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The worst economic collapse ever?

The worst economic collapse ever?

Country after country has reported extremely dark economic numbers. The gigantic jobless claims, 6.6 million from the U.S. last week, are just the tip of the iceberg. For example, the service sector PMIshave been simply ghastly across the globe. We are now in a crisis of epic proportions.

But, how massive can the crisis eventually get? Since our inception, in 2012, we have contemplated three scenarios as a part of our quarterly forecasts. While we have not referred to them in each report, we have repeated them periodically. They are:  the optimistic, the most probable and the pessimistic.

But at this point our main worry is the approaching realization of the pessimistic, or the worst, scenario.  It’s likelihood, while still low, is increasing fast in our estimate.

Underpinning its severity is not the virus, but the fragility of the global economy.

Breeding chaos:  failed clean-ups and bad policies

The Global Financial Crisis (GFC) was considered a Black Swan event to many. However, it was no such thing. It was a massive failure of hedging and diversification within the global banking system, most notably in the U.S., and a number of prominent analysts saw it coming. See our blog, 10 years from Lehman. And nothing has been fixed, for an insight view on that crisis.

While banks were wound down and recapitalized in the U.S. after the GFC, an equivalent restructuring did not happen in Europe. Stricken European banks were left to linger in a state of permanent financial distress. 

“Outright Monetary Transactions” or “OMT”, negative interest rates, and ECB’s QE program all aggravated the predicament of European banks.  The failure to resolve the 2008 crisis ‘zombified’ the European banking sector, a situation which persists today. (See Q-Review 3/2019 for a detailed account).

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

Lacalle: Is Now The Time To Buy Gold?

Lacalle: Is Now The Time To Buy Gold?

In this interview Daniel Lacalle explains why the fundamentals for gold are stronger each day, and why silver and palladium should not be ignored in the current crisis.

Central banks keep buying more gold and will need even more as massive liquidity measures drive their balance sheets higher.

Supply challenges remain with some mines being shut down and new supply coming well below demand (as evidenced by the decoupling – once again – between spot and futs)…

Massive monetary imbalances globally will drive demand from investors looking for a hedge to currency debasement (and that systemic risk is soaring, with sovereign credit markets starting to leak information)…

*  *  *

Finally, we give the last word to Raoul Pal and his most recent thoughts (excerpted) on “A Dollar Standard Crisis” (referring to his institutional market research at Global Macro Investor)…

….

Don’t forget – the $13tn short dollar positions (foreign dollar debt held mainly by foreign corporation and investment vehicles) is the largest position ever taken in the history of global financial markets.

It can only mean a massive, uncontrolled dollar rally. 

QE will not fix this. Swap lines will not fix this. A debt jubilee would fix this or multiple trillions of dollars in write-downs and defaults.

It is the dollar strength that brings to world to its nadir (just like the 1930s). It is the dollar system that is the really big problem.

The dollar has eaten all of its competitors and now it is going to eat itself.

This eventually breaks the dollar after a super-spike as global central banks are forced to find alternatives. 

Remember, nothing lasts forever…

Yellen Blames “Enormous Debt And Buybacks” For Coming Default Wave; Morgan Stanley Says It’s All The Fed’s Fault

Yellen Blames “Enormous Debt And Buybacks” For Coming Default Wave; Morgan Stanley Says It’s All The Fed’s Fault

In June 2017, Janet Yellen decided to wave a red flag before the bulls of fate, and responding to a question on financial system stability, the then-Fed chair said post-crisis regulations had made financial institutions much “safer and sounder”, and as a result she went on to predict that there would never again be a financial crisis “in our lifetimes” to wit:

Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

While the bulls cheered this idiotic prediction, some were quick to compare this statement by Yellen to Neville Chamberlain’s infamous – and very, very wrong – “peace in our time” speech. In retrospect the some were right because less than three years later, the world is going through the biggest financial crisis in every living person’s lifetime, which has resulted in the most aggressive central bank market stabilization and intervention in history.

