“But this long run is a misleading guide to current affairs. In
the long run we are all dead. Economists set themselves too easy, too useless a
task if in tempestuous seasons they can only tell us that when the storm is long
past the ocean is flat again.”
J. M. Keynes.
The
Great Reconnect between the central bank stock market bubbles and reality is
now well underway. A massive
malinvestment bubble has entered its correction. It won’t be short or pretty.
From China to Brazil via Australia, Canada, Chile, Mexico, and South Africa, a
giant commodities over investment bubble was put in place to service a massive
state directed Ponzi economy in China. From America to Europe including the UK, the
central banks targeted stocks as their preferred way of reflating the crashed
G-7 economies following the failure of the Greenspan-Bernanke bubble economy of
the 1990s and the naughty’s. I would
argue that we have reached the end game of the stock market collapse of 1987,
and the insane economics put in place by Greenspan to rig markets higher
following that first bubble collapse of the Great Nixonian Error of fiat money.
Following
the Greenspan Great Recession of 2008-2009, we have been living in a central
bankster fool’s paradise of ZIRP, NIRP, and QE forever. But QE forever couldn’t be forever, nor could
ZIRP be. The Great Wall of malinvestment and wealth destruction couldn’t be
forever in China, and is now coming to its end. From zero interest rates we are
headed back towards normalised interest rates. It may take a decade to get
there, but get there we will. A massive unrepayable debt mountain must be
whittled down to a serviceable debt mountain. The benefits of fiat money were
all front loaded and long ago dissipated in wars, instant gratification lifestyle,
socialist bribes to voters, and the vanity and pork barrel policies of politicians seeking re-election.
We
have just entered our new period of adjustment. By its end fiat currency will
be swept away. The present currency war
to the bottom, will actually hit bottom. Everyone now needs some intrinsic
value protection from the enormous error of 1971- 2008. For most that's likely to
be gold and silver. For a wealthy few, long term real estate, genuine artworks
and antiques. But we are just in the first phase of the spreading deflation. In
this phase, it’s risk off and cash is king.
Each success only buys an admission ticket to a more difficult
problem.
Alan Greenspan, with apologies to Henry Kissinger.
Dow posts triple-digit drop, caps second worst week in 2015
Published: Sept 4, 2015 5:31 p.m. ET
U.S. stocks ended Friday’s session sharply lower, as a highly anticipated
monthly jobs report intensified the debate about the Federal Reserve’s decision
to raise interest rates in September. Widely seen as the last notable economic report before the Federal Reserve decides whether to raise interest rates at its two-day meeting on Sept. 16-17, the jobs data showed that the U.S. economy added a weaker-than-estimated 173,000 nonfarm jobs last month, while the unemployment rate dropped to 5.1%—marking its lowest level since April 2008.
The employment report began a downbeat day for the market as investors seemed to read the data as signaling that the Fed may soon decide to end its ultraloose monetary policy in two weeks.
“The Fed has been clear about wanting to raise rates this year and at least now they have a green light if they decide to do so,” said Kate Warne, investment strategist at Edward Jones.
Friday’s losses capped another brutal week for the main indexes, which suffered their second-largest weekly losses this year.
The S&P 500 SPX, -1.53% closed 29.91 points, or 1.5% lower at 1,921.22 and fell 3.4% over the week. Among the biggest decliners this week were utilities stocks, which shed 5.2% since, while health-care and financials stocks lost 4.4% and 4.3% respectively.
The Dow Jones Industrial Average DJIA, -1.66% dropped 272.38 points, or 1.7%, to 16,102.38, recording a 3.3% loss over the week. Among the blue-chip stocks, 29 out of 30 posted weekly losses, with the Dow losing more than 1,550 points over the past two weeks.
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Germany's Stocks Capitulate as Decline Triggers DAX Death Cross
September
4, 2015.
German
equities, which have already lost most of their gains for the year, have now
fallen into a bearish chart pattern known as a death cross.
The DAX
Index’s 50-day moving average dropped below its 200-day mean for the first time
in a year. For technical analysts, that’s a sign that price momentum is fading.
The gauge has fallen 18 percent since reaching a record in April, leaving it up
only 3.5 percent for the year.
“It’s the
market saying we want to see a retest of the August low and touching even a new
low,” said Jean-Charles Gand, a senior market strategist at BBSP SAS in Paris.
“For now we see a deep correction, but this is a cyclical correction in a
long-term trend upwards.”
The DAX
tumbled the most in four years in August and briefly entered a bear market as
concern grew that its exporters would suffer with a slowing Chinese economy. It
had jumped as much as 26 percent this year as the European Central Bank began
its quantitative-easing program, triggering a weakening of the euro.
The last
time the DAX formed a death cross, the index dropped 12 percent in five weeks
to a one-year low. It then surged 44 percent to a peak in April.
