Category Archives: Debtonomics

Europe Is Toast, by Robert Gore

The United Nations Climate Change Conference (UNCCC) will someday be regarded as the spire placed atop a towering edifice of mendacity and hubris. It will momentarily reward the vanity of those who built it, but it will seem as out of place with the time and events that followed as the newly constructed Empire State Building must have seemed to New Yorkers during the depths of the Great Depression. While the aspirational quality of the Empire State Building was incongruous with the bleak Depression, at least that building contributed, and continues to contribute, to human well-being, and its soaring lines remains aspirational. The figurative UNCCC tower is like the Dark Tower in Lord of the Rings, an obsidian monument to the nether regions of the human soul, erected on a foundation that will eventually crumble.

It is ironic that the UNCCC is being held in Paris, a font of European civilization, a little over two weeks after terrorists plunged the city into chaos and bloodshed. Participants will congratulate themselves for—among many self-evident virtues—their intrepid refusal to submit to fear, neither canceling nor moving the conference, thus denying terrorism a symbolic victory. Only a curmudgeon would point out the incongruity: a gathering of egos and powers who believe they can control the world and its climate contrasted to the recent carnage, yet another demonstration of their impotence.

The command and control paradigm is being stretched to its breaking point everywhere, no place more than Europe. The continent’s intellectual elite has always looked with condescension on the American “fetish” for individual rights and liberty. Europe is the birthplace of Marxism, welfare-statism, National Socialism, Fascism, and Keynesianism. Whatever the “free trade zone” rhetoric that attended the establishment of the European Union, it was envisioned by its originators as the gateway to pan-European supranational governance.

After World War II, Europe’s non-Warsaw Pact nations made a Faustian bargain: under NATO they would outsource their defense to the US, but give up much of their autonomy in foreign and military affairs. With minimal defense spending, the European nations funded lavish welfare states. Economies were extensively regulated by national governments, and the European Union evolved into another set of bureaucrats promulgating rules. Labor regulations are particularly stultifying, making it difficult and expensive for companies to reorganize, close money-losing operations, and fire unnecessary or unproductive workers. Trend growth rates in Europe have been below those of the US and Asia. Notwithstanding the implicit US defense subsidy, many European nations run deficits and their ratios of debt to GDP have steadily climbed.

Most European nations have played a subsidiary role in the US’s war on terror. Even those that have refused to join the US have not publicly opposed it. Unfortunately for Europe, its history—from the Crusades to its acquiescence to US intervention—puts it in Islamist crosshairs. Hatred of Europe runs as deep as hatred of the US, with a special animus for the French, British, and Russians. They carved up the region for their own advantage after World War I and share a legacy of colonialism and backing corrupt puppet regimes.

Even before the latest refugee influx, many European nations had substantial Islamic populations. The percentages will inexorably grow; Muslims have far higher birthrates than native Europeans. The debt burdens, regulatory strangulation, and welfare state benefits that have driven youth unemployment rates above 50 percent in some countries have also kept many Muslims, young and old, out of the labor force, on the dole, and living in ghettos. This is not a recipe for satisfaction. Resentment has been magnified by the tendency of many of the migrants to reject assimilation and to embrace violent and often apocalyptic Islamic ideologies. The swelling flood of refugees fleeing lands that have been made uninhabitable by war and chaos stoked by US and Europe intervention, some attracted by welfare state benefits, some vowing jihad, throws nitroglycerin on the fire.

Leaders of countries who are—confronted with slow-to-no-growth economies plagued by debt, unemployment, regulatory overkill, and unaffordable benefits; playing host to hundreds of thousands of Muslim refugees joining combustible local Muslim populations and placing further demands on already strained-to-the-breaking-point immigration, police (not all of the immigrants are law-abiding), and social services; faced with the understandable and increasingly virulent backlash all this engenders—will somehow solve the problem of global climate change, a problem for which it has not been established that humanity is the cause nor that it can be the solution. Sure they will. Long before the polar ice caps melt, coastal regions submerge, and equatorial regions become uninhabitable frying pans—if any of these things ever occur—the continent as we know it will collapse. Europe is toast.

