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China, Oil and Markets: It’s All One Story
China, Oil and Markets: It’s All One Story
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.
…click on the above link to read the rest of the article…
China’s Slow-Motion Sleight Of Hand Shatters
China’s Slow-Motion Sleight Of Hand Shatters
The Chinese stock markets broke through 2 circuit breakers today, breakers that were introduced only a few months ago in response to the market selloff, triggered by a surprise yuan devaluation, in August. The first breaker, at -5%, forced a 15-minute trading halt. The second one, at -7%, halted trading for the rest of the day.
For many people, today’s bust can’t have been a huge surprise, because it’s been known for some time that a ban on stock sales by parties holding a 5% or larger stake in a company, is set to expire on Friday. Beijing may panic again before that date, but it can’t force stakeholders to hold on to large portfolios forever either.
Xi and his crew should have stayed out of the markets from the start, but that’s not how they see the world. They still think like apparatchicks, and don’t understand that markets are opposed, at a 180º angle, to top down control. You can either have a market, or you can have central control.
They pumped up the housing market for all they could, and when that bubble blew they tricked their people into buying stocks. And now that one’s fixing to die too, and that didn’t take nearly as long as the housing bubble. The central control team is frantically looking for the next carnival attraction, but it won’t be easy.
They should have stayed out of all markets. Just like western central banks. All interference by governments and central banks can only make things worse, a fact at best temporarily hidden by the distortions they force upon markets.
And we shouldn’t forget that expectations for China as the world’s economic savior determined western central bank ‘thinking’ to a large extent over the past decade. Like so many others, central bankers too are incapable of spotting a Ponzi when it’s staring them in the face.
…click on the above link to read the rest of the article…
2016 Is An Easy Year To Predict
2016 Is An Easy Year To Predict
No year is ever easy to predict, if only because if it were, that would take all the fun out of life. But still, predictions for 2016 look quite a bit easier than other years. This is because a whole bunch of irreversible things happened in 2015 that were not recognized for what they are, either intentionally or by ‘accident’. Things that will therefore now be forced to play out in 2016, when denial will no longer be an available option.
A year ago, I wrote 2014: The Year Propaganda Came Of Age, and though that was more about geopolitics, it might as well have dealt with the financial press. And that goes for 2015 at least as much. Mainstream western media are no more likely to tell you what’s real than Chinese state media are.
2015 should have been the year of China, and it was in a way, but the extent to which was clouded by Beijing’s insistence on made-up numbers (GDP growth of 7% against the backdrop of plummeting imports and exports, 45 months of falling producer prices and bad loans reaching 20%), by the western media’s insistence on copying these numbers, and by everyone’s fear of the economic and financial consequences of the ‘Great Fall of China‘.
2015 was also the year when deflation, closely linked -but by no means limited- to China, got a firm hold on the global economy. Denial and fear have restricted our understanding of this development just as much.
And while it should be obvious that 2015 was the year of refugees as well, that topic too has been twisted and turned until full public comprehension has become impossible. Both in the US and in Europe politicians pose for their voters loudly proclaiming that borders must be closed and refugees and migrants sent back to the places they’re fleeing due to our very own military interventions.
…click on the above link to read the rest of the article…
The Velocity of the American Consumer
The Velocity of the American Consumer
I was reading something yesterday by my highly esteemed fellow writer Charles Hugh Smith that had me first puzzled and then thinking ‘I don’t think so’, in the same vein as Mark Twain’s recently over-quoted quote:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
I was thinking that was the case with Charles’ article. I was sure it just ain’t so. As for Twain, I’m more partial to another quote of his these days (though it has absolutely nothing to do with the topic:
“Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.”
Told you it had nothing to do with anything.
Charles’ article deals with money supply and the velocity of money. Familiar terms for Automatic Earth readers, though we use them in a slightly different context, that of deflation. In our definition, the interaction between the two (with credit added to money supply) is what defines inflation and deflation, which are mostly -erroneously- defined as rising or falling prices.
