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In January, Guggenheim CIO Scott Minerd warned that ultimately, markets will need to reprice for this rising risk with increased bond spreads relative to Treasury securities. However, that day of reckoning when spreads rise is being held off by the flood of central bank liquidity and international investors fleeing negative yields overseas.

And let’s not forget downgrade risk of BBBs: today 50 percent of the investment-grade market is rated BBB, and in 2007 it was 35 percent. More specifically, about 8 percent of the investment-grade market was BBB- in 2007 and today it is 15 percent. It has more than quintupled in size outstanding, from $800 billion to $3.3 trillion. We expect 15–20 percent of BBBs to get downgraded to high yield in the next downgrade wave: This would equate to $500–660 billion and be the largest fallen angel volume on record—and would also swamp the high yield market.

Ultimately, we will reach a tipping point when investors will awaken to the rising tide of defaults and downgrades. The timing is hard to predict but this reminds me a lot of the lead-up to the 2001 and 2002 recession.

Coronavirus Unlikely to Cause U.S. Recession, BridgePark’s Selig Says

The prolonged period of tight credit spreads experienced in the late 1990s lulled investors into unwittingly increasing risk at a time they should have been upgrading their portfolios.

This brings to mind the famous observation by economist Hyman Minsky, who stated that stability is inherently destabilizing. That is to say that long periods of relative stability in risk assets causes investors to keep upping the risk during a long period of calm.

Ultimately, this leads to what he called a Ponzi Market where the only reason investors keep adding to risk is the fear that prices will be higher tomorrow (or in the case of bonds, yields will be lower tomorrow).

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

“Trump Faces An Impossible Trade-Off”: Why A Global Recession Is Now Inevitable

February 28, 2020

“Trump Faces An Impossible Trade-Off”: Why A Global Recession Is Now Inevitable

With California reporting late on Friday that a second coronavirus case of “unknown origin” has been uncovered, prompting Santa Claria’s Health Department to caution that “now is the time to prepare for the possibility of widespread community transmission” echoing similar warnings from the CDC, the Trump administration’s response to what now appears an inevitable surge in US-based coronavirus cases is becoming an increasingly politicized topic, and not without justification: after all, it is hardly a secret that Trump’s favorite “job approval” barometer has been the stock market – which hit an all time high as recently as last week – and it is also hardly a secret that Trump hardly wishes to inspire a stock market panic by disclosing the full extent and severity of any potential domestic epidemic (which ironically, aligns Trump ideologically with China, which is now willing to sacrifice its population in the pursuit of restarting the Chinese economy).

✔

President Trump on the coronavirus: “We made a decision very early to close up our borders to certain areas of the world and we did that so we are hopefully getting lower from [15].”

Yet the more Trump, or various domestic institutions, appears evasive over the full extent of the corona crisis inside the US, the more markets get hit. Worse, the longer Trump avoids addressing the potential domestic epidemic, the more likely it is that the market crash that saw stocks plunge this week at the fastest rate since the financial crisis, will persist.

This brings us to an absolutely spot-on observation made by Bank of America’s rates strategist Ralf Preusser, who explains why for Trump, and US stocks, it may only get worse, before it gets even worse. That reason is that markets now seem to be taking the view that authorities – i.e., Trump – face an impossible trade-off:

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

Secret Money for Private Armies – Catherine Austin Fitts

January 14, 2019

Secret Money for Private Armies – Catherine Austin Fitts

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says it looks like a “global recession is coming.” Is that going to cause the debt reset we’ve been hearing about for years? Fitts says, “Make no mistake about it, there is no reason for the federal government to default or monkey with any debt because they can literally print the currency. The question is how do they make sure whatever they are printing really holds any kind of store of value. I think the reason you are seeing them reengineer the federal bureaucracy and financial transactions infrastructure is because they want much greater and tighter control to do whatever they do, and that includes to continue to debase the currency. They could do this (reset) entirely by debasing the currency. . . . What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President. . . . It’s pirating by the ‘just do it’ method. I said to someone the other day, what is it about secret money for secret private armies that you don ‘t understand?”

