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The unprecedented credit-fueled bubbles in stocks, bonds and real estate are popping, and America’s corrupt leaders can only stammer and spew excuses and empty promises.

Unbeknownst to most people, America’s leadership made a pact with the Devil: rather than face the constraints and injustices of our economic-financial system directly, a reckoning that would require difficult choices and some sacrifice by the ruling financial-political elites, our leaders chose the Devil’s Pact: substitute the creation of asset-bubble “wealth” in the hands of the few for widespread prosperity.

The Devil’s promise: that some thin trickle of the trillions of dollars bestowed on the few would magically trickle down to the many. This was as visibly foolish as the promise of immortality on Planet Earth, but our craven, greedy leadership quickly sealed the deal with the Devil and promptly inflated the greatest credit-asset bubble in human history.

Rather than trade away one’s soul, America’s leaders traded away the future security and stability of the nation. By refusing to deal with the real problems exposed by the collapsing financial scams in 2008-09, our leaders–both the unelected Federal Reserve and the elected “best government money can buy”–chose to bail out the scammers who had greased their palms so generously and sacrificed the prosperity of the many to do so.

This is more or less the equivalent of sacrificing innocents at the altar of the gods to ensure the leaders’ rule will continue to be successful.

The Devil was delighted to serve up the illusion of godlike powers to our corrupt, greedy leaders. The deal looked oh-so win-win: we enrich the top few percent and offload the costs and sacrifices on the powerless many, who were told that they would benefit from the trickle of cash leaking out of the super-wealthy’s bulging pockets.

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

Surviving 2020 #3: Plans A, B and C

May 7, 2020

Surviving 2020 #3: Plans A, B and C

Readers ask for specific recommendations for successfully navigating the post-credit/speculative-bubble era and I try to do so while explaining the impossibility of the task.

As the bogus prosperity economy built on exponential growth of debt implodes, we all seek ways to protect ourselves, our families and our worldly assets. There are any number of websites, subscription services and books which offer two basic “practical recommendations:”

1. Buy gold (and/or silver) and don’t worry about timing the market as everything else will become worthless.

2. Establish a heavily armed and well-supplied hideaway before everything implodes.

My problem with these suggestions is that they are predicated on a decisive “end of the world as we know it” collapse of civilization.

While I am alive to the possibility of this cataclysm, an analysis of the many feedback loops which will slow or counteract such a decisive collapse suggests other alternatives are even more likely: my term for the slow, uneven decline of the credit/speculative-bubble era is devolution.

I cover feedback loops, historical cycles and why a lengthy devolution is as least as likely a scenario as abrupt collapse in my book Survival+ (free downloadable version is linked below).

In other words, I do not see planning for eventualities as “either/or.” I look at it in terms of three levels:

1. Plan A: dealing with devolution: government services are cut back, prices for essentials rise over time, fulltime paid jobs become scarce, the State (all levels of government) becomes increasingly repressive as it pursues “theft by other means,” i.e. the stripmining of private assets to feed its own fiefdoms and Elites; most assets fall in purchasing power (value) as the system’s financial props erode.

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

No Fix for Recession: Without a Financial Crisis, There’s No Central Bank Policy Fix

April 15, 2019

No Fix for Recession: Without a Financial Crisis, There’s No Central Bank Policy Fix

There are no extreme “fixes” to secular declines in sales, profits, employment, tax revenues and asset prices.

The saying “never let a crisis go to waste” embodies several truths worth pondering as the stock market nears new highs. One truth is that extreme policies that would raise objections in typical times can be swept into law in the “we have to do something” panic of a crisis.

Thus wily insiders await (or trigger) a crisis which creates an opportunity for them to rush their self-serving “fix” into law before anyone grasps the long-term consequences.

A second truth is that crises and solutions are generally symmetric: a moderate era enables moderate solutions, crisis eras demand extreme solutions. Nobody calls for interest rates to fall to zero in eras of moderate economic growth, for example; such extreme policies may well derail the moderate growth by incentivizing risk-taking and excessive leverage.

Speculative credit bubbles inevitably deflate, and this is universally viewed as a crisis, even though the bubble was inflated by easy money, fraud, embezzlement and socializing risk and thus was entirely predictable.

