Category Archives: Financial markets

The Entire World Order Has Changed, by Raúl Ilargi Meijer

Are we seeing the death knell of the West and the emergence of a multi-polar order? From Raúl Ilargi Meijer at theautomaticearth.com:

It was Jim O’Neill, Goldman’s chief economist at the time, who coined the term BRICS in 2001 for Brazil, Russia, India, China, and South Africa. Little did he know. He was talking about emerging economies. 13 years later, they no longer are. They are good for about 40% of the world population, and some 25% of global GDP. The world has not stood still since 2009, and it’s moving faster now.

Ironically, the BRICS countries never looked to be as prominent economically as they are today, they were happy to build up one step at a time. But then NATO decided to move east at a pace that Russia found intolerable, and now the BRICS have taken on a whole new meaning. 25% of global GDP may not seem that much, but the 5 countries hold a much bigger share of -essential- global resources and/or raw materials than that, and China moreover delivers an outsize part of finished products.

And we now know that they won’t be BRICS for much longer. Many countries choose to be affiliated, in one form or another, with the BRICS rather than the “west”. They see that Russia is winning in Ukraine, and they see the damage the sanctions do. It’s just practical considerations. Saudi Arabia and Argentina are interested in joining BRICS. So are Uruguay, Iran, Egypt, Thailand, and a number of post-Soviet States. They see where the real economic power resides.

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Concurrent Deflation and Hyperinflation will Ravage the World, by Egon von Greyerz

FLATION is the suffix for the various phenomena that occur in fiat-debt systems. From Egon von Greyerz at goldswitzerland.com:

FLATION will be the keyword in coming years. The world will simultaneously experience inFLATION, deFLATION, stagFLATION and eventually hyperinFLATION.

I have forecasted these FLATIONARY events, which will hit the world in several articles in the past. Here is a link to an article from 2016.

With most asset classes falling rapidly, the world is now approaching calamities of a proportion not seen before in history. So far in 2022, we have seen an implosion of asset prices across the board of around 20%. What few investors realise is that this is the mere beginning. Before this bear market is over, the world will see 75-90% falls of stocks, bonds and other assets.

Since falls of this magnitude have not been seen for more than three generations, the shockwaves will be calamitous.

At the same time as bubble assets deflate, prices of goods and services have started an inflationary cycle of a magnitude that the world as whole has never experienced before.

We have seen hyperinflation in individual countries previously but never on a global scale.

Currently the official inflation rate is around 8% in the US and Europe. But for the average consumer in the West, prices are rising by at least 25% on average for their everyday needs such as food and fuel.

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Doug Casey on Crashing Markets, Commodities, and What Happens Next

A quick preview of what happens next: nothing good. From Doug Casey at internationalman.com:

Crashing Markets

International Man: In addition to stocks, it seems that almost every asset class is also crashing.

What’s your take on the markets, and where do you think it’s headed?

Doug Casey: Let’s take them in order of size and importance.

The biggest market is bonds. It’s especially dangerous because it’s the most overpriced. Bonds are a triple threat to your capital. First, because of the inflation risk, which is huge and growing. Second, is the interest rate risk; I expect rates to double, triple, or quadruple from here, going back to or above the levels of the early 80s. The third is the default risk, which applies to everything except US Government debt. AAA corporate debt hardly exists anymore.

Interest rates have skyrocketed in the last year, with mortgage rates going from under 3% to over 6%. 30-year treasury bonds still only yield 3.25%. But with inflation running 10, 12, or 15% and going higher, long-term Treasuries have a lot further to fall. I remain short T-bonds.

Everybody’s paying attention to the stock market because they’re fully invested. The meme stocks, SPACs, and tech stocks have all collapsed. The big ones are down 25%, and many are down 80 or 90%. It’s not over yet. People still feel that they can buy the dips. They’re hurting, but they’ve been paper-trained over a couple of generations to believe the Fed will kiss everything and make it better.

