Tag Archives: debt

Credit Bubble Bulletin

By Doug Noland

Carry Trades and Trend Following Strategies

The week commenced with yet another “flash crash.” The August 2015 version was notable for its ferocity and impressive global scope. Then there was the Dow’s 1,200 point “buy the dip” (and rip the bears’ faces off) rally from Monday’s lows. At Wednesday’s low point, the Shanghai Composite had sunk 18.7% from last Friday’s close, before a 13.4% rally left the index down 7.9% for the week. Currency markets, especially EM, were chaotic. From my perspective, the systemic nature of market dislocations provided decisive confirmation of the Global Financial Fragility Thesis.

Before diving into the present, let’s set the tone by reminding readers of an important but commonly unappreciated aspect of the Fed’s previous failed reflationary episode: Cheered on by “Keynesian” inflationist doctrine, the Fed specifically targeted mortgage Credit as the primary mechanism for post-tech Bubble system reflationary measures. In what was too surreptitious, government-directed mortgage Credit was unleashed to overpower deflation risks.

Continue reading Credit Bubble Bulletin

It’s Always Worse Than You Think

By Doug Noland

Credit Bubble Bulletin

August 17 – Reuters Breakingviews (Edward Chancellor): “Financial markets, like religions, are faith-based networks. The complex structures of assets and liabilities that comprise markets are held together by a set of underlying beliefs. Unlike religions, however, financial dogmas are occasionally shown to be false. We experienced such a moment last week, when the Chinese authorities chose to devalue their currency.”

Contemporary global finance is a complex “system” of interwoven (electronic) “faith-based networks.” As the bursting of the global Bubble unfolds, myriad “financial dogmas” will be exposed as bogus. Too many have been little more than chicanery.

Continue reading It’s Always Worse Than You Think

Money and Spheres

By Doug Noland

Credit Bubble Bulletin

In a tiny subsection of the analytical world, analysis is becoming more pointed and poignant. I appreciate Bill Gross’s August commentary, where he concluded: “Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.”

I’ll include the names Russell Napier, Albert Edwards and David Stockman as serious analysts whose views are especially pertinent. I presume each will exert minimal effect on “the establishment.”

Back to Bill Gross: “The BIS emphatically avers that there are substantial medium term costs of ‘persistent ultra-low interest rates’. Such rates they claim, ‘sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.’ ‘…The reason [the Fed will commence rate increases] will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history.”

Continue reading Money and Spheres

Around the Web

By Biiwii

Market Analysis, News & Opinion From Around the Web…

 

Bulletin: It’s a Credit Bubble!

By Biiwii

As posted at NFTRH.com

You may have caught the title’s little inside joke.

Sometimes you (well, I anyway) can look at a graph representing data that is a culmination of history (i.e. reality) and just let it settle in for some perspective and even some conclusions.

Whether these conclusions are right or wrong is subjective and open to debate. But what I see here when viewing the Prime Rate historical is summed up after the graph (graphs courtesy of Economagic, mark ups mine).

prime.loan

In the pre-Greenspan era, every rise in Prime rates was eventually corrected through recession. This makes sense as the Federal reserve would, through its Funds Rate, make borrowing by banks more expensive during economic up cycles and hence, this was passed on to the borrowing public by the spread between FFR and Prime.

Continue reading Bulletin: It’s a Credit Bubble!

Greece: Act 1…

By Elliott Wave International

Greece: Act One of a Global Debt Drama

Greek citizens vote “Yes” to kick the can down the road

Editor’s note: You’ll find the text version of the story below the video.

In December 2009, Greece was encumbered with debt amounting to 113% of GDP (nearly double the Eurozone limit of 60%).

In May 2010, Eurozone members and the IMF agreed to a €110 billion Greek bailout.

The can was kicked down the road.

Today, Greece’s debt-to-GDP is nearly 180%!

Yet on July 5, Greek voters loudly said “No!” to the austerity reforms proposed by creditors. In other words, it was a “yes” vote to (once again) kick the financial can down the road.

The austerity package would have included pension cuts and value-added tax increases. Greece’s prime minister wants a less harsh bailout deal, and hopes the “no” vote will provide leverage in negotiations with Eurozone creditors.

But Greece still owes €240 billion to its creditors. Any repayment plan will likely involve sacrifice. What’s more, Greece has suffered a 25% GDP decline since 2010.

The often-kicked “can” may have run out of road.

Willingness to make politically difficult compromises is dwindling in both Greece and among its creditors. Avoiding a financial and economic meltdown in Greece would likely require a level of flexibility that none of the important actors in the latest Greek drama have shown over the past year.

The Wall Street Journal, July 6

No matter how Europe’s financial authorities respond to Greece’s vote, the fear of default is likely to spread beyond that country’s borders.

The bond market rout that began in Greece last year spread to Portugal, Italy and Spain, starting in March 2015. The next crises could begin in any one of these countries but, ultimately, the credit crunch will turn its sights to much bigger targets. Ten-year yields in France have jumped fourfold since their April 2015 low, and this year’s bond sell-off has likewise sent yields soaring on the once mighty German bund. … Most of Europe’s debt will eventually undergo a broad-based and long-term decline — not because investors will worry about high rates of inflation, but because they will worry about default.

