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/

In their 2015 report, the Board of Trustees of Social Security & Medicare (comprised of the U.S. Treasury Secretary, Labor Secretary and Health & Human Services Secretary) wrote:

• In the second paragraph: “Social Security as a whole as well as Medicare cannot sustain projected long-run program costs…”
• In the fourth paragraph: “The DI (Disability Insurance) program satisfies neither the Trustees’ long-range test of close actuarial balance nor our short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds.”
• In Paragraph eleven: “The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2030…”
• Conclusion statement: “Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

The insolvency of these funds coupled with fact that too many Americans have very little if any retirement savings are going to create serious problems for retirees.  U.S. House Resolution 488 states that Social Security “was never intended by Congress to be the sole source of retirement income for families.” The Social Security Fund has $2.7 trillion in assets, but the government estimates its liabilities to exceed $40 trillion and the SS Disability Ins. Fund will be depleted in less than a month.  Congress has already diverted funds to extend that, but it’s not going to last.

Two weeks ago the Federal Reserve, FDIC and many other financial regulators in the Shared National Credit (SNC) Review expressed concerns about the “continuing gaps between industry practices and the expectations for safe and sound banking.” They highlighted the great increase in risky loans that exceed $3.9 trillion.  These concerns are further articulated in the article below titled, Astonishing Report from the Fed Says US Banks Are Not Sound.

In both these government reports they plainly admit too much debt, not enough revenue and if nothing changes, insolvency.  However, neither report offers a solution or even a direction to take.  The Social Security report says people need to be prepared.  In other words, people need to find another source of retirement income or figure out how to live without Social Security & Medicare.

A Summary of the 2015 Annual Reports by Social Security & Medicare Boards of Trustees  https://www.ssa.gov/oact/trsum/

Congress Proposes a Chilling Resolution on Social Security (11-4-15) SMC
https://www.sovereignman.com/trends/congress-proposes-a-chilling-resolution-on-social-security-18193/?inf_contact_key=eaadec71153e36824fe97bcb7679e1f562775c46eda3db5510189b4d2eb50a31

The Fake Fix for Disability Insurance (11-11-15) WSJ | http://www.wsj.com/articles/the-fake-fix-for-disability-insurance-1447285970

Astonishing Report from the Fed Says US Banks Are Not Sound (11-10-15) SMC
https://www.sovereignman.com/trends/astonishing-report-from-the-fed-says-us-banks-are-not-sound-18208/?inf_contact_key=9c63c82682d35503b41a66621aad350bbdcdf5228477612e7b830364e91004da

Shared National Credits Review Notes High Credit Risk & Weaknesses Related to Leveraged Lending & Oil & Gas (11/5/15) 
http://www.occ.treas.gov/topics/credit/commercial-credit/shared-national-credits-reports.html  |  Release 2015-149 | SNC Review (PDF) | SNC Program Industry Definitions (PDF)

Earlier this week Canadian voters elected Justin Trudeau as their prime minister and a clear liberal majority.  My concern is not based on just this article, however the Canadian Bloomberg commentator in the interview is doing all he can to hold back his concern.  Trudeau is a liberal, who has already said he is going to increase government expenditures and return to deficit spending, undoing Canada’s balanced budget.  He says he will focus on the environment, global warming and many other things, none of which are good and all of which will damage the Canadian economy.  Because of this change, I have concerns about the Canadian Dollar (CAD).  Currently the Australian dollar and New Zealand dollar are basically on par with the CAD, and like the CAD, have a lower value than the the USD. Both of these are good alternatives to the CAD.  I am still going to retain some CAD and for those of you who have hundreds, you should be fine, but those who have thousands may want to consider making some adjustments.  This is not an emergency, nothing is imminent, it will take time for the new government and prime minister to institute their new agenda and programs.  However, it’s important that you understand a shift is coming, and you want to stay ahead of that shift.

What Does Trudeau’s Win Mean for Canadian Economy? (10-20-15)
http://www.bloomberg.com/news/videos/2015-10-20/what-does-trudeau-s-win-mean-for-canadian-economy-

“What goes up, must come down, spinning wheel got to go around…, You got no money and you got no home, spinning wheel spinning all alone, Hey your talking about your troubles and you never, never learn, ride a painted pony let the spinning wheel turn.” Do you find a directing sign on the straight and narrow highway…” (Spinning Wheel | by Blood Sweat & Tears | www.youtube.com/watch?v=kK62tfoCmuQ ) Blood Sweat and Tears didn’t know in 1969 that their lyrics would accurately describe world markets and central banks in the second half of 2015.  The markets are going up and down, the central banks have no directions and no money and have completely deviated from the straight and narrow fiscal highway, via massive non-stop intervention.

There is so much financial information flying across the internet, newspapers and TV, going in every direction you could think of.  The result is no one knows what direction to take, so they do nothing.  The only thing everyone agrees on is that there is no agreement, no clear direction and that uncertainty reigns.  Beneath this back drop the third quarter ended and the fourth quarter began and $11 trillion of global wealth was wiped out and the respect and confidence in the world’s largest central banks is waning. The IMF and Central bankers have been meeting in Peru and many of the participants along with US business leaders are tired of the Federal Reserve’s lack of direction and inability to make a firm decision.  The Fed has lost credibility and global markets are focusing attention elsewhere, Janet Yellen and the Fed are fast becoming more and more irrelevant, much like President Obama has.

