Tag Archives: credit markets

Italy’s Debt Crisis Thickens, by Don Quijones

The chart below of the Italian 10-Year government bond yield is not a good omen. From Don Quijones at wolfstreet.com:

But outside Italy, credit markets are sanguine, and no one says, “whatever it takes.”

Italy’s government bonds are sinking and their yields are spiking. There are plenty of reasons, including possible downgrades by Moody’s and/or Standard and Poor’s later this month. If it is a one-notch downgrade, Italy’s credit rating will be one notch above junk. If it is a two-notch down-grade, as some are fearing, Italy’s credit rating will be junk. That the Italian government remains stuck on its deficit-busting budget, which will almost certainly be rejected by the European Commission, is not helpful either. Today, the 10-year yield jumped nearly 20 basis points to 3.74%, the highest since February 2014. Note that the ECB’s policy rate is still negative -0.4%:

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Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains, by Tyler Durden

One reason to suspect that the debt party is just about over is that credit growth has gone negative. From Tyler Durden at zerohedge.com:

One week ago, we reported that UBS has some “very bad news for the global economy”, when we showed that according to the Swiss bank’s calculations, the global credit impulse showed a historic collapse, one which matched the magnitude of the impulse plunge in the immediate aftermath of the financial crisis.

But why is the credit impulse so critical?

To answer this question Citi’s Matt King has published a slideshow titled, appropriately enough, “Why buying on impulse is soon regretted”, in which he explains why this largely ignored second derivative of global credit growth is really all that matters for the global economy (as well as markets, as we will explain in a follow up post).

King first focuses on the one thing that is “wrong” with this recovery: the pervasive lack of global inflation, so desired by DM central banks.

As he notes in the first slide below, “the inflation shortfall isn’t new” and yet the current “level of credit growth would traditionally have seen inflation >5%”

To be sure central banks always respond to this lack of inflation by injecting massive ammounts of liquidity, i.e., credit, in the system: according to Citi, the credit addiction started in 1982 in the UK, while in 2009 it was in China. However, there was a difference: while in the 1982 episode, it took 3 credit units to grow GDP by 1 unit, by 2009 this rate had grown to 6 to 1. Meanwhile, central bankers “simply stopped worrying about credit.” That also explains the chronic collapse in interest rates starting in 1980 with the “Great Moderation” and their recent record lows: the world simply can not tolerate higher rates.

And while the central bank experiment had limited success in stimulating inflation, there was one obvious consequence: credit fuelled asset bubbles around the world.

This is where the credit impulse comes into play: it allows market participants to track the instantaneous change in central banks’ credit creation, and more importantly,  The change in the flow of credit drives GDP growth.

To continue reading: Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains

S&P Gets Bearish, Sees “Spike in Defaults,” Blames Fed, by Wolf Richter

From Wolf Richter at wolfstreet.com:

“Hangover from years of lenient credit may become painful.”

Credit rating agencies, such as Standard & Poor’s, are not known for early warnings. They’re mired in conflicts of interest and reluctant to cut ratings for fear of losing clients. When they finally do warn, it’s late and it’s feeble, and the problem is already here and it’s big.

So Standard & Poor’s, via a report by S&P Capital IQ, just warned about US corporate borrowers’ average credit rating, which at “BB,” and thus in junk territory, hit a record low, even “below the average we recorded in the aftermath of the 2008-2009 credit crisis.”

The one-year average default rate for US companies with a credit rating of B- is 9.8%, according to Standard & Poor’s. That’s a 1-in-10 chance that the company will default over the next 12 months. Companies getting downgraded deep into junk and issuing more low-grade bonds are precursors to soaring defaults.

The signs have been piling up. S&P Capital IQ:

In 2015, Standard & Poor’s downgraded 5.54% of the U.S. speculative-grade nonfinancial corporate borrowers it rates — the highest level since 2009.

The average credit rating for U.S. nonfinancial corporate issuers has fallen to a record low due to the continued rapid rise in lower-quality borrowers.

As a result, nonfinancial corporate borrowers’ net negative bias is at a post-recession high and the speculative-grade downgrade rate is at the highest level since 2009.

We believe a more conservative lending environment, where more limited capital market access enables lenders to better dictate terms and conditions, could spark liquidity challenges, accelerate downgrades, and ultimately lead to a spike in defaults.