$21 trillion in “missing money” at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue. The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, “This is basically an open running bailout. Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it.

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

IMF Warns World “Dangerously Unprepared” For Upcoming Global Recession

January 7, 2019

IMF Warns World “Dangerously Unprepared” For Upcoming Global Recession

In the starkest warning yet about the upcoming global recession, which some believe will hit in late 2019 or 2020 at the latest, the IMF warned that the leaders of the world’s largest countries are “dangerously unprepared” for the consequences of a serious global slowdown. The IMF’s chief concern: much of the ammunition to fight a slowdown has been exhausted and governments will find it hard to use fiscal or monetary measures to offset the next recession, while the system of cross-border support mechanisms — such as central bank swap lines — has been undermined, warned David Lipton, first deputy managing director of the IMF.

*IMF Deputy Managing Director David Lipton*

“The next recession is somewhere over the horizon, and we are less prepared to deal with that than we should be . . . [and] less prepared than in the last [crisis in 2008],” Lipton told the Financial Times during the annual meeting of the American Economic Association. “Given this, countries should be paying attention to keeping their economy on a level trajectory, building buffers and not fighting with each other.”

While the IMF projected solid, 3.7% growth in the global economy in 2019 in its most recent, October, forecasts, with the IMF set to release updated forecasts later this month, Lipton admitted that the growth outlook is being undermined by trade tensions, policy flaws and weakness in Asia.

“China is clearly slowing down — we think China’s growth has to slow, but keeping it from slowing in a dangerous way is an important objective,” he said, noting that a downshift would be “material very broadly, not just in Asia.”

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

“Jarring” FedEx Outlook Cut Suggests “Severe Global Recession”

December 19, 2018

“Jarring” FedEx Outlook Cut Suggests “Severe Global Recession”

FedEx shares tumbled 7% after what Morgan Stanley called a “jarring” cut to its annual forecasts, suggesting global growth is slowing far more than most expect, and prompting expectations of an “uber-dovish hike” by the Fed.

The global logistics bellwether slashed its outlook just three months after raising the view, reflecting an unexpected and abrupt change in the company’s view of the global economy amid rising trade tensions between the U.S. and China. Not only were the cuts were deeper than the Street expected according to Morgan Stanley analyst Ravi Shanker, but everyone is pointing to the following comment from the press release: “Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term.”

Needless to say, with little in terms of warning, Morgan Stanley was shocked by the magnitude and severity of the cut, and suggested that this implies a “severe global recession” is unfolding:

“We recognize that global growth has slowed but we are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession,” Shanker wrote. “We believe global growth concerns are also likely to get worse before they get better next year, which could mean more of a drag on FY20 EPS.”

Quoted by Bloomberg, Shankar also said that the Express unit is also likely to remain an overhang, Shanker said, as FedEx management didn’t provide an outlook for fiscal 2020 or its timeline for improving the cargo airline, which has been hit by worsening economic conditions in Europe.

FedEx shares tumbled 7% on Wednesday morning, the lowest intraday price in about two years and the 10th decline for FedEx in 11 days.

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

Understanding the Global Recession of 2019

November 12, 2018

Understanding the Global Recession of 2019

Isn’t it obvious that repeating the policies of 2009 won’t be enough to save the system from a long-delayed reset?

2019 is shaping up to be the year in which all the policies that worked in the past will no longer work. As we all know, the Global Financial Meltdown / recession of 2008-09 was halted by the coordinated policies of the major central banks, which lowered interest rates to near-zero, bought trillions of dollars of bonds and iffy assets such as mortgage-backed securities, and issued unlimited lines of credit to insolvent banks, i.e. unlimited liquidity.

Central governments which could do so went on a borrowing / spending binge to boost demand in their economies, and pursued other policies designed to bring demand forward, i.e. incentivize households to buy today what they’d planned to buy in the future.

This vast flood of low-cost credit and liquidity encouraged corporations to borrow money and use it to buy back their stocks, boosting per-share earnings and sending stocks higher for a decade.