The Federal Reserve and other central banks are ready for bubble-related financial crises: they have the extreme tools of zero-interest rate policy (ZIRP), negative-interest rate policy (NIRP), unlimited credit lines, unlimited liquidity, the purchase of trillions of dollars of assets, etc.

But what if the current speculative credit bubbles in junk bonds, stocks and other assets don’t crash into crisis? What if they deflate slowly, losing value steadily but with the occasional blip up to signal “the Fed has our back” and all is well?

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

Weekly Commentary: Canary in the Credit Market’s Coal Mine

November 18, 2018

Weekly Commentary: Canary in the Credit Market’s Coal Mine

What ever happened to “Six Sigma”? GE was one of the most beloved and hyped S&P500 stocks during the late-nineties Bubble Era. With “visionary” Jack Welch at the helm, GE was being transformed into a New Age industrial powerhouse – epitomizing the greater revolution of the U.S. economy into a technology and services juggernaut.

GE evolved into a major financial services conglomerate, riding the multi-decade wave of easy high-powered contemporary finance and central bank backstops. GE Capital assets came to surpass $630 billion, providing the majority of GE earnings. Wall Street was ecstatic – and loath to question anything. GE certainly had few rivals when it came to robust and reliable earnings growth. Street analysts could easily model quarterly EPS (earnings per share) growth, and GE would predictably beat estimates – like clockwork. Bull markets create genius.

It’s only fitting. With a multi-decade Credit Bubble having passed a momentous inflection point, there is now mounting concern for GE’s future. Welch’s successor, Jeffrey Immelt, announced in 2015 that GE would largely divest GE Capital assets. These kinds of things rarely work well in reverse. Easy “money” spurs rapid expansions (and regrettable acquisitions), while liquidation phases invariably unfold in much less hospitable backdrops. Immelt’s reputation lies in tatters, and GE today struggles to generate positive earnings and cash-flow.

When markets are booming and cheap Credit remains readily available, Wall Street is content to overlook operating cash flow and balance sheet/capital structure issues. Heck, a ton of money is made lending to, brokering loans for and providing investment banking services to big borrowers. That has been the case for the better part of the past decade (or three). No longer, it appears, as rather suddenly balance sheets and debt matter.

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

When Does This Travesty of a Mockery of a Sham Finally End?

September 21, 2018

When Does This Travesty of a Mockery of a Sham Finally End?

Credit bubbles are not engines of sustainable employment, they are only engines of malinvestment and wealth destruction on a grand scale.

We all know the Status Quo’s response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham–smoke and mirrors, flimsy facades of “recovery,” simulacrum “reforms,” serial bubble-blowing and politically expedient can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.

So when will the travesty of a mockery of a sham finally come to an end? Probably around 2022-25, with a few global crises and “saves” along the way to break up the monotony of devolution. The foundation of this forecast is this chart I prepared back in 2008 (below).

This is of course only a selection of cycles; many more may be active but these four give us a flavor of the confluence of crises ahead.

Cycles are not laws of Nature, of course; they are only records of previous periods of growth/excess/depletion/collapse, not predictions per se. Nonetheless their repetition reflects the systemic dynamic of growth, crisis and collapse, and so the study of cycles is instructive even though we stipulate they are not predictive.

What is predictable is the way systems tend to follow an S-curve of rapid growth with then tops out in excess, stagnates in depletion and then devolves or implodes. We can see all sorts of things topping out and entering depletion/collapse: financialization, the Savior State, Chinese credit expansion, oil production, student loan debt and so on.

Since each mechanism that burns out or implodes tends to be replaced with some other mechanism, this creates the recurring cycle of expansion / excess / depletion / collapse.

I plotted four long-wave cycles in the first chart:

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

How “Ghost Collateral” And “Yin-Yang” Property Deals Will Collapse China’s Credit Bubble

December 5, 2017

How “Ghost Collateral” And “Yin-Yang” Property Deals Will Collapse China’s Credit Bubble

One lesson from the 2007-08 crisis was that the vast majority of financial market participants, never mind the general public, were unfamiliar with subprime mortgages until the crisis was underway. Even now, we doubt many have much understanding of repo, the divergence between LIBOR and Fed Funds from 9 August 2007 and Eurodollar liquidity. In a similar way, when China’s bubble bursts, we doubt the majority will be that familiar with “ghost collateral” and “yin-yang” property contracts either.