And in a delicious bit of irony, in its more or less subtle manner, it blamed the Fed for the coming “spike in defaults”:

After the financial crisis, quantitative easing-induced low interest rates enabled companies across the credit spectrum to borrow at attractive pricing and terms in the capital markets. And, until recently, investors were willing to accept the heightened risks associated with speculative-grade (rated ‘BB+’ and lower) debt in return for higher yields.

However, the residual hangover from years of lenient credit may become painful for lower-quality issuers, especially when lenders become more selective and discerning. As borrowing costs rise with market volatility and uncertainty, lower-quality borrowers, who opportunistically were able to tap the capital markets, will most likely feel a credit pinch in a more subdued and conservative borrowing environment.

The Fed’s policies since the Financial Crisis have systematically destroyed the possibility to earn a visible real yield on low-risk corporate bonds or US Treasuries. So investors have embarked on a frantic search for yield, wherever they could find it, and they found it in junk bonds, and in chasing after junk bonds, they pushed those yields down too, and companies took advantage of it.

To continue reading: S&P Gets Bearish, Sees “Spike in Defaults,” Blames Fed

Weekly Commentary: The Precipice, by Doug Noland

From Doug Noland at creditbubblebulletin.blogspot.com:

Global markets have found themselves again at the precipice. My sense is that everyone’s numb – literally dazed and confused from prolonged Monetary Disorder and the resulting perverted market backdrop. Repeatedly, “The Precipice” has signaled easy-money buying and trading opportunities. Again and again, selling, shorting and hedging at “The Precipice” guaranteed you were to soon look (and feel) like an absolute moron – for some, progressively poorer dunces the Bubble was pushing yet another step closer to serious dilemmas (financial, professional, personal and otherwise). A focus on risk became irrational. Fixation on seeking potential market rewards turned all-encompassing.

All of this will prove a challenge to explain to future generations. Keynes: “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.” And paraphrasing the great Charles Kindleberger: Nothing causes as much angst as to see your neighbor (associate or competitor) get rich. In short, Bubbles are all powerful.

Going back to those darks days in late-2008, global policymakers have been determined to not let the markets down. Along the way they made things too easy. “Do whatever it takes!” “Shock and Awe!” “Ready to push back against a market tightening of financial conditions.” “Do what we must to raise inflation as quickly as possible.” Historic market excess and distortions were incentivized and, predictably, things ran amuck. “QE infinity.” Seven years of zero rates, massive monetary inflation and incessant market backstopping have desensitized and anesthetized. Rational thought ultimately succumbed to “perpetual money machine” quackery. And now all of this greatly increases vulnerability to destabilizing market dislocations, as senses are restored and nerves awakened.

It was a week of ominous developments among multiple key flashpoints. Let’s start with commodities and EM, where the accelerating downward spiral is now rapidly reaching the status of “unmitigated disaster.” In a destabilizing crisis of confidence, panic outflows saw the South African rand sink 10% to an all-time low. Local South African bond Yields jumped 140 bps in two sessions to about 9% (from WSJ). The Turkish lira dropped another 3%, as Turkey’s equities were slammed for 5%. The Russian ruble dropped 3.4%. The Brazilian real declined 3.2%. Despite repeated central bank interventions, the Mexican peso sank 4.4% this week to a record low. Also hurt by collapsing crude, the Colombian peso dropped 4% to a new low.

Crude (WTI) sank 12% this week to the lowest level since the 2008 crisis. The Bloomberg Commodities Index sank to fresh 16-year lows. Natural gas dropped 9%, to lows since 2012. Iron ore was down 4% this week to a record low (going back to 2009). Iron ore prices have collapsed almost 50% this year. Crude prices are down about 35%. For highly leveraged operators throughout the commodities arena, the situation has quickly turned desperate. In the financial realm, the yen jumped 1.7% and the euro gained another 1% against the dollar this week, pressuring the leveraged “carry trade” crowd.

It has rather quickly become equally desperate for financial operators holding risky corporate debt in a marketplace that has turned illiquid and increasingly dislocated. For the first time since the 2008 crisis, a public mutual fund (Third Avenue) this week halted redemptions. A Credit hedge fund (Stone Lion Capital) also halted redemptions. The concept of “Moneyness of Risk Assets” has been integral to my “global government finance Bubble” thesis. Monetary policy coupled with aggressive risk intermediation (certainly including fund structures and derivatives) created the market perception that high-yield corporate debt could be held with minimal risk (price and liquidity). With the Credit cycle turning, this misperception is being exposed. Junk bond fund redemptions jumped to $3.5 billion this week. The halcyon notion of turning illiquid securities into perceived liquid instruments is coming home to roost. Credit spreads widened significantly this week. Ominous as well, bank stocks sank 6.2%, and the Broker/Dealers were slammed 7.5%.

