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Much is happening in the international economy and global markets, but they all pale in comparison and effect to the decision of the citizens of the UK to exit the European Union. The exit of the EU’s most powerful, prosperous and highest financial contributing member, not only weakens the EU, but brings further into question the entire concept of the European Union. A month ago Switzerland and Iceland withdrew their applications to the EU by similar referendum votes and the Netherlands will be the next EU nation to hold a referendum to exit or remain in the EU. One month ago the EU was 29 nations and today they are 27. The real fear and likely outcome of this shift, isn’t that the UK is going to have problems, it’s that the EU will disintegrate and become irrelevant. Britain has operated as a world power for thousands of years, but has only been in the EU a few decades, so it’s hard to believe that it won’t do just fine on its own. The massive unelected regulatory and bureaucratic structure of the EU stifles innovation, limits economic freedom and high-jacks a nation’s sovereignty and ability to determine its own destiny.

The Brexit Referendum vote was about whether British citizens would identify themselves as British exercising democratic control over their own sovereignty, or as Europeans, ruled by an unelected European bureaucracy who answers to no one and ignores the history, culture and identity of individual nations. So why are some world leaders, international corporations and global markets reacting so strongly? It’s because a large nation and its people have opted out of a bureaucratic financial structure which had grouped 29 nations together, so that the rest of the nations of the world only had to deal with one organization (the EU) to buy, sell and trade, instead of 29 separate nations and governments. In essence, It’s easier and takes a lot less time, money and effort to go one place to trade with 29 nations, but now governments and international corporations are going to have to hire additional trade representatives and lobbyists in both the UK and Switzerland; it’s all about the money.

The EU is afraid that other nations are going to vote to exit as well, causing it to lose membership fees and lessening its power and relevancy to the rest of the world because now they have less to offer. The regulatory scheme and the size and scope of the bureaucratic structure of the EU eclipses most governments, however, unlike most governments, the EU is not controlled by the nations they oversee or by democratic election. In fact, the EU is one of the most undemocratic organizations in the world. The EU parliament cannot create, pass or veto a regulation issued by the bureaucrats running EU, they have no power; they are simply window dressing to create the illusion of democratic participation. World leaders and governments who believe commerce, trade and international corporations need to be controlled and tightly regulated, love the EU. Nations and leaders, who believe in free enterprise, unleashing innovation and allowing people the ability to make choices without government interference, don’t like the EU.

One of the main benefits of being an EU nation is getting more favorable trade deals, which allows for better import/export rates and terms than nations could negotiate on their own. There is also free trade, exchange, travel and immigration between EU member nations. Member nations do, however, have to pay hefty membership fees, obey all EU regulations and policies. The 19 nations that use the euro have had to give up their own currency, as well as control of their banks and central bank, to be governed by the European Central Bank (ECB). Nations like the UK and Switzerland, who still have their own currency and central bank, give up far more than they get to be EU members, and the regulatory burden is enormous. Immigration and open border regulations alone have pushed many EU nations to openly defy them and could push more nations out.

The drop in the pound and UK markets will be short lived, as the UK will no longer be tied to an over-regulated and over-indebted bureaucratic structure with a failing insolvent banking system, growthless economy, poorly preforming markets and over-burdening immigration policy. The UK economy and the pound are in far better shape than the EU and the euro, even with the recent drop the pound experienced. The UK is in a far better position to handle all the financial shakings that are coming than the EU. Britain, like the US, is a nation of consumers who have the financial ability to purchase goods and services at a time when other EU and world nations need to sell. No one is going to care whether or not the UK is in the EU or not. If global markets were sound and built on solid ground, then Britain leaving the EU would be fairly innocuous and have little effect, however, because most global markets are over-valued, have little or no growth and are relying on central bank intervention to keep them afloat, any major change rocks them and creates mass volatility.

The WSJ reported that a group of notable British economists countered claims that the UK would become poorer if it left the European Union, a move that follows a barrage of gloomy forecasts for the British economy.. In a report published Thursday by the eight “Economists for Brexit,” the group said the UK economy would be better off outside the EU and could be as much as 2% larger by 2020 if it left—and as much as 4% larger after 10 to 15 years. Proponents of leaving the EU say quitting would free Britain of burdensome regulation and costs, and leave it freer to deal with faster-growing parts of the world. Patrick Minford, professor of applied economics at Cardiff University in Wales and one of the authors of Thursday’s report, said that prices on products such as food would probably fall if Britain were outside the EU, because the UK wouldn’t be subject to the EU’s tariffs on imported goods. “Consumers pay higher prices within the union,” Mr. Minford said. Roger Bootle, founder of economics consultancy Capital Economics and another of the report’s authors added that those arguing in favor of remaining in the EU have overstated the benefits of membership, especially given the bloc’s weak economic performance in recent years relative to other advanced economies. “The EU makes some very bad economic decisions,” he said. Even in Germany, the economic leader of the EU, resistance to EU membership is growing. The Alternative for Germany party (AfD) emerged in 2013, advocating Swiss-style democracy with a stance of mild euro-skepticism. Since then its popularity has increased and it has pushed back further against the EU, inter alia advocating the dissolution of the euro-zone.

Pro-‘Brexit’ Economists Make Case for U.K. Exit From EU (4.28-16) WSJ
http://www.wsj.com/articles/pro-brexit-economists-make-case-for-u-k-exit-from-eu-1461846513
EU Red Tape is Suffocating UK Economy and Brexit Can Set Us Free (4-29-16) London Telegraph http://www.telegraph.co.uk/business/2016/04/29/eu-red-tape-is-suffocating-uk-economy-and-brexit-can-set-us-free/
The EU Exists Only to Become A Superstate Where Britain has no Place (5-2-16)
http://www.telegraph.co.uk/news/2016/05/02/the-eu-exists-only-to-become-a-superstate-britain-has-no-place-i/

On Dec 31, 2014, the Dow closed at 17,823 and in 2015 it finished at 17,425. After the Brexit vote the Dow closed the week at 17,400, 423 points lower than the end of 2014. At the end of the first quarter, $1.2T of US corporate bonds were downgraded by rating agencies. Had it not been for the unprecedented stock buybacks by US corporations in the 4-Q of 2015, and the 1-Q & 2-Qs of 2016, there would have been far greater a losses. On May 10 of this year, Federal Reserve Chairwoman Janet Yellen said, the Fed wouldn’t rule out using negative interest rates to boost the economy, but she cautioned such a move would have to be carefully studied. On June 6th, she indicated the Fed planned to raise interest rates at their June 16-17 meeting, however, on the 17th she testified that they would not be raising interest rates in the near future. What the Federal Reserve says they’re going to do seems to change from week to week.

Yellen Says Fed Does Have Legal Basis to Pursue Negative Rates (6-21-16) Forexlive
http://news.forexlive.com/!/yellen-says-fed-does-not-have-legal-basis-to-pursue-negative-rates-20160621
Yellen Says Forces Holding Down Rates May Be Long Lasting (6-15-16)
http://www.bloomberg.com/news/articles/2016-06-15/yellen-seems-to-sign-on-to-summers-view-of-lingering-low-rates
Parsing Yellen’s Speech at World Affairs Council (6-7-16)
http://www.bloomberg.com/news/videos/2016-06-06/parsing-yellen-s-speech-at-world-affairs-council
Yellen, in Letter, Does Not Rule Out Negative Interest Rates (5-12-16) WSJ
http://www.wsj.com/articles/yellen-in-letter-does-not-rule-out-negative-interest-rates-1463089914
Buyback Surge Is Finally Losing Steam (3-28-16) CNBC
http://www.cnbc.com/2016/03/28/buyback-fuel-for-the-bull-market-is-losing-steam.html
Why the Next Move Is Down the Q1 Corporate Buyback Blackout Starts Now (3-21-16) http://www.zerohedge.com/news/2016-03-19/buyback-blackout-period-starts-monday-institutions-selling-stocks-7-straight-weeks-w

US Markets
Earnings have dampened the appeal of global equities markets. The world’s three most valuable companies — Apple, Alphabet Inc. and Microsoft Corp. — have all released disappointing results in the past month, weighing on investor sentiment amid ongoing concern that global growth is slowing. U.S. corporate profits weighed down by the energy slump and slowing global growth are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis. Revenues will have declined for five quarters in a row, outstripping even the four-quarter slide in 2008 and 2009. U.S. gross domestic product rose just 0.5% in the first quarter. Ultimately, despite the resilience of the U.S. consumer, economic growth is likely to remain sluggish given continuing woes in emerging markets, sizable inventories, a still strong US dollar and still weak capital investment, says Joseph LaVorgna, chief U.S. economist for Deutsche Bank. “It’ll be hard to get a whole lot of corporate profit growth,” Mr. LaVorgna said. “It’s hard to get really bullish.” On June 10th the WSJ & Bloomberg reported that George Soros started actively trading and moved most of his equity holdings into gold, in the next day and half so did many others.

U.S. Corporate Profits on Pace for Third Straight Decline (4-28-16) WSJ
http://www.wsj.com/articles/u-s-corporate-profits-on-pace-for-third-straight-decline-1461872242
U.S. Stocks Pare Drop, Treasuries Rise Before Fed as Oil Gains (4-26-16)
http://www.bloomberg.com/news/articles/2016-04-26/u-s-index-futures-sink-with-apple-while-crude-extends-advance
Global Profits Recession Leaves Investors With Nowhere to Hide (4-5-16)
http://www.bloomberg.com/news/articles/2016-04-05/global-profits-recession-leaves-investors-with-nowhere-to-hide

Negative Interest Rates
Negative, zero or very low interest rates encourage people to buy much more expensive homes than they normally would, which is to their benefit until interest rates rise. Despite stagnant economies, many European cities are experiencing a rapid rise in home prices, largely because of low interest rate policies. This real estate bubble cannot be sustained, so at some point it’s all going to come crashing down.
The proponents of more government spending often refer to their spending plans as investments that will pay for themselves, but many government expenditures not only do not pay for themselves but actually reduce growth and job creation. If the proponents of more government spending really believe their rhetoric that spending has a positive rate of return, then they should be in favor of more government borrowing and less taxing when interest rates are very low or negative. If government spending on average provides a positive 3% rate of return to society and the cost of borrowing is near zero, why tax at all?