A second lesson from the 2007-08 crisis was that as the value of the collateral underpinning the vast amount of leverage declined, the surge in margin calls led to cascading waves of selling in a downward spiral.

A third lesson was that the practice of re-hypothecating the same subprime mortgage bonds more than once, meant collateral supporting the most vulnerable part of the credit bubble was non-existent. It only became apparent with the falling prices and margin calls. Few people realised the bull market was built on such flimsy foundations, as long as prices kept rising.

A fourth lesson was that in order for the bubble to reach truly epic proportions, key financial institutions, especially banks, needed to conduct themselves in a negligent fashion and totally ignore increasing risks.

Each of these warning signs from the 2007-08 crisis exists in China’s property market now – and other parts of its financial system – bar one…falling prices leading to cascading waves of selling. However, as we’ll explain, we think it’s only a matter of months away now.

We should note that our thesis that China’s bubble would eventually be undermined by a “black hole” of insufficient collateral is one that we have been developing for several years. What we came to realise is that insufficient collateral is nothing more than normal business practice in the Chinese economy.

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

PBOC’s Zhou Warns Of “Sudden, Complex, Hidden, Contagious, Hazardous” Risks In Global Markets

November 5, 2017

PBOC’s Zhou Warns Of “Sudden, Complex, Hidden, Contagious, Hazardous” Risks In Global Markets

Just two weeks after warning of the potential for an imminent ‘Minsky Moment’, Chinese central bank governor Zhou Xiaochuan has penned a lengthy article on The PBOC’s website that warns ominously of latent risks accumulating, including some that are “hidden, complex, sudden, contagious and hazardous,” even as the overall health of the financial system appears good.

The imminence of China’s Minksy Moment is something we have discussed numerous times this year.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion.

And then at the latest Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following;

“If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.”

Yet, stock markets shrugged off his warning… while the Chinese yield curve has now been inverted for 10 straight days – the longest period of inversion ever…

Which appears to be why he wrote his most recent and most ominous warning yet… (as Bloomberg reports)

The nation should toughen regulation and let markets serve the real economy better, according to Zhou.

The government should also open up financial markets by relaxing capital controls and reducing restrictions on non-Chinese financial institutions that want to operate on the mainland, he wrote.

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

An Accountant Smells a Rat – Peter Diekmeyer

October 2, 2017

An Accountant Smells a Rat – Peter Diekmeyer

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis.

However a coming implosion, he says, could be the biggest yet.

“We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.”

Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland’s Credit Bubble thesis

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output.

Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050.

Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows.

In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

Unburdened by “econometrics groupthink”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t?

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

Albert Edwards: “Citizen Rage” Will Soon Be Directed At “Schizophrenic” Central Banks

September 21, 2017

Albert Edwards: “Citizen Rage” Will Soon Be Directed At “Schizophrenic” Central Banks

Perhaps having grown tired of fighting windmills, it was several weeks since Albert Edwards’ latest rant against central banks. However, we were confident that recent developments out of the Fed and BOE were sure to stir the bearish strategist out of hibernation, and he did not disappoint, lashing out this morning with his latest scathing critique of “monetary schizophrenia”, slamming all central banks but the Fed and Bank of England most of all, who are again “asleep at the wheel, building a most precarious pyramid of prosperity upon the shifting sands of rampant credit growth and illusory housing wealth.”

Follows pure anger from the SocGen strategist:

These of all the major central banks were the most culpable in their incompetence and most prepared with disingenuous excuses. And 10 years on, not much has changed. The Fed and BoE are once again presiding over a credit bubble, with the BoE in particular suffering a painful episode of cognitive dissonance in an effort to shift the blame elsewhere. The credit bubble is everyone’s fault but theirs.

First, some recent context with this handy central bank holdings chart courtesy of Deutsche Bank’s Jim Reid which alone is sufficient to make one’s blood boil.

For those familiar with Edwards’ writings over the years, the gist of his note will come as no surprise: after all, how many different ways can you say that central banks have broken the market, have caused a credit bubble, and will be responsible for the crash when they finally run out of cans to kick.