To continue reading: The Precipice

 

“Distress” in US Corporate Debt Spikes to 2009 Level, by Wolf Richter

A word to the wise (which includes SLL readers) is sufficient: credit markets always get the joke before the stock market). They’ve been the canary in the coal mine for the last two equity bear markets. From Wolf Richter at wolfstreet.com:

Investors bloodied as the Credit Bubble implodes at the bottom

Investors, lured into the $1.8-trillion US junk-bond minefield by the Fed’s siren call to be fleeced by Wall Street and Corporate America, are now getting bloodied as these bonds are plunging.

Standard & Poor’s “distress ratio” for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October. It was its worst level since September 2009.

It engulfed 228 companies at the end of November, with $180 billion of distressed debt, up from 225 companies in October with $166 billion of distressed debt, S&P Capital IQ reported.

Bonds are “distressed” when prices have dropped so low that yields are 1,000 basis points (10 percentage points) above Treasury yields. The “distress ratio” is the number of non-defaulted distressed junk-bond issues divided by the total number of junk-bond issues. Once bonds take the next step and default, they’re pulled out of the “distress ratio” and added to the “default rate.”

During the Financial Crisis, the distress ratio fluctuated between 14.6% and, as the report put it, a “staggering” 70%. So this can still get a lot worse.

The distress ratio of leveraged loans, defined as the percentage of performing loans trading below 80 cents on the dollar, has jumped to 6.6% in November, up from 5.7% in October, the highest since the panic of the euro debt crisis in November 2011.

The distress ratio, according to S&P Capital IQ, “indicates the level of risk the market has priced into the bonds. A rising distress ratio reflects an increased need for capital and is typically a precursor to more defaults when accompanied by a severe, sustained market disruption.”

And the default rate, which lags the distress ratio by about eight to nine months – it was 1.4% in July, 2014 – has been rising relentlessly. It hit 2.5% in September, 2.7% in October, and 2.8% on November 30.

To continue reading: “Distress” in US Corporate Debt Spikes to 2009 Level

“On The Cusp Of A Staggering Default Wave”: Energy Intelligence Issues Apocalyptic Warning For The Energy Sector, by Paul Morelli

From Paul Morelli, at Energy Intelligence, via zerohedge.com (introductory paragraph by Tyler Durden):

The Energy Intelligence news and analysis creator and aggregator is not one to haphazradly throw around hyperbolic claims and forecasts. So when it gets downright apocalyptic, as it did this week in a report titled “Is Debt Bomb About to Blow Up US Shale?”, people listen… and if they are still long energy junk bonds, they panic.

The summary:

“The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get?”

The full report by Paul Merolli, a senior editor and correspondent at Energy Intelligence:

Debt Bomb Ticking for US Shale

The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices — which few experts foresee in the near future — an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get and when? It increasingly looks like a number of the weakest companies will run out of financial stamina in the first half of next year, and with every dollar of income going to service debt at many heavily leveraged independents, there are waves of others that also face serious trouble if the lower-for-longer oil price scenario extends further.

“I could see a wave of defaults and bankruptcies on the scale of the telecoms, which triggered the 2001 recession,” Timothy Smith, president of consultancy Petro Lucrum, told a Platts energy conference in Houston last week. Much has been made about the resiliency of US oil production in the face of low prices, but the truth is that many producers are maximizing their output — even unprofitable volumes — because they need the cash flow to service their debt (related). “As an industry, we’re at the point where every dollar of free cash flow now goes to paying back debt,” Angle Capital’s Steve Ilkay told the same conference. Ilkay, who advises North American producers on asset management, said during the boom years of 2012-14 about 55% of the sector’s free cash flow, which is calculated by subtracting capital expenditures from operating cash flow, was allocated toward debt repayment.

With West Texas Intermediate (WTI) stuck below $50 per barrel since August — and closer to $40 recently — the industry has responded with deeper cuts to capex and a greater focus on efficiency (EIF Nov.4’15). However, experts say this won’t be enough to avoid a bloody reckoning with persistent low oil and gas prices, as the sector grapples with some $200 billion-plus in high-yield debt, which it absorbed to finance the shale oil boom. Credit quality has been steadily deteriorating since June 2014, when WTI peaked at $108/bbl. Standard and Poor’s says there have been 19 defaults so far in 2015 across the US oil and gas industry, while another 15 companies have filed for bankruptcy. Besides those that have missed interest or principal payments, the default category also includes companies that have entered into “distressed exchanges” with their creditors, including Halcon, SandRidge, Midstates, Goodrich, Warren, Exco, Venoco and Energy XXI (EIF Jul.8’15).

