Two weeks ago, I wrote:
“I have been growing increasingly
concerned over H1 2015, that supposing the great commodity bust, isn't just the ending of the Commodity Supercycle, Bloomberg Dec 1998- June 2008, but was the biggest of the mis and malinvestment bubble of the era of the Great Nixonian Error of fiat money, August 15, 1971 to present.
The collapse of the Great Chinese Stock Bubble last month evaporating 3-4 trillion USD of phony Chinese wealth, far from being a non-event as per a Wells Fargo's note of about 10 days ago, was instead a triggering event for the next phase, from commodity deflation into outright commodity depression. Playing Devil's Advocate, our global commodity producers have malinvested for a demand that was a one-off mirage.
The collapse of the Great Chinese Stock Bubble last month evaporating 3-4 trillion USD of phony Chinese wealth, far from being a non-event as per a Wells Fargo's note of about 10 days ago, was instead a triggering event for the next phase, from commodity deflation into outright commodity depression. Playing Devil's Advocate, our global commodity producers have malinvested for a demand that was a one-off mirage.
Continuing as Devil's Advocate, a commodity depression, will continue to slow the global velocity of money. Layoffs rise, people worry about the future, their future. Corporations receive less cash per ton. They cut back expenses. The higher the dollar, the more non dollar nations must cut back on dollar based commodities and goods. The more US exports become pricier, the less demand for them.”
This weekend, I do not seem to be
alone in that concern.
Bill Gross: the world is lurching dangerously close to deflation
"Bond King" Bill Gross raises alarm over weakness in emerging market currencies and commodity prices
Veteran bond investor Bill Gross has warned that the global economy is "dangerously close" to becoming a "deflationary world".Bill Gross, a money manager at Janus Capital and co-founder of Pimco, told Bloomberg that once there was a “whiff of deflation, things tend to reverse and go badly."
"[There is a sense of] a deflationary world around the globe in terms of commodity prices and currencies - the dramatic decline in emerging market currencies are a deflationary force for the US, it’s certainly not a positive for equities and risk markets," he said.
Mr Gross highlighted that key commodity indices were not just at cyclical lows, but lower than in 2008 when Lehman Brothers collapsed.
He said recent falls in commodity prices were a better indicator of what is happening in the economy because they reflected real-time supply and demand.
Mr Gross said the US Federal Reserve appeared "mentally committed" to raise interest rates this year - most likely in September.
However, he said an initial tightening of more than 25 basis points could "scare the market". When asked if falling commodity prices and the stronger dollar should influence the Fed's decision, he said:
"I hope so. They always stress that currency is not a consideration. But I hope it becomes a consideration because when markets move so dramatically, and they have in emerging markets, and they have in developed markets – almost 15pc to 20pc over the last six months ... that’s a dramatic move.
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The industrial commodities have been
signalling for quite some time that all was far from well in the global
economy. A new recession or worse was arriving, or if crude oil pricing is
accurate, has already arrived. In this faltering global economy, it would be
folly for the Fed to raise interest rates next month, even if only by a
miniscule quarter of one percent.
When China’s stock market bubble
burst back in June it wiped out 3 to 4 trillion dollars of false wealth in the
Chinese economy, in roughly just two weeks. China’s GDP is about 10 trillion in
2015, although many economists think that this is over stated, by empty cities,
railways to nowhere, barely used airports, empty shopping malls and the like. A
3 to 4 trillion dollar hit in an instant, and two weeks is an instant, in an
iffy 10 trillion GDP, is going to spread out into the Chinese economy for
months and months to come I think. China will be exporting deflation to the
rest of the world for quite some time. The commodities rout will continue.
Gaining downward momentum fast, if the global economy really has tipped into a
new recession.
Implosion, when it comes, happens fast. Right up until the end,
denied. In a new recession, get ready for a new wave of “unexpected” Lehman’s, Bear
Stearns, MLP’s, MF Global’s, Refco’s and Madoff’s. Our central bankster are all
but out of ammunition to fight a new recession. In desperation, we might yet
see helicopter drops of cash, in the form of tax rebates to western consumers,
irrespective of what that does to the fiat currencies value. “Damn the torpedoes,
full speed ahead!”
China's July exports slump 8 percent, raises pressure for more stimulus
Chinese
exports tumbled 8.3 percent in July, their biggest drop in four months and far
worse than expected, reinforcing expectations that Beijing will be forced to
roll out more stimulus to support the world's second-largest economy.
Imports
also fell heavily from a year earlier, in line with market forecasts but
suggesting domestic demand might be too feeble to offset the weaker global
demand for China's exports.
Economists
had forecast exports to fall just 1 percent, after a 2.8 percent uptick in
June, but the data on Saturday showed depressed demand from Europe and the
first drop in exports to the United States, China's biggest market, since
March.
Exports
to the European Union fell 12.3 percent in July while those to the United
States dropped 1.3 percent. Demand from Japan, another big trading partner,
slid 13 percent.
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Hans F. Sennholz
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