I don’t want to get into the myriad different definitions of ‘money supply’, and for the subject at hand there is no need. The first FRED graph below uses TMS-2 (True Money Supply 2 consists of currency in circulation + checking accounts + sweeps of checking accounts + savings accounts). The second one uses M2 money stock. Not the same thing, but good enough for the sake of the argument.
In his piece, Charles seems to portray the two, money supply and velocity of money, as somehow being two sides of the same coin, but in a whole different way than we do. He thinks that the money supply can drive velocity up or down. And that’s where I think that just ain’t so. I also think he defeats his own thesis as he goes along.
…click on the above link to read the rest of the article…
Con 21
Con 21
Nickolay Lamm Jefferson Memorial under 25 feet of water
I’ve been writing the following through the past days, and wondering if I should post it, because I know so many readers of the Automatic Earth have so much emotion invested in these things, and they’re good and fine emotions. But some things must still be said regardless of consequences. Precisely because of that kind of reaction. No contract is legally binding if there’s no agreement on payment. Nobody has a legal claim on your home without it being specified that, if, when and how they’re going to pay for it.
I understand some people may get offended by some of the things I have to say about this – though not all for the same reasons either-, but please try and understand that and why the entire CON21 conference has offended me. After watching the horse and pony show just now, I thought I’d let ‘er rip:
…click on the above link to read the rest of the article…
Plunging Commodities Interfere With The New World Order
And they’ve all been gearing up for production increases too, with grandiose plans and -leveraged- investments aiming for infinity and beyond. You know, it’s the business model. 2016 will be a year for the record books.
Just check this Bloomberg graph for copper supply and demand as an example. How ugly would you like it today?
Iron ore is dropping below $40, and that’s about the break-even point. Of course, oil has done that quite a while ago already. It’s just that we like to think oil’s some kind of stand-alone freak incident. It is not. With oil today plunging below $37 (down some 15% since the OPEC meeting last week), it doesn’t matter anymore how much more efficient shale companies can get.
They’re toast. They’re done. And with them are their lenders. Who have hedged their bets too, obviously, but hedging has a price. Or else you could throw money at any losing enterprise.
…click on the above link to read the rest of the article…
What Deflation Quacks Like
What Deflation Quacks Like
As yet another day of headlines shows, see the links and details in today’s Debt Rattle at the Automatic Earth, deflation is visible everywhere, from a 98% drop in EM debt issuance to junk bonds reporting the first loss since 2008 to corporate bonds downgrades to plummeting cattle prices in Kansas to China’s falling demand for iron ore and a whole list of other commodities.
The list is endless. It is absolutely everywhere. And it’s there every single day. But how would we know? After all, we’re being told incessantly that deflation equals falling consumer prices. And since these don’t fall -yet-, other than at the pump (something people seem to think is some freak accident), every Tom and Dick and Harry concludes there is no deflation.
But if you wait for consumer prices to fall to recognize deflationary forces, you’ll be way behind the curve. Always. Consumer prices won’t drop until we’re -very- well into deflation, and they will do so only at the moment when nary a soul can afford them anymore even at their new low levels.
The money supply, however it’s measured, may be soaring (Ambrose Evans-Pritchard makes the point every other day), but that makes no difference when spending falls as much as it does. And it does. The whole shebang is maxed out. And the whole caboodle is maxed out too. All of it except for central banks and other money printers.
Everyone has so much debt that spending can only come from borrowing more. Until it can’t. We read comments that tell us the global markets are reaching the end of the ‘credit cycle’, but can the insanity that has ‘saved’ the economy over the past 7 years truly be seen as a ‘cycle’, or is it perhaps instead just pure insanity? There’s never been so much debt on the planet, so unless we’re starting a whole new kind of cycle, not much about it looks cyclical.
…click on the above link to read the rest of the article…
Greece Is A Nation Under Occupation
Greece Is A Nation Under Occupation
Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.
But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.
The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.
Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’.
…click on the above link to read the rest of the article…
The Great Fall Of China Started At Least 4 Years Ago
The Great Fall Of China Started At Least 4 Years Ago
Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.
