Global Markets: It’s Getting Ugly Out There

You’d have to be in full denial mode not to see that it’s getting ugly out there in global markets: currencies are melting down, trade and shipping are tanking, commodities are swooning and global stock markets are increasingly on central-bank life support.

Gordon Long and I recently discussed just how ugly it might get in a 28-minute video program.

One focus was Gordon’s forecast that the market may yet recover from its current downtrend and trace out a M Top: one more buy the dip rally that would then be followed by a bone-crushing downtrend as the wheels completely fall off the global “growth” story.

We also discussed a few of the most critical systemic sources of risk in global markets:

1. There’s too much debt globally; public and private debt has skyrocketed since 2008.

2. Mal-investment due to perverse incentives: corporations borrow money for stock buybacks rather than to invest in new productive capacity

3. Stagnant income/revenues: households, companies and nations cannot support more debt

4. The rise of high-frequency trading (HFT) has increased the odds of flash crashes and instability

5. The rising U.S. dollar has triggered capital flight from emerging markets and China

6. China’s economy is grinding to a halt, crushing demand for commodities and commodity-dependent economies

7. Opaque banking: shadow banking in China, dark pools in offshore banking centers, etc. True totals of debt, leverage and the quality of collateral are all unknown

8. Deteriorating collateral globally. How many of the 60 million empty “investment” flats in China can be sold in an illiquid marketplace with little demand for existing housing? What’s the real value of assets listed on U.S. balance sheets that aremarked to fantasy?

We cover a lot of ground in this program.

It’s Getting Ugly Out There (28:20 video, with Gordon T. Long)

view it on YouTube


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  • wunsacon

    As usual, a very nice article.

    Some nitpicking…

    >> 1. There’s too much debt globally; public and private debt has skyrocketed since 2008.

    If an entity can print the currency its bonds were denominated in, then the burden of public debt can be mitigated somewhat or entirely. Public debt issued in the currency of the sovereign need not ever be repaid in real terms. The same cannot be said of private debt.

    So, as an enhancement, charts and analysis should consider public and private debt separately.

    >> 2. Mal-investment due to perverse incentives: corporations borrow money for stock buybacks rather than to invest in new productive capacity

    Hmmm…I don’t know that it’s “perverse” or even “malinvestment”. Let’s face it: It doesn’t profit shareholders to expand productive capacity to meet the needs of everyone, because many people don’t provide — net of costs — a service other people need.

    Buybacks are a reflection of the reduced need the wealthy have for labor.

    >> How many of the 60 million empty “investment” flats in China can be sold in an illiquid marketplace with little demand for existing housing?

    Yes, the marketplace is ill-liquid. But, there is demand for existing housing, in excess of available units. The problem is that the peasants in China and America can’t pay the asking prices demanded by bailed-out cronies. We rent apartments smaller than the houses we could otherwise afford had the bailouts not occurred.

    >> What’s the real value of assets listed on U.S. balance sheets that are marked to fantasy?

    Doesn’t matter unless the PTB decide to end the fantasy. They won’t do that, except in one scenario: If they run out of other ways to steal purchasing power from us, they can:
    1. shift their assets to cash/T-bills
    2. end “mark-to-fantasy”

    3. profit! — exchange their cash for assets

    • Brockland A.T.

      Buybacks reflect reduced need for increases in … what? Capital investment?