The success of these policies has created a dangerous confidence that they’ll work in the next global recession, currently scheduled for 2019. But policies follow the S-Curve of expansion, maturity and decline just like the rest of human endeavor: the next time around, these policies will be doing more of what’s failed.

The global economy has changed. Demand has been brought forward for a decade, effectively draining the pool of future demand. Unprecedented asset purchases, low rates of interest and unlimited liquidity have inflated gargantuan credit / asset bubbles around the world, the so-called everything bubble as most asset classes are now correlated to central bank policies rather than to the fundamentals of the real-world economy.

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

MAULDIN: One Of These 3 Black Swans Will Likely Trigger A Global Recession By End Of 2018

July 30, 2017

MAULDIN: One Of These 3 Black Swans Will Likely Trigger A Global Recession By End Of 2018

Exactly 10 years ago, we were months way from a world-shaking financial crisis.

By late 2006, we had an inverted yield curve steep to be a high-probability indicator of recession. I estimated at that time that the losses would be $400 billion at a minimum. Yet, most of my readers and fellow analysts told me I was way too bearish.

Turned out the losses topped well over $2 trillion and triggered the financial crisis and Great Recession.

Conditions in the financial markets needed only a spark from the subprime crisis to start a firestorm all over the world. Plenty of things were waiting to go wrong, and it seemed like they all did at the same time.

We don’t have an inverted yield curve now. But when the central bank artificially holds down short-term rates, it is difficult if not almost impossible for the yield curve to invert.

We have effectively suppressed the biggest warning signal.

But there is another recession in our future (there is always another recession), which I think will ensue by the end of 2018. And it’s going to be at least as bad as the last one was in terms of the global pain it causes.

Below are three scenarios that may turn out be fateful black swans. But remember this: A harmless white swan can look black in the right lighting conditions. Sometimes, that’s all it takes to start a panic.

Black Swan #1: Yellen Overshoots

It is clear that the US economy is not taking off like the rocket some predicted after the election:

President Trump and the Republicans haven’t been able to pass any of the fiscal stimulus measures we hoped to see.

Banks and energy companies are getting some regulatory relief, and that helps; but it’s a far cry from the sweeping healthcare reform, tax cuts, and infrastructure spending we were promised.

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

The Coming Of Depression Economics

January 29, 2017

The Coming Of Depression Economics

Like it or not, this is where we have been all along and a great many people are just now catching up. No matter what Janet Yellen says about the economy, she is talking out the side of her mouth. Internally, the recovery is gone, and it is never coming back. Externally, we have sub-5% unemployment so we all should be so happy, especially with, in her view, stable prices.

To their credit, many prominent economists aren’t so enthusiastic about those prospects. Among them are Larry Summers, Paul Krugman, and Brad DeLong, all who recognize that “something” just isn’t right and therefore “something” else should be done about it. Thus, the real economic debate over the coming years (unfortunately) will take shape around those two facets. Having wasted nearly a decade on purely central bank solutions that were never going to work, the real discoveries can now possibly take place.

The problem is as I wrote yesterday, where in a rush to do anything and everything “different” the Trump administration might actually spoil the process. De-regulation and income tax cuts, as well as the repeal of Obamacare, are all very good things that sorely need to be addressed; but they didn’t cause this depression and thus won’t get us out of it. And you can bet that none of Summers, Krugman, or DeLong will be in favor of those options, so if they all fail to restore economic growth, as I believe they will if left in isolation, then that will severely diminish those ideas for perhaps a generation or more. That would be a fatal mistake, especially since for the first time in many generations people outside of Economics are receptive to “new” ideas (that are only new because they have been out of practice and actively discouraged for so long).