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. – WSJ

Finding well-paying jobs is becoming more difficult, defaults are increasing, and many companies are announcing layoffs.  The Atlanta Fed lowered growth estimates for the third time this year to.9% and joining the IMF who lowered global growth for the third time as well.

$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
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
Atlanta Fed’s Q3 ‘GDPNow’ Forecast Plunges to 0.9% (10.1.15) http://globaleconomicanalysis.blogspot.com/
The Big Jobs Miss (10-2-15) WSJ |  http://www.wsj.com/articles/the-big-jobs-miss-1443828276
Why September’s Lousy Jobs Report Isn’t Surprising (10-1-15) NY Post
http://nypost.com/2015/10/02/why-septembers-lousy-jobs-report-isnt-surprising/?utm_source=applenews&utm_medium=inline&utm_campaign=applenews
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
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-
One Chart That Shows the Federal Reserve Is Losing Credibility (10-5-15) http://www.bloomberg.com/news/articles/2015-10-05/one-chart-that-shows-the-federal-reserve-is-losing-credibility
A Core Tenet of How Central Bank Stimulus Supports Growth Doesn’t Fit the Data, According to Deutsche Bank (10-5-15)
http://www.bloomberg.com/news/articles/2015-10-05/a-core-tenet-of-how-central-bank-stimulus-supports-growth-doesn-t-fit-the-data-according-to-deutsche-bank
The 5th Convergence Why This is Not a Buy-and-Hold Market! (10-2-15) Harry Dent
http://davidstockmanscontracorner.com/the-5th-convergence-why-this-is-not-a-buy-and-hold-market/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Saturday+10+AM

At their annual meeting the IMF downgraded global growth again to 3.1% and warned of potential global recession.  The IMF warned that asset prices around the globe aren’t adequately reflecting the hazards from investors moving into riskier markets with support from central banks’ extraordinary action in recent years.  The IMF estimates developing nations—led by China—may have over-borrowed by roughly $3 trillion, and is warning that those countries could face a wave of corporate defaults.

Surprisingly after all that’s happened, Treasury Secretary Jack Lew said Tuesday that the U.S. would support the yuan’s inclusion in the IMF’s basket of global reserve currencies, if the emergency lender’s conditions were fulfilled.  With the fear of a US veto removed, it looks like the IMF will be adding China to their list of reserve currencies and to their SDR basket of currencies.

IMF Emerging-Market Troubles Risk Triggering Asset Fire Sales (10-7-15) WSJ http://www.wsj.com/articles/imf-emerging-market-troubles-risk-triggering-asset-fire-sales-1444226633
IMF Downgrades Global Economic Outlook Again (10-6-15) WSJ
http://www.wsj.com/articles/imf-downgrades-global-economic-outlook-again-1444140016
China Begins Disclosing Reserves to IMF (9-30-15) WSJ
http://www.wsj.com/articles/china-begins-disclosing-reserves-to-imf-1443624985
Markets Gain Confidence in China’s Yuan (10-8-15) WSJ
http://www.wsj.com/articles/markets-give-chinas-currency-policy-vote-of-confidence-1444287738
Devaluation Strengthens China’s Hand at IMF (9-2-15) WSJ
http://www.wsj.com/articles/devaluation-strengthens-chinas-hand-at-imf-1441226171
A Wave of Defaults May Be Just Around the Corner Says Deutsche Bank (10-5-15)
http://www.businessinsider.com/deutsche-bank-a-wave-of-defaults-may-be-just-around-the-corner-2015-10
The World Map Of Public Debt by Visual Capitalist • October 8, 2015
What if we were to redraw the world map based on the sustainability of national debt levels?
The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play (9-6-15)
http://www.zerohedge.com/news/2015-09-04/imf-just-confirmed-nightmare-scenario-central-banks-now-play

A whole lot of shaking went on over the last few months.  China’s stock market continued its free fall, China’s central bank, the PBOC, devalued the Yuan and then lowered their interest rates.   All eyes were on China as their actions shook world markets and economies, driving down commodities and emerging market economies.  Few believe China’s troubles are over and now other nations must adjust to slower growth in China, a country which, for the last twelve years, has been a central growth driver of world markets.  Many of these nations, especially larger economies like the EU, Japan and the US, were already struggling to generate their own consistent growth.  In addition to the PBOC, many of the largest central banks also made major decisions this week; the Fed didn’t raise interest rates, Bank of Japan (BOJ) and European Union Central Bank (ECB) both decided to expand their own quantitative easing programs of lowering interest rates and printing money.