The European Financial Forecast, July 2015

Whether Greece exits the Eurozone or not remains to be seen.

One thing appears certain: the world will soon shift its attention from the Greek debt drama to one that plays out on the global stage.


Global Insight: Europe’s Debt-Dependent Economy

Free report from Elliott Wave International

Europe is in the world spotlight this month, with Greece’s future hanging in the balance. But Greece is just one part of the problem. Enjoy an excerpt from EWI’s Brian Whitmer from the June European Financial Forecast to see just how precarious Europe’s financial situation has become.

Read your free report now >>


This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Greece: Act One of a Global Debt Drama. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Around the Web

By Biiwii

Financial news & analysis from around the web

 

Next Credit Bubble Casualties: France & Italy

By Elliott Wave International

France and Italy are the Next Casualties of the Credit Bubble

Editor’s note: This article is excerpted from The State of the Global Markets Report — 2015 Edition, a publication of Elliott Wave International, the world’s largest financial forecasting firm. Data is updated to December 2014. You can download the full, 53-page report here.

Workforce is still shrinking

These two charts depict two imminent casualties of the credit bubble — France and Italy — where sentiment has decoupled from reality.

Continue reading Next Credit Bubble Casualties: France & Italy

Debt and Deflation: 3 Financial Forecasts

Guest Post by Elliott Wave International

Debt and Deflation: Three Financial Forecasts

There’s more to deflation than falling prices

Editor’s note: You’ll find the text version of the story below the video. Join Elliott Wave International’s free State of the U.S. Markets online conference to get prepared for the major moves in U.S. stocks, commodities, gold, USD and more for 2015 and beyond. Register now and get instant access to a free video presentation from market legend Robert Prechter and regular email updates with insights from our most recent publications and presentations from our key analysts.

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Inflation ruled from 1933 to 2008.

Yet in the just-published Elliott Wave Theorist, Bob Prechter’s headline says, “Deflation is Starting to Win.”

Take a look at this chart from The Telegraph:

Continue reading Debt and Deflation: 3 Financial Forecasts

The Unavoidable Peril of Financial Sphere Bubbles

Guest Post by Doug Noland

EM contagion gathering momentum.

Let’s begin with a brief update on the worsening travails at the Periphery. The Russian ruble sank another 6.5% this week, increasing y-t-d losses to 37.9%. Russian yields surged higher. Russian (ruble) 10-year yields jumped another 146 bps this week to 12.07%, with a nine-session jump of 188 bps. Russian yields are now up 425 bps in 2014 to the highest level since 2009.

Increasingly, EM contagion is enveloping Latin America. The Mexican peso was hit for 1.6% Friday, boosting this EM darling’s loss for the week to a notable 3.0%. This week saw the Colombian peso hit for 4.3%, the Peruvian new sol 1.1%, the Brazilian real 0.9% and the Chilean peso 0.6%. Venezuela CDS (Credit default swaps) surged 425 bps to a record 2,717 bps. Venezuela CDS traded near 1,000 in August. On the bond front, 10-year yields jumped 30 bps this week in Brazil, 24 bps in Mexico and 24 bps in Colombia. Brazilian stocks were slammed for 5% this week and Mexican equities fell 2.2%.

Eastern European currencies were also under pressure. The Ukrainian kryvnia dropped 2.9%, the Romanian leu 1.5%, the Bulgarian lev 1.3%, the Czech koruna 1.3%, the Hungarian forint 1.1% and the Polish zloty 0.7%. The Turkish lira was hit for 1.9%, as 10-year yields jumped 33 bps to 7.91%. The South African rand dropped 2.6% to a six-year low. In Asia, the Malaysian ringgit dropped 2.5%, the Singapore dollar fell 1.4% and the Indonesian rupiah declined 0.8%.

Continue reading The Unavoidable Peril of Financial Sphere Bubbles

US’s Debt Not Such a Big Deal –Mr. Gold

[edit]  Mr. Gold’s last paragraph is the tell on his bias, as he is unwilling or unable to conceal the contempt he has for people who were absolutely right for 10 years+ and are now suffering a bear market, both to their asset of choice and in sound monetary thinking.

“The vastly improved fiscal situation may last only a few years, but it’s a big plus for U.S. markets and the U.S. dollar — and another nail in the coffin for the gold bugs and doom-and-gloomers who can add one more item to the long list of things they got really, really wrong.”

Why the US’s Debt is No Longer Such a Big Deal  –Howard Gold writing at MarketWatch

Before we find out about Howard’s thoughts on the debt situation (I am only going by the headline right now) let’s divide the GDP by the Federal Debt.  This is a view of a deluded nation going right down a sink hole in service to greed and denial.

gdp.feddebt

Now let’s see what Mr. Gold (not the discredited and now strangely silent ‘gold bug’ Mr. Gold) has to say in regard to “the US debt is no longer such a big deal”.

Continue reading US’s Debt Not Such a Big Deal –Mr. Gold