Also in retrospect, it is clear that Yellen didn’t have any bloody idea what she was talking about (then, or any other time when she was boring traders and analysts to death with her droning, narcoleptic monotone) even as we – among others- were warning that it was her monetary policy decisions that guaranteed the next crisis would put 2008 to shame. And sure enough, while the current crisis was sparked by the coronavirus pandemic, it is what comes next that the financial crisis will truly strike home as thousands of companies that loaded up on cheap, cheap debt during the Bernanke, Yellen and Powell Feds, default.

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

The Federal Reserve’s One Last Hail Mary

The Federal Reserve’s One Last Hail Mary

Over the last few weeks, the Federal Reserve has been in utter desperation mode to try to revive and keep the American economy on life support. What many in the mainstream media have failed to include in this recent coronavirus economic narrative is that the virus was just the pin of one the biggest bubbles ever created, which we call the central bank bubble revolving around U.S sovereign bonds.

Before we dive deep into this, let’s start with what the Fed has been doing to combat against the coronavirus and to keep markets alive for the time being. To begin, welcome back to the era of the printing press, but this time they have made it clear they will conduct “QE infinity” if this is a prolonged depression, which it will be. 

For some prospective, previous QE programs were: 

  • QE1: $1.7 Trillion 
  • QE2: $600 Billion 
  • QE3: $1.6 Trillion 

With this latest being: 

  •    QE4:$1.6 Trillion 

An overwhelming number in such a short period, making previous QE programs look like peanuts in comparison. In fact, the Fed printed roughly $970,000 every second last week to keep the market afloat. To validate that the Fed is artificially keeping the market alive, just look at this next chart: 

This chart showcases that while the Fed balance sheet has shot up ($5.2 Trillion), corporate earnings have plummeted. The market is clearly on life support with the Federal Reserve as its temporary backstop. Presently, the aviation, hotel, and automotive industries, to name a few, are in a major crisis. This applies to all businesses, but since 2008 companies have taken advantage of prolonged zero interest rates and have gone on a total debt binge, with the majority of this debt going strictly to share buybacks and dividends to shareholders.

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

Don’t Wait For the Storm to Pass–Learn to Dance in the Rain!

DON’T WAIT FOR THE STORM TO PASS – LEARN TO DANCE IN THE RAIN!

Whoever doesn’t learn to dance in the rain will struggle to survive the virtually non-stop storms that the world will experience in the next few years. The abrupt downturn in the global economy, triggered but not caused by coronavirus, came as a lightning bolt out of the blue. Thus, most people are paralysed and will fall helplessly as the world unwinds 100 years of mismanagement and excesses, caused primarily by bankers, both central and commercial.

2006-9 WAS JUST A REHEARSAL

I have for years warned about the enormous risks in the financial system that inevitably would lead to a collapse. As the bubble continued to grow for over ten years since the 2006-9 crisis, very few understood that the last crisis was just a rehearsal with none of the underlying problems resolved. By printing and lending $140 trillion since 2006, the problem and risks weren’t just kicked down the road but made exponentially greater.

So here we are in the spring of 2020 with debts, unfunded liabilities and derivatives of around $2.5 quadrillion. This is a sum that is impossible to fathom but if we say that it is almost 30x global GDP, it gives us an idea what the world and central banks will have to grapple with in the next few years.

THERE WILL BE NO V OR U RECOVERY

No one should believe for one moment that once CV is gone we will experience a V shaped recovery. There will be no V, there will be no U and nor will we see a hockey stick recovery. What few people understand, including the so called experts, is that there will be no recovery at all. An extremely rapid decline of the world economy has just started and will be devastating in the next 6-12 months, whether CV ends soon or not.

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

Nobody Knows Anything

Nobody Knows Anything

The more I read and observe the clearer the message: Nobody knows anything. And by that I mean nobody truly knows how any of this will turn out and I think this point needs to be driven home more clearly.