Odds of BOJ Stimulus Boost Increase for Next Month (9-10-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-09-11/odds-of-boj-stimulus-boost-increase-for-next-month

Draghi Unveils Revamped QE Program as ECB Downgrades Outlook (9-3-15)
http://www.bloomberg.com/news/articles/2015-09-03/draghi-unveils-revamped-qe-program-as-ecb-cuts-economic-outlook

Here’s What Street is Saying About the Recent ECB Decision (9-3-15)
http://www.bloomberg.com/news/articles/2015-09-03/here-s-what-wall-street-is-saying-about-the-latest-ecb-decision

China
The PBOC devalued their currency by 2% on Tuesday Sept 8^th, and by Friday, four days later, it had fallen an additional 4%, making Chinese exports 6% less expensive across the board.   These events have caused a ripple effect across world markets and many believe this will reignite the world currency wars.  Currency wars occur when a nation’s central bank purposely devalues their currencies to make their exports more affordable and attractive, causing other nations to follow suit in order to stay competitive.  Another probable reason for the devaluation is the IMF’s September meeting when they will discuss adding China to their list of reserve currencies, which would greatly benefit China.

(The following articles and interviews (most are 2-3 mins) will provide you with insight into the effects of these changes in world markets and economies.  Especially listen to the first interview and the head of Merrill Lynch Currency Research)

China’s Yuan Move It’s Just the Beginning (8-11-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-08-11/is-china-yuan-devaluation-beginning-of-something-bigger-

China Rattles Markets With Yuan Devaluation (8-10-15)
http://www.bloomberg.com/news/articles/2015-08-11/china-weakens-yuan-reference-rate-by-record-1-9-amid-slowdown

Second Day as Yuan Tumbles With Stocks (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-11/asian-futures-tip-another-down-day-as-yuan-move-rattles-markets

Yuan Drops for Third Day After PBOC Reference Rate Declines 1.1% (8-12-15)
http://www.bloomberg.com/news/articles/2015-08-13/pboc-s-yuan-reference-rate-drops-for-third-day-after-devaluation

Reignite Asian Currency Wars (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-11/china-s-devaluation-shock-seen-reigniting-currency-wars-in-asia

Federal Reserve Does Not Raise Interests Rates
“Treasuries rallied while the dollar tumbled to a three-week low after the Federal Reserve decided against curtailing stimulus. U.S. stocks retreated as the decision fueled concern that slowing global growth could hamper the domestic economy.” -Bloomberg

The Federal Reserve decided not to raise interest rates, because of the lack of inflation, economic slowdown and global uncertainty.  As expected the USD fell in value, but what was unexpected is the market went down 355 points after the decision, when historically it should have risen with the understanding that interest rates were not going up.   The emerging market nations all breathed a sigh of relief, because, had US interest rates gone up, their debt payments would have increased as well (US loans comprise 63% of funds loaned through the World Bank & IMF).  For the first time in history, the Federal Reserve publically stated that one of their decisions was affected by another country’s financial actions; illustrating yet another “this has never happened before” in 2015.  Congress is becoming increasingly concerned about whether the Fed is helping or hurting and there are increased calls for more scrutiny and transparency.  Rep. Bill Huizenga has introduced a bill to help achieve that goal which Fed Chair Janet Yellen opposes.  The WSJ does a great job of synopsizing the current view of the Fed Reserve in their article “A Fine Fed Mess.”

Treasuries Rally Dollar Falls as Fed Stands Pat Stocks Slide (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-16/asian-futures-jump-as-fed-day-looms-while-crude-extends-advance

Fed Leave Rates Unchanged (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-17/fed-leaves-interest-rates-unchanged-at-zero-0-25-target-range

Yellen’s Decision to Delay Fed Liftoff Points to Global Risks (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-17/yellen-s-decision-to-delay-fed-liftoff-points-to-global-risks

It’s a New World How China Growth Concerns Kept the Fed on Hold (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-18/it-s-a-new-world-how-china-growth-concerns-kept-the-fed-on-hold

Chairman Huizenga Pushes for the Fed to Adopt a Rules-Based Approach (7-17-15) https://www.youtube.com/watch?v=cD3BrHbsBkw&feature=youtu.be

Huizenga Questions Chair Yellen Over Fed Independence (2-25-15) https://www.youtube.com/watch?v=I-VNn8xGqsQ

A Fine Fed Mess (8-21-15) WSJ |  http://www.wsj.com/articles/a-fine-fed-mess-1440197469

In the week following China’s devaluation, US markets fell almost 2000 points, wiping out $5 trillion of value from the nation’s stocks.  Although it has gained some back, on Friday the Dow closed at 16,384, almost 200 points below its close of 16,576 on Dec 31, 2013, wiping out all the gains for both 2014 and 2015.  Typically, in a time of unrest the USD goes up against all the other currencies, however, the USD fell to both the British Pound and Euro.  Apparently investors have more confidence in the GBP and the Euro than the USD, and Bloomberg analysts once again said, “this has never happened before.”

Another Bloomberg article (below) said, “Mom and pop are running for the hills.  Since July, American households — which account for almost all mutual fund investors — have pulled money both from mutual funds that invest in stocks and those that invest in bonds. It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals.”

While the US worries about losing its world reserve currency status, Texas has apparently planned well and is handling the economic downturns better than the rest of the US, even though a large part of its economy is oil.  Texas still has a surplus, is the 16 largest economy in the world, the number one job producing state, has its own electrical grid system and has just established the only gold backed bank in the US.  Maybe the US should take lessons from Texas.