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A Rare Paradigm Shift With Huge Implications… 5 Reasons Why It’s Imminent, by Nick Giambruno

Interest rates are going up, and given the long swings in the bond market, they’ll probably be going up for many years. From Nick Giambruno at internationalman.com:

Although many don’t realize it, interest rates are simply the price of money.

And they are the most important prices in all of capitalism.

They have an enormous impact on banks, the real estate market, and the auto industry. It’s hard to think of a business that interest rates don’t affect in some meaningful way.

Today, we are on the cusp of a rare paradigm shift in interest rates. Such changes take decades—or even generations—to occur. But when they do, the financial implications are profound.

Interest rates rise and fall through decades-long cycles, as seen in the chart below.

That makes sense, as debt is naturally cyclical. It allows people to consume more than they produce now. But it also forces them to produce more than they consume later to pay it off.

Interest rates last peaked in 1981 at over 15%. Then, they fell for 39 years and bottomed in July 2020 at around 0.62%.

The red line marks the long-term average of 5.6%.

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Politicized Money and the Death of Capitalism, by Matthew Piepenburg

Technically speaking, money (“Real Money“) cannot be politicized; only debt can be politicized. From Matthew Piepenburg at goldswitzerland.com:

As far as we are concerned, it is no great secret nor any great surprise that our faith in fiat money (in general) and the central bankers who have debased it (in particular) and precipitated the death of capitalism is anything but robust.

To the contrary, our astonishment with the open mismanagement of global currencies as a whole, and the world reserve currency (i.e., the USD in particular), grows daily.

In fact, to fully un-pack the long series of comical errors and the failed experiment of politicized central bankers seeking to solve a debt crisis ($300T and rising) with more debt, which is then monetized by mouse-click money, would take an entire book rather than single article to address.

Hence our recent release of Gold Matters.

Learn more about the death of capitalism in Gold Matters, now available on Amazon.

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A perfect storm in banking is brewing, by Alasdair Macleod

There will be a global banking crisis and the probability that it originates in Europe is about 95 percent. If you’re going to pick one economist to whom you pay attention, it should be Alasdair Macleod. From Macleod at goldmoney.com:

Now that interest rates are rising with much further to go, the global banking system faces a crisis on a scale like no other in history. Central banks loaded with financial securities acquired through QE face growing losses, and their balance sheet liabilities are now significantly greater than their assets — a condition which in the private sector is termed bankruptcy. They will need to be recapitalised urgently to retain credibility.

Furthermore, banking regulators have made a prodigious error in their oversight of the commercial banking system by focusing almost solely on bank balance sheet liquidity as the principal determinant of risk exposure. And on the few occasions in the past when they have demanded banks increase their own capital, it has always been through the creation of preference shares and pseudo-equities to avoid diluting the true shareholders. The consequence is that the level of leverage for common equity shareholders in the global systemically important banks has risen to stratospheric levels.

The regulators may be comfortable with their liquidity approach, but they have ignored the periodic certainty of a contraction in bank credit and the consequences for banks’ equity interests. Meanwhile, G-SIBs have asset to common equity ratios often more than fifty times, with some in the eurozone over seventy. It is hardly surprising that most G-SIBs are valued in the equity markets at substantial discounts to book value.

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Could Retail “Bagholders” Spark a Rally “Smart Money” Will Be Forced to Chase? By Charles Hugh Smith

One of the things that make financial markets so fun is their sheer unpredictability. From Charles Hugh Smith at oftwominds.com:

There would be some deliciously karmic justice in the “dumb money” driving a rally that forced the “smart money” to cover their shorts and chase the rally that shouldn’t even be happening.

Being cursed with contrarianism, as soon as a trade gets crowded and the consensus is one way, I start looking for whatever is considered so unlikely that it’s essentially “impossible.” Sorry, I can’t help myself.