Tons of projections of this, that and the other. Just stop. I happen to think there are times to simply step back and not make grand predictions. For us that’s ok because we focus primarily on market technicals and that’s an ever evolving picture that offers us pivot points to decide when and where to get engaged in.

But on the macro? Give me a break. Nobody knows anything. Everybody is just guessing.

Exhibit A: GDP forecast for Q2:

Ok great. How’s that helping anyone in trying to value companies, cash flow, revenues, earnings? It doesn’t. -9% is a completely different planet than -40% and so is everything in between.

How does one qualify central bank and stimulus intervention? It changes every single day. Today the Fed cranked out an international repo program. Global central banks unite I guess. Also today Donald Trump tweeted about a $2 trillion infrastructure program. Who knows if it will happen. The Fed already increased its balance sheet by $1.3 trillion since the same time last year and may well be heading toward $9  or $10 trillion balance sheet position within a year. Last week they added $600B, basically all of QE2 in a week.

These are insane numbers thrown around, all on top of the $2.2 trillion stimulus package just passed. What’s the deficit going to be? I guess it depends on whether GDP drops by 40% or 9%.

Give me a break. How do you make any forecasts that have a predictive meaning whatsoever in this environment? Other than a lucky guess, the answer is nobody. Why? Because nobody knows anything.

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

Fed Launches Repo Facility To Provide Dollars To Foreign Central Bank

Fed Launches Repo Facility To Provide Dollars To Foreign Central Bank

With US dealers no longer using the Fed’s repo facilities (this morning we had another “no bid” overnight repo with just $250MM in MBS submitted for a $500 billion op) as the Fed soaks up all securities via its aggressive QE which is still buying $75BN in paper each day, perhaps Powell felt a bit unloved and at 830am this morning the Fed unveiled yet another “temporary” emergency liquidity providing facility, this time to foreign central banks, in the form of a repo facility targeting “foreign and international monetary authorities”, i.e. foreign central banks which will be allowed to exchange Treasuries held in custody at the Fed for US dollars.

In other words, just a week after the Fed “enhanced” its swap lines with central banks and included a bunch of non G-5 central banks to the list of counterparties, it has found that this is not working – perhaps due to the prohibitive rates on the facility – and is now handing out dollars outright against US denominated securities. We wonder if the central bank uptake will be any higher than the repo facility aimed at US dealers and which is now redundant. Of course, when that fails the Fed can just offer to buy all central bank securities in what even reputable FX strategists now joke is a Fed on full tilt, and intent on buying out all foreign central banks.

And so, just as the financial situation was starting to stabilize, the Fed reminds everyone just how broken everything still is.

Fed launches ANOTHER temporary facility to provide $USD liquidity to foreign central banks (this time foreign central bank holdings of US Treasury’s can be exchanged for dollars).

At this rate, Fed is on course to buy out foreign central banks… and call it an M&A facility pic.twitter.com/iAXRCVoZS9— Viraj Patel (@VPatelFX) March 31, 2020

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

Weekly Commentary: The Solvency Problem

Weekly Commentary: The Solvency Problem

Being an analyst of Credit and Bubbles over the past few decades has come with its share of challenges. Greater challenges await. I expect to dedicate the rest of my life to defending Capitalism. One of the great tragedies from the failure of this multi-decade monetary experiment will be the loss of faith in free market Capitalism – along with our institutions more generally.  

Somehow, we must convince younger generations that the culprit was unsound finance. And it’s absolutely fixable. Deeply flawed, experimental central banking was fundamental to dysfunctional markets and resulting deep financial and economic structural impairment. The Scourge of Inflationism. If we just start learning from mistakes, we can get this ship headed in the right direction.

Over the years, I’ve argued for “rules-based” central banking that would sharply limit the Federal Reserve’s role both in the markets and real economy. The flaw in “discretionary” central banking was identified generations ago: One mistake leads invariably to only bigger blunders.  

