.  It is a testament to the fact that beyond the math, there is an undeniable power of psychology in our economy.  The investment world naively believes it can fly, even with the weight of endless debt around its ankles, and for a very short time, that pure delirious oblivious belief sustains the markets.  Eventually, though, gravity always triumphs over fantasy…

In May, I also discussed the impending disaster in the EU in light of elections which would obviously lead to a clash (or engineered clash) between proponents of austerity and proponents of endless stimulus spending.  I suggested that this clash would trigger a possible remodeling or complete breakdown of the European Union in the near future:

Today, I do not think that it would be outlandish to suggest (even to the casual market observer) that the EU has indeed been fractured, though the establishment still strives to maintain the façade. 

Spain and Italy have both requested bailouts from the ECB, finally exposing a problem which alternative analysts have been warning about for years.  While the mainstream media has been bicycle-kicking the long dead horse of Greece, the much more detrimental problems of the rest of the EU have been completely ignored.  Only now are investors beginning to understand that there is no such thing as a “Greek Contagion”; the whole of Europe has been quietly suffering through a debt malaise that surpasses the Greek issue.  Still, central banks pushed the idea that Greece was the gangrenous toe of the EU, claiming it had to be cured or amputated, or the infection would invade the entire body.  The truth is, Europe has been host to a systemic disease from the very beginning.  Greece is just a side-note. 

The UK has openly admitted that it has “returned” to recession.  Mass credit downgrades have been issued by S&P and Moody’s in primary EU economies, including France and Spain.  Italy’s credit rating has been cut only two notches above junk status and its bond sales have turned to Jell-O.  Spain has declared austerity cuts which include the confiscation of employee pension funds.  Does this sound like an economic body near “recovery”, as was the rhetoric spouted by the MSM a year ago, or, does it sound like the EU has gone off the deep end?

In the meantime, China continues to court their global trading partners with bilateral trade agreements designed to remove the dollar as the world reserve currency, and recent events appear to be hastening this process.  With American and European demand faltering, Chinese manufacturers are threatened with an even more severe export breakdown than they saw back in 2008, and so, it is only a matter of time before the BRIC and ASEAN economic blocs fully solidify their trade partnerships outside of the West, and away from the dollar. 

The year of 2012 has proven to be the most startling as far as financial news has been concerned.  Vastly more startling to me than 2008.  In 2008, the illusion of bank coherence and government action was carefully molded for the consumption of the masses.  The intimate connections between government and corporate fraud were glossed over with expert care.  There was an active and methodical effort to make us believe that the problems of 2008 were peripheral, and that the system at its foundation was sound.  This time around, the corruption has become utterly blatant and disturbingly nonchalant.  There is no attempt on the part of central and corporate banking interests anymore to hide the fact that the entire edifice is a cheap magic trick.  In fact, they now parade their distortions as if they are “helping” the country, instead of destroying it. 

When criminals are no longer concerned with hiding their crimes, it is time for the rest of us to start worrying.  That is to say, the current behavior of the establishment leads me to believe that a new phase in the crisis is about to arise.

Three recent events in particular (on top of all that has already happened this year) should be noted by those who wish to gauge the acceleration of financial hazard around the world:

Multiple Central Banks Issuing Policy Changes Simultaneously

Only a week ago, the supposedly independent and sovereign central banks of China, the UK, and the EU made multilateral policy changes including cutting interest rates to zero and reinstituting stimulus measure all within the SAME HOUR of each other:

This is a disturbing and open admission by central banks that they not only dominate the economic structure of their host countries, but they do so in a coordinated fashion.  In the past, central bankers have made a point to at least pretend that they do not work in tandem with each other and are not centralized around a global methodology or hierarchy.  Today, they do not seem to mind if the public is aware of how they really operate.

Some might argue that central banks of individual nations have cooperated in the past, and that this is nothing new.  Partly true.  Central banks have enacted policy initiatives in tandem with each other before, but usually only after absurd levels fanfare and summits galore.  The pageantry of G8’s and G20’s and Davos and any number of other global meetings were a fulcrum point which central banks used to buy political capital with sovereign populations.   They had planned to institute these multilateral economic actions anyway, but the pageantry and theater came first.  Today, private central banks are taking joint action without ANY public meetings, even fake meetings.       

I feel that this is the start of an expedited trend towards full centralization of sovereign economies, and that soon, central banks will act as if single broad spectrum global monetary policy measures and global economic governance are legal and “commonplace”. 

