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“Judging By Bond Markets, Economic Armageddon Is Just Around The Corner”

“Judging By Bond Markets, Economic Armageddon Is Just Around The Corner”

“Judging by bond markets around the world, economic Armageddon – or something awfully close to it – is just around the corner.” – SocGen, September 5, 2019

“It’s difficult to describe markets,” said the CIO, reflecting on his decades of trading. “For what seems like forever, markets behaved in ways that reflected shifting expectations about central bank activity, economic trends, and profit potential, but that’s changing,” he said. “Now markets shift direction on a tweet then reverse on some comment. And nearly all of it is political.” But even politics are different now.

“Yet through it all, global interest rates are collapsing like an economic calamity looms.” 

* * *

“It is a bowl of water that might help put out a fire that has just started,” said young Jimmy Sham, describing Carrie Lam’s withdrawal of Beijing’s extradition legislation. “But it is now useless in the face of what has become a forest fire,” continued Jimmy, one of many leaders in Hong Kong’s burning rebellion. Naturally, the government hopes that by meeting the protestor’s principal demand, cries for further action will soften.

But that’s not how crowds work. Hong Kong’s emboldened freedom fighters have another four demands to go. Behind them lay more still. And far in the distance, beyond the event horizon, lay their ultimate objective, barely spoken of today, democratic revolution in China.

“Public discontent extends far beyond the bill,” conceded Carrie Lam, exuding a manufactured calm, withdrawing the bill, “It covers political, economic and social issues, including problems relating to housing and land supply, income distribution, social justice and mobility.” No doubt she’s right.

 …click on the above link to read the rest of the article…

Blain’s Morning Porridge – Sept 5th 2019

Blain’s Morning Porridge – Sept 5th 2019 


“Slipping down Raki and reading Maynard Keynes…”

We really should focus on the signals emanating from bond markets.  Forget the current political madness – yesterday saw a number of key moments for bond markets:  UK Chancellor Sajid Javid hitting the spend button in the UK (whether it actually happens is a moot point), another $30 bln new issuance day in the US, BAWAG launching a 10-year negative yield Covered Bond, Spain about to launch a 50 year issue at a smidge over nothing, and Christine Lagarde lecturing the European Parliament about the need for Fiscal Policy initiatives. 

It really feels like we are at something of a nexus for bonds and fiscal spending.  Central Bankers and politicians are tinkering with new ideas (ie: old ones rehashed) about Monetary policy – because nothing they tried re QE and zero rates really worked the last 10-years.  I can’t help but feel it’s like something out of The Walking Dead – the Neo-Keynesians have suddenly risen and now stalk the Earth. (Queue Thriller on the turntable…)  

Politicians now see low interest rates as a phenomenal opportunity to sort out the bleak mess of the last 10-years of Austerity driven under-investment, and spend economies back into growth.  It looks attractive.  And, if they’d started 10-years ago.. then we’d probably not be where we are today…

Of course, corporates would be mad not to take advantage of current ultra-low rates to borrow.  But what are they going to spend the money on?  More distorting stock buy-backs and dividend recharges back to private equity owners?  Should investors be worried about the growing leverage?  If the crunch comes – well, 5% of issuers might default, but the rest will be fine… ish.  Meanwhile, ultra-low rates are great for stocks.  Not because companies are inherently more profitable, but largely because low rates make stocks relatively more attractive compared to low-yielding bonds, and encourage corporate buy-backs which further push up prices! 

 …click on the above link to read the rest of the article…

The Arrival Of The Credit Crisis

The Arrival Of The Credit Crisis

Those of us who closely follow the credit cycle should not be surprised by the current slide in equity markets. It was going to happen anyway. The timing had recently become apparent as well, and in early August I was able to write the following:

“The timing for the onset of the credit crisis looks like being any time from during the last quarter of 2018, only a few months away, to no later than mid-2019.” [i]

The crisis is arriving on cue and can be expected to evolve into something far nastier in the coming months. Corporate bond markets have seized up, giving us a signal it has indeed arrived. It is now time to consider how the credit crisis is likely to develop. It involves some guesswork, so we cannot do this with precision, but we can extrapolate from known basics to support some important conclusions.

If it was only down to America without further feed-back loops, we can now suggest the following developments are likely for the US economy. Warnings about an economic slowdown are persuading the Fed to soften monetary policy, a process recently set in motion and foreshadowed by US Treasury yields backing off. However, price inflation, which is being temporarily suppressed by falling oil prices, will probably begin to increase from Q2 in 2019. This is due to a combination of the legacy of earlier monetary expansion, and the consequences of President Trump’s tariffs on consumer prices.

After a brief pause, induced mainly by the threat of an unstoppable collapse in equity prices, the Fed will be forced to continue to raise interest rates to counter price inflation pressures, which will take the rise in the heavily suppressed CPI towards and then through 4%, probably by mid-year.

 …click on the above link to read the rest of the article…

This Is Going To Happen In 2016: “One Of The Greatest Commodity Plays Of All Time”

This Is Going To Happen In 2016: “One Of The Greatest Commodity Plays Of All Time”

While stock markets held strong near their all-time highs, the last year saw massive financial destruction in global commodities markets. Oil, gold, silver, steel, coal and other raw materials experienced price drops not seen since just before the the Crash of 2008. As an example of how bad it has gotten in the raw materials space one need only look at the Baltic Dry Index, which is used to assess the cost of shipping raw materials by sea. Signaling serious economic problems, the BDI recently hit its all-time low, surpassing even the lows hit during the last financial crisis.

That a significant financial, economic or monetary event will soon be upon us cannot be denied.