Stan Druckenmiller, billionaire investor with one of the best long-term track records in money management, said the bull market in stocks has “exhausted itself” and that gold is his largest currency allocation. Druckenmiller, speaking Ira Sohn Investment Conference in New York., said bankers experiment with “the absurd notion of negative interest rates,” but he’s wagering on gold. “Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation,” he said, without naming the metal. Druckenmiller warned that this moment reminds him of the period before the 2008 financial crisis, “negative interest rates are the definition of deflation,” he said.

The Bavarian Banking Association in Germany advised its member banks to hold physical cash instead of reserve deposits with the European Central Bank (ECB) at negative interest. Some major insurance funds are also jumping on board, choosing to hold physical cash instead of bank deposits earning negative interest. In its effort to avoid negative interest rates, the Canton of Zug in Switzerland asked its citizens to delay paying their taxes. Now even the political and media establishments in Germany are rebelling against the ECB, saying that negative interest rates chip away at the savings of pensioners.

The Madness of Negative Interest Rates (5-2-16) by The Washington Times
http://www.washingtontimes.com/news/2016/apr/25/richard-rahn-the-madness-of-negative-interest-rate/
Bull Market Exhausted, Buy Gold Says Stanley Druckenmiller (5-5-16)
http://www.bloomberg.com/news/articles/2016-05-04/druckenmiller-loads-up-on-gold-saying-bull-market-exhausted
Billionaire Trader Stanley Druckenmiller Cites Similarities to 2008 Crisis (5-4-16) WSJ
http://www.wsj.com/articles/billionaire-trader-stanley-druckenmiller-cites-similarities-to-2008-crisis-1462404943

Conclusion
The more governing and regulatory structures can be decentralized, the more economic freedom and opportunities there would be. Central banks and governments are trying to exercise more control and are slowly making holding cash more and more difficult. The EU just eliminated the 500 euro bill and the US is discussing eliminating the $100 bill. As negative interest rates spread, cash creates a problem, if people withdraw and begin to hoard cash. If cash is eliminated, banks and central banks could go as negative as they want and there would be little people and businesses could do about it. Crypto currencies (computer generated currencies) are an option and there are many individuals, companies and even nations who are using and looking them as alternative currencies. At first, governments were against crypto currencies, but negative interest rates have caused them to slow their condemnation, as this may be an option or vehicle to eliminate cash, but they want to centralize and control it. It is uncertain how this will all play out, but as long as we have cash, silver, gold, a non-government form of a crypto-currency or some other type of cash; we maintain a degree of control and freedom. If we were to lose the ability to transact in cash, free enterprise and personal economic freedom would be over.

There is little stability and much volatility; Puerto Rico is about to default again, Italy’s banks are in trouble, the AIIB new world bank just announced their first set of loans, US Federal Courts & the SEC have found Dodd Frank to be dysfunctional, unenforceable & fatally flawed, central banks and global markets are floundering, and European governments & leaders are changing at a rapid rate. Analysts are saying it’s looking like 2007-2009 all over again, but worse. The Brexit vote was unexpected and could potentially unravel the EU which was already on shaky ground before Switzerland and Iceland withdrew their membership applications. Next week the markets will continue to experience volatility, the Dow fell 512 points Friday and according to opening market orders it’s already 668 points down as of Saturday. One thing is for sure, next week there’s “gonna be a whole lot a shaking going on.”

The Subprime Mortgage is Back It’s 2008 All Over Again (6-14-16) SMC
https://www.sovereignman.com/trends/the-subprime-mortgage-is-back-its-2008-all-over-again-19902/
Puerto Rico Governor Warns of Another Default (5-6-16) WSJ
http://www.wsj.com/articles/puerto-rico-to-default-on-july-bond-payments-governor-padilla-says-1462561661
China-Led AIIB Announces First Loans in Xi Push for Influence (6-24-16)
http://www.bloomberg.com/news/articles/2016-06-24/china-led-aiib-announces-first-loans-in-xi-push-for-influence
Italy Must Choose Between the Euro and Its Own Survival (5-12-16) The Telegraph
http://www.telegraph.co.uk/business/2016/05/11/italy-must-chose-between-the-euro-and-its-own-economic-survival/
Global Corporate Debt Now Far Exceeds Pre-Lehman Bubble (5-8-16) by International Business Times http://www.ibtimes.co.uk/world-corporate-debt-far-exceeds-pre-lehman-financial-bubble-warns-iif-1558766
America’s Earning Recession Just Got Worse (4-29-16) By Patrick Gillespie at CNN
http://money.cnn.com/2016/04/27/investing/earnings-recession-apple-chipotle-twitter/index.html
9 Signs That 2016 Looks Ominously Like 2008 Just Before the Crisis (3-17-16) SMC https://www.sovereignman.com/trends/9-signs-that-2016-looks-ominously-like-2008-just-before-the-crisis-18879/?inf_contact_key=52c9c0786216257728755a4efa031a996950ce42726259d185a41d3e39ac8942

A Short History of the USD since the Bretton Woods Conference 1944

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In 1944 the US was the most powerful nation in the world; it’s military and economic might were second to none and, although the war was still being fought with Japan, Germany was defeated and the US was one of the few nations that was still left intact after WWII. The goal of the Bretton Woods Conference was to prevent a WWIII by rebuilding the world’s economic infrastructure. They wanted to replace the former model of economic growth, which was go to war and take over another nation and all their resources, by providing consultation and economic assistance. It was at these meetings that the NY based World Bank and International Monetary Fund (IMF) were created to aid nations in becoming a part of the global market place, by helping them develop their own unique resources and create transportation, communication and financial systems through which they could trade and prosper.

The British Pound was the World Reserve Currency (WRC) at the time, but after two world wars in 30 years, Britain was broke, so the USD became the WRC. The WRC is the currency which all nations use when they buy, sell and trade internationally. It’s supposed to be stable with little fluctuation, so the world can more easily trade between nations and simplify business transactions. The only way two nations could avoid using the WRC was to have a bi-lateral treaty allowing for direct exchange of each other’s currency. Being the WRC provides many advantages and the expectation was that the nation benefitting from these advantages would handle the privilege responsibly. The British did this for hundreds of years and, unlike the nations before them who acted irresponsibly, were simply the victim of two world wars fought on their soil, which had badly damaged their economy.

The US started out well for the first twenty five years, but in the latter 60s started acting in its own interest and began to handle this privilege poorly and have unfortunately abused it. In 1971, the US was just emerging from a recession, but economic problems continued to persist. French President DeGaulle then started buying gold from the US at the artificial rate of $35.00 per ounce, which was set at the Bretton Woods Accords back in 1944. In reality gold was worth more. President Nixon couldn’t break the treaty, so in August of 1971, he decoupled gold from the USD and completely monetized it. This enabled the US to print as much money as it needed to pay for the Vietnam War, since the USD was now a free floating fiat currency.

The decoupling and increased money printing also caused great concern about the stability of the USD. In 1973, the US was once again in recession and Nixon was worried about the durability of the USD. Recognizing the demand for oil was growing and would only increase, in 1974 Nixon sent Secretary of State Henry Kissinger to Saudi Arabia. A secret financial arrangement was signed with the Saudi Monetary Agency (SAMA) that enabled the high oil prices of 1973-1974 to directly benefit the U.S. Federal Reserve Bank. The deal was that Saudi Arabia would sell their crude oil only in USDs. In return, the US stopped exporting crude oil, making Saudi Arabia the undisputed King of oil and creating the petro dollar. This arrangement stayed in place until President Obama made the nuclear deal with Iran, causing Saudi Arabia to end the deal, and in January the US exported its first shipment of crude since 1974.

In 2009-2010, when the US printed $8 trillion to bailout its banks and financial institutions, it was able to spread the devaluation of the USD to the entire world. This is because, at that point in time, most nations without a treaty to exchange each other’s currencies had no other options but to continue to use the USD in international trade, no matter how much money the US printed or how irresponsible they acted. Since 2010, almost all the major nations have created treaties to directly exchange their currencies with one another, so they do not have to trade with the USD. The creation of a new world bank, the Asian Investment Infrastructure Bank (AIIB) was another step away from the US controlled World Bank. The US is the only major nation in the world who is not a member of the AIIB, and although they could become a member, only the original founding members have a vote. Regardless of whether the USD remains the WRC or not, with the combination of direct currency exchange treaties, the new AIIB world bank, the IMF adding China to the SDR basket which is the IMFs currency comprised of USD, GBP, Yen, Euro and now the Yuan. the NY based World Bank adding China as the eighth world reserve currency and the emergence of China, Asia, India and other international economies, the “privilege” and advantage of being the WRC is becoming irrelevant.

The Federal Reserve and Congress have failed to make the difficult and painful choices they should have made following the 2008 financial crisis, instead they’ve tried to fuel growth and recovery through printing money, increasing their debt and other forms of governmental and central bank intervention. Every nation throughout history that has tried to do this has failed, because no one is too big to fail. Nations rise and nations fall, usually because of the weight of their own debt and fiscal mismanagement, all the while trying to cling to power and refusing to deal with present realities. It happened to Greece, Rome, Portugal, France, and Britain, all of whom were the world reserve currency for a time, and except for Britain, all devalued their currency until it was basically worthless. The USSR was the second most powerful super power for 40 years, but they defaulted and disappeared for a decade, before Russia began to get back on their economic feet.

