Guest Post by David Stockman & Stealthflation
Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova—The Case Of Iron Ore
Crude oil is not the only commodity that is crashing. Iron ore is on a similar trajectory and for a common reason. Namely, the two-decade-long economic boom fueled by the money printing rampage of the world’s central banks is beginning to cool rapidly. What the old-time Austrians called “malinvestment” and what Warren Buffet once referred to as the “naked swimmers” exposed by a receding tide is now becoming all too apparent.
This cooling phase is graphically evident in the cliff-diving movement of most industrial commodities. But it is important to recognize that these are not indicative of some timeless and repetitive cycle—–or an example merely of the old adage that high prices are their own best cure.
Instead, today’s plunging commodity prices represent something new under the sun. That is, they are the product of a fracturing monetary supernova that was a unique and never before experienced aberration caused by the 1990s rise, and then the subsequent lunatic expansion after the 2008 crisis, of a cancerous regime of Keynesian central banking.
Continue reading Commodity Cliff Dive…
Guest Post by Doug Noland
Draghi and the PBOC throw gas on a fire.
November 21 – Reuters (John O’Donnell and Eva Taylor): “European Central Bank President Mario Draghi threw the door wide open on Friday for more dramatic action to rescue the euro zone economy, saying ‘excessively low’ inflation had to be raised quickly by whatever means necessary… ‘We will continue to meet our responsibility – we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us,’ Draghi said… ‘If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.’ ‘Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely,’ said Nick Kounis, an economist with ABN Amro. …Draghi’s remarks were almost as dramatic as his ‘whatever it takes’ speech in the summer of 2012 with which he pulled the euro zone back from the brink. Having earlier in the week pointed to early signs of improvements, Draghi on Friday said the economic situation remained difficult and the latest business survey suggested a stronger recovery was unlikely in the coming months.”
Continue reading Memories of 2012 & 2007
Guest Post by David Stockman via Stealthflation
How Central Bank Financial Repression Has Sown Bubble Liquidation and Industrial Deflation
Nearly two decades of central bank financial repression have created huge distortions and imbalances in the world economy. Now they are coming home to roost as the impossibility of ZIRP forever dawns on even our mad money printers. Having created yet another round of ebullient financial bubbles, they are now getting palpably nervous.
Even the lady with the perpetual tan and unfailing call for “moar” monetary and fiscal stimulus, IMF head Christine Lagarde, said something sensible over the weekend:
“There is too little economic risk-taking, and too much financial risk-taking.”
Continue reading What CB Financial Repression Has Sown…
Guest Post by David Stockman by Way of Stealthflation
Alert From Chongqing: Foxconn Strike Is An Epochal Inflection Point
Foxconn workers are striking again—this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.
So the strikes in Chongqing are of potentially epochal significance. It was the two-decades-long flow of quasi-slave labor into the export factories of east China that enabled the major global central banks to go on a money printing rampage like the world has never before seen. Yet during that same period the induction of several hundred million peasants into the world’s factory system caused worldwide prices of consumer goods to fall, even as the money printers were enabling an orgy of credit-fueled spending by American and European households.
Continue reading Alert From Chongqing…
Aside from some hilarious observations about Chinese Politburo members’ jet black hair helmeted mojo, Ben Hunt of Salient lays out an interesting view of policy making and the global macro. He ends with this bit on gold…
“As for my third point – the implications of monetary policy divergence on gold – I’m always reticent to write about gold because it incites such passion (and I don’t just mean the gold bug camp … poke pretty much any academically-trained economist and you will unleash a furious anti-gold tirade). To be clear, I believe that the meaning of gold today is NOT as a store of value but as an insurance policy against central banks losing control. With market faith in the Narrative of Central Bank Omnipotence at an asymptotic top, the price of that insurance policy – call it $1,200/oz – is as low as it’s going to go. And now with a schism in the High Church of Bernanke, monetary policy divergence, and growing pressures on the tectonic plates of exchange rates we have catalysts for both a generic and geographically specific central bank loss of control. Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.”
Thanks to PJ for sending me this link.
NFTRH+ is really nothing more than an effort to formalize a less important aspect of the entire NFTRH service, which is macro market management through a 25-35 page weekly report and in-week updates, along with individual equity highlights when I feel a good risk/reward setup and/or like what I see on a chart.
Before NFTRH+ and before the current crop of ‘Buy China! Buy Emerging’ callers emerged, there was the NFTRH highlight so many weeks ago in an ETF update showing what looked like an Inverted H&S bottoming pattern. It’s target by the way and FYI, is 40. I already took my profit on the vehicle I used (TDF), but the FXI target is alive and well; and it’s closing in.
Here’s the updated chart, untouched from that update.
With reference to an earlier public post showing the EEM breakout today, you may recall that I use EMF for Emerging Market investment and TDF for China/Asia. Both are managed by Marc Mobius of Templeton.
Continue reading NFTRH Update, Preferred Emerging & China Funds Charted