What commenced with Alan Greenspan’s market-supporting assurances of liquidity and asymmetric rate policy this week took a dreadful turn for the worse: Open-end QE, PMCCF, SMCCF, MMLF, CPFF, MSBLP, TALF… They’re going to run short of acronyms. Our central bank has taken the plunge into buying corporate bond ETFs, with equities ETFs surely not far behind. The Fed’s balance sheet expanded $586 billion – in a single week ($1.1 TN in four weeks!) – to a record $5.25 TN. Talk has the Fed’s new “Main Street Business Lending Program” leveraging $400 billion of (this week’s $2.2 TN) fiscal stimulus into a $4.0 TN lending operation. Having years back unwaveringly set forth, the ride down the slippery slope of inflationism has reached warp speed careening blindly toward a brick wall. 

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

Rabobank: Over 100 Million Could Be In Lockdown In India

Rabobank: Over 100 Million Could Be In Lockdown In India

Police State

The headlines continue to shock.

Firstly, the number of coronavirus cases surged past 300,000 on Sunday with more than 13,000 deaths now reported worldwide.

Secondly, predictions about the fall out on the global economic outlook have rapidly gone from bad to worse over the past few days.

  • In the US over 80 million people are now in a lockdown,
  • over 100 million could be in similar circumstances in India.
  • In Italy, controls on movement have been stepped up with all internal travel now banned and in numerous other countries social gatherings have been forbidden and businesses have been closed in an attempt to prevent the spread of the virus.

In just over a fortnight or so, the debate among economists has shifted from whether the US will suffer recession to how big the downturn is likely to be. Our baseline base case now is a global pandemic as outlined by our colleagues here.

Central banks and governments around the world have moved quickly to staunch the wounds, but more policy support will likely be forthcoming.

On Friday, the UK Chancellor jacked-up the size of the fiscal relief offered to the UK economy aggressively – just over a week since he delivered his budget. The new measures include a pledge by the state to pay 80% of the wages of workers, up to GBP2,500 per month. Germany has announced it will raise EUR150 bln in new debt to bolster the economy, which is an abrupt departure from its culture of fiscal discipline. By contrast the US’s Republican’s Coronavirus Rescue Package failed to pass through the Senate yesterday. Shortly after the vote DJIA futures were again limit down. Democrats argued that the package overly favoured corporations and didn’t go far enough to support individuals facing joblessness and a loss of income.

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

Hong Kong Reports Largest Surge In Infections Yet As Experts Warn ” We’re On The Edge Of All-Out War” With COVID-19: Live Updates

Hong Kong Reports Largest Surge In Infections Yet As Experts Warn ” We’re On The Edge Of All-Out War” With COVID-19: Live Updates

When historians look back at this time, we suspect that California Gov. Gavin Newsom’s landmark decision to order more than 40 million Californians to remain at home on Thursday night will be remembered as an important demarcation point – the beginning of a more heavy handed response as it becomes increasingly clear that too many Americans are simply ignoring the government.

So far, NY Gov. Andrew Cuomo and President Trump have insisted that they have no plans to issue lockdown orders. But with the number of confirmed cases expected to soar in the coming days and over the weekend, the situation is certainly evolving rapidly, and rumors about other states considering preemptive lockdowns (remember, the whole point is to stay “ahead of the curve”) continue to circulate.

Over the past week, central bankers around the world have slashed rates, stepped up bond buying programs, promised to expand their back-stopping of credit markets and – most importantly – urged the politicians in charge to do their part and pass massive fiscal stimulus. Late last night, the Senate unveiled a $1 trillion package that will feature direct transfers to many Americans.

In the US, futures are pointing higher amid mounting hopes for a second straight close in the green. The improved sentiment is ostensibly due to the latest wave of central bank interventions. But that didn’t stop a team of economists at Bank of America from releasing a new note calling for a global recession, with GDP growth dropping to 0% for the year in 2020. Explaining the shift in their thinking, the team wrote: “Our first piece on the virus shock was titled ‘Bad or worse’; now we amend that to ‘Really bad or much worse.'”