To continue reading: “On The Cusp Of A Staggering Default Wave

Crisis Progress Report (7): Carry On! by Robert Gore

Last Friday offered confirmation of the proposition: the only thing the world’s equity markets have going for them is central bank debt monetization and interest rate suppression. The Bureau of Labor Statistics (BLS) reported that April payrolls had increased 223,000, but revised down March’s reported increase of 126,000 to 85,000. Stocks surged because the revised March number took the three-month moving average below 200,000, and market participants’ concluded that the long-delayed Federal Reserve twenty-five basis point (1/4 of one percent) increase in the federal funds rate will be pushed off from June to at least September.

Whether or not the federal funds rate is twenty-five basis points higher is irrelevant to Main Street America. What does make a difference is that global ZIRPs (Zero Interest Rate Policies) have destroyed the incentive to save, driven the rate of return on productive investment to zero, promoted both public and private debt expansion that burden economies with ever increasing debt service costs, and kept alive zombie businesses that should have met the “destruction” part of “creative destruction.” The ripples of the bust in the oil patch, after the easy money boom, are spreading out over the global economy. US GDP in the first quarter was initially reported as .2 percent, annualized, and a subsequently reported big increase in March’s trade deficit will take subsequent revisions into negative territory. The Chinese economy is slowing; two years of “Abenomics” has done nothing for Japan’s, and European growth is undetectable, but high unemployment, especially among younger workers, is glaringly detectable. Various shipping indexes have tracked the drop in world trade.

The gaping holes in the unemployment numbers are obvious even from the BLS’s own figures. There are the revisions, like this month’s downward revision of March’s payrolls by 41,000. There is the steady trend of qualitative deterioration: full-time replaced by part-time jobs; well-paying manufacturing jobs replaced by lower paying service sector jobs; flat inflation adjusted wages since the turn of the century. And there is the steady decline of the labor force participation rate, which flatters the headline unemployment rate (you can’t be unemployed if you’re not “officially” in the labor force). The needle the government must thread is to paint a picture of an economy that is showing strength, and will someday arrive in the Promised Land that used to be routine—3 percent real annual growth in the GDP—but not so much strength that the Federal Reserve will have to raise rates anytime soon.

Unlike Main Street, leveraged speculators care a great deal about twenty-five extra basis points; it’s like a manufacturing business that sees the cost increase for its main input. The cheap money input is cycled into any and every “carry” trade which promises a return higher than the pittance of interest required to fund the trade (aka “positive carry”). After six years of equity bull markets, stocks don’t just promise a positive return, central banks have virtually guaranteed it.

They well know that perpetually rising prices, for not just stocks but the gamut of financial instruments and commodities, keeps everyone but short sellers happy. As the gap between the up arrow on the stock market and the down arrow on the actual economy yawns ever wider, the game is to extend the former and pretend the latter doesn’t exist. Friday’s jobs numbers were perfect: good enough to further the “recovery” story; crappy enough to convince the carry traders there will be no disruptive increases in the price of their main input. Viola, a 262-point rally in the Dow!

Central banks can nail down the cost of short-term funding for carry trades, but longer term interest rates are determined by, among other factors, the credit worthiness of the borrower. The Greek government has just repaid a debt to the IMF using its reserves at the IMF, and plans to pay some pensioners later this month with money “borrowed” from pension funds. Having just paid itself, the IMF wants no part in any further bail outs. Here are four of the more salient aspects of the Greek debt situation: Greece has a lot more debt than it can pay; Greece, its creditors or both are going to sustain losses; such losses are economically contractive, and Greece is a preview of coming attractions for many of Europe’s heavily indebted welfare states. SLL hasn’t paid much attention to the day-to-day developments in this long running drama (it’s been going on since 2010) but absent yet another extend and pretend “solution,” there soon may be a resolution.

SLL has advised watching interest rates as a harbinger of impending economic stress. With the world as heavily leveraged as it is, any increase in longer-term interest rates will bring the pathetic “recovery” to an end. Credit markets seem to be waking up to the fact that lending to governments is not risk free. Greece is the poster child for sovereign risk, but the yield on “solid” German 10-year bonds has gone from about 5 basis points (5/100 of a percentage point) to 68 basis points. Along the way, market participants  have discovered the “vanishing bid”; the suckers they counted on being able to sell to aren’t there. Yields have risen across Europe and in the US and Japan. They have gone up in Europe and Japan despite central banks buying sovereign debt, which is supposed to suppress yields.