It’s a New World How China Growth Concerns Kept the Fed on Hold (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-18/it-s-a-new-world-how-china-growth-concerns-kept-the-fed-on-hold

Dollar Retreats with Treasuries, Yen as Shanghai Stocks Rebound (9-8-15)
http://www.bloomberg.com/news/articles/2015-09-07/stock-futures-rise-amid-china-relief-as-focus-shifts-to-trade

Are Global Markets in a Currency War? (8-28-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-08-28/are-global-markets-in-a-currency-war-

Fed Up Investors Yank Cash From Almost Everything Just Like 2008 (8-28-15)
http://www.bloomberg.com/news/articles/2015-08-28/fed-up-investors-yank-cash-from-almost-everything-just-like-2008

Dollar Drops to 7-Month Low Versus Euro Amid Global Stock Plunge (8-24-15)
http://www.bloomberg.com/news/articles/2015-08-23/yen-surges-to-6-week-high-on-bid-for-havens-as-kiwi-plunges-1-

John Kerry: If Congress Rejects Iran Deal, U.S. Dollar Could Lose World Reserve Status (8.11.15) http://www.realclearpolitics.com/video/2015/08/11/kerry_if_congress_rejects_iran_deal_us_dollar_could_lose_world_reserve_status.html#ooid=FwaHZ4djrpQyxOP-HW45kvlLwG-SOR7J

No Economic Mess in Texas (7-20-15) WSJ http://www.wsj.com/articles/no-economic-mess-in-texas-1437433836

Texas Launches Gold-backed Bank, Challenging Federal Reserve (7-15-15)
http://www.thenewamerican.com/economy/economics/item/21271-texas-launches-gold-backed-bank-challenging-federal-reserve#

Commodities
“Eighteen of the 22 components in the Bloomberg Commodity Index have dropped at least 20 percent from recent closing highs, meeting the common definition of a bear market. That’s the same number as at the end of October 2008, when deepening financial turmoil sent global markets into a swoon.” – Bloomberg

“This is about the deceleration of the demand … The oversupply is prevalent, and will continue to be the theme over the next several quarters,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, which oversees about $170 billion, said in a telephone interview.

Historically, a drop in commodities usually precipitates a drop in the stock and bond markets.  This is what happened in 2008 and since we are following the same course as we did then, it is not surprising that the commodities are where they are.  Countries which have accumulated massive debt and who have devalued their currency by printing money will continue to fall against countries that have not devalued their currency and created massive deficits.  Deflation is a part of the commodity glut and drop in commodity prices, but as soon as inventories are full, those commodity industries will lay-off their workers, prices will rise and the inflationary spiral will begin.  This drop is being further aggravated by overleverage and associated overcapacity.

Emerging Markets Are Not Facing a 1997-Style Crisis They’re Facing Something Worse (9-17-15) www.bloomberg.com/news/articles/2015-09-16/macquarie-emerging-markets-are-not-facing-a-1997-style-crisis-they-re-facing-something-worse

Commodities Are Crashing Like It’s 2008 All Over Again (8-5-15)
http://www.bloomberg.com/news/articles/2015-08-05/commodities-meltdown-hits-2008-levels-of-bearishness

Commodity Collapse isn’t Slowing Down Amid Worst Week Of 2015 (7-25-15) Bloomberg
http://www.bloomberg.com/news/articles/2015-07-24/commodity-collapse-isn-t-slowing-down-amid-worst-week-of-2015

Commodities Slide Deeper Into a Rut (7-31-15) WSJ http://www.wsj.com/articles/commodities-slide-deeper-into-a-rut-1438384800

Oil
Low oil prices are expected to persist, especially with the ending of economic sanctions against Iran and their adding to the current oil glut.  Congress has been attempting to lift the 1973 ban on the sale of crude/unrefined oil so US oil producers could sell to the rest of the world as well. We have almost run out of places to store what we have, and if we do, our oil industry would essentially shut down.  Close to 96,000 oil industry workers have already been laid off.  President Barack Obama opposes a measure poised to advance in the House of Representatives this week that would end the four-decade U.S. ban on oil exports.  Initially he supported ending the ban, but that was before the proposed Iran Treaty.  On SundayOPEC called for an increase to $80 per barrel next year, but current global economic pressures and national self-interest may cause many oil producing nations to ignore OPEC.  This may be especially true since OPEC has ignored them in favor of their own self-interest and political goals.

Defaults Mount in Beleaguered Energy Industry (9-17-15) WSJ
http://www.wsj.com/articles/defaults-mount-in-beleaguered-energy-industry-1442533735

Obama Opposes Bill to Lift Oil Export Ban Set for House Vote (9-15-15) Bloomberg Video
http://www.bloomberg.com/news/articles/2015-09-15/obama-opposes-bill-to-lift-oil-export-ban-set-for-vote-in-house

Oil Speculators Most Bullish in Two Months as OPEC Calls for $80 (9-20-15) Dan Murtaugh
http://www.bloomberg.com/news/articles/2015-09-20/oil-speculators-most-bullish-in-two-months-as-opec-calls-for-80

Conclusion
As the fiscal year ends on September 30^th, for nations, the only thing that remains certain is uncertainty.  The AIIB new world bank is moving forward with twenty more nations waiting to join and ramping up to begin loaning money.  The US, German, Asian, and most world markets are all down.  Beyond market concerns, the US/Iran treaty has relinquished oversight potentially allowing Iran to create a nuclear bomb; ISIS, Russia, Syria and other international military disputes, and the overwhelming refugee crisis in Europe are all creating unrest with no solution in sight.