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

The Real Causes for the Oncoming Economic Collapse

The Real Causes for the Oncoming Economic Collapse 

This Thursday, the markets took a 1000 point hit which was more than a little startling for many investors since the last 1000 point fall only happened three days prior… all in all bringing the financial markets to lows not seen since April 2011, and veering dangerously close to a precipice which has 1929 written all over it. Across the internet, panicky discussion has erupted over whether this foretells another 1987 collapse as Donald Trump warned, or something more akin to Black Tuesday of 1929. Others have pondered whether this is more similar to a 1923 Weimar hyperinflation where Germans became millionaires overnight (not much to celebrate when bread costs billions).

The fact of the oncoming collapse itself should not be a surprise- especially when one is reminded of the $1.5 quadrillion of derivatives which has taken over a world economy which generates a mere $80 trillion/year in measurable goods and trade. These nebulous bets on insurance on bets on collateralized debts known as derivatives didn’t even exist a few decades ago, and the fact is that no matter what the Federal Reserve and European Central Bank have attempted to do to stop a new rupture of this overextended casino bubble of an economy in recent months, nothing has worked. Zero to negative percent interest rates haven’t worked, opening overnight repo loans of $100 billion/night to failing banks hasn’t worked- nor has the return of quantitative easing which restarted on October 17 in earnest. No matter what these financial wizards try to do, things just keep getting worse. Rather than acknowledge what is actually happening, scapegoats have been selected to shift the blame away from reality to the point that the current crisis is actually being blamed on the Coronavirus!

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

VIDEO: The Coronavirus Is The Pin Popping The ‘Everything Bubble’

VIDEO: The Coronavirus Is The Pin Popping The ‘Everything Bubble’

This will be an extinction-level event for many players

For years, Peak Prosperity has been raising a loud warning of the ‘Everything Bubble’ that the world’s central banks have blown in global asset prices.

Over that time, we’ve debated with hundreds of economic experts on what will be the trigger to “pop” this mania.

Well, now we’re finding out.

The economic damage being wrought worldwide by the coronavirus is the black swan the system never saw coming. Trade is being strangled, and the necessary productivity needed to support that massive increase in global debt that has been taken on over the past decade is just not there.

Bankruptcies are set to ripple across industries like wildfire. Mass layoffs will return with a vengeance. For certain industries — like travel, hospitality, and the shale oil drillers — this will be an extinction-level event for many players.

As ugly as the swift -19% drop in markets from from February’s highs has been, this is just the start of the reckoning, folks.

To give you a clear understanding what to expect during the bursting of the largest asset bubble in world history, Chris rushed to record this interview with John Rubino, author of The Money Bubble:

For those wondering what practical steps to take with their money as the Everything Bubble bursts: while Chris and John were recording, I was busy interviewing the lead partners from New Harbor Financial, Peak Prosperity’s endorsed financial advisor.

In the short video below, they offer their seasoned take on the current market action, what they see as most likely to happen from here, and what they recommend investors consider now:

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

The Greenspan Moon Cult

The Greenspan Moon Cult

Taking another look at what I wrote about repo and the latest developments yesterday, it may be worthwhile to spend some additional time on the “why” as it pertains to so much determined official blindness, an unshakeable devotion to otherwise easily explained lunar events.

The short version: monetary authorities as well as the “experts” describe almost perfectly risk averse behavior among the central money dealing system in outbreaks like September’s repo – but then bend over backward trying to come up with any other kind of explanation for it. The problem must be some complicated stew of otherwise benign technical issues because there’s no possible way, they tell themselves, it can be anything else. Not with bank reserves abundantly over a trillion (now rising again) and Jay Powell pleasantly whispering in their ears about the unemployment rate every other day.

It takes on religious, cult-like properties to try so hard to prove (to themselves) what has already been so thoroughly disproven.