This may be the long awaited lift off of a bear market in bonds, driven by concerns that heavily indebted governments will be unable to repay their debts with anything other than more debt or fiat currency. Or it may a reaction to absurdly low, in some cases negative, yields. ZIRP is the linchpin for the carry trade and the bubble in financial assets. Low long-term yields have funded consumer, corporate, and governmental borrowing binges. Rising short-term rates would doom financial markets; rising long-term rates would doom the real economy. Doom in either one would doom the other. Don’t get up for popcorn. This movie is just getting to the good part and you wouldn’t want to miss it.

A LONG FORGOTTEN TIME WHEN THERE WAS NO

FEDERAL FUNDS RATE

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Who’s Right? by Robert Gore

The sky might not be falling, but a lot of important markets are, sending a different message than the U.S. equity market, where some indexes attained new highs last month. Set aside the government’s statistic mills, which the more cynical among us suspect may be as much propaganda as objectively gathered facts. While the media, financial seers, and sentiment indicators are overwhelmingly bullish for 2015, the action in other markets and other countries should temper the euphoria. Those markets are driven by self-interest and real money, they are joined at the hip to real economies, and some of them are far larger than the U.S. stock market. Don’t tell the equity-bullish contingent, but although central banks have done their best to severe all links, there may still be a connection between the real economy and stocks.

The 50 percent drop in the price of oil was big news the second half of 2014. What hasn’t garnered the same headlines have been drops in other commodities, some of larger magnitude than oil’s. Iron ore’s price peaked at $150 per ton in early 2013 and was below $70 per ton at the end of 2014. Copper hit $4.5 per pound in 2011; it’s now trading around $2.85. Part of these drops were probably due to increased supplies, fueled by ultra low interest rates that have enabled all sorts of malinvestment. However, these prices are sensitive to overall economic conditions—price is the intersection of both supply and demand. Falling prices almost certainly indicate falling demand. These three markets are by no means anomalous. The S&P GSCI (formerly the Goldman Sachs Commodity Index), a broad-based commodity index, was down 31 percent in 2014. The CRB index of commodities reached a high of 370 in 2011 and is now just below 250, a drop of 32 percent.

Related to commodity pricing is the Baltic Dry Index, an index of various shipping rates for dry bulk commodities. It is not confined to Baltic routes, and is a rough proxy for global trade in the covered items.The index reached its all time high in 2008 at 11,793, its post financial-crisis high in 2009 at 4661, as recently as 2011 was above 4000, but since November of 2014 has been almost cut in half, from 1484 to 771. The index appears to be confirming the message from commodities: pricing and trade for basic commodities are deteriorating.

Credit market indicators are a different chapter of the same story. The inflation break-even rate is a measure of credit markets’ inflation expectations. It is the difference between the rate on a government note or bond and its maturity-corresponding Treasury Inflation Protected Security rate, whose price is adjusted for inflation. Declining spreads, or break-even rates, indicate falling inflation expectations. Those spreads have been declining since the fall of 2012, precipitously the last half of 2014. While history doesn’t always repeat itself, they took a similar tumble during the last financial crises. The yield curve is a graph of yields across maturities for a given class of interest-rate securities. In the U.S. Treasury market, it usually has a positive slope, since investors generally want more interest-rate compensation for tying up their money longer. However, the degree of slope is a time-tested economic indicator (it is in the government’s index of leading economic indicators). A steeper slope generally indicates that investors are expecting stronger economic growth and higher inflation and interest rates, a flatter slope the opposite. The yield curve has been flattening since the end of 2013, and that flattening was especially pronounced in December (see “Starting The Year In Deeper Uncertainty,” Jeffrey P. Snider, Alhambra Investment Partners).

The flatter curve is consistent with falling break-even spreads. What is telling about these indicators is that the global economy is long past the point where the balance sheet expansion and ultra-low interest rates initiated by the world’s central banks in response to the financial crisis were supposed to have raised inflation expectations and interest rates, and promoted economic growth. In fact, the former have declined (some countries now have negative interest rates on shorter maturity debt) to multi-generational lows, and the latter has been uncharacteristically weak for a supposedly “recovering” global economy.