Instead of making the difficult choices necessary to rectify the underlying causes of the 2008 financial crisis, the US has passed massive regulatory acts like Dodd/Frank, which both sides of the political aisle, as well as the judiciary branch, have concluded doesn’t work. The US has, in fact, made things worse by taking on massive debt that is beyond its ability to pay off. Excessive central bank intervention and debt fueled stimulus have created artificial growth environments and market sector bubbles.

The US is already insolvent by most methods of analysis. The rest of the world is preparing for the fall of the USD and an end to the American domination of the world market place. Currently, neither Congress nor the two presumptive presidential candidates are talking about making the difficult choices and taking the necessary action to put America’s financial house in order. Thus, the US is continuing to drive toward the cliff of insolvency and outright and/or technical default. The only real question is, will they drive straight off the cliff or will they manage their default as they descend.

The US is not alone in its central bank’s failed stimulus, intervention and devaluation of their currency. The EU, Japan and China have also failed miserably and are in debt beyond their ability to repay what they owe, and they are avoiding making the difficult choices as well. Many nations today are depegging their currency from the both the Euro and USD, because they can no longer trust their stability. Politically, it’s all about how it looks, so instead of managing reality, they manage perception, thus how things look are not necessarily how things are. How the US, EU, Japan and other world economies, markets and political leaders and governments look, are not necessarily how they are, as there is so much that is artificial, that it’s difficult to discern what is real and unreal. One thing is for sure, is between now and Jan 1, 2017 the world’s political leaders, the financial markets and the currency values will look very different than they do now.

Nixon, Gold and Oil – by Richard Mills AheadoftheHerd.com | http://aheadoftheherd.com/Newsletter/2012/Nixon-Gold-and-Oil.htm
List of Recessions in the United States – Wikipedia | https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
Currency Pegs (1-28-16) Bloomberg | http://www.bloombergview.com/quicktake/currency-pegs
500 Euro Notes will no Longer be Produced (5-5-16) SMC
https://www.sovereignman.com/trends/it-finally-happened-500-euro-notes-will-no-longer-be-produced-19199/
Global Corporate Debt Now Far Exceeds Pre-Lehman Bubble (5-8-16) by Internationational BusinessTimes http://www.ibtimes.co.uk/world-corporate-debt-far-exceeds-pre-lehman-financial-bubble-warns-iif-1558766
Stocks Rise as Dollar’s Plunge to 10-Month Low Lifts Commodities (4-27-16)
http://www.bloomberg.com/news/articles/2016-04-27/asian-stocks-set-to-rally-on-fed-calm-kiwi-gains-oil-above-45
The Fed’s Credibility Dilemma (3-22-16) http://www.bloombergview.com/articles/2016-03-22/the-fed-s-credibility-dilemma
U.S. Dollar on Track for Worst Quarterly Performance Since 2010 (3-28-16) WSJ
http://www.wsj.com/articles/u-s-dollar-on-track-for-worst-quarterly-performance-since-2010-1459439217
Four Signs the Dollar Hit its Peak in January (3-14-16) SMC https://www.sovereignman.com/trends/four-signs-the-dollar-hit-its-peak-in-january-18846/?inf_contact_key=8782d8004601f100553a45682bf6d9ed08ae2b56f12a0361b944d11d011210a0
Signs Are Flashing That Dollar Plunge Has Gone Too Far, Too Fast (3-19-16)
http://www.bloomberg.com/news/articles/2016-03-19/signs-are-flashing-that-dollar-plunge-has-gone-too-far-too-fast
Cash is the Currency of Freedom (3-1-16) USA Today
http://www.usatoday.com/story/opinion/2016/02/29/100-dollar-bill-cash-inflation-larry-summers-federal-reserve-column/81080728/
Foreign Governments Dump U.S. Debt at Record Rate (3-16-16) CNN
http://money.cnn.com/2016/03/16/investing/us-debt-dumped-foreign-governments-china/

Central Bank Intervention Can’t Last Forever

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For the second time in 2016 Janet Yellen and the Federal Reserve moved further away from their bullish plan to raise interest rates four times in 2016. They have cut that plan down two hikes, but only if conditions are right. As a result many financial professionals have decided they can’t count on the Fed to follow through on what they say and are charting their own course. Another result of the Fed reversing their direction again is the USD has dramatically fallen in value against all the other major currencies.

Central bank intervention is no longer effective say world finance leaders
The world’s finance leaders gathered in Shanghai in February, Germany’s finance minister opposed any fiscal stimulus plan from the Group of 20, whose top economic officials gather Friday, and instead sought to focus on structural reforms to strengthen national growth rates. German finance minister Schaeuble said, “The space for monetary policy has been exhausted. He warned that using debt to fund growth just leads to “zombifying” economies. Talking about further stimulus just distracts from the real tasks at hand,” and …“that expansive fiscal policies could lay the groundwork for a future crisis.” Other comments echoed Schaeubles, “Central bankers have done their bit in recent years to stabilize the world economy,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “But as their tools are losing their effectiveness, only more aggressive fiscal policy and structural reforms will help to lift growth.” Mr. Ostwald a credit expert at ADM said, “the Bank of Japan’s failure to gain any traction by cutting interest rates below zero last month was the trigger for the latest crisis, undermining faith in the magic of global central banks. “That was unquestionably the straw that broke the camel’s back. It has created havoc.”

Theory behind low interest rates and central bank intervention
The benefit or theory behind low interest rates is that they create liquidity. Additional liquidity makes it easier for businesses to expand, hire more people, drive down unemployment, increase production, which increases the number of consumers, which should increase growth. In the same way consumers will be able to afford to purchase homes, cars and larger ticket items, driving up real estate prices, home building, the auto industry and the retail markets, which will increase growth. Then wages should begin to rise and inflation begins to go up and interest rates are increased to keep inflation in check and lower rates are no longer needed.

This is the theory, but it’s not working or getting the desired results in the US, the EU, China or Japan, as well as many other nations. The IMF and the International Bank of Settlement have both said, central banks have printed too much money, created too much debt and interest rates have been artificially low too long and that monetary stimulus is having less and less effect. None of the for-mentioned countries have been able to stimulate growth, inflation or economic expansion, instead many are experiencing deflation. Central bank intervention has created artificial environments & bubbles which can’t exist in normal market conditions without continued intervention. It’s like putting the economy on life support, you can’t keep pumping money into something that’s dead, if it can’t breathe on its own, it costs too much to keep it alive artificially. As painful as it might be, you have to let it breathe on its own or die.

BIS claim central banks are backed into a corner
Let me conclude with a warning from the Bank of International Settlements (BIS) taken from an article below: “The so-called central bank of central banks launched a scathing critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fueled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates. Monetary policymakers have run out of room to fight the next crisis with interest rates unable to go lower. The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crisis”.

The Fed’s Credibility Dilemma (3-22-16) By Narayana Kocherlakota
http://www.bloombergview.com/articles/2016-03-22/the-fed-s-credibility-dilemma
How Far Can Lower-Rate Central Bank Experiment Go (2-26-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-02-26/how-far-can-lower-rate-central-bank-experiment-go
G-20 Wants Governments Doing More, and Central Banks Less (2-27-16)
http://www.bloomberg.com/news/articles/2016-02-27/g-20-wish-list-wants-governments-to-do-more-central-banks-less
Germany Opposes Any G-20 Fiscal Stimulus Focuses on Reform (2-25-16)
http://www.bloomberg.com/news/articles/2016-02-26/germany-opposes-any-g-20-fiscal-stimulus-focuses-on-reform
The Germans Got It Right on G-20 Stimulus…..Nein! (2-26-16) by David Stockman
http://davidstockmanscontracorner.com/man-up-my-eye-the-germans-got-it-right-on-g-20-stimulus-nein/
BOJ’s NIRP failure Triggers Doom-Loop In European Bank & Credit Markets (2.10.16) The Telegraph http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop-returns-as-credit-markets-seize-up.html
Are Central Banks Causing Market Volatility (1-7-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-01-07/are-central-banks-causing-market-volatility-
The End of the Monetary Illusion Magnifies Shocks for Markets (1-8-16)
http://www.bloomberg.com/news/articles/2016-01-08/the-end-of-the-monetary-illusion-magnifies-shocks-for-markets
The World Is Defenseless Against The Next Financial Crisis, Warns BIS (6-29-15)
http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html

Webinar Presentation on Global Banking & The Big Short All Over Again

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Here is the Webinar that I presented the first week in March for Christian Financial Concepts on “Global Banking & Its the Big Short All Over Again”.

The State of Global & US Banks

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Globally, banks are in the uncharted waters of negative interest rates, protracted central bank intervention and stimulus, a lack of liquidity and their own credit worthiness being questioned. They have little room to maneuver and their prospects aren’t looking good. WSJ wrote, it’s been a bad seven weeks for European banks – worse in some ways than even than during the 2008 financial crisis. Deutsche Bank, hit this week by concern over its creditworthiness, is down 39%. While all industry groups have suffered, lenders have been hit the hardest — those in the Stoxx Europe 600 Index have plunged 29 percent this year, including their biggest selloff since August 2011 on Thursday. U.K. banks weren’t spared, with Standard Chartered Plc down 31 percent in 2016, reaching its lowest price since 1998.

The London Telegraph reported credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago. “People are scared. This is very close to a potentially self-fulfilling credit crisis,” said Antonio Guglielmi, head of European banking research at Italy’s Mediobanca. “We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” he said.

