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The Outlook For The Markets Is Deteriorating Fast

Countries all over the globe are suddenly failing
Friday, August 31, 2018, 7:57 PM

Executive Summary

  • The evidence that the dominant social narrative is breaking down
  • The Emerging Market spark may ignite a broad market conflagration
  • Financial market complacency is completely unprepared for such a risk
  • And escalating risk of conflict in the Middle East threatens to make the situation a whole lot worse

If you have not yet read The Whole System Is Rigged, available free to all readers, please click here to read it first.

An Emerging Nightmare

About the kindest thing I can say about the reckless $trillions the central banking cartel flooding the world with is that they gave us more time to get our preparations in order. I certainly hope you used that time wisely.

So what happens when every financial market around the globe has been dangerously inflated by massive money printing?

Those enormous flows that were virtuous on the way out will be vicious on the way back in. 

And don't forget: as a combined group, the big central banks are still expanding their balance sheets today.

Yet despite that, the weaker players on the board are beginning to flounder severely:

Every single country on that list that is the proud holder of US denominated debt is now facing serious difficulties.  Worse, the situation compounds itself as all of the debt holders have to sell their local currency in increasing amounts to buy the dollars with which they will pay off these debts. 

The more they sell, the weaker their local currency gets.  The weaker it gets the more they have to sell. It's this dynamic that then bleeds over into their local stock markets.  Companies being crushed by external dollar-denominated debts see their interest costs spike higher and higher.  Very rapidly this crushes their income stream, so their stocks fall in price.

The contagion is spreading, quite rapidly too.  It’s well beyond a single story that we can confine to the particulars of Turkey or Argentina.  It now involves India, for heaven’s sake!

Next up is the big kahuna – the debt crisis that results when the individuals and companies toss in the trowel and declare bankruptcy or simply stop paying off their loans or debts.  This is when the debt crisis starts.

The ramifications of all this are... » Read more

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Off The Cuff: The Real Emerging Market Danger Lies In Asia

The debt bubbles there can gut-punch the world economy
Wednesday, August 22, 2018, 11:38 PM

In this week's Off The Cuff podcast, Chris and Wolf Richter discuss:

  • Commodity Carnage
    • Not just due to a strong dollar
  • Argentina Is Faltering
    • Its currency is collapsing (yet again)
  • More Trouble In Turkey
    • Threatening the EU banks who loaned it billions
  • The Real Threat
    • Asia is where the real damage will occur

Recorded last week, Wolf Ricther explains why the real Emerging Market contagion risk lies not in Turkey, or Venezuela or Argentina or Brasil -- but in Asia.

Click to listen to a sample of this Off the Cuff Podcast or Enroll today to access the full audio as well as all of PeakProsperity.com's other premium content. » Read more

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Bloomberg, ILLUSTRATION: 731

The Emerging Market Contagion Threat

How Turkey & the other EM countries can crash the world
Friday, August 17, 2018, 7:11 PM

Executive Summary

  • The dangers of contagion from Turkey
  • Which other countries pose an even bigger threat?
  • How I'm accelerating my personal preparations
  • Why the next crisis will happen swiftly when it arrives 

If you have not yet read We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History, available free to all readers, please click here to read it first.

It's Time To Talk Turkey

“Talking turkey” is an idiom which means to talk serious business or to talk frankly.  So let’s talk Turkey. 

Turkey, the country, is currently in a major currency crisis and heading towards a sovereign debt crisis.  

Its self-inflicted wounds include piling on massive new debts and making a big bet that the US dollar would continue to weaken, which it did not.

The huge predicament facing Turkey is that many of its debts are denominated in dollars and euros. So as the Turkish lira fell, those debts became more and more expensive for their holders to service. Just this year alone, the Turkish lira has fallen by nearly 40%(!) against the dollar.

Imagine that you're a Turk with a mortgage denominated in US dollars. Suppose it was for $200,000 and your payment in local currency was 5,625 lira ($1,500) for the month at the beginning of the year.  Today, your payment would be 9,090 lira (still $1,500) to account for the dollar translation.

Ouch!