Regardless of China’s agenda, its efforts have been less than fruitful and it cannot continue to manipulate its markets, as it’s too expensive and world markets have their own agendas.  Most market analysts think a Fed interest rate hike makes no sense because there are no signs of inflation, our growth is barely holding its own and the devaluation of the Yuan has caused the USD to strengthen, as would a Fed interest rate hike.  The stronger USD has made American exports more costly at a time when all the other major exporters are purposely devaluing their currency.  No matter whether the Fed raises interest rates or not, I believe they will start printing money again in 2016. The Yuan devaluation has almost guaranteed that Japan and the ECB will expand their money printing; it’s only a matter of time before the US joins them.

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”.  

Up to 20 Countries Waiting to Join China Led AIIB, President-Designate Says (9-18-15) WSJ
http://www.wsj.com/articles/up-to-20-countries-waiting-to-join-china-led-aiib-president-designate-says-1442666572

German Stocks Crush Dream of Central Bank Omnipotence (9-19-15) Wolf Richter
http://wolfstreet.com/2015/09/18/german-stocks-plunge-into-bear-market-despite-qe-dream-of-central-bank-omnipotence-pops/

Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (9-20-15)
http://www.bloomberg.com/news/articles/2015-09-20/yellen-pause-ups-pressure-on-draghi-as-global-pessimism-mounts

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

The Federal Reserve decided not to raise interest rates, because of the lack of inflation, economic slowdown and global unrest.  As expected the USD fell in value, but what was unexpected is the market went down when normally it would have gone up knowing that interest rates were not going up.  The emerging markets all breathed a sigh of relief, because had interest rates gone up, their debt payments would have increased as well since the US comprises 63% of most of the loans from the World Bank and IMF.

Treasuries Rally Dollar Falls as Fed Stands Pat Stocks Slide (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-16/asian-futures-jump-as-fed-day-looms-while-crude-extends-advance

Fed Leave Rates Unchanged (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-17/fed-leaves-interest-rates-unchanged-at-zero-0-25-target-range

Federal Open Market Committee Sept 17 Statement Text (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-17/federal-open-market-committee-sept-17-statement-text

Yellen’s Decision to Delay Fed Liftoff Points to Global Risks (9-17-15)
http://www.bloomberg.com/news/articles/2015-09-17/yellen-s-decision-to-delay-fed-liftoff-points-to-global-risks

On Tuesday the PBOC (China’s central bank) devalued their currency by almost 2%, and it has fallen almost 6% over the last three days.  This is having a rippling effect across world markets and many believe this will reignite the world currency wars, which is when a nation’s central bank purposely devalues their currencies to make their exports more affordable and attractive.  The following articles and interviews (most are 2-3 mins) will provide you with insight into the effects of these changes in world markets and economies.  Especially listen to the first interview and the head of Merrill Lynch Currency Research.

China’s Yuan Move It’s Just the Beginning (8-11-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-08-11/is-china-yuan-devaluation-beginning-of-something-bigger-
Has China’s Yuan Move Put Global Rate Hikes on Hold? (8-11-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-08-12/has-china-s-yuan-move-put-global-rate-hikes-on-hold-
China Rattles Markets With Yuan Devaluation (8-10-15)
http://www.bloomberg.com/news/articles/2015-08-11/china-weakens-yuan-reference-rate-by-record-1-9-amid-slowdown
Second Day as Yuan Tumbles With Stocks (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-11/asian-futures-tip-another-down-day-as-yuan-move-rattles-markets
Yuan Drops for Third Day After PBOC Reference Rate Declines 1.1% (8-12-15)
http://www.bloomberg.com/news/articles/2015-08-13/pboc-s-yuan-reference-rate-drops-for-third-day-after-devaluation
Yuan Tumble Tests China’s Free-Market Resolve as PBOC Intervenes (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-12/pboc-sets-yuan-reference-rate-0-1-weaker-than-tuesday-s-close
Reignite Asian Currency Wars (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-11/china-s-devaluation-shock-seen-reigniting-currency-wars-in-asia
Currency Rout Goes Global as Jen Sees Risk of 50% Loss on China (8-11-15)
http://www.bloomberg.com/news/articles/2015-08-11/currency-rout-goes-global-as-jen-sees-risk-of-50-loss-on-china

Federal Reserve & the US Economy
The Federal Reserve met last week and said they are planning on raising interest rates 0.625% in 2015, but they don’t expect to start until September and will probably do it over the course of two or more quarters with spaced hikes.  However, their criteria for hiking interest rates makes no sense, as the jobs that are being produced are not high paying jobs and under-employment  numbers (people between the ages of 18-62, who no longer receive unemployment benefits and can’t find a job) continue to grow and are currently around 95 million.  Normally, interest rates are raised because the economy is growing too quickly, however the Feds have lowered their own US growth rate estimates from 2.8% at the beginning of the year to 1.6%.  So why are they raising interest rates?  Is it to save face or give off an impression of strength, because the US economy is losing momentum, not gaining it?