Yet within crisis there is opportunity, and knowing what can happen and how to position yourself accordingly ahead of the fallout will not only ensure that your wealth is preserved, but will help you thrive financially. While we have always urged those concerned with the state of affairs in the world to have a healthy storage of food and supplies in anticipation of supply disruptions or hyperinflationary monetary policy, a major financial event will, as it did following the last crisis, likely lead to significant gains in precious metals as investors the world over shift capital into the historical monetary asset of last resort.

As Future Money Trends explains in the following micro-documentary, there are three perfect catalysts for why silver and gold are headed to new highs in the very near future: low prices and global supply shortages, war, and the collapse of U.S. bond markets.

What we are about to show you is undeniable evidence… This is going to happen within the next year… Silver is likely the most undervalued asset available to investors today. 

Watch (Courtesy Future Money Trends):

…click on the above link to read the rest of the article…

Why Saudi Arabia Won’t Cut Oil Production

Why Saudi Arabia Won’t Cut Oil Production

Nine months after OPEC decided to leave its production target unchanged and pursue market share instead of trying to prop up prices, the group is facing a set of complex problems and decisions going forward.

At first blush, the collapse of oil prices and the resiliency of U.S. shale appears to hand OPEC, and its most powerful member in Saudi Arabia, a stinging defeat. U.S. oil production has leveled off but has not dramatically declined. Meanwhile, oil prices are at their lowest levels since the financial crisis and the revenues of OPEC members have fallen precipitously along with the price of crude.

All of that is true, and in fact, Saudi Arabia is under tremendous pressure. The Saudi government is considering slashing spending by a staggering 10 percent as it seeks to stop the budget deficit from growing any bigger. The IMF predicts that Saudi Arabia could run a budget deficit that amounts to about 20 percent of GDP.

Related: Some Small But Welcome Relief For WTI

The pain is manifesting itself in different ways. Not only will the Kingdom have to cut spending, but it has also turned to the bond markets in a big way. Low oil prices have forced Saudi Arabia to issue bonds with maturities over 12 months for the first time in eight years, raising 35 billion riyals (around $10 billion) so far in 2015.

At the same time, the currency is coming under increasing pressure. Saudi Arabia pegs the riyal to the dollar at a rate of about 3.75:1, but speculation is rising that the currency may need to be devalued, given that the oil producer won’t be able to defend that ratio indefinitely.

…click on the above link to read the rest of the article…

 

 

The Stock Market Will Start To Fall In July? The Dow Plummeted More Than 500 Points Last Week

The Stock Market Will Start To Fall In July? The Dow Plummeted More Than 500 Points Last Week

Falling - Public DomainWas last week a preview of things to come? There are quite a few people out there that believe that the stock market would begin to decline in July, and that appears to be precisely what is happening. Last week, the Dow Jones Industrial Average fell by more than 530 points. It was the biggest one week decline that we have seen so far in 2015, and some are suggesting that this could only be just the beginning. By just about any measurement that you might want to use, the stock market is overvalued. But we have been in this bubble for so long that many people have come to believe that this is “the new normal”. In fact, earlier today someone that I know dropped me a line and suggested that our financial overlords may be able to use the tools at their disposal to get this current bubble to persist indefinitely. Unfortunately, the truth is that no financial bubble ever lasts forever, and right now some very alarming things are starting to happen behind the scenes. Over the past couple of weeks, the smart money has been dumping stocks like crazy, and the lack of liquidity in the bond markets is beginning to become acute.  Could it be possible that another great financial crisis is just around the corner?

Last week took a lot of investors by surprise. The following is how Zero Hedgesummarized the carnage…

-Russell 2000 -3.1% – worst week since Oct 2014 (Bullard)
-Dow -2.8% – worst week since Dec 2014
-S&P -2.1% – worst week since Jan 2015
-Trannies -2.8% – worst week since Mar 2015
-Nasdaq -2.2% – worst week since Mar 2015

The talking heads on television were not quite sure what to make of this sudden downturn. On CNBC, analysts mainly blamed the usual suspects…

…click on the above link to read the rest of the article…

 

 

 

 

Signs Of Financial Turmoil In Europe, China And The United States

Signs Of Financial Turmoil In Europe, China And The United States

As we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday

The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

…click on the above link to read the rest of the article…

 

 

Is Mario Draghi Stupid, Crooked Or What?

Is Mario Draghi Stupid, Crooked Or What?

Europe is surely at the top of the heap among today’s raging  financial market lunacy. It seems that Ireland has now broken into the negative interest rate club, investment grade multinationals are flocking to issue 1% debt on the euro-bond markets and, if yield is your thing, you can get all of 3.72% on the Merrill Lynch euro junk bond index.

That’s right. You can stick your head in a financial meat grinder and what you get for the hazard is essentially pocket change after inflation and taxes.

Remember, the average maturity here is in the range of 7-8 years. During the last ten years europe’s CPI averaged 2.0% and even during the last three deflationary years the CPI ex-energy averaged 1.2%. So unless you think oil prices are going down forever or that the money printers of the world have abolished inflation once and for all, the real after-tax return on euro junk has now been reduced to something less than a whole number. Has the reckless stretch for “yield” come down to this?

Well, no it hasn’t. Yield is apparently for suckers and retired school marms.

This is all about capital gains and playing momo games in the bond markets. It’s why euro junk debt—-along with every other find of sovereign and investment grade debt—-is soaring. In a word, bond prices are going up because bond prices are going up. It’s an utterly irrational speculative mania that would do the Dutch tulip bulb punters proud.

 

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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