These so-called leaders have met the looming disasters (and there will be a multiplicity) with politically correct gobbledygook orchestrated by the continent’s preeminence, Angela Merkel. Big-hearted Europe can open its borders and wallets to the refugees. (It can’t; it’s bankrupt and there are millions more coming.) They’re here to work, not soak up benefits. (Some are, but even those who want to work find it tough sledding in Europe’s sclerotic economies.) They are refugees, not terrorists (True of many, but not all, and it only took a few to wreak havoc in Paris. One does not have to accept Matthew Bracken’s nightmare scenario to concede that an appreciable percentage of refugees pose a danger.) In the long run, they will assimilate and become part of Europe’s rich and diverse culture. (Who knows? In the short run, thugs among them are robbing, beating, raping, murdering, and otherwise terrorizing local populations.)

Europe has no monopoly on hubris, ideology-induced myopia, and grandiose visions detached from reality. The American representative at the UNCCC is, after all, Barack Obama. While an ocean physically separates Europe and America, they are next-door neighbors philosophically. The US is following European footsteps: intervening in the Middle East and its historic enmities and conflicts, inserting itself in myriad unsavory machinations and intrigues, and establishing ostensible puppets that invariably end up pulling the strings of their supposed puppet masters. The US marches down Europe’s ruinous economic path as well.

There is a point of no return, when the consequences of actions taken pursuant to fallacy, pretension, and venality overwhelm those who have taken them. Europe has passed that point—its fate is sealed—and fences, walls, lock downs, identity cards, surveillance, segregation, deportation, and military retaliation will not shut the Pandora’s box of evils it has opened on itself. There is no assurance that if the US leaves the Middle East and Northern Africa the flow of refugees will abate or the threat of terrorism diminish, although those outcomes are quite plausible. However, the status quo guarantees escalation, and guarantees that the US will eventually share Europe’s fate.

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The Lull Before The Storm—–It’s Getting Narrow At The Top, Part 2, by David Stockman

From David Stockman at davidstockmanscontracorner.com:

The danger lurking in the risk asset markets was succinctly captured by MarketWatch’s post on overnight action in Asia. The latter proved once again that the casino gamblers are incapable of recognizing the on-rushing train of global recession because they have become addicted to “stimulus” as a way of life:

Shares in Hong Kong led a rally across most of Asia Tuesday, on expectations for more stimulus from Chinese authorities, specifically in the property sector…….The gains follow fresh readings on China’s economy, which showed further signs of slowdown in manufacturing data released Tuesday (which) remains plagued by overcapacity, falling prices and weak demand. The dimming view casts doubt that the world’s second-largest economy can achieve its target growth of around 7% for the year. The central bank has cut interest rates six times since last November.

More stimulus from China? Now that’s a true absurdity—-not because the desperate suzerains of red capitalism in Beijing won’t try it, but because it can’t possibly enhance the earnings capacity of either Chinese companies or the international equities.

In fact, it is plain as day that China has reached “peak debt”. Additional borrowing there will not only prolong the Ponzi and thereby exacerbate the eventual crash, but won’t even do much in the short-run to brake the current downward economic spiral.

That’s because China is so saturated with debt that still lower interest rates or further reduction of bank reserve requirements would amount to pushing on an exceedingly limp credit string.

To continue reading: The Lull Before The Storm, Part 2

The Lull Before The Storm—–An Ideal Chance To Exit the Casino, Part 1, by David Stockman

From David Stockman at davidstockmanscontracorner.com:

Last night’s Asian action brought another warning that the global deflation cycle is accelerating. Iron ore broke below $40 per ton for the first time since the central banks kicked off the world’s credit based growth binge two decades ago; it’s now down 40% this year and 80% from its 2011-212 peak.

As the man said, however, you ain’t seen nothin’ yet. That’s because the above chart is not merely reflective of too much supply and capacity growth enthusiasm in the iron ore industry or even some kind of worldwide commodity super-cycle that has gone bust.

Instead, the iron ore implosion is symptomatic of a much deeper and more destructive malady. Namely, it reflects the monumental malinvestment generated by two decades of rampant credit expansion and falsification of debt and equity prices by the world’s convoy of money printing central banks.