One other credit market indicator bears watching. The spread between indexes of non-investment grade (high yield) debt and government debt benchmarks measures investor optimism about lower quality borrowers’ ability to repay debt (in today’s low yield world, it also measures how desperate investors are to find any kind of return in the credit markets). Spreads in high-yield corporate debt reached their most recent lows last summer, and have moved steadily upwards since. Prices on high yield corporate debt, which move inversely to their yields, have declined 14 percent, and the decline has been particularly brutal for energy sector high yield debt, down 20 percent. Such price declines wipe out several years of coupon payments on the bonds, assuming the issuers stay in business and keep making those payments. High-yield bonds are sending a message consistent with that of other credit market indicators and commodities.

The rising foreign exchange value of the U.S. dollar further tightens the screws. By driving short-term rates close to zero, the Fed made the dollar a global “funding” currency. In other words, trillions of dollars worth of speculation around the world has been funded with dollars borrowed at ultra low rates. Anyone who borrows dollars in international currency and credit markets is short the dollar. They want its value to decline so they can repay their debt in cheaper dollars. Instead, the dollar has allied against most currencies through 2014, and that acts as a margin call, requiring speculators to increase their collateral or sell their positions. On a short-term basis the dollar is probably overbought. (The Wall Street Journal had a front page headline this weekend: “Dollar Hits an 11-Year High.” When a financial trend makes the front page of a major press organ, it usually signals the trend is just about over.) However, if the long-term trend is up, this will put more downward pressure on commodity and high-yield bond prices.

In Europe, Greece has been a source of drama since 2010. Tension now focuses on the Greek election January 25. The Syriza party, led by Alexis Tsipras, is leading in the polls. He wants to restructure Greece’s debt and roll back many of the austerity measures that have been imposed on Greece by the IMF, EC, and ECB in exchange for past aid and debt relief. At the very least, a Syriza victory would call into question the value of Greek debt, which is carried at full value on European banks’ books. It would probably prompt a reassessment of other peripheral European debt, which has rallied strongly on the prospect of ECB purchases as part of the European version of quantitative easing. Any unilateral Greek moves to reduce interest payments or restructure its debt would stop the envisioned ECB purchases. Even EU government statistics (SLL is skeptical of all governments’ statistics, not just the U.S.’s) indicate their economies are skating on thin ice. Some are already contracting, and a new Greek crisis would undoubtedly put the rest of the continent into recession.

A big part of the declining demand driving down commodity prices is coming from China. Chinese economic statistics are unusually suspect. As Anne-Stevenson-Yang, an expert on China for J Capital, put it in a recent interview with Barron’s: “People are crazy if they believe any government [referring to the Chinese government] statistics, which, of course, are largely fabricated.” (“Why Beijing’s Troubles Could Get a Lot Worse,” Barron’s, 12/8/14) Even the “fabricated” official numbers indicate China’s economy is slowing.

Debt-fueled bubbles (since 2000, total debt in China has expanded from $1 trillion to $25 trillion) in residential, industrial and infrastructure construction have left the country with millions of vacant houses and apartments, warehouses full of commodities for which there is little demand, and factories either idled or producing at reduced capacity. (For a chart-laden close-up, see “The Elephant Dragon In The Room: China’s Hard Landing, in 21 Charts,” Zero Hedge, 1/2/15.) Two of the other BRICs, Russia and Brazil, and well-known basket case Japan are not providing any oomph for the global economy, either. (For more on all three countries, see “Wall Street Heathens: How Their Greed And Gambling Became The Axe Of Statist Policy,” and “The Keynesian End Game Crystalizes In Japan’s Monetary Madness,” davidstockmanscontracorner.com).

So there is another side to the story that speculators and especially investors may want to consider before they plunk their money down. Sure, U.S. equity indexes went from record to record in 2014, the punditry is bullish for 2015, and the GDP grew at 5.0 percent in the third quarter (for a skeptical take on that statistic, see “Here Is The Reason For The ‘Surge’ In Q3 GDP,” Zero Hedge, 12/23/14). The Fed’s recent avowals to forego further monetary easing must be taken with the same shaker of salt one employs when an alcoholic in the throes of a nasty hangover swears off the poison. It still has the market’s back, and any significant equity “correction” will be met with more quantitative easing. However, commodities, credit, and economies in most of the developed world are sounding sour notes in the bullish chorus. After further investigation and analysis, those inclined to join the chorus may discount the discordant notes, but ignoring them entirely may prove most unwise.

THERE WAS A TIME WHEN CENTRAL BANKS DIDN’T BAIL OUT WRONG-WAY SPECULATORS

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