Meltdown

Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don't seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a "global crisis" stage yet, but things are getting worse with each passing day.  Many have felt that 2014 could turn out to be a major "turning point" for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown...

A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt. This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government. We are now in a situation that looks like a dead end for the paper money system.

As the saying goes, ‘desperate times call for desperate measures.’ The phrase is bandied about so frequently, it’s generally accepted truth. But I have to tell you that I fundamentally disagree with the premise. Desperate times, in fact, call for a complete reset in the way people think. Desperate times call for the most intelligent, effective, least destructive measures. But these sayings aren’t as catchy. This old adage has become a crutch – a way for policymakers to rationalize the idiotic measures they’ve put in place...

If you want to get an idea of where the rest of America is heading, just take a trip through the western half of West Virginia and the eastern half of Kentucky some time.  Once you leave the main highways, you will rapidly encounter poverty on a level that is absolutely staggering.  Overall, about 15 percent of the entire nation is under the poverty line, but in some areas of eastern Kentucky, more than 40 percent of the population is living in poverty.  After decades of decline, vast stretches of impoverished Appalachia look like they have been through a war.  Those living in the area know that things are not good, but they just try to do the best that they can with what they have.

Despite 'blaming' the drop in the cost of dry bulk shipping on Colombian coal restrictions, it seems increasingly clear that the 40% collapse in the Baltic Dry Index since the start of the year is more than just that. While this is the worst start to a year in over 30 years, the scale of this meltdown is only matched by the total devastation that occurred in Q3 2008. Of course, the mainstream media will continue to ignore this dour index until it decides to rise once again, but for now, 9 days in a row of plunging prices is yet another canary in the global trade coalmine and suggests what inventory stacking that occurred in Q3/4 2013 is anything but sustained.

We are not sure how to interpret the fact that Hilter's manifesto Mein Kampf is #3 and #4 on iTunes Political books list; but undoubtedly it marks something of significance...

How fortunate for governments that the people they administer don’t think.
- Adolf Hitler

We remain hopeful that these sales trends spring from a curiosity on behalf of the population, rather than from a darker more hateful place.

Nearly a year ago, we predicted that the party for bond traders was over. The reason: MBS bond trader Jesse Litvak, formerly of mid-tier, perpetual aspirational bulge bracket, and the place where every fired UBS banker has a safety cubicle, Jefferies, got not only too greedy (that's ok, everyone on Wall Street is), but what's worse, got caught, and as we said at the time, ended the party for Wall Street's bond trading cash bonanza. Little did we know how correct we would be, because not only did the former MBS trader, who "proceeded to rip virtually all of his clients on seemingly every single trade he executed for the three years he was employed at Jefferies, lying to everyone in the process: both clients and in house colleagues, generating some $2.7 million in additional revenue for Jefferies for the duration of his tenure, and who knows how much in personal bonuses", end the party, but it appears he unleashed the next big regulatory crack down on Wall Street. And one which may just cost perennial Department of Justice favorite JPMorgan another several billion in "litigation reserves."

We are quietly confident that the gentleman selling the 'radiation-free' snow will be inundated with offers from Japanese winter sports enthusiasts (or perhaps even Sochi-ites)...

"Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations."

Bottom line for financials is that 2014 is looking to be a tough year, even if the Sell Side wants to believe that growing earnings is still possible on flat revenue

Emerging Market equities have tumbled over 4% in the last 2 days on heavy volume. The last time the world experienced a major Emerging Market meltdown, the US was still by far the world's major 'consumer'. However, as the following chart from JPMorgan shows, that is very much not the case anymore and the last few days ugly echoes of the mid-Summer Taper Tantrum in Emerging Markets (most notably Asia), while being shrugged off by most, may be much more important to any sustained global recovery than your friendly local asset-gatherer would ever care to admit.

Despite the supremacy of Fed hubris and punter confidence in the Fed's Frankenstein Economy, the likelihood of some tail risk emerging out of nowhere is rising. Indeed, the very confidence in central planners, i.e. that the Fed is now the ultimate power in the Universe, is a prerequisite for collapse.

Fukushima?

"We're an easy target for recruiters," one homeless man explains. "We turn up here with all our bags, wheeling them around and we're easy to spot. They say to us, are you looking for work? Are you hungry? And if we haven't eaten, they offer to find us a job." As Reuters exposes, 3 years after the earthquake and tsunami that caused the meltdown at Fukushima's nuclear facility, Northern Japanese homeless are willing to accept minimum wage (from yakuza-based entities) for one of the most undesirable jobs in the industrialized world: working on the $35 billion, taxpayer-funded effort to clean up radioactive fallout across an area of northern Japan larger than Hong Kong.

"There's no near-term resolution in sight," warns TCW Group's David Loevinger, as "Thailand has entered an extended period of political instability." This uncertainty has led to foreigners abandoning the nation's stock market in record  size - and collapsing the Thai Baht at the same time. Why should US investors be worried? Thailand was the catalyst that started the 1997 Asian crisis, broke LTCM, and instigated the most epic experiments in central bank liquidity provision on record. With the Fed Tapering, both Indonesia and Thailand (and Turkey) are already seeing major currency collapses but of course, as long as US equities rise, no one cares (which is exactly what they said last time)...