Since 1994 the aggregate balance sheet of the world’s central banks has expanded by 10X—— rising from $2.1 trillion to $21 trillion over the period. This rise does not measure any kind of ordinary trend which temporarily got out of hand; it represents an outbreak of monetary insanity that is something totally new under the sun.

What it means is that the Fed, ECB, BOJ, People’s Bank of China (PBOC) and the manifold lesser central banks purchased $19 trillion of government bonds, corporate debt, ETFs and even individual equities and paid for it by hitting the electronic “print” button on their respective financial ledgers.

This central bank balance sheet expansion, in fact, represented 70% of the world’s entire GDP as of the time the print-fest began in 1994. Yet as an accounting matter this monumental expansion was inherently suspect .

That’s because the asset side was mushroomed by the acquisition of already existing assets——-financial claims which had originally funded the purchase of real goods and services.

By contrast, the equal and opposite liability side expansion consisted of newly bottled monetary credit conjured from thin air; it represented nothing of tangible value, and most especially not savings obtained from the prior production of real economic output.

To continue reading: The Lull Before The Storm

Salting the Economy to Death—-Lessons From The San Joaquin Valley, by MN Gordon

There’s nothing here on central bank policy that you haven’t read on SLL before, but the analogy to San Joaquin Valley water and agricultural policies is quite clever. From MN Gordon at davidstockmanscontracorner.com:

One popular delusion that won’t seem to go away is the notion that policy makers can stimulate robust economic growth by setting interest rates artificially low. The general theory is that cheap credit compels individuals and businesses to borrow more and consume more. Before you know it, the good times are here again.

Profits increase. Jobs are created. Wages rise. A new cycle of expansion takes root. These are the supposed benefits to an economy that central bankers can impart with just a little extra liquidity. Unfortunately, this policy antidote doesn’t always work out in practice.

Certainly cheap credit can have a stimulative influence on an economy with moderate debt levels. But once an economy has reached total debt saturation, where new debt fails to produce new growth, the cheap credit trick no longer works to stimulate the economy. In fact, the additional credit, and its counterpart debt, actually strangles future growth.

Present monetary policy has landed the economy at the unfavorable place where more and more digital monetary credits are needed each month just to stand still. After seven years of ZIRP, financial markets have been distorted to the point where a zero bound federal funds rate has become restrictive. At the same time, applications of additional debt only serve to further the economy’s ultimate demise.

The fundamental fact is that the current financial and economic paradigm, characterized by heavy handed Federal Reserve intervention into credit markets, is dying. Debt based stimulus is both sustaining and killing the economy at the same time.

No doubt, this is a strange situation that has developed. For further instruction, let’s look to California’s San Joaquin Valley…

To continue reading: Salting the Economy to Death

Telling Details, by Robert Gore

Writers are advised to avoid descriptions that read like catalogs, and instead use a few telling details that convey to the reader the essence of what’s being described. In the same vein, a few details may be all that’s necessary to understand the global economy and where it’s headed.

Detail one: the government of Portugal recently issued 12-month debt at a negative interest rate (“The Mad Euro Project Just Got A Lot Madder,” by Don Quijones). Detail two: the Chinese producer price index (PPI) has fallen for 44 straight months (“The Great Fall Of China Started At Least 4 Years Ago,” by Raúl Ilargi Meijer). Detail three: the so-called FANG stocks—Facebook, Amazon, Netflix, and Google—have accounted for the S&P 500’s entire 1 percent gain this year (as of November 20). Their market capitalizations have gone up 60 percent versus a combined increase in earnings of 13 percent. Without those four, the S&P is down 2.5 percent (“When Wall Street Gets DeFANGed———Look Out Below!” by David Stockman).

It is a truism of human psychology that a dollar today is worth more to us than a dollar in the future. To be induced to give up a dollar today, we need to be paid more than a dollar in the future. That premium is interest, and the psychological truism implies that it will always be at a positive rate. How then is Portugal able to borrow money and repay less than the amount it’s borrowing twelve months hence? It’s like seeing water run uphill.