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

Fed Vice Chair Fischer Admits Fed is Waiting for Godot

October 8, 2016

Fed Vice Chair Fischer Admits Fed is Waiting for Godot

The Fed’s fourth mandate.

In his keynote speech on the usual suspects of central-bank topics at the Institute of International Finance’s big shindig in Washington DC today, Fed Vice Chair Stanley Fischer nevertheless managed to develop a new theory for a fourth Fed mandate.

This new mandate would come on top of the third mandate: inflating asset bubbles at all costs (unlimited asset price inflation). The other two mandates are “full employment” (whatever that means) and “price stability,” which is ironically defined as consumer price inflation, the way the Fed counts it, of at the moment 2%, and a lot more in most people’s real-life experience.

Fischer has been grumbling about the slow growth of the US economy for a while – “Everybody is trying to find out what is going on,” he said today, and then went on to explain what’s going on. Turns out, what’s restraining economic growth and investment is a lack of “confidence” and “animal spirits.”

“Confidence has to be turned on for people to want to invest and we’re waiting to see that happen,” he said, according to MarketWatch. “It will happen at some point. But precisely when” is unknown he said.

“Animal spirits aren’t there – people aren’t excited about growth prospects.”

So no interest rate increases until these “animal spirits” and “confidence” show up?

But, but, but… the Fed’s monetary policies for the past eight years have created the biggest credit bubble in US history, including the biggest junk bond bubble ever, a stock market bubble, housing bubbles in numerous cities around the country that exceed by far the peaks of the prior housing bubbles that imploded so spectacularly, the most gigantic commercial real estate bubble, now according to the Green Street Commercial Property Price Index, 26.5% above its totally crazy bubble peak of August 2007….

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

The G-20s Big Fat Zero——Now Comes The Bubble’s Demise!

March 2, 2016

The G-20s Big Fat Zero——Now Comes The Bubble’s Demise!

The tens of millions of taxpayer money wasted at the G-20’s Shanghai soirée had a silver lining. The assembled masters of world finance came up with a big fat zero on the coordinated global stimulus front.

So doing, they essentially admitted that their money printing central banks are out of dry powder (“…but monetary policy alone cannot lead to balanced growth”) and that they are divided and confused on the fiscal front.

Indeed, the best result of the weekend is that the gaggle of G-20 statists acquiesced to Germany’s absolute “nein” on the foolish notion that a world self-evidently drowning in debt can still borrow its way back to prosperity. With respect to that ragged Keynesian shibboleth, Germany’s intrepid finance minister left nothing to the imagination:

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said…….“Fiscal as well as monetary policy has reached their limit.”

So this is not about a failed G-20 meeting; its about the end of a vast, long-running policy scam conducted by global officialdom and their central bankers. In a word, they did not save the world in 2008-2009 with the “courage” of extraordinary policies. They just temporarily buried the symptoms by resort to crank monetary theories and fiscal snake oil.

Indeed, every bit of the financial rot owing to the mutation of financial markets into debt-fueled gambling casinos and the vast economic deformations and malinvestments fostered by massive central bank financial repression prior to the 2008 financial crisis is still with us. Except it has subsequently metastasized into an even more egregious and incendiary form.

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

Sudden Death? Junk-Rated Companies Headed for Biggest “Refinancing Cliff” Ever: Moody’s

February 17, 2016

Sudden Death? Junk-Rated Companies Headed for Biggest “Refinancing Cliff” Ever: Moody’s

At the worst possible time.

Most of the defaults, debt restructurings, and bankruptcies so far this year and last year were triggered when over-indebted cash-flow negative companies could not make interest payments on their debts.

During the crazy days of the peak of the credit bubble two years ago, they would have been able to borrow even more money at 8% or 9% and go on as if nothing happened. But those days are gone. Now the riskiest companies face interest costs of 20% or higher – if they’re able to get new money at all. Hence, the wave of debt restructurings and bankruptcies.

But that’s small fry. Now comes the wave of companies whose debts mature. They will have to borrow new money not only to fund their interest payments, cash-flow-negative operations, and capital expenditures, but also to pay off maturing debt.