Mr Guglielmi said, “there is a gnawing fear among global investors that these draconian “bail-ins” may be crystallized as European banks grapple with €1 trillion of non-performing loans. Declared bad debts make up 6.4% of total loans, compared with 3% in the US and 2.8% in the UK.” The bail-in rules were first imposed in Cyprus after the island’s debt crisis, stripped European bank debt of its hallowed status as a pillar of financial stability, and of its implicit guarantee by states. The regime came into force for the whole currency bloc in January. Both senior and junior debt must now face wipeout before taxpayers have to contribute money. While this makes sense on one level, the eurozone banking structure is now dangerously deformed. Individual eurozone states cannot easily recapitalize their own banking systems because that breaches EU state-aid rules, but there is no functioning European body to replace them. This is what happens when you try to combine separate sovereign nations into one monetary union.

Fox News reported, banking and financial stocks are getting socked by fears that plunging global interest rates will squeeze net interest margins. Negative interest rates mean the biggest U.S. banks, all of which have massive international exposure, will have to pay to hold their cash reserves in central banks in places such as Japan, the Eurozone, Denmark and Sweden, where interest rates have been lowered into negative territory. The idea behind negative rates is to stimulate economic activity by prompting the big banks to lend or invest their cash reserves rather than park them in central banks where in normal times it would generate interest. However, the articles goes on to say, it not working.

Bank shares are down 32% this year alone. The $5.8 billion quarterly loss is the largest since the crisis. Investment banking was a nightmare as revenues fell 17% in 2015. “Revenue from fixed-income trading fell by more than two thirds — a much steeper decline than at Deutsche Bank or any of its U.S. peers,” Bloomberg notes. The culprits: widening HY spreads in the US, “subdued client activity” and of course, “significant mark-to-market losses.”

The WSJ reported, falling yields on government debt are one of the hammers pounding bank stocks. The KBW Nasdaq Bank Index is now down nearly 19% so far this year and has shed a quarter of its value since hitting a post-financial-crisis peak last summer. The reasons for the carnage are many: fears of a global slowdown, worries about energy-related losses, spillover from the grinding down of European bank stocks. But there is also a particular issue at play: bank profitability is again under serious threat. Ultralow interest rates also make it difficult for banks to generate a profit, another reason why banks, Fannie Mae & Freddie mac want to sell more mortgages, especially riskier ones with higher interest rates.

Congress created a new way to bank that it thinks will be helpful, it’s called the “Providing Opportunities for Savings, Transactions, and Lending” Act, abbreviated it’s the POSTAL Act. It authorizes the USPS to provide banking services including checking and savings accounts, money transfers, and “other basic financial services as the Postal Service deems appropriate in the public interest.” Simon Black wrote in a resent Sovereign Man Confidential post, “The US Postal Service hasn’t turned a profit in a decade. As a matter of fact, its total accumulated losses now exceed $51 billion, easily ranking it among the least successful companies in history. And the only way USPS can continue to maintain its operations is with regular bailouts from the American taxpayer.” On that point the USPS seems to be a well matched addition to the American Banking system.

Bank Source Links:
Fear, Uncertainty, Negative Rates Pounding Financial Stocks (2-11-16) Fox News http://www.foxbusiness.com/markets/2016/02/11/fear-uncertainty-negative-rates-pounding-financial-stocks.html
Europe Bank Selloff Deepens as Traders Locked in No Man’s Land (2-11-16) http://www.bloomberg.com/news/articles/2016-02-11/it-s-worse-than-2008-crisis-for-europe-banks-in-no-man-s-land
BOJ’s NIRP failure Triggers Doom-Loop In European Bank & Credit Markets (2.10.16) The Telegraph http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop-returns-as-credit-markets-seize-up.html
When Crunch Comes, Bankers Lie Says David Stockman (2-9-16) Bloomberg Video http://www.bloomberg.com/news/videos/2016-02-09/david-stockman-when-crunch-comes-bankers-lie
Deutsche Bank and the Troubles in European Banking (2-9-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-02-09/deutsche-bank-shareholders-face-dilution-peabody
Bank-Stock Carnage: This Number Is Killing Them (2-8-16)
http://www.wsj.com/articles/bank-stock-carnage-this-number-is-killing-them-1454952014
Parade of Bank Horribles Continues Credit Suisse Posts $6 Billion Loss, Stock Hits Lowest Since 1991 (2-4-16) http://www.zerohedge.com/news/2016-02-04/credit-suisse-plunges-25-year-lows-after-posting-enormous-58-billion-q4-loss
Congress Wants To Turn The US Postal Service Into A Bank (2-4-16) SMC
https://www.sovereignman.com/trends/congress-wants-to-turn-the-us-postal-service-into-a-bank-18641/?inf_contact_key=5a487edea5bb5e29acf3849952de085e5b7145d5675b4d0f9892962372a36a2f
Big Short Guy Says China’s Banking System Is Near Implosion (2-4-16) CNBC
http://www.cnbc.com/2016/02/03/kyle-bass-china-banks-months-away-from-danger-territory.html
The Fed Wants to Test How Banks Would Handle Negative Rates (2-2-16)
http://www.bloomberg.com/news/articles/2016-02-02/rates-less-than-zero-is-bank-stress-fed-wants-to-test-in-2016
Too Big to Fail Is Still Very Alive, Here’s Why (2-2-16)
http://finance.yahoo.com/video/too-big-fail-still-very-152343670.html

The Big Short All Over Again

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“The Big Short” is a movie that is currently in the theaters and has been nominated for an Academy Award. It very accurately describes what happened during 2006-2008 when the real estate bubble burst sending Lehman Brothers, Bear Stearns, AIG, Fannie Mae, Freddie Mac and many other banks and financial institutions into bankruptcy and/or bailout. It chronicles how a handful of investors and firms figured out that the US federal mortgage system, which was rated triple A and supposedly guaranteed, was about to fail. They shorted the US mortgage market by the use of “credit default swaps,” which are inexpensive insurance contracts on these mortgage pools of securities. As hard as it may be to believe, it’s happening again. Everything is lining up just like it did in 2007 and 2008, but this time it’s going to be worse, and the central banks are not in a position to intervene like they did last time.

Sub-prime mortgages were the catalyst for the 2007- 2008 collapsed real estate market. With the politically correct, but financially foolish, objective of making home mortgages more available to risky borrowers, these mortgages were given to people who couldn’t fully document their income and didn’t qualify for a conventional mortgage. These borrowers had to pay a higher interest rate because they were a greater risk. This in turn attracted investors, who got a much higher yield, but also took a much higher risk to get that yield. History documents this did not work and everybody involved lost money. The home owners defaulted on their loans and lost their homes, the investors and investment firms who invested in these supposed triple A mortgages lost their money, and the banks and Fannie Mae & Freddie Mac, would have defaulted had they not been bailed out by the US government with tax payer dollars.

All of this helped fuel a tidal wave of defaults during the housing crisis, and these types of mortgages subsequently fell out of favor. These sub-prime loans (also known as Alt-A loans or low-doc loans), gained prominence in the years leading up to the financial crisis, with lenders originating $400 billion at their peak in 2006, according to trade publication Inside Mortgage Finance. The Wall Street Journal reported that Wall Street firms want to bring back the low-doc loans, because investors are searching for a high yield in a low interest rate environment, so prominent investment firms like PIMCO, Neuberger & Berman, Legg Mason and others are once again pooling these high risk loans together to create high yields for their clients. The question everyone should be asking is: Why are we doing this again and why do these investment companies think they can manage the risk any better than Bear Stearns or Lehman Brothers could?

The other half of the equation that contributed to the 2007 real estate crisis was the lax standards of Fannie Mae & Freddie Mac, and their “too big to fail” attitude. The Wall Street Journal reported, Fannie and Freddie and their regulators just completed changes that will allow them to make loans cheaper and easier for risky borrowers. Fannie Mae and Freddie Mac said Feb 2nd that they have come to terms with lenders on how to resolve mortgage disputes, capping an effort that regulators hope will make loans cheaper and easier to get for some risky borrowers.

As the US high yield/junk bond market has tanked, investment companies are looking for alternatives for their yield hungry clients. So in addition to the above changes, they have become even more inventive. A group of hedge funds, convinced they have found the next Big Short, are looking to bet against bonds backed by sub-prime auto loans. Currently, cars are being sold to almost anyone who can breathe and sign their name, so investment companies again are pooling these high risk/sub-prime auto loans together and selling them to their clients. “Too many borrowers are likely driving away with cars they can’t afford,” said Janet Tavakoli, president and founder of Tavakoli Structured Finance. Tavakoli sounded alarms about the mortgage bubble before the 2008 collapse. (Bloomberg)

More Subprime Borrowers Are Falling Behind on Their Auto Loans (2-23-16)
http://www.bloomberg.com/news/articles/2016-02-23/more-subprime-borrowers-are-falling-behind-on-their-auto-loans
Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short (2-8-16)
http://www.bloomberg.com/news/articles/2016-02-11/some-hedge-funds-want-to-make-subprime-auto-loans-next-big-short
Fannie Mae and Freddie Mac Agree to Terms on Resolving Mortgage Disputes (2-2-16) WSJ http://www.wsj.com/articles/fannie-mae-and-freddie-mac-agree-to-terms-on-resolving-mortgage-disputes-1454447004?tesla=y
Remember ‘Liar Loans’ Wall Street Pushes a Twist on the Crisis-Era Mortgage (2-2-16) WSJ http://www.wsj.com/articles/crisis-era-mortgage-attempts-a-comeback-1454372551
Mutual Funds Are Risky (2-3-16) WSJ | http://www.wsj.com/articles/mutual-funds-are-risky-1454544816

Global Markets Down, Central Banks Directionless & Ineffective

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The Dow started the year at 17,425 and ended on Friday at 15,973, down 1,452 and down 1,850 from its high in 2015. The first six weeks of 2016 have not turned out the way that Chairman Yellen and the Federal Reserve predicted at the end of December. Yellen reported to Congress last week that the Fed is now discussing the possibility of negative interest rates, like they have in the European Central Bank (ECB) and the Bank of Japan (BOJ). This is a reversal of everything Yellen said seven weeks ago when the Fed raised interest rates.