There is an economic cult that infests central banks and believes, against all evidence, that debt powers economies and that by manipulating interest rates, economies can be manipulated. Press interest rates low enough and the economy will flourish. Businesses will borrow and invest in new productive capacity and jobs. Consumers will head to the malls. Speculators will bid up the price of financial assets and higher balances on brokerage statements will prompt more spending and investment.

It doesn’t work. While a lower interest rate may prompt an immediate increase in business borrowing, over time markets adjust to the new rate and the prevailing rate of return equilibrates to that rate. The last six years have demonstrated that taking central bank-administered rates to zero does not promote economic expansion, especially for developed world economies already overly indebted and plagued by governments addicted to economic intervention and welfare-state spending. But central bankers are like the medieval “doctors” who bled their patients to death. Having taken rates to zero they’re prescribing more leaches: negative rates. Mario Draghi, head of the European Central Bank, pledges to buy debt at negative yields. Speculators front run his pledge, buying an idiot’s ticket to ruin knowing a bigger idiot will pay a higher price. And Portugal, whose dire financials would merit double-digit interest rates in rational credit markets, gets paid to borrow.

Detail two: China joined a global debt binge after the financial crisis of 2007-2009. Debt funded booms in domestic consumption and investment in infrastructure, factories, houses, apartments, malls, and entire cities. Debt in the US and Europe funded their consumption of Chinese exports. China recycled the proceeds from its trade surpluses back into the debt of its customers—vendor financing.

China’s PPI deflation started in March 2012: producer demand shifted downward relative to supply, taking prices with it. Debt was producing diminishing returns and debt service was exacting an increasing toll on its economy. China’s “solution” has been more leaches: more debt. Chinese government statisticians dutifully count each new factory, apartment complex, and addition to infrastructure in their GDP tally. However, new facilities operate at a loss, apartments join hundreds of thousands across the country standing vacant, few cars are seen on many of the brand new roads and bridges, and some of the new cities are virtually uninhabited. China’s string of negative PPI readings offers a preview for the global economy: deflation and debt contraction.

Speculation and the rise of financial asset prices are not indicators of economic vitality. Rather, speculation is the last economic activity in which debt has produced a positive return. Negative interest rates imply that the prevailing rate of return could go negative: borrowing money to fund investments that lose money! That prospect may seem fanciful, but speculation is close to it, bearing a hugely disproportionate probability of loss.

Corporate managers are spending more on share repurchases—speculating on their corporation’s stock price—than their corporations’ free cash flow. There is a self-serving element to this. A significant share of executive compensation is stock options, but another consideration has been overlooked. Managers face a dearth of productive investments. Years of cheap debt have already funded most plausible capital projects. Commodities, intermediate, and finished goods markets are glutted and prices are falling. Debt, welfare state spending, and regulation have slowed many economies to a crawl, and put some of them in reverse. In what are managers supposed to invest? Might as well take a flier on the stock market; the potential gain of a gamble is better than a certain loss.

Detail three: capital is being destroyed or is fleeing glutted industries with burdensome debt and negative rates of return. Those characterizations apply to an ever-expanding swath of the overall economy, and are moving up the production chain from raw materials to transportation services, intermediate and finished goods, and retail. It is only a matter of time before they spread to services. The progression has been reflected in the stock market, where gains are confined to an ever shrinking number of stocks.

Investors have crowded into Facebook, Amazon, Netflix, and Google because they are among the few companies that continue to show increased profits; exemplars in a sector—high technology—that many investors hope is immune from the forces of economics. However, on a trailing twelve months basis, their price to earnings ratio is an unweighted average of 356.88, dragged down by Google’s “meager” 31.89 (all figures from Yahoo Finance). The FANG companies are wonders to behold, but their S&P-supporting valuations say nothing about the economy. They are instead an indication that, in David Stockman’s words, “[T]he gamblers are piling on the last train out of the station.” No company, not even the FANGs, are immune from the forces of economics; they are much better shorts than longs here.