The crowded trades are 1) long the Commodity Super-Cycle and 2) long hurricane-force recession for all the persuasive reasons we all know: global scarcities, geopolitical tensions, soaring US dollar and interest rates, de-risking, crazy-stupid levels of debt and speculation, etc.

The consensus holds that “Smart Money” rotated out of tech stocks and other over-valued equities into oil and commodities. That was a smart move, indeed, and the earlier one rotated out of equities and into commodities, the smarter the trade.

In this scenario, retail owners of equities are the “Bagholders,” those who continue owning the losers all the way to the bottom (Been there and done that). It’s a market truism that Bull cycles only end when retail drinks the speculative Kool-Aid of the moment and buys into the final gasp of the rally, allowing “Smart Money” to distribute their shares to the retail chumps, who go down with the ship when the market finally rolls over.

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The Fed Isn’t Fighting Inflation, It’s Fueling It, by Mike Whitney

The Federal Reserve is taking baby steps to combat the price inflation it has caused. From Mike Whitney at unz.com:

Credit: Jesse’s Cafe American – https://jessescrossroadscafe.blogspot.com/
The media would like to believe the Fed is doing everything in its power to fight inflation, but it’s not true.

Yes, the Fed raised rates by 50 basis points in May and, yes, the Fed is trying to sound as “hawkish” as possible. But these things are designed to dupe the public not to reduce inflation. Let me explain.

The current rate of inflation in the US is 8.6%, a 40-year high.

At its May meeting, the Fed raised its target Fed Funds Rate to 1%. Here’s the scoop:

“The Federal Reserve recently announced that it’s raising interest rates by half a percentage point, bumping the federal funds rate to a target range of 0.75-1.00%.” (The Spokesman-Review)

Got that? So the Fed’s rate is still a measly 1%. That’s what the media is trying to hide from you, and that’s why you might have to read 9 or 10 articles before you find a journalist who provides you with the actual rate.

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Monday is Going to Be Interesting for Stocks, by Wolf Richter

This bear market won’t be over until “buy the dip” is regarded as a bad joke among bedraggled stock speculators. From Wolf Richter at wolfstreet.com:

Still way too much wild craziness, including the ultimate bag-holder gamble: Why the bottom isn’t anywhere near.

I went out looking for blood in the streets Friday evening after the sell-off to see if markets had hit bottom, but there wasn’t any blood. There was instead chatter about the next rally, about what to buy and when. And there was the relentlessly exuberant pump-and-dump meme-stock crowd hoopla-ing DVD rental company Redbox Entertainment, one of the infamous SPACs, and video-streaming service Chicken Soup for the Soul Entertainment, which is going to acquire Redbox, in an utterly ridiculous crazy-wild game with a deadline (we’ll get there in a moment).

That this game is even played – that this utter nuttiness in the markets continues – indicates that there is still way too much exuberance, way too much liquidity, way too much craziness. And the bottom isn’t in until this kind of craziness is snuffed out.

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Protection from a currency collapse, by Alasdair Macleod

Good advice on protecting yourself from a currency collapse from a man who has been warning of it for some time. From Alasdair Macleod at goldmoney.com:

While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract. Russia has consolidated its rouble, which has now become the strongest currency by far. The Fed announced the previous week that its balance sheet is in negative equity. And there’s mounting evidence that we have a nascent crack-up boom.

Russia now appears to be protecting the rouble from these developments in the West, while previously she was only attacking the dollar’s hegemony. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation organisation and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony.

These are major developments. And finally, due to widespread interest in the subject, I examine the outlook for residential property values in the event of a collapse of Western fiat currencies.

The mechanics of an apocalypse

Against the grain of the establishment, for years I have been warning that the world faces a fiat currency collapse. The reasoning was and still is because that’s where monetary and economic policies are taking us. The only questions arising are whether the authorities around the world would realise the dangers of their inflationary and socialistic policies and change course (extremely unlikely) and in that absence in what form would the final crisis take.

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