Start with the bond market and interest rates. Over the last half decade or so, ever since Janet Yellen’s ill-advised first rate hike in December 2015 amidst a near recession, a move she immediately regretted, central bankers and Bond Kings have been on a mission to convince the world monetary policy was a tremendous success. It had to have been because it was the biggest thing ever devised and those devising it had promised it was so big the flood of “easing” couldn’t possibly fail.

Something about a printing press.

Anyway, that’s not logic so much as self-delusion and rationalizing; the fallacy of sunk costs. Rather than recognize all the warning signs that it all had indeed failed, policymakers and Economists instead convinced themselves it just needed more time.

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

A Shaky Foundation

A Shaky Foundation

And so castles made of sand fall in the sea, eventually.
– Jimi Hendrix

There’s a widespread belief out there that the U.S. and the global economy in general is on much sounder footing ever since the financial crisis of a decade ago. Unfortunately, this false assumption has resulted in widespread complacency and elevated levels of systemic risk as we enter the early part of the 2020s.

All it takes is a cursory amount of research to discover nothing was “reset” or fixed by the government and central bank response to that crisis. Rather, the entire response was just a gigantic coverup of the crimes and irresponsible behavior that occurred, coupled with a bailout designed to enrich and empower those who needed and deserved it least.

Everything was papered over in order to resuscitate a failed paradigm without reforming anything. Since it was all about pretending nothing was structurally wrong with the system, the response was to build more castles of sand on top of old ones that had unceremoniously crumbled. The whole event was a huge warning sign and opportunity to change course, but it was completely ignored. Enter novel coronavirus.

I’ve been concerned about the coronavirus outbreak from the start, and have been tweeting about it consistently for well over a month.


 · Jan 27, 2020

One thing I’ve learned from this coronavirus response thus far is institutions will never do the right thing fast enough in a situation like this to prevent a true global disaster when that day arrives.

We have no idea what’s actually happening with this thing, yet planes are landing from China all over the world. We may very well avoid a global disaster here, but if we do it’ll be because of luck.


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

Rabobank: What Level Of Interest Rates Will Incentivize You To Risk The Death Of Yourself And Your Family

Rabobank: What Level Of Interest Rates Will Incentivize You To Risk The Death Of Yourself And Your Family

“Tonight the super trouper lights are gonna find me
Shining like the sun (sup-p-per troup-p-per)
Smiling, having fun (sup-p-per troup-p-per)
Feeling like a number one…”

So sang markets yesterday in excitement as we enter what I am dubbing “Super Trouper Tuesday”. Indeed, the Dow Jones went up a whole baseball cap-and-a-bit to close at 26,703 even as the 10-year US remain at an unprecedented 1.12%. Not because the Fed mumbled something on Friday, but didn’t act, and not because the BOJ pumped all of USD4.6bn into markets yesterday, and not because the RBA cut rates 25bp to a new low of 0.50% earlier today, meaning that they now have one more cut left to go before it’s “Oz-QE, Oz-QE, Oz-QE” (Oi!Oi!Oi!) time. (Good timing not only due to Covid-19, as building approvals tumbled -15.3% m/m in January anyway.)

It’s also not due to more signs the virus spread is in “uncharted territory” according to the WHO (which means “pandemic” but is contractually obliged not to ever say it, it seems), with more deaths, and as UK police and army draw up lockdown plans and supermarkets plot their own contingency plans, for just one real-life example.

Rather it’s a reflection of the fact that the not-so-magnificent G-7, and G-7 central banks, have pledged that they will meet today to act jointly on the virus, and the IMF and World Bank are also prepared to help if needed; Covid-19, it seems, is a threat that requires immediate action in a way that the potential risk of the end of life on earth (if you are Green), or increasingly Victorian/Gilded Age levels of wealth inequality (if you are Piketty) are not. Then again we have to recall that stocks had just fallen by over 10% in a week, and that house prices risk following: Come on you cynical people, priorities, please!

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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