The FDIC issued an announcement that, since 2008, banks are larger and more complex and their entire insurance fund covers only a fraction of one percent of all deposits in the system. The balance of the FDIC’s insurance fund compared to the amount of deposits in FDIC insured banks is called the ‘reserve ratio’ and it is set at a statutory minimum of just 1.01%, but the FDIC is not even meeting that mark and said they don’t expect to until at least 2020.  The FDIC went on to say that their current tools and business models are “not sufficient to mitigate the complexities of large institution failures.”  In other words, the FDIC doesn’t even have the minimum reserves to meet their regulatory mandate; much less handle any kind of banking crisis.  Most banks in the US are illiquid with extremely low reserves and have most of their money in mortgage backed securities, just like in 2008.

Fed Says Job Gains Pick Up Staying on Track for 2015 Rate Rise (6-17-15)
http://www.bloomberg.com/news/articles/2015-06-17/fed-says-job-gains-pick-up-staying-on-track-for-2015-rate-rise
Fed Decision Day Guide Interest Rate Projections Gradual Pace (6-17-15)
http://www.bloomberg.com/news/articles/2015-06-16/fed-decision-day-guide-interest-rate-projections-gradual-pace
Even the FDIC Doesn’t Think It’s Ready for the Next Banking Crisis (5-14-15) Simon Blank SMC
http://www.sovereignman.com/offshore-banking-2/even-the-fdic-doesnt-think-its-ready-for-the-next-banking-crisis-16934/?inf_contact_key=b4add6790d3931621240c705349376d01c00a4eac042f9324923706531087e1b

Greece is in Default
June 30^th was the due date for Greece to pay off the IMF, the EU and the rest of their creditors.  IMF chief Christian Lagarde said, “Greece will immediately be considered in default unless it pays about 1.5 billion euros ($1.7 billion) due to the fund on June 30.” Greek banks are now closed for the next 6-10 days, after which citizens will be able to take out 60 euros per day and 120 euros per week for pensioners.  Greek Prime Minister Tsipras has defiantly refused every deal he’s been offered by the EU, the IMF and other Greek creditors.  The international credit raters have all given Greek securities junk bond status.   Two weeks ago, the IMF withdrew from the bailout meetings, saying they are no closer to an agreement than they were four months ago.  Tsipras addressed the Greek Parliament and said that the IMF should be held criminally responsible for what they’re doing to Greece.

Last week, the Greek parliamentary speaker refused to accept their own central bank’s annual monetary policy report, which urged a deal with creditors, arguing that “odious” debts shouldn’t be repaid.  The EU Finance ministers left Greece after Tsipras called for a July 5^th referendum vote by the Greek people, but he has called for a no vote on accepting the proposal from Greek creditors.  For all practical purposes this vote will also determine whether Greece remains in the EU.  Whether they stay in the EU (if they can) or exit, they will still be in default.  Leaving the euro would actually give them more options and control over how they pay or don’t pay back their creditors, and in their valuation of their former currency, the drachma.  The EU and IMF could not relent on their demand for repayment, because there are too many other EU countries in only slightly better positions than Greece, who are next on the list to be dealt with.

Tsipras Lashes Out at Creditors as Merkel Seeks Greek Solution (6-16-15)
http://www.bloomberg.com/news/articles/2015-06-16/tsipras-goads-creditors-for-greek-woes-as-merkel-sees-little-new
IMF Warns No Leeway on Payment as Merkel Urges Greece to Bow (6-18-15) http://www.bloomberg.com/news/articles/2015-06-18/lagarde-affirms-greece-s-june-30-deadline-to-make-imf-payments
Greece’s Ruling Party Goes to War With Its Own Central Bank (6-19-15)
http://www.bloomberg.com/news/articles/2015-06-19/greece-s-ruling-party-goes-to-war-with-its-own-central-bank
Greece’s Tsipras Calls for ‘No’ Vote in July 5 Referendum (7.1.15)
http://www.bloomberg.com/news/articles/2015-07-01/greece-bailout-compromise-bid-faces-resistance-on-trust-deficit
The Greek Referendum Outcomes Explained in One Chart (7.1.15)
http://www.bloomberg.com/news/articles/2015-07-01/the-greek-referendum-outcomes-explained-in-one-chart
Fitch Cuts Ratings on Greece Deeper Into Junk (6-30-15) WSJ
http://www.wsj.com/articles/fitch-cuts-ratings-on-greece-deeper-into-junk-1435695902

The Sovereign Bond Crisis
There has been a worldwide sell-off of sovereign debt securities.  In a June 6^th article Bloomberg wrote, “This is shaping up as the worst quarter for sovereign bonds in almost 30 years.  The Bank of America Merrill Lynch Global Government Index is down 2.9 percent since the end of March. If it holds, it’ll be the biggest quarterly loss since the third quarter of 1987.”   The article went on to say that officials around the world are taking unprecedented measures to head off deflation.  The European Central Bank and the Bank of Japan are both buying record amounts of government debt to pump money into their economies.   “We’ve come into a bear market for bonds,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney.