Along with the US markets, European stocks tumbled for a seventh day and the lender gauge of banks slid to its lowest level since 2012 as the global equity rout showed no signs of abating. Greece’s Eurobank Ergasias SA led lenders lower, sliding 12%, as the cost of insuring financial debt rose amid concern over whether banks are strong enough to cope with a downturn. Deutsche Bank AG reversed gains, falling 4.3% to its lowest price since 1992, even as it reassured investors that it has enough cash to pay its debts. The Stoxx Europe 600 Index dropped 1.6% to 309.39 at the close of trading, its lowest level since October 2013, sending it into so-called “oversold” territory. Greece’s ASE Index slid to its lowest point since 1989.

Global market turmoil has also upended Japan’s finely tuned plan for recovery, sending the country’s top economic advisers scrambling for ways to cope. Following market selloffs in the U.S. and Europe, Tokyo’s Nikkei Stock Average fell nearly 5% on Friday to complete its worst week since October 2008. Global investors opting for the safest assets helped push the yen to a 15-month high against the USD.

As Chinese markets and the yuan have continued their volatility, China is continuing its attempt to switch gears away from heavy investment and toward consumption; the reverberations are being felt Down Under. Prices for Australia’s biggest export, iron ore, have slumped and the country’s trade position has steadily deteriorated, culminating in a record 32.7 billion AUD (22.9 billion USD) deficit in 2015, according to data dating back to 1971.

One of few countries exceeding expectations is India with a 7.6% expansion rate and economists estimate they will overtake China. Bloomberg reported the top 5 worst economies are Venezuela and Argentina (who are dealing with inflation and unemployment), and South Africa, Greece and Ukraine, who are desperately trying to stop unemployment from deepening. The top 5 best economies are Thailand, Singapore, Switzerland, Taiwan and Japan.

Market Meltdown Threatens Japan’s Economic-Revival Plan (2-12-16) WSJ
http://www.wsj.com/articles/japans-aso-warns-investors-over-yens-surge-1455239376
Smashed Valuations Show S&P 500 Used to Profit Recession (2-12-16)
http://www.bloomberg.com/news/articles/2016-02-12/smashed-valuations-show-s-p-500-getting-used-to-profit-recession
Markets Going to Be Mauled by Bear Said David Stockman (2-9-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-02-09/david-stockman-markets-going-to-be-mauled-by-bear
U.S. Stock Rally Fades as Commodity Shares Slip; Dollar Weakens (2-9-16)
http://www.bloomberg.com/news/articles/2016-02-09/stock-rout-stalls-amid-mixed-asian-outlook-oil-back-above-28
European Stocks Retreat to Lowest Since 2013 as Banks Tumble (2-9-16)
http://www.bloomberg.com/news/articles/2016-02-09/europe-stocks-fall-seventh-day-as-global-growth-concerns-linger
Asian Stocks Extend World Rout Amid Rising Yen While Oil Rallies (2-8-16)
http://www.bloomberg.com/news/articles/2016-02-11/global-bear-market-to-intensify-in-asia-as-investors-hunt-havens
India Sees Growth Exceeding Estimate as Modi Prepares Budget (2-8-16)
http://www.bloomberg.com/news/articles/2016-02-08/india-sees-growth-exceeding-estimates-as-modi-prepares-budget
Stocks Retreat Worldwide, Credit Weakens Amid Signs of Distress (2-7-16)
http://www.bloomberg.com/news/articles/2016-02-07/japan-stocks-to-drop-on-yen-china-reserves-fall-99-5-billion
These Are the World’s Most Miserable Economies (2-4-16)
http://www.bloomberg.com/news/articles/2016-02-04/these-are-the-world-s-most-miserable-economies
Inflation-Racked Venezuela Orders Bank Notes by the Planeload (2-3-16) WSJ
http://www.wsj.com/articles/inflation-wrought-venezuela-orders-bank-notes-by-the-planeload-1454538101
Aussie Woes as China Slows Seen in Record Trade Deficit Chart (1-30-16)
http://www.bloomberg.com/news/articles/2016-02-03/aussie-woes-as-china-slows-seen-in-record-trade-deficit-chart

Central Banks & Negative Interest Rates
Janet Yellen testified before a Congress, that the Federal Reserve still expects to raise interest rates gradually, while at the same time making it clear that continued market turmoil could throw the Fed off course from the multiple rate hikes they have planned for 2016. “Financial conditions in the United States have recently become less supportive of growth,” Yellen said. US Markets, global markets and most investor expectations for additional rate increases from the Fed this year have collapsed. The probability that the Fed will lower interest rates into negative territory and possibly resume printing money and purchasing bonds like the EU, Japan and China is becoming more likely.

The growing consensus is that intervention/stimulus by central banks is becoming less and less effective, and is part of the problem. Many now believe that the massive intervention since the 2008 financial crisis) have created artificial environments and financial bubbles which in turn do not respond to current economic conditions as they normally would. To say it another way, central bank intervention has created artificial economic environments which don’t respond to natural economic principles and they don’t have any vaccine to deal with the contagion they’ve created.

The WSJ reported, the Bank of International Settlements (BIS), the central bank of central banks, has expressed more concern about excessive debt than market turbulence. “Central bankers should resist the temptation to support tumbling financial markets by pursuing easier monetary policies,” the head of the BIS said on Friday. Speaking at the London School of Economics, Jaime Caruana warned against efforts to sustain or revive rises in asset prices by lowering interest rates or adding to quantitative-easing programs saying: “The temptation may be to try to keep the financial booms going, or to give them a new lease of life, but this will be just a palliative unless the stock of debt is adjusted and vulnerabilities are reduced.”

We have reached that fork in the road within the monetary twilight zone, where Europe’s largest bank is openly defying central bank policy and demanding an end to easy money. Alas, since tighter monetary policy assures just as much if not more pain, one can’t help but wonder just how the central banks get themselves out of this particular trap they’ve set up for themselves. (WSJ)

Global central banks have opened the door to negative US interest rates, in Wall Street’s view. After the Bank of Japan cut some rates below zero last month, to spur growth and inflation, strategists are weighing the Federal Reserve’s options in case of a crisis. If the world’s biggest economy weakens enough that traditional policy measures don’t help, the Fed may consider pushing rates below zero, according to Bank of America Corp. and JPMorgan Chase & Co.

The Probability of Negative U.S. Rates Is on the Rise (2-7-16)
http://www.bloomberg.com/news/articles/2016-02-08/negative-rates-seen-as-option-for-fed-as-boj-ecb-pave-the-way
A Fed Rate Cut in 2016 The Odds Are Increasing (2-10-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-02-10/a-fed-rate-cut-in-2016-the-odds-are-increasing
Yellen Signals Rate Path Hinges on Whether Turmoil Persists (2-10-16)
http://www.bloomberg.com/news/articles/2016-02-10/yellen-signals-fed-rate-path-hinges-on-whether-turmoil-persists
Gundlach Says Fed May Have to Ease Again: Barron’s Roundtable (1-16-16) http://www.bloomberg.com/news/articles/2016-01-16/gundlach-says-fed-may-have-to-ease-again-barron-s-roundtable
BIS Warns Against Easier Policies to Support Markets (2-5-16) WSJ
http://www.wsj.com/articles/bis-warns-against-easier-policies-to-support-markets-1454697002
2007 All Over Again Banks Starting To Implode (2-8-16) by
John Rubino http://davidstockmanscontracorner.com/2007-all-over-again-banks-starting-to-implode/

Banks
Bloomberg reported, it’s been a bad seven weeks for European banks – worse even than during the 2008 financial crisis, by some measures. Deutsche Bank, hit this week by concern over its creditworthiness, is down 39%. While all industry groups have suffered, lenders have been hit the hardest, those in the Stoxx Europe 600 Index have plunged 29% this year, including their biggest sell-off since August 2011 on Thursday. UK banks weren’t spared, with Standard Chartered Plc down 31% in 2016, its lowest price since 1998.

International central banks steering of interest rates into negative territory is taking a heavy toll on big US banks and their stocks. Along with the Fed’s testimony that they are considering negative interest rates, US markets were selling off again Thursday. Banking and financial stocks are falling, as their profit margins shrink along with interest rates. Fox News reported negative interest rates mean “the biggest US banks, all of which have massive international exposure, will have to pay to hold their cash reserves in central banks in places such as Japan, the Eurozone, Denmark and Sweden,” where interest rates have been lowered into negative territory. The financial sector is the biggest losing sector so far this year, down more than 15% ahead of Friday’s open. The financial sector is now officially in a bear market, down a little more than 20% from the recent highs in July and down more than 15% year to date. The simple discussion by the Fed of negative US interest rates has contributed to the drop in bank stocks.

Credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago. “People are scared. This is very close to a potentially self-fulfilling credit crisis … We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” said Antonio Guglielmi, head of European banking research at Italy’s Mediobanca. Marc Ostwald, a credit expert at ADM said, “the Bank of Japan’s failure to gain any traction by cutting interest rates below zero last month was the trigger for the latest crisis, undermining faith in the magic of global central banks. That was unquestionably the straw that broke the camel’s back. It has created havoc,” (The UK Telegraph).

Guglielmi said, “There is a gnawing fear among global investors that these draconian “bail-ins” may be crystallised as European banks grapple with €1 trillion of non-performing loans.” The bail-in rules were first imposed in Cyprus after the island’s debt crisis, stripping European bank debt of its hallowed status as a pillar of financial stability and of its implicit guarantee by EU states. The Telegraph reported, the new banking regulations came into force for the whole currency bloc in January. Both senior and junior debt must now face wipeout before taxpayers have to contribute money. While this makes sense on one level, the eurozone banking structure is now dangerously deformed. Individual eurozone states cannot easily recapitalize their own banking systems because that breaches EU state-aid rules, but there is no functioning European body to replace them. It cannot usefully cut interest rates any deeper into negative territory since the current level of -0.3% is already burning up the “net interest margin’ of lenders and eroding bank profits. “How much further can the ECB go before it becomes outright harmful?” Guglielmi asked.