Negative interest rates, glutted product markets, falling prices, shrinking global trade, plunging shipping rates, fading retail activity, and the desperate, manic piling into the FANG stocks say volumes about the economy. Winter is coming, and like the Game of Thrones version, it will be years before spring follows.

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Brazil’s Disastrous Debt Dynamics Could “Create Contagion” For Emerging Markets, Barclays Warns, by Tyler Durden

From Tyler Durden at zerohedge.com:

Last week, we got the latest round of abysmal economic data out of Brazil. To summarize: GDP is in “free fall mode” (to quote Barclays), inflation hit double digits for the first time in over a decade, and unemployment soared to 7.9% in August, up sharply from just 4.3% a year earlier.

Put simply: it’s a full on economic meltdown.

The situation is made immeasurably worse by the country’s seemingly intractable political quagmire. The standoff between President Dilma Rousseff (who has been accused of cooking the fiscal books) and House Speaker Eduardo Cunha (who has been implicated in a kickback scheme tied to Petrobras) has led to a veritable stalemate that’s made it exceedingly difficult for Rousseff and her embattled finance minister Joaquim Levy to push through badly needed austerity measures.

Rousseff scored a victory on the austerity front on Wednesday when lawmakers approved her veto of a bill that would have raised retirement payments alongside the minimum wage, but this is an uphill battle and while incremental wins may be enough to give the beleaguered BRL some temporary respite, the medium- to long-term outlook is abysmal.

As Brazil continues to muddle through what has become a stagflationary nightmare, Barclays is out with a fresh look at the country’s debt dynamics and unsurprisingly, the picture isn’t pretty.

The road ahead depends on fiscal policy, Barclays begins, and that, given the current dynamic, is not a good thing. “Even if politics were uncomplicated and policy unconstrained, Brazil would still face enormous challenges adjusting to far less supportive local and global conditions,” the bank notes, referencing the now familiar laundry list of EM problems including slumping commodity prices, lackluster demand from China, the yuan deval (bye, bye trade competitiveness), and the incipient threat of a Fed hike and thus an even stronger USD.

“Investors are also grappling with the prospect of a prolonged, unsustainable fiscal policy framework,” Barclays adds.

To continue reading: Brazil’s Disastrous Debt Dynamics Could “Create Contagion” For Emerging Markets

 

The Great Fall Of China Started At Least 4 Years Ago, by Raúl Ilargi Meijer

From Raúl Ilargi Meijer at theautomaticearth.com:

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light.’

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

44 months is a long time. And March 2012 is a long time ago. Oil was about at its highest since right before the 2008 crisis took the bottom out. And if you look closer, you can see that producer prices started ‘losing it’ even earlier, around July 2011.

To continue reading; The Great Fall Of China started At Least 4 Years Ago

2007 Redux: Stock Market Parties——Even As Junk Debt Sounds The Alarm, by Pater Tenebrarum

From Pater Tenebrarum at davidstockmanscontracorner.com:

While the Stock Market is Partying …

There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007.

At first it was assumed that the most highly rated tranches of complex structured products would be immune, as the riskier equity tranches would serve as a sufficient buffer for credit losses. When that turned out to be wishful thinking, it was argued that the problem would remain “well contained” anyway. After all, sub-prime only represented a small part of the overall mortgage credit market. It could not possibly affect the entire market. This is precisely the attitude in evidence with respect to corporate debt at the moment.

A weekly chart of high yield ETF HYG (unadjusted price only chart)

The argument as far as we’re aware goes something like this: there are only problems with high yield debt in the energy and commodity sectors. This cannot possibly affect the entire corporate credit market. We should perhaps point out that in spite of this sectoral concentration, problems have recently begun to emerge in other industries as well (a list of recent victims can be found at Wolfstreet).

The argument also ignores the interconnectedness of the credit markets. Once investors begin to lose sufficiently large amounts of money in one sector, the more exposed ones among them (i.e., those using leverage, a practice that gains in popularity the lower yields go, as otherwise no decent returns can be achieved), will start selling what they can, regardless of its relative merits. This will in turn eventually make refinancing conditions more difficult for all sorts of industries.