That “refinancing cliff” is going to be the biggest, steepest ever, after the greatest credit bubble in US history when companies took on record amounts of debt, and it comes at the worst possible time, warned Moody’s in its annual report.

In its report a year ago, Moody’s had already warned that the refinancing cliff for junk-rated US companies over the next five years – at the time, from 2015 through 2019 – would hit $791 billion. Of that, $349 billion would mature in 2019, the largest amount ever to mature in a single year.

But Moody’s pointed out that “near term risk remains low as only $18 billion, or 2% of total speculative-grade issuance comes due in 2015.” And that’s how it played out last year.

Since then, the refinancing cliff has gotten a lot bigger, according to Moody’s new annual report. The amount in junk-rated debt to be refinanced over the next five years, from 2016 through 2020, has surged nearly 20% to a record of $947 billion.

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

China Has A “Colossal Credit Bubble” And No One Knows How It Will Unwind, Marc Faber Warns

January 6, 2016

China Has A “Colossal Credit Bubble” And No One Knows How It Will Unwind, Marc Faber Warns

A little over a week ago, Marc Faber dialed in from Thailand to chat with Bloomberg TV about the outlook for US equities, the American economy, and USTs in the new year.

The US is “already in a recession,” the incorrigible doomsayer said.

Stocks will head lower in 2016, Faber continued, taking the opportunity to mock the sellside penguin brigade for adopting a universally bullish take on markets going forward. “Well, I don’t think that the U.S. will continue to increase interest rates,” he concluded, before predicting what we’ve been saying for years, namely that in the end, the Fed may be forced to do an embarrassing about-face and return to ZIRP and eventually to QE. “In fact, given the weakness in the global economy and the deceleration of growth in the U.S., I would imagine that by next year the Fed will cut rates once again and launch QE4.”

On Wednesday, Faber was back on Skype with Bloomberg to chat more about his outlook for 2016.

Asked why he believes the US is already in a recession, Faber says all one need do is “look at exports, look at industrial production and the slowdown in credit growth.”

As for what’s likely to work as an investment now that central banks have created bubbles everywhere you look, Faber says the following:

“With the exception of those that held Bitcoins, the performance of all asset classes has been poor. The Fed has created an atmosphere where the future return on assets whether it’s stocks or bonds or art will be poorer.”

Next, he bemoans the lack of market breadth, and warns that although the “indices are holding up well, the majority of market is already down 20% or more.” The S&P, he says, peaked in May and will fall 20-40%.

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

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

January 1, 2016

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

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

From ZIRP to NIRP

October 1, 2015

From ZIRP to NIRP

The sudden end of the Fed’s ambition to raise interest rates above the zero bound, coupled with the FOMC’s minutes, which expressed concerns about emerging market economies, has got financial scribblers writing about negative interest rate policies (NIRP).

Coincidentally, Andrew Haldane, the chief economist at the Bank of England, published a much commented-on speech giving us a window into the minds of central bankers, with zero interest rate policies (ZIRP) having failed in their objectives.

Of course, Haldane does not openly admit to ZIRP failing, but the fact that we are where we are is hardly an advertisement for successful monetary policies. The bare statistical recovery in the UK, Germany and possibly the US is slender evidence of some result, but whether or not that is solely due to interest rate policies cannot be convincingly proved. And now, exogenous factors, such as China’s deflating credit bubble and its knock-on effect on other emerging market economies, are being blamed for the deteriorating economic outlook faced by the welfare states, and the possible contribution of monetary policy to this failure is never discussed.

Anyway, the relative stability in the welfare economies appears to be coming to an end. Worryingly for central bankers, with interest rates at the zero bound, their conventional interest rate weapon is out of ammunition. They appear to now believe in only two broad options if a slump is to be avoided: more quantitative easing and NIRP. There is however a market problem with QE, not mentioned by Haldane, in that it is counterpart to a withdrawal of high quality financial collateral, which raises liquidity issues in the shadow banking system. This leaves NIRP, which central bankers hope will succeed where ZIRP failed.

– See more at: http://www.cobdencentre.org/2015/09/from-zirp-to-nirp/#sthash.Qb02oWjj.dpuf

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