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German factories suffer shock export collapse
Demand for German goods falls by more than 5pc in July, dampening momentum in Europe's largest economy
German factories have suffered a shock collapse in export business, as demand from outside Europe for German goods evaporated in July.Non-eurozone orders slid by more than 9pc, sending overall export demand down by 5.2pc, according to figures from the country's federal statistical office.
Vanishing appetite for German wares drove down total industrial orders by a larger than expected 1.4pc, having grown by 1.8pc in June - the biggest drop in six months. Analysts had forecast factory orders to shrink by just 0.6pc.
The surprise decline suggests Germany's patchy
recovery has yet to gather sustained momentum. Europe's largest economy, which
has helped drive the rest of the single currency out of its turmoil, is heavily
exposed to any downturn in the fortunes of China and the emerging world.
----"Companies noted a lack of incoming new
business and reported pessimism towards the 12-month outlook for
activity," said Oliver Kolodseike, economist at Markit, which compiles the
report.
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The Oil-Sands Glut Is About to Get a Lot Bigger
September 4, 2015 — 12:01 AM BST Updated
on September 4, 2015 — 5:23 AM BST
The last place oil producers want to be when prices plummet to profit-demolishing
lows is midstream on a billion-dollar project in one of the costliest parts of
the planet to extract crude.Yet that’s exactly where half a dozen oil sands operators from Suncor Energy Inc. to Brion Energy Corp. find themselves with prices for Canadian oil now hovering around $30 a barrel. While all around them projects have been postponed or canceled, their investments were judged too far along when the oil game suddenly moved from offense to defense.
These projects will add at least another 500,000 barrels a day -- roughly a 25 percent increase from Alberta -- to an oversupplied North American market by 2017. For companies stuck spending billions in a downturn, the time required to earn back their investments will lengthen considerably, said Rafi Tahmazian, senior portfolio manager at Canoe Financial LP.
“But the implications of slowing down a project are worse,” said Tahmazian, who helps oversee about C$1 billion ($758 million) in energy funds at the Calgary investment firm.
A general rule of thumb says new plants require a West Texas Intermediate price of $80 a barrel to break even. Western Canada Select, a blend of heavy Alberta crude, is currently selling at a discount of about $14 a barrel to the WTI benchmark, which lost 21 cents to $46.54 on the New York Mercantile Exchange at 12:14 p.m. Singapore time.
This differential for Alberta’s oil, based on such factors as quality and pipeline capacity, has ranged from $7 to $20 this year and exceeded $40 a barrel in late 2012 and part of 2013.
Cenovus Energy Inc., a Calgary-based producer that uses steam technology to melt bitumen and pump it to the surface, has postponed two new projects until the oil price recovers. But it’s pressing ahead with expansions started before the downturn that will add 100,000 barrels of capacity by next year.
“We do not want short-term pricing to dictate our investment in long-life, high-return oil sands projects,” Cenovus Chief Executive Officer Brian Ferguson told analysts in July, when WTI was trading near $50.
Oil companies plan for price variations during the lives of long-term projects. Cenovus “stress tested” its expansion down to a price of $50 a barrel, a level that will allow it to continue paying a reduced dividend and fund some further growth, Ferguson said in July.
Even $50 might appear optimistic now, with WTI briefly sinking below $40 in August and some analysts, including those at Citigroup Inc., forecasting prices in the low $30s. Cash flow for Cenovus can fluctuate by hundreds of millions of dollars with changing prices, but the company still aims for a 15 percent return over the life of its projects, said spokeswoman Sonja Franklin.
Canadian Natural Resources Ltd., Husky Energy and Japan Oil Sands are among those devoting precious capital to complete projects launched in better days.
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Glencore Posts Worst Week Ever as Mining Shares Extend Slump
Ben Stupples Lynn Thomasson September 4, 2015 — 5:02 PM BST
Glencore
Plc shares posted the biggest weekly decline since the company went public in
2011 as the selloff in mining shares showed no signs of slowing.
The commodities producer
and trader slid 6 percent by the London close on Friday, bringing losses for
the week to 17 percent. Vedanta Resources Plc, an Indian miner of copper,
aluminum and zinc, dropped 12 percent for the biggest retreat in the FTSE 350
Mining Index. Anglo American Plc and Antofagasta Plc sank more than 5 percent.
Mining and energy shares led the slump in global
equities as U.S. jobs data did little to bring clarity to the outlook for
interest rates amid growing concern about the strength of the global economy. A
gain in payrolls, while less than forecast, followed advances in July and June
that were stronger than previously reported. Glencore’s billionaire Chief
Executive Officer Ivan Glasenberg last month said no one can read the metals
market in China, the biggest buyer.
----Glencore saw half its market value disappear this year, and along with Rio Tinto Group and BHP Billiton Ltd., reported slumping profit with commodity prices near a 16-year low.
Standard
& Poor’s cut Glencore’s outlook to negative from stable this week, saying
China’s slowing economy will weigh on copper and aluminum prices that are
already near six-year lows.
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We shall not grow wiser before we learn that much that we have done was very foolish.
Friedrich
von Hayek.
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