Trade Volume Collapsing

The S&P has now generated the worst market volume in over a decade.  Small market investors are fleeing in droves away from stocks, leaving only the big players to dominate the field:

This extreme lack of volume will facilitate a return to volatility, and we are about to see the same kind of massive stock spikes and drops that we tasted three years ago.  I would like to point out that the Fed, almost religiously, waits until stock markets go into cardiac arrest before announcing new stimulus measures and quantitative easing.  They delay until the investment world begs for printing, and then, they give it to them, with a smile. 

The Libor (London Interbank Offered Rate) Scandal

Like the bankruptcy of Lehman Bros. that heralded the credit crisis, the Libor Scandal has the potential to rock the pillars of the banking world like nothing I have ever seen before.  The average person needs to understand three things about Libor:

1) The manipulation of loans and credit swaps through the Libor interest rate mechanism has allowed big banks to hide the true extend of their incredible debts since the 2008 derivatives implosion.  Some mainstream economists are actually calling this a “good thing”, because, according to them, the lie of Libor fooled investors into supporting the markets where they may not have otherwise if they had known the truth.  They say the lie “averted Armageddon”.  Frankly, this is idiotic.  Libor has saved nothing, and the lack of transparency and honesty from corporate banks has only postponed an inevitable calamity which will be even worse now because it was allowed to continue on for years longer than it should have.       

2) Barclays and other institutions have claimed that they “had to use Libor fraud”.  Why?  Because every other major bank used it!  Their argument is that they had to lie in order to remain competitive.  Even if you buy this rationalization, you have to acknowledge the deeper problem here:  Barclays is essentially pointing out that EVERY major bank uses Libor to hide the fact that they are in dire straights.  In 2012, the system has openly confessed its own insolvency.  You do not need a fortune telling gypsy to predict a major collapse for you; the banks have just told us exactly what is about to happen.

3) Finally, regulators and central banks on both sides of the ocean, from the U.S. to the UK, from the Federal Reserve to the Bank Of England, relent that they KNEW about the Libor fraud being conducted by numerous banks as early as 2008, but kept their mouths shut.  This shows not only that central banks have been complicit in financial criminal activities, but governments have played along as well.  This fits right in with what I have stated for years: 

The economic collapse could not possibly be a “random” event.  Its culmination requires the collusion of so many corporate and government entities that it would be foolish to call it anything other than conspiracy. 

So, what comes next?  According to the path which I predicted back in January, the economy is near a climax event.  Perhaps an announcement of QE3 leading to ugly dollar devaluation, perhaps another bankruptcy by a “too big to fail” conglomerate leading to a firestorm in stocks, or perhaps even the exit of certain countries from the EU.  Maybe all of this and more.  The point is, keep your eyes fixed on the financial sector as we move into fall and winter.  There is a bleak harvest on the horizon…

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timbo_em's picture

Thanks for sharing. But WTF: Peter Schiff suggests to buy mining stocks!?! What about political risk? Didn't Fernández de Kirchner, Morales teach everybody a lesson? One can only imagine what those politicians are capable of once it all starts to slide. And didn't Peter say: "If it's not in your hands, you don't own it!"

JuicedGamma's picture

I like Peter and enjoy his rants, but his record is spotty as Mish points out

JaniceRossi's picture

Schiff has bashed treasuries for 3 years while other like Lacy Hunt have recommended them and made a fortune.

JaniceRossi's picture

Schiff has bashed treasuries for 3 years while other like Lacy Hunt have recommended them and made a fortune.

Turin Turambar's picture

And what's your point?  Nothing here to see.  Move along.

Roy Bush's picture

Yeah yeah yeah, heard it all what?!  What's going to happen?  Nothing.  

marcusfenix's picture

it's not about what will happen, it's about what is happening right now, today right in front of your eyes.

god bless if you're doing well, but many, many millions are not and despite all the talk and rhetoric of recovery, things are getting worse.

the collapse may be in slow motion and it may not be as dramatically evident as many imagined it would be, but it is happening right here, right now.


Rusticus's picture

"There is a strange delayed reaction between the initial exposure of weakness in the financial system and the public’s realization of the truth, sort of like Wile E. Coyote dashing off a cliff in the cartoons only to continue running in mid-air above the abyss below. "


For fucksakes not another "Wile E. Coyote off a cliff analogy" . After 4 years of treading air it's beyond asinine.   

Taint Boil's picture




Parachute on fire? …… yeah you’re pretty much Fucked.

Need to save that pic in the same folder with "The deer in the headlights".


TheInfoman's picture

Makes for a nice avatar, albeit tiny.

Hype Alert's picture

CTRL-P solves all!  Didn't you know?  Why didn't we think of this before?  Why should anyone work anymore?  Just print money, give it to the 100% to invest in the market, print some more and relax.