Europe Bank Selloff Deepens as Traders Locked in No Man’s Land (2-11-16)
http://www.bloomberg.com/news/articles/2016-02-11/it-s-worse-than-2008-crisis-for-europe-banks-in-no-man-s-land
Fear, Uncertainty, Negative Rates Pounding Financial Stocks (2-11-16) Fox News http://www.foxbusiness.com/markets/2016/02/11/fear-uncertainty-negative-rates-pounding-financial-stocks.html
BOJ’s NIRP failure Triggers Doom-Loop In European Bank & Credit Markets (2.10.16) The Telegraph
http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop-returns-as-credit-markets-seize-up.html
When Crunch Comes, Bankers Lie Says David Stockman (2-9-16) Bloomberg Video http://www.bloomberg.com/news/videos/2016-02-09/david-stockman-when-crunch-comes-bankers-lie

Recession Looking Like 2008
“The risk of recession and deflation is rising,” said Francois Savary, the chief investment officer of Prime Partners SA, a Geneva-based investment manager. In a Bloomberg article Lee Ferridge, the Boston-based head of macro strategy for North America at State Street Global Markets said “It’s not enough that valuations have receded quite significantly and earnings haven’t been too bad — sentiment is very low and there isn’t much visibility right now. That’s frightening.” The payrolls weren’t strong so it doesn’t make everything fine, but it brings the Fed back into play, because of the wages … Retail sales takes on a prominence because, if that’s a weak number, the consumer’s slowing, manufacturing’s slowing, services are slowing.”

The Telegraph reported that, along with oil, commodity prices have crashed by two thirds since their peaks in 2014. “We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before,” says Thomas Thygesen, head of economics at SEB in London. Unlike previous pre-recessionary eras, the current sell-off has seen commodity prices, equities and credit conditions all move in dangerous lockstep. Although a 75pc oil price collapse should represent an unmitigated positive for the world’s fuel thirsty consumers, the sheer scale of the price rout is imperiling the finances of producer nations from Nigeria to Azerbaijan, and is now threatening to unleash a wave of bankruptcies across corporate America.

Indebtedness is not just the scourge of the US. Globally, the oil and gas industry has issued $1.4 trillion of bonds and taken out a further $1.6 trillion in syndicated loans, driving the sector’s combined debt to $3 trillion, according to the Bank of International Settlements. They warn of an “illusion of sustainability” that could quickly turn toxic as the credit cycle unravels. “Conditions that usually pave the way for mounting defaults – such as growing bad debt, tightening monetary conditions, tightening of corporate credit standards and volatility spikes – are currently met in the US”, says Bronka Rzepkowski at Oxford Economics. He went on to say, “Such levels of financial distress, more often than not, portend a global recession.”

The US economy is flashing warning signs, particularly in the industrial and manufacturing sectors. Demand for oil, and particularly so-called distillates — which are refined oil products such as jet fuels and heating oils — is crashing. Distillates were the weakest sector, down 18%. The scale of the decline in distillates demand in January has only ever been seen before during full-blown US recessions.

Last year, the number of dividend reductions far surpassed 2008, according to Bespoke Investment Group, citing data from Standard & Poor’s. The ratcheting down of payouts to shareholders is a function of weak commodity prices, sluggish growth dampening corporate profits, and a tightening of credit conditions. The number of payout cuts enacted was almost 100 more than at the outset of the Great Recession — a time when the implosion of Lehman Brothers Holdings Inc. caused equity markets to plummet in the later stages of the third quarter (as reported by Bloomberg).

Matthew Whitbread, Boston-based investment manager at Baring Asset Management LLC, which oversees $35 billion said “There were some rather heroic growth forecasts built into a lot of U.S. earnings numbers, and clearly they’re no longer expected to materialize. Investors have started to question where that growth would come from, and they’ve realized we’re one step closer to a recession.”

Smashed Valuations Show S&P 500 Used to Profit Recession (2-12-16)
http://www.bloomberg.com/news/articles/2016-02-12/smashed-valuations-show-s-p-500-getting-used-to-profit-recession
Stocks Retreat Worldwide, Credit Weakens Amid Signs of Distress (2-7-16)
http://www.bloomberg.com/news/articles/2016-02-07/japan-stocks-to-drop-on-yen-china-reserves-fall-99-5-billion
Another Recession Indicator Flashing Red Distillate Demand in January Plunges 18% (2.10.16) by Business Insider http://www.businessinsider.com/barclays-note-on-distillates-showing-us-recession-is-near-2016-2
Are Europe Stocks at Recession Prices (2-9-16) Bloomberg Video
http://www.bloomberg.com/news/videos/2016-02-09/are-europe-stocks-at-recession-prices
Debt, Defaults & Devaluations Why This Market Crash Is Like Nothing Before (2-8-16)
http://www.telegraph.co.uk/finance/economics/12138466/when-is-the-next-financial-crash-coming-oil-prices-markets-recession.html
Asian Stocks Extend World Rout Amid Rising Yen While Oil Rallies (2-8-16)
http://www.bloomberg.com/news/articles/2016-02-11/global-bear-market-to-intensify-in-asia-as-investors-hunt-havens
Gundlach Says Dollar Will Drop in 2016 (1-5-16)
http://www.bloomberg.com/news/articles/2016-02-06/doubleline-s-gundlach-sees-dollar-drop-in-2016-as-bulls-retrench
Another Sign of Rough Sledding Ahead Dividend Cuts Surpass 2008 (2-5-16)
http://www.bloomberg.com/news/articles/2016-02-05/another-sign-of-rough-sledding-ahead-dividend-cuts-surpass-2008
Boone Pickens: Watch Out for Recession (2-4-16)
http://www.bloomberg.com/news/videos/2016-02-04/boone-pickens-watch-out-for-recession

Conclusion
As of mid-February, the USD is dropping in value along with the US Stock market, as are global equity markets and bond markets. Commodities are continuing to fall and our capacity to store oil is almost maxed out. Central banks are proving ineffective and creating more problems than solutions and bank securities are dropping as people question their stability and solvency. The global equity bear market deepened in Asian trading, with Japanese stocks headed for their worst week since 2008 as anxiety over central banks’ ability to revive the world economy fueled a rally in the yen. “We’ve entered a different phase in the market,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, “We’re not simply in a risk-off mode; the market has fallen to the point of pricing in a recession in the US.” (Bloomberg)

“The US and European Union regulators reached an agreement on oversight of the $553 trillion global derivatives market, seeking to prevent capital increases from hitting EU banks this year,” Bloomberg reported. The Bloomberg article is very technical, but the first sentence ought to stir concern in the hearts of everyone who remembers the role derivatives played in the 2008 financial crisis and Lehman Brothers collapse. A derivative is an investment instrument that derives its value from something else, like stock, bond, property or bank deposit derivatives, and they can be leverage up to ten times their value. $553 Trillion is around twice as much as what the article below values the entire world’s wealth at $223 trillion. So based on these articles, the world owes twice as much as its worth, or to say it another way the world has $223T of assets and $553T of liabilities. Is it any wonder, that most of the banks and central banks of the world are having issues?

EU, U.S. Reach Deal on Clearing Rules for Derivatives Market (2-10-16)
http://www.bloomberg.com/news/articles/2016-02-10/u-s-eu-announce-agreement-on-derivatives-clearing-rules
It’s a “0.6%” World Who Owns What of the $223 Trillion in Global Wealth (6-2-13) http://www.zerohedge.com/news/2013-06-02/its-1-world-who-owns-what-223-trillion-global-wealth
Asian Stocks Extend World Rout Amid Rising Yen While Oil Rallies (2-8-16)
http://www.bloomberg.com/news/articles/2016-02-11/global-bear-market-to-intensify-in-asia-as-investors-hunt-havens
BP CEO Very Bearish on Oil as Storage Tanks Are Filling Up (2-10-16)
http://www.bloomberg.com/news/articles/2016-02-10/bp-ceo-very-bearish-on-oil-as-storage-tanks-are-filling-up
IEA Raises Estimate of Surplus Oil Supply on Higher OPEC Output (2-9-16) http://www.bloomberg.com/news/articles/2016-02-09/iea-raises-estimate-of-surplus-oil-supply-on-higher-opec-output
BP CEO Very Bearish on Oil as Storage Tanks Are Filling Up (2-10-16)
http://www.bloomberg.com/news/articles/2016-02-10/bp-ceo-very-bearish-on-oil-as-storage-tanks-are-filling-up
IEA Raises Estimate of Surplus Oil Supply on Higher OPEC Output (2-9-16) http://www.bloomberg.com/news/articles/2016-02-09/iea-raises-estimate-of-surplus-oil-supply-on-higher-opec-output

Fed Raises Interest Rates, EU Extends QE, Commodities Fall, Global Debt Rises & IMF Makes China a Reserve Currency

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After talking about raising interest rates for two years, frustrating both US and International markets by saying one thing and doing another, the Federal Reserve finally made a decision and raised US interest rates .25%. Outside the Fed there was no clear consensus. Historically, the main reasons interest rates are raised is to curtail inflation and slow growth, neither of which apply, as we are currently experiencing deflation. The Federal Reserve’s own growth estimates are less than half of what they estimated for 2015 and if they go much lower, will almost be non-existent. In October, the Atlanta Fed lowered growth estimates for the third time this year to .9%, joining the IMF who has also lowered global growth expectations for the third time. Raising interest rates usually causes a country’s currency to strengthen, which makes its exports cost more than other nations. Last month the US experienced the largest trade deficit in history and higher interest rates will likely make it worse.

