Markets Are Correcting Hard
The long-awaited global financial market correction has arrived. We are seeing collapses in all major markets and across all major categories.
As usual, the pain has started at the edges, in the weaker elements (emerging markets, junk bonds, weak companies, etc.) and is rapidly spreading towards the center.
How far this goes before the central banks overtly step in (you can be sure they are covertly doing whatever they can to stem the damage) is anybody’s guess. Our assessment is “not too long” because the central banks are deathly afraid of the Frankenmarkets they have created.
They are worried that these grotesquely-inflated “”markets”” will begin to implode, gather steam, get further away from their control, and end up causing real damage to one or more major banks (the only entities that central banks actually care about). Or even possibly one or more small countries.
That is, they are afraid of a deflationary impulse destabilizing the $200 trillion edifice of debt they have carefully erected. Or perhaps we should say carelessly erected.
As we’ve always said: bubbles expand in search of a pin. As we look around for the pin to this one, it helps to ask: What was the trigger for this latest bout of global financial deflation?
It Begins With China
2015 ended weak but essentially where it started, with the US equity indexes just barely green for the year.There was no big Santa Claus rally, which was a bit of a bummer for the Wall Street year-end bonus crowd. But neither was there any big decline.
China’s market appeared more or less stabilized by the year end, however it began 2016 with a circuit-breaking wave of panic selling, losing -7% on the new year’s first day of trading before the markets were simply closed by authorities.
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