It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.
But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.
Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.
Here are Brent oil prices (WTI follows the trend closely):
China Deflation Pressures Persist As Producer Prices Fall 44th Month
China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.
…click on the above link to read the rest of the article…
Merkel Must Call Highest Level UN Emergency Summit Over Refugees
Merkel Must Call Highest Level UN Emergency Summit Over Refugees
German Chancellor Angela Merkel needs to do something, urgently, that should have been done months- if not more- ago. There has to be a UN emergency summit on the European refugee crisis, it has to involve leaders at the very highest levels, and it has to take place within weeks at the latest. Or else.
Of course any leader could call for the summit, and if Merkel waits too long -as she is wont to do- someone else should. But she is the best person for the job. No-one else who leads an entire continent looks ready to take this on, and moreover it’s her own country that quite possibly faces the gravest consequences of the crisis.
That is to say, for now Germany still comes in way after Greece in that regard, but if Alexis Tsipras would attempt to call such a summit, his appeal would fall on deaf ears, and at best lead to lots of international Merkel-style diddling (or ‘Merkeln’, as the Germans put it). And there’s already been far too much of that.
The renewed urgency comes from a number of directions. First, the continuing drownings of refugees in the Aegean sea. The lack of urgency with which those drownings have been met has become a huge and immediate threat to Merkel, if only because the entire European project has already died with the babies washing up on the shores of Greece.
Even if it will take a long time for people to recognize that, given the ideological ‘union’ blindness that pervades Brussels and European capitals. Angela’s legacy risks being not only her responsibility for thousands of deaths, but also the very demise of the EU. And that’s just for starters.
Secondly, It was Merkel herself last week who warned of renewed military conflicts in the Balkans if the approach to the refugee crisis wouldn’t change, and rapidly.
…click on the above link to read the rest of the article…
Europe Will Never Be The Same. Neither Will The World.
Europe Will Never Be The Same. Neither Will The World.
RLOppenheimer New flag for EU 2015
Take this beyond the bias of the individual, and apply it to that of the group (s)he belongs to, the vantage point of a society, and you find the bias multiplies and becomes self-confirming. That is, the members of the group reinforce each other’s bias. When change comes in small and gradual steps, as it mostly does, this can be said to work relatively well. When it comes in large and sudden steps, trouble ensues.
This little bit of psychology 101 may seem redundant, but it is indispensable if we wish it to recognize the implications of Europe -and the entire world with it, in its slipstream- having already entered a period of change so profound it is impossible to predict what the impact will be. We can do a lot better at this than we do today, where so far the drivers of change, and indeed the changes themselves, are ignored and/or denied.
This ignorance and denial threatens to lead to a needless increase in nationalism, fascism, violence, misery, death and warfare. If we were to acknowledge that the change is inevitable, and prepare ourselves accordingly, much of this could be avoided.
There are two main engines of change that have started to transform the Europe we think we know. First, a mass migration spearheaded by the flight of refugees from regions in the world which Europeans have actively helped descend into lethal chaos. Second, an economic downturn the likes of which hasn’t been seen in 80 years or so (think Kondratieff cycle).
Negative ideas about refugees are already shaping everyday opinion and politics in many places, and this will be greatly exacerbated by the enormous economic depression that for now remains largely hidden behind desperate sleight-of-hands enacted by central bankers, politicians and media.
…click on the above link to read the rest of the article…
How Our Aversion To Change Leads Us Into Danger
How Our Aversion To Change Leads Us Into Danger
The deeply embedded, genetically determined aversion -or resistance- to change that we are all born with is an important survival tactic. Since change equals potential danger, our aversion to it keeps us out of danger.
We are ‘programmed’ to prefer familiar surroundings, to first look at what we recognize, and to ignore what we do not until we feel comfortable enough about what we do know.
Ironically, though, the aversion to change can also lead us into danger. Because it prevents us from preparing for change, and therefore preparing for danger.