It also overlooks that energy and commodities-related debt is simply huge and the losses are really beginning to pile up by now. The junk bond market has grown by leaps and bounds during the echo bubble, so a lot of money has become trapped in it. Many low-rated borrowers need to continually refinance their debt, otherwise they will simply fold. Once liquidity for refinancing dries up – and this is what growing losses in a big market segment will inexorably lead to – it will be game over.

To continue reading: Junk Debt Sounds The Alarm

What Will the US Do in a Recession? Look to Japan for Answers, by Larry Kummar

From Larry Kummer, editor of the Fabius Maximus website, via wolfstreet.com:

Although the economic circumstances in the US and Japan differ, we’re following in Japan’s tracks – and Japan just entered a technical recession.

As Richard Koo predicted, during the Great Recession America repeated Japan’s mistakes during its “lost decade”. That’s the bad news. The good news is that America climbed into a slow recovery after the worst downturn since the 1930s. The worse news is that another recession lies ahead. Potentially a bad one, with both the world economy and many domestic sectors weak. The government will deploy powerful tools to fight this downturn. How well will they work?

Look to Japan for answers

Japan crashed in 1989 and never got up again — despite repeated massive rounds of stimulus, and during a period of rapid world real economic growth: 1990-2003 at 3.3%, 2004-07 at 5.3% (probably the fastest since the invention of agriculture). Deflation and a shrinking population cushioned the decline, but by 2005 they were getting desperate. Between 2006 and 2011 Japan had 6 prime ministers in 5 years; none of the last 4 able to remain in office a full year.

Shinzō Abe became prime minister on 26 December 2012. He quickly announced the bold program known as “Abenomics”, consisting of three “arrows” — each a bold policy action.

• More fiscal stimulus, increasing the government’s deficit by 2% of GDP (to 13%).

• More monetary stimulus: doubling the money supply in 2 years to create 2% inflation.

• Structural reform — broad, deep, and powerful.

Financial and investment gurus in Japan and American were euphoric at these precedent-breaking measures. The first arrow was easily and successfully fired. The second started well, with inflation rising almost to 2% in 2014 — but has collapsing back into deflation. The third arrow remains missing in action (Abe made weak proposals in June 2014).

To continue reading: What Will the US Do in a Recession?

Breadth, Buybacks, & The Piercing Of The “Grandaddy Of All Bubbles”, by Tyler Durden

From Doug Noland, at The Credit Bubble Bulletin, via zerohedge.com:

The “Granddaddy of All Bubbles” thesis rests upon the view that the world is in the midst of the precarious grand finale of a multi-decade global Credit and financial Bubble. When a Bubble bursts, system reflation requires an even larger fresh new Bubble. This has repeatedly been the case going back at least to the “decade of greed” late-eighties Bubble in the U.S. These days the world confronts the terminal Bubble phase partially because of the unprecedented scope of the China and EM Bubbles. It’s simply difficult to imagine another more far-reaching Bubble.

Also critical to the finale Bubble thesis is that the “global government finance Bubble” – encompassing unprecedented excesses in sovereign debt, central bank Credit and government market manipulation – has engulfed the very foundation of contemporary “money” and Credit. It’s again quite a challenge to envisage a new financial Bubble inflation cycle following a crisis of confidence at the heart of global finance.

As I’ve posited repeatedly, the global Bubble has been pierced. There’s more confirmation again this week. The collapse in commodities and EM currencies along with the faltering Chinese financial Bubble mark an historic inflection point. Global policymakers have gone to incredible measures to stabilize market, financial and economic backdrops. Yet reflationary measures will continue to only further destabilize.

When policy-induced “risk on” is overpowering global securities markets, fragilities remain well concealed (and my prognosis appears ridiculous). Fragilities, however, swiftly manifest with the reappearance of “risk off.” Rather quickly securities markets demonstrate their proclivity for illiquidity and so-called “flash crashes.” So after an unsettled week in global markets, the critical issue is whether “risk on” is giving way to “risk off” dynamics.

There is no doubt that a powerful “risk off” has again gripped commodities markets.

To continue reading: Piercing The “Grandaddy Of All Bubbbles”