Regulators and government officials are becoming increasingly worried about rising volatility in government bond markets.  Federal Reserve and European Central Bank officials have publicly discussed the issue in recent weeks, and the head of the U.K.’s Debt Management Office said swings could cause investors to balk at buying its bonds at auction.  Volatile trading in government-bond markets has drawn scrutiny from the IMF, the Bank of England, the Fed and the U.S. Treasury Department.  A June 22^nd Bloomberg article said TCW Group Inc. (a large investment management firm) is taking the possibility of a bond-market selloff seriously: “We never realize what the tipping point is until after it happens … We’re as defensive as we’ve been since pre-crisis. If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading, who traded high-yield bonds at Morgan Stanley and Deutsche Bank AG before joining TCW Group.

Sovereign Bonds Head for Biggest Quarterly Slump Since 1987 (6-12-15)
http://www.bloomberg.com/news/articles/2015-06-12/bonds-head-for-worst-quarter-on-record-as-deflation-fears-ease
Bond Market Volatility Triggers Alarms (6-8-15) WSJ
http://www.wsj.com/articles/u-k-government-bond-auction-could-fail-on-volatility-says-dmo-head-1433772690
Bond-Market Crash Has Wall Street Banks Divided on What’s Next (5-17-15)
http://www.bloomberg.com/news/articles/2015-05-17/bond-market-crash-has-wall-street-banks-divided-on-what-s-next
Major Money Manager Braces for Bond-Market Collapse (6-22-15)
http://www.bloomberg.com/news/articles/2015-06-22/tcw-braces-for-bond-market-collapse-by-piling-the-cash-up-high

US Oil
The WSJ reported more than 126,000 US oil industry workers have lost their jobs, and that number will double if the US crude oil export ban isn’t lifted.  Amid news of a pending nuclear deal with Iran, some OPEC countries have struck agreements with refineries in Asia to avoid losing market share when Iranian oil comes back on the market.  If U.S. policy will allow Iran to export oil, shouldn’t it allow America to do the same? Clearly, our allies would rather get their oil from America than Iran if given the choice. But without the ability to export, the U.S. is not even in the game.  Why isn’t Congress quickly passing legislation to enable US oil producers to sell crude oil to the rest of the world?  As we get closer and closer to maximum storage capacity, is Congress going to let all the oil drilling companies shut down and oil workers be laid off?   The moment this happens, the markets will know oil will have hit bottom and the price of oil will immediately start its inflationary cycle up.  This will help the markets, but will hurt American businesses and people.

America’s Self-Punishing Oil Expert Ban (6-21-15) By: Harold Hamm
http://www.wsj.com/articles/americas-self-punishing-oil-export-ban-1434922352
The Oil Expert Ban: A Relic of the 1970s (4- 24-2015) By: John Hess
http://www.wsj.com/articles/the-oil-export-ban-a-relic-of-the-1970s-1429913717

World Currencies
At the end of May, the Obama Administration said it had many concerns about the Chinese Yuan. The next day the IMF said it did not agree and that they were planning on adding the Yuan to its list of qualified reserve currencies.  The IMF has recognized seven international currencies that qualify as underlying currencies for the IMF and World Bank to use for loans to help nations create infrastructure and provide debt relief in times of difficulty.  The Yuan will become the eighth currency to be classified as a ‘reserve currency.”  The financial markets are experiencing tremendous currency volatility.  The British pound is rising, while the euro, the US dollar and the Yen are falling.  In the wake of the Greek default, both the euro and US dollar are dropping and some say this could cause the Federal Reserve to not raise interest rates.

IMF Says Yuan is Now Fairly Valued (5-27-15) Mark Magnier
http://www.pressreader.com/belgium/the-wall-street-journal-europe/20150527/281930246577034/TextView
IMF The Dollar Is Moderately Overvalued (6-4-15) Bloomberg Video
http://www.bloomberg.com/news/videos/2015-06-04/imf-the-dollar-is-moderately-overvalued-
Pound Beats World as Upbeat Britain Contrasts with Euro Gloom (6-20-15)
http://www.bloomberg.com/news/articles/2015-06-20/pound-beats-world-as-upbeat-britain-contrasts-with-euro-gloom
Dollar Outlook Dims After Fed Projects Lower Interest-Rate Path (6-8-15)
http://www.bloomberg.com/news/articles/2015-06-20/dollar-outlook-dims-after-fed-projects-lower-interest-rate-path
Dollar Falls as Escalation in Greek Crisis Raises Uncertainty (6.29.15) WSJ
http://www.wsj.com/articles/dollar-falls-as-escalation-in-greek-crisis-raises-uncertainty-1435612975

What’s Next
In a June 10^th article the WSJ reported that the World Bank downgraded its outlook for global economic growth this year amid a broad-based slowdown in emerging markets and softer output in the U.S.  The article went on to say, the WB now expects the world economy to grow by 2.8%, which is 0.2 percentage points slower than it estimated in January. “There is a structural slowdown under way … Increasingly, they have difficult growth prospects going forward,” said Ayhan Kose, the lead author of the report. “Global growth has yet again disappointed,” said World Bank Chief Economist Kaushik Basu.