Oh, and I guess we need to ban the rating agencies as they've proven themselves worthless in the past.  Just ignore them.  I'm surprised they aren't sabre rattling after The Bernank's comments.

HaroldWang's picture

Last night we hear Intel tell us how screwed Europe and global demand is slowing so they bring down their forecast. Today all we hear about is how good earnings have been, especially INTC. I guess guidance doesn't count - party on!

Der Wille Zur Macht's picture

Pictured: Michael Jackson skydiving.

Atlantis Consigliore's picture

Oh hell;  Goldman Pushing Porn: biz is so bad, sorry typo like Libor, misprint, is pushing Corn, Porn,  im so forlorn; pfg  Wassendorf spent $ 210 Million stolen on a building and a restaurant,   jeez  I threw up in the restaurant, so that was better than Cramer saying 

by by byeeee.... LOL,   

Buy gold diamonds platinum and take delivery and Run from the mkts as fast as you can. 

Ayn NY's picture

The "plan" is to inflate it away.  Buy gold, silver, and farmland.


cougar_w's picture

The US will negotiate its debt away after first destroying the global economy.

Pooper Popper's picture

Weve been sold out here boys!

noel8's picture

All this rigged market is only an "investor trap" for allowing HFT, shadow banking, securitization of every kind fund/leverage themselves in order to make returns by taking  more and more riks and using this created "  volatility ""squeeze method"  "to turn the market in their favor,  in a zéro rate environement

CombustibleAssets's picture

Wow we must have been on the same plane...

robertocarlos's picture

What's the problem. Just ditch the flaming shute and deploy the reserve shute. Piece of cake.

TacticalZen's picture

The optimist. buys gold and silver. The pessimist buys guns, ammunition and reloading supplies.

Overflow-admin's picture

And the hacktivist uninstalls printer drivers remotely. Right?

TrumpXVI's picture

I do all of the above.

I guess I'm just confused.

cougar_w's picture

The only answer left is another round of global warfare.


chibato's picture

Que Iranian false flag terrorist act.

OutLookingIn's picture

When all else fails ~


adr's picture

Volume in the equity markets may have dried up but looks at the volume in the commodity markets, it is up 10X levels of a few years ago.

Instead of betting on stocks of companies the leech class of Wall Street has decided the best way to make money is to buy up the supply of commodities and force the prices higher. How else can you explain record high commodities across the board with demand at its lowest point in years, and supply near the highs.

Hohum's picture


Well, it's stock speculation good, oil speculation bad, isn't it?

On the supply, crude oil in USA is pretty high, the refined products aren't though. I suppose you look at the weekly petroleum data on Wednesdays, right?

Clashfan's picture

Is there anyone who doesn't believe in conspiracies these days? Pretty freakin' stupid if you don't:

Youri Carma's picture

Good clarifying piece from Brandon Smith from Alt Market.

btw Baltic Dry

SqueekyFromm's picture

On Disconnects From Reality

From: Somewhere in a German Bunker

Time: April 1945

Forecast: All the fundamentals are in place for a significant rally. Our lines of defense have been shortened to where we now enjoy an overwhelming advantage in being able to move troops and equipment while our competitors have supply lines which stretch many thousands of miles. In places, there are only a few miles separating the Eastern and Western Fronts,  which provides our troops the chance to earn overtime pay due to the short commute.

Additionally, we are approaching full employment of both young and old workers in our various defense enterprises. The Apprentice Program in Panzerfausting has been particularly successful. Our outlook for technological advances continues to improve due to intangible motivational factors among our scientists and their reluctance to learn to speak Russian. As a nation, we have become far less dependent on external energy sources and are exploiting our own vast natural resources of trees for everything from cooking fuel to home-made rocket plane production!

On the social front, I am happy to report that "Obesity" has been completely eliminated as a National Concern. There has been an explosion of raw building materials, and it can be truthfully said that bricks and timbers are piling up on every block of every city. Yes, this is truly an exciting time for the German People!!!

Squeeky Fromm, Girl Reporter


Tommy Gunner's picture

I’ve wondered ever since I was made aware of these Liar Loans on the mortgages…   investment banks were buying originators knowing full well that there were substantial loans being made to people with little or no income…  how does such a thing happen?  All the dissonance in the world surely cannot make a banker think that a loan made to a bum is going to be paid back….


There has always been a lingering thought that someone could have orchestrated this ….  And you look at the madness in the EU and it could be perceived as inching things along until the public screams for someone to calm the waters (and they are willing to give up all freedoms in exchange…)


Even if this wasn’t a grand plan from the start, perhaps the puppet masters prefer not to waste a good crisis without taking advantage….