That’s happening to businesses and consumers alike across Turkey.  To help ease the pain, the authorities are busy allowing inflation to run rampant which gives people more lira to work with. But that’s a two-edged sword that also causes the value of the lira to continue to fall against external currencies.  So it buys a bit of time, perhaps, at the risk of a full blown currency collapse that leads to a major sovereign debt crisis.

The effects are already rippling through the European banking system. We see that clearly here in... » Read more

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We Are All Lab Rats In The Largest-Ever Monetary Experiment In Human History

And how do things usually work out for the rat?
Friday, August 17, 2018, 7:10 PM

This global flood of freshly-printed 'thin air' money has no parallel in the historical records. All around the world, each of us is part of a grand experiment being conducted without the benefits of either prior experience or controls. Its outcome will be binary: either super-great or spectacularly awful.

If the former, then no worries. We'll just continue to borrow and spend in ever-greater amounts -- forever. Perpetual prosperity for everyone!

But if things hit a breaking point, then you had better be prepared for some truly bad times. » Read more

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The Breaking Point Is Upon Us

Signs of collapse are suddenly everywhere around the world
Friday, May 25, 2018, 7:29 PM

Executive Summary

  • Why despite winning battle after battle, the central banks will lose the war
  • The viscious cycle is already underway in the Emerging Markets
    • Turkey
    • Argentina
    • Brazil and Mexico (not to mention Venezuela)
  • Italy is dragging Europe into crisis
  • The weaker segments in the US are already in collapse

If you have not yet read Part 1: The End Of Stimulus? (And The Start Of The Crash?), available free to all readers, please click here to read it first.

Suddenly everywhere we look in the emerging markets, we're seeing things quickly get out of hand. EM currencies are plunging and their bonds are being sold hard. It’s a broad-based sell-off. 

Expect similar disruptions in the EM equity markets soon. The collapse progression is always the same: currency first, bonds second, then equites.

Our view of what’s happening in the EM universe is that the carry trades are unwinding. What this means is that the big piles of money unleashed on the world by the OECD central banks are turning tail and running away from the periphery (EMs)  and back towards the core (US, EU).

The virtuous part of this cycle for the EM countries was that big funds would borrow in a major currency, like the dollar or euro, and then buy a particular EM currency (causing that currency to strengthen) as well as its debt (causing those bond prices to rise).

The opposite and unhappy part of that story is when that whole things gets reversed. A vicious cycle is initiated which causes the bonds of the EM country to be sold, jacking up EM interest rates, and then the currency is sold (weakening it), and then dollars/euros are bought again causing those major currencies to strengthen.

That’s the pattern we're seeing right now and it’s consistent with the falling global liquidity markets are experiencing, which indicates that a big problem is brewing.

For several EM countries, as well as weaker players in Europe and the American lower and middle classses, that problem has already arrived.

We see clear evidence of it in... » Read more

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Russian Jet Shot Down By NATO Member

A very dangerous provocation by NATO
Tuesday, November 24, 2015, 2:35 PM

This morning two Turkish F-16 fighters shot down a Russian jet, claiming that it was in Turkey’s airspace after it had ignored repeated warnings.

There are two problems with this story. The first is that Russia claims to have evidence that the Russian jet never left Syrian airspace.  The second is that even if the Russian jet had strayed into Turkish airspace, Turkey knew there was zero threat to its security from a single Russian jet. Everybody and their uncle knows what Russian jets are doing in the area.

This means that NATO, of which Turkey is a member, had given a greenlight to the idea of shooting down Russian planes. » Read more

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Is This It?

Global market weakness is now quickly escalating
Friday, January 24, 2014, 11:59 AM

Is this it?  Are we seeing signs that after a very long period of Fed inspired insanity, et al. (courtesy of folks who lack any imagination beyond sustaining the unsustainable), are we finally entering a long-awaited financial correction?

Using our ‘outside in’ methodology, there’s lots to suggest we are entering such a phase.

All is not well on the periphery, with weaker economies now flashing serious warning signs in their bond and currency markets. It's enough that it’s time to... » Read more

Featured Discussion

A Report From Europe

A Report From Europe

How bad are things there, really? A reader gives a boots-on-the-ground account after a recent trip.