Yes, people can adapt, they have that ability too, but we don’t fully adapt to change until and unless we’re forced to. And while it may not be too late then, it certainly tends to make adaptation much more difficult.
We prefer to focus on those things that stay the same, or seem to stay the same, ignoring those that don’t, even if they change in -comparatively- radical ways, until we no longer can. But by then we have most often missed a significant part of the time and the opportunity to adapt to them. Our resistance to change causes us to miss those changes that happen despite our efforts at keeping things the same.
The deeper problem, as every thinking human can recognize, is that things always change, life changes, the world does. Nothing ever stays the same. Change itself is the only constant. Life equals change. Without change, there would be no life.
And arguably -since time is perhaps not a constant-, changes come even faster today than they have historically, in the perception of our ancestors, both in human designed systems and in natural systems. And the faster the changes come, the more vulnerable our inborn aversion to change makes us. Which in turn reinforces that aversion all the more.
…click on the above link to read the rest of the article…
With Yanis Gone, Now Troika Heads Must Roll
With Yanis Gone, Now Troika Heads Must Roll
Now that Yanis Varoufakis has resigned, in the kind of unique fashion and timing that shows us who the real men are, it’s time to clear the other side of the table as well. The new finance minister, Euclid Tsakalotos, should not have to face the same faces that led to Europe’s painful defeat in yesterday’s Greek referendum.
That would be an utter disgrace, and the EU would not survive it. So we now call for Juncker, Lagarde, Schäuble, Dijsselbloem, Draghi, Merkel and Schulz to move over.
It’s time for the Troika to seek out some real men too. It cannot be that the winner leaves and all the losers get to stay.
The attempts to suppress the IMF debt sustainability analysis were a shameful attempt to mislead the people of Greece, and of Europe as a whole. And don’t forget the US: Lagarde operates out of Washington.
It cannot be that after this mockery of democracy, these same people can just remain where they are.
It’s time for Europe to show the same democratic heart that Varoufakis has shown this morning. And if that doesn’t happen, all Europeans should make sure to leave the European Union as quickly as they can.
Because that would prove once and for all that the EU is no more than a cheap facade, a thin veil behind which something pretty awful tries to hide its ugly face.
Here is Yanis’ explanation behind his resignation:
Minister No More! (Yanis Varoufakis)
The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.
…click on the above link to read the rest of the article…
This Is Why The Euro Is Finished
This Is Why The Euro Is Finished
The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.
We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.
And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.
That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.
The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.
Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months..
…click on the above link to read the rest of the article…
The Troika Turns Europe Into A Warzone
The Troika Turns Europe Into A Warzone
So now they do it. Now the IMF comes out with a report that says Greece needs hefty debt restructuring.
Mind you, their numbers are still way off the mark, in the end it’s going to be easily double what they claim. Not even a Yanis Varoufakis haircut will do the trick.
But at least they now have preliminary numbers out. The reason why they have is inevitably linked to the press leak I wrote about earlier this week in Troika Documents Say Greece Needs Huge Debt Relief. If that hadn’t come out, I’m betting they would still not have said a thing.
It’s even been clear for many years to the IMF that debt restructuring for Greece is badly needed, but Lagarde and her troops have come to the Athens talks with an agenda, and stonewalled their own researchers.
Which makes you wonder, why would any economist still want to work at the Fund? What is it about your work being completely ignored by your superiors that tickles your fancy? How about your conscience?
Why go through 5 months of ‘negotiations’ with Greece in which you refuse any and all restructuring, only to come up with a paper that says they desperately need restructuring, mere days after they explicitly say they won’t sign any deal that doesn’t include debt restructuring?
By now I have to start channeling my anger about the whole thing. This is getting beyond stupid. And I did too have an ouzo at the foot of the Acropolis, but I’m not sure whether that channels my anger up or down. The whole shebang is just getting too crazy.
For five whole months the troika refuses to talk debt relief, and mere days after the talks break off they come with this? What then was their intention going into the talks? Certainly not to negotiate, that much is clear, or the IMF would have spoken up a long time ago.
…click on the above link to read the rest of the article…