“A weakening global economy, soaring dollar, and global petro-recession with an associated inventory overhang are hurting exports and widening the deficit despite the improvement once expected with the big drop in oil prices,” – Action Economics of Boulder, CO

The EU is lowering interest rates to help their economy and the US is raising interest rates to help theirs. Both nations are suffering from the same problems: deflation, low growth and too much debt, so which is the right course of action? A mediocre jobs report comprised of part-time, full-time, mostly low paying jobs and seasonal Christmas hiring, is not a compelling reason to raise interest rates. At this point, most world economies and markets are not preforming well, and there are very few nations buying anything, so where is our growth going to come from?

Atlanta Fed’s Q3 ‘GDPNow’ Forecast Plunges to 0.9% (10.1.15) http://globaleconomicanalysis.blogspot.com/

U.S. Posts a Record Deficit in Manufacturing Trade (11-4-15)
http://www.bloomberg.com/news/articles/2015-11-04/u-s-posts-a-record-deficit-in-manufacturing-trade

IMF Downgrades Global Economic Outlook Again (10-6-15) WSJ
http://www.wsj.com/articles/imf-downgrades-global-economic-outlook-again-1444140016

Fed Rate Hike is Six-Eight Months Too Late Says Sam Zell (12-16-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-12-16/sam-zell-fed-rate-hike-is-six-eight-months-too-late

Fed Ends Zero-Rate Era; Signals 4 Quarter-Point Increases in 2016 (12-16-15)
http://www.bloomberg.com/news/articles/2015-12-16/fed-ends-zero-rate-era-signals-4-quarter-point-2016-increases

The IMF, US and international business leaders and Congress do not seem to be very confident in the Federal Reserve. Congress has recently passed several measures curtailing and adding more scrutiny and oversight to the Fed’s decision making ability. These changes are a result of concerns about certain actions that the Fed took during the 2008 crisis. The Fed just adopted these changes on Nov 30^th.

“Many lawmakers had said the Fed operated with too few restrictions as it tried to keep big banks and other firms afloat during the 2008 financial crisis, when the central bank used its emergency lending powers for the first time since the Great Depression.” – Wall Street Journal

Finding well-paying jobs is becoming more difficult, defaults are increasing, and many companies are announcing layoffs. Profits and revenue are falling in tandem for the first time in six years. Analysts expect the index’s companies to book a 2.8% decline in per-share earnings from last year’s third quarter, according to Thomson Reuters. Sales are on pace to fall 4%, the third straight quarterly decline. The last time sales and profits fell in the same quarter was in the third period of 2009.

Fed Adopts Dodd-Frank Bailout Limits (11-30-15) WSJ | http://www.wsj.com/articles/fed-set-to-adopt-final-emergency-lending-rule-1448889633

Yellen & White House Step Up Opposition to Fed Oversight Bill (11-18-15)
http://www.bloomberg.com/news/articles/2015-11-17/yellen-urges-pelosi-ryan-to-reject-bill-boosting-fed-oversight

Fed Has Caused Global Uncertainty (10-9-15)
http://www.bloomberg.com/news/videos/2015-10-09/david-rubenstein-fed-has-caused-global-uncertainty

Fed’s Policies How Wrong Have They Been (10-5-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-10-05/how-wrong-have-the-fed-s-policies-been-

Fitch Warns of “Historic Junk Milestone” As US Defaults Surge (12-15-15) by ZeroHedge
http://www.zerohedge.com/news/2015-12-14/fitch-warns-historic-junk-milestone-us-defaults-surge

Kraft to Slash 2,600 More Jobs, Close Seven Plants (11-4-15) WSJ
http://www.wsj.com/articles/kraft-to-slash-2-600-more-jobs-close-seven-plants-1446668634?alg=y

Maersk Line to Cut 4,000 Jobs as Market Deteriorates (11-4-15) WSJ
http://www.wsj.com/articles/maersk-line-to-cut-staff-as-market-deteriorates-1446623156

Wal-Mart Preparing to Cut Hundreds of Headquarters Jobs This Week (10-1-15) WSJ
http://www.wsj.com/articles/wal-mart-preparing-to-cut-hundreds-of-headquarters-jobs-this-week-sources-say-1443655847

U.S. Companies Warn of Slowing Economy (10-26-15) WSJ http://www.wsj.com/articles/u-s-companies-warn-of-slowing-economy-1445818298

$11 trillion in global stock market wealth was wiped out in the 3^rd quarter of 2015, and central bank creditability also dropped along with commodities. China stepped up monetary easing with its sixth interest rate cut in a year to combat deflationary pressures and a slowing economy. Japan also decided to expand its QE, but Japan’s ability to continue its stimulus maybe short lived. Late in October, European Central Bank President Draghi all but committed to a fresh stimulus for the euro-area in December. This caused EU markets to rally, but contrary to expectations, Draghi’s six month extension of the 60B per month euro printing and lowering rates to negative .3% , was less than expected and markets reacted negatively. Nineteen Euro nations now have negative .3% interest rates (which means depositors lose .3% on their deposits) and a number of other EU nations have even higher negative rates. Many of these nations are also issuing negative coupon rates on their sovereign bonds, which means these bonds are guaranteed to lose money. No one knows how these negative interest rates are going to affect the market, because this has never happened before.

$11 Trillion in Global Stock Market Wealth Was Wiped Out In Q3 & It’s Not Over (10-3-15) http://davidstockmanscontracorner.com/72140/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM

QE to Infinity the Central Banks Are Heading for Monetary Mayhem (10-26-15) The Telegraph by Liam Halligan | http://www.telegraph.co.uk/finance/comment/11952876/Mario-Draghi-gives-the-V-sign-but-a-dangerous-QE-day-looms.html

China Cuts Interest Rates as Policy Divergence with U.S. Widens (10-23-15)
http://www.bloomberg.com/news/articles/2015-10-23/china-cuts-interest-rates-reserve-ratios-to-counter-slowdown

ECB’s Stimulus Moves Fall Short of Market Expectations, Hammering Stocks (12-3-15)
http://www.wsj.com/articles/ecb-cuts-deposit-rate-draghi-to-announce-further-measures-1449147451

BOJ’s $2.5 Billion ETF Boost Seen Having Little Impact on Stocks (12-18-15)
http://www.bloomberg.com/news/articles/2015-12-18/boj-unveils-2-5-billion-etf-boost-to-offset-planned-stock-sales

Sell the Euro the ECB Is Fixing to Trash Its Money (11-9-15) by ZeroHedge
http://www.zerohedge.com/news/2015-11-09/lets-go-big-cut-ecb-consensus-forming-even-deeper-rate-cut-reuters-reports

40% of European Government Bonds Sport Negative Yields and More May Follow (12.2.15)
http://www.marketwatch.com/story/40-of-european-government-bonds-sport-negative-yields-and-more-may-follow-2015-12-02

Less than Zero Living With Negative Interest Rates (12-8-15) WSJ
http://www.wsj.com/articles/less-than-zero-living-with-negative-rates-1449621094

IMF Adds Chinese Yuan to Reserve Currency List & SDR Basket
“Anointing the yuan as a reserve currency is in part a simple acknowledgment of China’s economic heft: The country now accounts for more than 15% of the global gross economic output, nearly triple what it was a decade ago. And for the Chinese, the yuan’s higher status is part of a larger strategy to boost the country’s economic leverage.” -Bloomberg

China has ramped up lending to foreign governments, greatly expanded trades settled in yuan and created emergency credit facilities for other governments. Earlier this year, China launched the Asian Infrastructure Investment Bank, an institution analysts say was designed in part to rival the Washington-based World Bank. The IMF’s decision will eventually put the yuan alongside the US Dollar, euro, British Pound and Japanese Yen in the fund’s reserve currency basket, with the IMF giving more weight to China’s currency than either the yen or pound.

SDR (Special Drawing Rights) were created in 1969 to boost global liquidity as the Bretton Woods system of fixed exchange rates unraveled. The SDR basket currently includes the USD, euro, yen and pound. While the SDR is not technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket to meet balance-of-payments needs. The equivalent of about $280 billion in SDRs were created and allocated to members as of September 2015, compared with about $11.3 trillion in global reserve assets. SDR status is significant as it serves as “a seal of approval” from the IMF that the yuan is indeed an internationalized currency, AXA analysts said in May. Not even three weeks after the IMF decision, China is already dropping its peg to the USD which will cause the yuan to devalue, making it more competitive and far less sensitive to Fed interest rate hikes. China de-pegging from the USD has far more advantages than disadvantages and will definitely create problems for the US.

China Joins World’s Elite Currency Club (11-30-15) WSJ
http://www.wsj.com/articles/imf-lifts-chinese-yuan-to-elite-lending-reserve-currency-status-1448903067

China’s Dollar-Depegging Signal Likely a Bet on More Greenback Strength (12-11-15) WSJ http://blogs.wsj.com/economics/2015/12/11/chinas-dollar-depegging-signal-likely-a-bet-on-more-greenback-strengthening/

A Strong Dollar Hurts China More Than the US (12-8-15)
http://www.bloomberg.com/news/articles/2015-12-08/biggest-loser-from-stronger-dollar-may-be-china-and-not-the-u-s-

Poor Earning Reports & Company Buybacks
This US earnings season is on track to be the worst since 2009, as profits from oil & gas and commodity related companies plummet. Data compiled by Bloomberg shows that, out of the three quarters of S&P 500 that have reported results thus far, profits are down 3.1 percent on a share-weighted basis. This would be the greatest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year and David Stockman wrote:

“At this point, 75% of S&P 500 companies have reported Q3 results, and earnings are coming in at $93.80 per share on an LTM basis. That happens to be 7.4% below the peak $106 per share reported last September, and means that the market today is valuing these shrinking profits at a spritely 22.49X PE ratio. And, yes, there is a reason for two-digit precision. It seems that in the 4th quarter of 2007 LTM earnings came in at 22.19X the S&P 500 index price. We know what happened next!”