In a June 9^th article in the WSJ the CEO and co-founder of Blackstone wrote: “…new capital, liquidity and trading rules are interrelated, and locked-up markets and rapidly falling securities prices will force banks to reduce assets and hoard liquidity in order to satisfy applicable regulatory tests. With individuals suffering losses and companies not able to raise capital, the economy will contract with layoffs, lower tax revenues and pain for middle- and lower-income Americans.” 

In his latest Investment Outlook, Bill Gross describes what events might trigger a retail exodus, and says investors should hold enough cash to ride out the storm without participating in a fire sale caused by rising rates or some manner of exogenous shock.  While private equity and hedge funds have built-in “gates” to prevent an overnight exit, mutual funds and ETFs do not.  Thus, “…a rush for liquidity on the part of the investing public, whether they be individuals in 401Ks or institutional pension funds and insurance companies, would find the “market” selling to itself with the Federal Reserve severely limited in its ability to provide assistance.” 
The Bank of International Settlements (BIS) critiqued 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.

Hold an appropriate amount of cash so that panic selling for you is off the table.
Source: Gross Says Hold Cash, Prepare For “Nightmare Panic Selling” | Zero Hedge
Bond King Bill Gross Warns Hold Cash Prepare for Nightmare Selling Panic by ETFs & Mutual Funds (6-30-15) by ZeroHedge | http://davidstockmanscontracorner.com/bond-king-bill-gross-warns-hold-cash-prepare-for-nightmare-selling-panic-by-etfs-and-mutual-funds/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday
World Bank Cuts 2015 Global Growth Forecast as Emerging Markets, US Slow (6-10-15)
http://www.wsj.com/articles/world-bank-cuts-2015-global-growth-forecast-to-2-8-1433966532
How the Next Financial Crisis Will Happen (6.9.15) WSJ
http://www.wsj.com/articles/how-the-next-financial-crisis-will-happen-1433891718
Central Bank Financial Repression Has Left Global Economy Defenseless In Next Crisis (6.28.15) http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html

In Conclusion
Greece is not the only country that is about to default; on June 30^th, Puerto Rico said it will not be able to meet its debt payments to creditors later in the week.  Just like the EU will not bailout Greece, the U.S. has said it will not bailout Puerto Rico, which is a not state, but is a U.S. territory and considered a “Domestic Protected Nation.”  The WSJ reported that Puerto Rico is $72B in debt (which is higher than any other state), its unemployment rate is 12.4% and there are heightened concerns that the commonwealth’s problems could affect the greater $3.7 trillion market for debt sold by U.S. state and local governments.

The New Asian Investment Infrastructure Bank (AIIB) gathered this week for a ceremonial signing of the new World Bank which will be in direct competition with the current US controlled world bank.  Simon Black wrote in hisMay15th newsletter, “Will you be prepared when everything we take for granted changes overnight? Just think about this for a couple of minutes.  What if the US Dollar wasn’t the world’s reserve currency?  Ponder that… what if…?  Empires Rise, they peak, they decline, they collapse, this is the cycle of history.  This historical pattern has formed and is already underway in many parts of the world, including the United States”.  Greece, Puerto Rico, Cypress, Argentina, Nicaragua, the former USSR weren’t planning on defaulting, nor are the US, Japan or other EU nations, however, poor fiscal policy, too much debt and devaluation of a nation’s currency will lead to default.

Puerto Rico on the Edge of a Default (7.1.15)
http://www.bloomberg.com/news/videos/2015-07-01/puerto-rico-drowning-in-debt-default-looms
Puerto Rico Urges Concessions From Creditors (6.30.15) WSJ
http://www.wsj.com/articles/puerto-rico-releases-report-calling-for-concessions-from-creditors-1435588154
AIIB Tests Beijing’s Management Style (6.29.15) WSJ
http://www.wsj.com/articles/aiib-tests-beijings-management-style-1435516224
Beyond the Greek Impasse (6-30-15) By George Friedman | https://www.stratfor.com/weekly/beyond-greek-impasse
(NOTE: The above article entitled, “Beyond the Greek Impasse,” is an excellent analysis of the Greek crisis.)

US oil producers are prevented by this law from selling unrefined oil (crude) to other nations.  If this law is not changed the US will reach maximum oil storage capacity in the coming months and when it does all oil production pumping facilities will have no choice, but to shut down.  The US is one of the largest oil producing nations in the world and its production makes up a large part of our economy, if they shut down there will be massive layoffs and unemployment would marketed increase.  Congress needs to repeal this prohibition made during the Nixon administration in the early 70s, which was a part of an agreement with Saudi Arabia to sell oil only in dollars (hence the creation of the petro-dollar), as neither side is honoring that agreement any longer.

The Tanker Market Is Sending a Big Warning to Oil Bulls (5-27-15) Naomi Christie http://www.bloomberg.com/news/articles/2015-05-27/oil-bulls-beware-soaring-tanker-rates-show-supply-glut-persists-ia7cvht4

The Oil Expert Ban: A Relic of the 1970s (4- 24-2015) By: John Hess
http://www.wsj.com/articles/the-oil-export-ban-a-relic-of-the-1970s-1429913717

In Pain, U.S. Oilmen Plead For Exports (WSJ, 4/23)
http://www.ilfb.org/e-media-publications/ag-news-review/agbites-for-april-23.aspx?alttemplate=Print