China, Oil and Markets: It’s All One Story

8 01 2016

$2.5 trillion was lost in global equities in three days this year even before the Thursday China trading stop and ongoing oil price decline. Must be easily over $3 trillion by now. And counting: European markets look awful, and so do futures.

Or so says Raul Illargi. I just had to copy paste this item before going out in the fields, this stuff scares the pants off me…… you can read the whole thing and more over at the Automatic Earth.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening.

Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.

And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy.

The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments.

Even if central bankers could ever have ‘lifted’ anything at all (a big question mark), their power to do so is rapidly diminishing. The constraints global developments place on their powers will now be exposed -even more. And of course they’ll try to deny and ignore that, as naked emperors are wont to do.

And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

Oil -both Brent and WTI- have breached the $32 handle, and are very openly flirting with the $20s. China’s stock market trading was halted for a second time this year, just 14 minutes after the opening. This came about after the PBoC announced another ‘official’ devaluation of the yuan by 0.5% (stealth devaluation has been a daily occurrence for a while).

$2.5 trillion was lost in global equities in three days this year even before the Thursday China trading stop and ongoing oil price decline. Must be easily over $3 trillion by now. And counting: European markets look awful, and so do futures.

For the first time in years, markets begin to seem to reflect actual economic activity. That is to say, industrial production, factory orders, exports, imports and services sectors are falling both in China and the US. Many of these have been falling for a prolonged period of time.

In fact, Reuters quotes a Sydney trader as saying: The Chinese economy actually contracted in December. Given what I’ve written in the past year and change about China, that can hardly be a surprise anymore.

What we are looking at is debt deflation, in which virtual ‘wealth’ is being wiped out at a fast pace, and it’s taken some real wealth with it for good measure. It’s not going to be one straight line down, for instance because there are a lot of parties out there who need to cover bets they carry from last year, but it’s getting very hard to see what can stop the plunge this time. Volatility will be a popular term again.

The Fed could lose its last remaining shred of credibility through QE4,5,6 and a 180º turn on the rate hike, but it would lose that last shred for sure. Draghi’s ECB could start buying ever more paper, but they would have a hard time finding sufficient amounts of anything to buy that’s worth anywhere near the written value.

The PBoC can’t really do QE after the $25 trillion post-2008 credit pump, and the yuan devaluation today achieved the opposite of what it was intended for. The BoJ is being severely hampered by the rising yen. We’ll see crazy stuff from the global Oracles, for sure, but in reality they never had anything but expensive band-aids to offer, and they have nothing better now.

Ultimately, if China is a Ponzi (and $25 trillion in credit spent on overcapacity strongly suggests so), then the entire world economy is one. I would very much argue so, and have for years. And we all know what inevitably happens with Ponzi’s.

Economists like to think in cycles, in which things will simply bounce back at some point, but a lot of this stuff will not come back, not for a very long time. I’ve said it before: Kondratieff is also a cycle.

We’re watching the initial stages (though a lot has already vanished behind all sorts of curtains) of a massive ‘wealth’ destruction, a very loud POOF!, ‘wealth’ which can so easily be destroyed because most of it was never real, just inflated soap. It’s time to move to cash if you haven’t already, and if you have enough, perhaps a bit of gold, silver or bitcoin, but do remember those are not risk-free.

It’s tempting to see this as a China problem, but first of all there is no China problem that will not of necessity also gravely affect the west , and second of all when you read, just to name an example, that America’s new jobs pay 23% less than the jobs they replaced, it’s just plain silly to believe that the economy is doing well, let alone recovering.

Which is why a majority of Americans are living paycheck to paycheck, and don’t have enough savings even for a $500 car repair bill. All Ponzi’s burst, they can’t be tapered, and this one we have now is going down in epic fashion because there are no major economies left that are not overburdened by debt.

It’s also tempting, certainly for economists, to see money that’s lost in one ‘investment’ to automatically shift to another, but that’s not what’s happening. Much of it simply evaporates. That’s why investment funds where already in a huge high-yield bind last year, and why you should really worry about your pension fund.

Do prepare for rising taxes and services cuts: governments suffer along with everyone, and because they’re slow and lagging, probably even more so. And governments think they deserve to have their hands in your pockets. Prepare for mass lay-offs too. The consumption model is being broken and dismantled as we speak.

 

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11 responses

8 01 2016
ejhr2015

I wouldn’t underestimate China. The market cannot be China’s main game. That is keeping the people working and satisfied enough to not revolt. It is a monetary sovereign nation. That means it has 100% control of its currency and will never go broke in Renminbi.
So it will spend whatever keeps the population content enough.. In fact if it so chose it could demolish all those empty cities and rebuild them again.
It may be a ponzi scheme but a very long term operation.

The real limiting factor is resource scarcity. That will be dynamite! Imagine having to import nearly all food in foreign currency because they have poisoned their lands. Already 55% is too toxic to grow food, and the citizens themselves are voting with their wallets to get outside supplies of baby formula, a result of the melamine episode that also poisoned trust in officialdom.

8 01 2016
MargfromTassie

ejhr2015, Yes the Chinese are now getting their baby formula and milk products from overseas, including from their own dairy cattle and milk factories in Australia. They recently bought the 250,000 acre Van Dieman Land Co. in North West Tasmania, for this purpose.
http://www.theaustralian.com.au/business/companies/chinese-buy-nations-largest-dairy-van-diemens-land-company/news-story/f35b55db81da953570307a65fe5a9637

9 01 2016
9 01 2016
ejhr2015

Mosquito bites, not to worry.

9 01 2016
Brendon Crook

Wow, that’s some very sobering reading………………….

9 01 2016
pendantry

Yikes!

8 01 2016
MargfromTassie

Yes, the world financial system is a Ponzi, and will inevitably collapse. In fact it is slowly collapsing now. And, as you are aware Mike, quite a few ‘alternative’ commentators are saying that the likelihood of some ‘big event’ or sudden crisis occurring, such as widespread bank failures and bail-ins, is drawing ever nearer.
http://usawatchdog.com/end-of-capitalism-is-here-ellen-brown/

8 01 2016
MargfromTassie

Yes, the world financial system is a Ponzi, and will inevitably collapse. As you are aware Mike, quite a few ‘alternative’ commentators are saying that the likelihood of some ‘big event’ or sudden crisis occurring, such as widespread bank failures and bail-ins, is drawing ever nearer. http://usawatchdog.com/end-of-capitalism-is-here-ellen-brown/

8 01 2016
MargfromTassie
11 01 2016
Brendon Crook

Thank you for putting up that link Marg.

It’s been a while since I’ve read anything by Orlov as I felt his blog was going all over the place some time ago. This is a great bit of writing however & very relevant too considering that we’re in the very early stages of the first quarter of 2016 & the inevitable is manifesting itself for all to see…………………………………..
I’ve been warning my family about this for years now but it fell on deaf ears.
I was/am the black sheep-doomer in the family.
They were fooled by the lies of our cultural stories which have been reinforced by the MSM of the day at any given time in the industrial empires existence.
They will still, no doubt, cling to the disintegrating & decaying fabric of those lies as they know no other way to live & how does one relate to a failing world view when all about you is crumbling into the chaos. despair & misery except to cling to the lie one has grown up with………………….?

11 01 2016

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