The question is, if earning reports are so bad why are some companies still positive, and why is the market still high? One reason is company buybacks. The WSJ reported: “Corporate stock buybacks are climbing toward a post-financial-crisis high this year, furthering the debate about the use of hundreds of billions of dollars in company cash to enhance quarterly earnings reports. Stock repurchases boost earnings per share, even if total earnings don’t change, by reducing the number of shares. Critics have said that buybacks represent an artificial, short-term method of boosting profits. Some companies have made large buybacks in quarters when earnings were soft, leading to complaints that they were simply managing earnings.”

This Is the Worst U.S. Earnings Season Since 2009 (11-4-15) http://www.bloomberg.com/news/articles/2015-11-04/this-is-the-worst-u-s-earnings-season-since-2009

This Time Is The Same But Worse (11-3-15) by David Stockman http://davidstockmanscontracorner.com/76822-2/

Is the Surge in Stock Buybacks Good or Evil? (11-22-15) WSJ | http://www.wsj.com/articles/is-the-surge-in-stock-buybacks-good-or-evil-1448188684?alg=y

Beware The “Massive Stop Loss” – JPM’s Head Quant Warns This Unexpected Downside Catalyst Looms Next Week (12-9-15) by ZeroHedge | http://davidstockmanscontracorner.com/beware-the-massive-stop-loss-jpms-head-quant-warns-this-unexpected-downside-catalyst-looms-next-week

Commodities & Emerging Markets
“The commodity-price slump and the slowdown in China’s economy are crippling developing nations’ ability to borrow abroad, even as international debt sales from advanced nations remain at a five-year high.” -Bloomberg

Issuance by emerging-market borrowers slumped to a net $1.5 billion in the third quarter, a drop of 98% from the second quarter, according to the Bank for International Settlements (BIS). This is the biggest downtrend since the 2008 financial crisis and it reduced global sales of securities by almost 80%. The BIS just released its latest international banking statistics, showing cross-border lending fell by $910 billion (£589 billion), an enormous slump, and the largest since the fourth quarter of 2008.

Bloomberg Business wrote: “While nobody expects industry giants such as Rio Tinto Group or BHP Billiton Ltd. to go bust, higher-cost producers and those unable to raise more cash are vulnerable as a measure of base-metals prices heads for a third straight annual decline. The loss of value means more companies are getting closer to default, Moody’s Investors Service said Wednesday. A gauge of contracts on the London Metal Exchange has slid 26 percent this year, the most since 2008, to near the lowest in six years.”

Oil & gas prices should remain low for the next six months, because the Saudis & OPEC not only decided to increase production, but they removed the oil production cap, and OPEC is not scheduled to meet again until June of 2016. Bloomberg reported: “One place where production is projected to fall is the U.S., where oil drillers have idled more than half the country’s rigs in the past year. The number of active oil rigs in the nation fell to 545, the least in five years.”

Emerging Markets Debt sales Down 98% In Q3 (12-6-15) by Bloomberg Business
http://www.bloomberg.com/news/articles/2015-12-06/pain-of-emerging-markets-revealed-as-debt-sales-sink-98-percent

What’s Happened to International Bank Lending? (10-23-15) https://agenda.weforum.org/2015/10/whats-happened-to-international-bank-lending/

Why the Global Mining Industry Is Heading For Bankruptcy Court (12-4-15) by Bloomberg Business
http://www.bloomberg.com/news/articles/2015-12-03/why-bankruptcy-might-be-the-mining-industry-s-last-best-hope

OPEC Won’t Cut Production to Stop Oil’s Slump (12-4-15)
http://www.bloomberg.com/news/articles/2015-12-04/opec-maintains-crude-production-as-group-defers-output-target-ihryzilb

Sovereign Debt
Global sovereign debt is growing exponentially; the EU, China and Japan are all printing currency at record high levels. President Reagan’s former budget director, David Stockman wrote:

“The global economy has been on a credit binge for the past two decades. Since 1994, total credit market debt outstanding has soared from $40 trillion to $225 trillion or by nearly 4X the growth of GDP during the same period. But now that debt super-cycle has crested, and that’s exceedingly bad news for profits.”

ZeroHedge reported, “According to Hong Kong-based “Autonomous Research”, the real figure may be closer to 21% when one takes into account the aforementioned shadow banking sector.”

Bloomberg reported: “Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks. Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered.”

China finds many ways to avoid accurate reporting, but bottom line, China is facing a massive debt crisis. Greece signed its third bailout deal with the European Commission, most doubt they will be able to keep it, so a Greek exit is still very possible. Italy’s poor growth and massive amounts of non-preforming loans could put them in a worse position than Spain if they do not improve soon.

Not to be out done, US spending, debt and unfunded mandates, dwarf the rest of the world. Last month I sent out an article titled, “US Govt Reports Soc\Sec Medicare & Soc\Sec Disability not Solvent & Fed Reserve Reports US Banking System Unsound,” explaining how the US government and the Fed, by their own calculations, admit that these programs are insolvent and the US banking system is unsound (visit this page for the article and supporting info.). Central banks around the world are selling US government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the 2008 financial crisis. Some nations are cashing out while the USD is high and buying their own securities, because they know it’s not going stay that way.

This Time Is The Same But Worse (11-3-15) by David Stockman http://davidstockmanscontracorner.com/76822-2/

The Greece Debt Watch (11-6-15) http://www.bloomberg.com/news/articles/2015-11-06/the-greece-debt-watch

Greece’s Five Ticking Time Bombs (12-8-15) http://www.bloombergview.com/articles/2015-12-07/greece-s-ticking-timebombs-keep-grexit-on-the-radar

China’s Banking Sector May Be Sitting On $3 Trillion Neutron Bomb (11-4-15) by ZeroHedge http://davidstockmanscontracorner.com/chinas-banking-sector-may-be-sitting-on-3-trillion-neutron-bomb/

Credit Sleuths in China Uncover Bad Debt Dwarfing Official 1.5% (10-29-15)

http://www.bloomberg.com/news/articles/2015-10-29/risky-math-how-analysts-calculate-china-s-true-bad-loan-burden

Italy’s Bad Debt Hair Is Getting Uglier (12-10-15) | http://www.bloombergview.com/articles/2015-12-09/italy-s-banks-need-relief-from-bad-debt

Singapore Set to Suffer Indonesia’s Defaults as Well as Its Smog (10-19-15)
http://www.bloomberg.com/news/articles/2015-10-19/singapore-set-to-suffer-indonesia-s-defaults-as-well-as-its-smog

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (10-7-15) | WSJ
http://www.wsj.com/articles/once-the-biggest-buyer-china-starts-dumping-u-s-government-debt-1444196065

China’s Selling Tons of U.S. Debt. Americans Couldn’t Care Less (10-18-15)
http://www.bloomberg.com/news/articles/2015-10-18/china-s-selling-tons-of-u-s-debt-americans-couldn-t-care-less-

Conclusion
On Dec 31, 2014, the Dow closed at 17,823 and as of Friday at 1:00 PM the Dow was 17,128 wiping out all 2015 gains and 695 point of 2014 gains. A whopping $1.2 trillion worth of corporate bonds in the United States have just been downgraded by rating agencies and the US junk bond market is in a free fall; the contagion has now spread to the corporate band market. “The Price declines are alarming and worrying,” said Ahluwalia, JPMorgan’s head of global CLO research.

The US budget deal was not good, as it raised the debt ceiling for two years and removed spending caps, paving the way for the US to deficit spend and increase their indebtedness. Over and over again most of the articles in publications like Bloomberg and The Wall Street Journal are saying that the situation in which the US, and other countries and global markets currently find themselves in, are almost exactly like they were in 2007-2008 precipitating the global financial meltdown. The amazing thing, is that, as obvious and clear as signs may be, very few people are doing anything about it. The central banks have almost maxed out their credit cards and as interest rates rise they will not be able to pay the interest maintenance on their already accumulated debt, not to mention the increase. 2015 was a tumultuous year for international economies and world markets and things are lining up for 2016 to be no less volatile, with many challenges ahead.

Age of Bubble Finance Crackup Phase New York, NY (What Should You Do) (11-26-15) David Stockman
http://dailyreckoning.com/age-of-bubble-finance-%E2%86%92-crackup-phase/

The Best Worst Budget Deal (10-27-15) WSJ | http://www.wsj.com/articles/the-best-worst-budget-deal-1445986699

Junk-Bond Rout Deepens (12-10-15) WSJ | http://www.wsj.com/articles/junk-bond-selloff-intensifies-after-funds-demise-1449857705

Junk Bonds Are Tanking and Icahn Says Meltdown `Just Beginning’ (12-11-15)
http://www.bloomberg.com/news/articles/2015-12-11/junk-bond-fear-gauge-nears-3-year-high-after-third-avenue-freeze

Junk Contagion Spreads to Investment Grade Bonds Plunge to 2-Year Lows, Treasury Liquidity Collapses, CLOs Next (12-15-15) by ZeroHedge | http://www.zerohedge.com/news/2015-12-14/junk-contagion-spreads-investment-grade-bonds-plunge-2-year-lows-10y-liquidity-implo

Financial Disaster Dead Ahead (11-6-15) by Michael Snyder | http://davidstockmanscontracorner.com/financial-disaster-dead-ahead/

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Global Banking, The Big Short All Over Again

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A Short History of the USD since the Bretton Woods Conference 1944

Central Bank Intervention Can’t Last Forever

Webinar Presentation on Global Banking & The Big Short All Over Again

The State of Global & US Banks

The Big Short All Over Again

Global Markets Down, Central Banks Directionless & Ineffective

Fed Raises Interest Rates, EU Extends QE, Commodities Fall, Global Debt Rises & IMF Makes China a Reserve Currency