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

Global Recession? The Canadian Economy Shrinks At The Fastest Pace Since The Last Financial Crisis

September 2, 2016

Global Recession? The Canadian Economy Shrinks At The Fastest Pace Since The Last Financial Crisis

Things have not been this bad for the Canadian economy since the last global recession. During the second quarter of 2016, Canada’s GDP contracted at a 1.6 percent annualized rate. That was the worst number in seven years, and it was even worse than most analysts were projecting. This comes at a time when bad news is pouring in from all corners of the global economy. While things in the United States are still relatively stable for the moment, the same cannot be said for much of the rest of the planet. Canada in particular has been hit very hard by the collapse in oil prices, and the massive wildfire in northern Alberta back in May certainly did not help things. The following comes from the BBC…

The recent drop in GDP was larger than analysts had projected, but not far off the predicted 1.5% loss.

“[The figure] could have been worse, given the hit from the wildfire, and clearly confirms the disappointing downward trend in exports over the last few months,” said Sal Guatieri, senior economist at BMO Capital Markets.

In May, wildfires devastated the parts of northern Alberta where much of Canada’s oil and natural gas is produced.

For many years, high oil prices and booming exports enabled the Canadian economy to significantly outperform the U.S. economy. But now conditions have changed dramatically, and all of the economic bubbles up in Canada are starting to burst. This includes the housing bubble, as we have seen home sales in the hottest markets such as Vancouver drop through the floor late in the summer. In fact, it is being reported that home sales during the first two weeks of August in British Columbia were down a whopping 51 percent on a year over year basis.

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

The Death Throes of Oil

February 3, 2016

The Death Throes of Oil

PRINCETON – The price of oil is often regarded as a sort of thermometer to measure the health of the world economy. What is less often noted is that it can also serve as a barometer – warning of approaching geopolitical storms. Indeed, the dramatic plunge in the price of a barrel of crude – from nearly $150 in June 2008 to around $30 today – is likely to fuel continued upheaval far beyond the world’s energy and commodity markets, with particularly worrying implications for the European Union.

Sinking oil prices are clearly correlated with financial instability, but the lines of causation do not point in the direction most pundits seem to believe. On the contrary, when the price of oil rises, so do costs in most rich, industrialized economies; thus, a rising oil price acts as a brake on growth. Surges in the price of oil led to global recessions in 1973, 1979, 2000, and 2008.

The reverse is also true. An economic slowdown will likely produce a price drop, which can be a financial boon for governments and consumers alike. After the collapse of Lehman Brothers in 2008, oil prices plummeted in anticipation of economic stagnation, only to recover substantially as vigorous growth continued in emerging markets. Viewed in this light, the recent drop in oil prices is unsurprising, as it follows signs of weakness in every major emerging market (with the possible exception of India).

Furthermore, oil prices today are subject to a powerful source of downward pressure: the expectation that the world economy will be restructured in response to worries about climate change. Current efforts to curb global warming may not have much bite, but in the long term, the fact that fossil fuels are major contributors to the rise in atmospheric carbon dioxide and thus climate change is likely to prompt policymakers – and investors – to take serious action.

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

We Know How This Ends, Part 2

January 20, 2016

We Know How This Ends, Part 2

In March 1969, while Buba was busy in the quicksand of its swaps and forward dollar interventions, Netherlands Bank (the Dutch central bank) had instructed commercial banks in Holland to pull back funds from the eurodollar market in order to bring up their liquidity positions which had dwindled dangerously during this increasing currency chaos. At the start of April that year, the Swiss National Bank (Swiss central bank) was suddenly refusing its own banks dollar swaps in order that they would have to unwind foreign funds positions in the eurodollar market. The Bank of Italy (the Italian central bank) had ordered some Italian banks to repatriate $800 million by the end of the second quarter of 1969. It also raised the premium on forward lire at which it offered dollar swaps to 4% from 2%, discouraging Italian banks from engaging in covered eurodollar placements.

The “rising dollar” of 1969 had somehow become anathema to global banking liquidity even in local terms.

The FOMC, which had perhaps the best vantage point with which to view the unfolding events, documented the whole affair though stubbornly and maddeningly refusing to understand it all in greater context of radical paradigm banking and money alterations. In other words, the FOMC meeting MOD’s for 1968 and 1969 give you an almost exact window into what was occurring as it occurred, but then, during the discussions that followed, degenerating into confusion and mystification as these economists struggled to only frame everything in their own traditional monetary understanding – a religious-like tendency that we can also appreciate very well at this moment.

At the April 1969 FOMC meeting, Charles A. Coombs, Special Manager of the System Open Market Account, reported that the bank liquidity issue then seemingly focused on Germany was indeed replicated in far more countries.

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

We Know How This Ends, Part 1

January 20, 2016

We Know How This Ends, Part 1

The finance ministers and representatives of central banks from the world’s ten largest “capitalist” economies gathered in Bonn, West Germany on November 20, 1968. The global financial system was then enthralled by a third major currency crisis of the past year or so and there was great angst and disagreement as to what to do about it. While sterling had become something of a recurring devaluation tendency and francs perpetually, it seemed, in disarray, this time it was the Deutsche mark that was the great object of conjecture and anger. What happened at that meeting, a discussion that lasted thirty-two hours, depends upon which source material you choose to dissect it. From the point of view of the Germans, it was a convivial exchange of ideas from among partners; the Americans and British, a sometimes testy and perhaps heated debate about clearly divergent merits; the French were just outraged.

The communique issued at the end of the “conference” only said, “The ministers and governors had a comprehensive and thorough exchange of views on the basic problems of balance-of-payments disequilibria and on the recent speculative capital movements.” In reality, none of them truly cared about the former except as may be controlled by the latter. These “speculative capital movements” became the target of focused energy which would not restore balance and stability but ultimately see the end of the global monetary system.

Some background is needed before jumping into West Germany’s financial energy. The gold exchange standard under the Bretton Woods framework had appeared to have lasted as far as this monetary conference, but it had ended in practicality long before. In the late 1950’s, central banks, the Federal Reserve primary among them, had rendered gold especially and increasingly irrelevant in settling the world’s trade finance.

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

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

November 24, 2015

The U.S. Dollar Has Already Caused A Global Recession And Now The Fed Is Going To Make It Worse

The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.

Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.

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

18 Numbers That Scream That A Crippling Global Recession Has Arrived

November 3, 2015

18 Numbers That Scream That A Crippling Global Recession Has Arrived

The stock market has been soaring, but all of the hard economic numbers are telling us that a major global recession is here. This is so reminiscent of what happened back in 2008. Back then, all of the fundamentals were screaming “recession” by the middle of that year, but the equity markets didn’t respond until later. It appears that a similar pattern is playing out right now. The trade numbers, the manufacturing numbers, the inventory numbers and even the GDP numbers are all saying that a very significant economic slowdown is happening, but stock traders haven’t gotten the memo yet. In fact, stocks had an absolutely great month in October. Of course just like in 2008, stocks will eventually catch up with reality. It is just a matter of time. The following are 18 numbers that scream that a crippling global recession has arrived…

#1 According to the biggest bank in the western world, British banking giant HSBC, the world is already in a “dollar recession“. Global GDP expressed in U.S. dollars is down 3.4 percent so far in 2015, and total global trade has fallen 8.4 percent.

#2 In September, Chinese exports were down 3.7 percent compared to one year ago, and Chinese imports were down a whopping 20.4 percent compared to a year ago.

#3 Demand for Chinese steel is down 8.9 percent compared to a year ago.

#4 China’s rail freight volume is down 10.1 percent compared to last year.

#5 In October, South Korean exports were down 15.8 percent from a year ago.

#6 According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114. What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

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

The Calm Before The Storm

October 27, 2015

The Calm Before The Storm

Have you noticed that things have gotten eerily quiet in the month of October? After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine. Other “watchmen” that I highly respect have made the exact same observation. Even though the economic numbers are screaming that we have entered a global recession, they aren’t really make any headline news. A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet. And of course Barack Obama seems bound and determined to start World War III. On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea. The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care. But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.

To me, what we are experiencing at the moment would best be described as “the calm before the storm”. If you are not familiar with this concept, this is how it is defined by How Stuff Works…

Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.

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

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