Financial Events

Currency wars kick off as Japanese yen tumbles to 35-year low; Bank of Japan spends initial $59bn to defend it

This is the 3rd time we have forewarned of an approaching crisis. Both previous times, ahead of the Great Financial Crisis and the Covid pandemic, we were told we “didn’t know what we were talking about”. And nobody did anything to avoid the looming disaster Let’s hope its “3rd time lucky” and that “this time is different”.

Currency wars kick off as Japanese yen tumbles to 35-year low; Bank of Japan spends initial $59bn to defend it Read More

WeWork’s bankruptcy marks the beginning of the end for the stimulus economy

Essentially, the central banks thought that unlimited amounts of free money could reverse the impact of ageing populations. WeWork’s bankruptcy suggests that the bills for this mistake are now coming due, after 20 years of what the Wall Street Journal called “The most reckless monetary and fiscal experiment in history”

WeWork’s bankruptcy marks the beginning of the end for the stimulus economy Read More

Asia’s debt crisis starts to approach its endgame as the yen continues to tumble

Last week, the Japanese yen fell through the US$ : ¥150 level for the first time since 1990. It has now fallen by nearly 50% against the US$ in the past two years. The currency is behaving as if Japan were a 3rd world country – whereas it is actually the 3rd largest economy in the world. Clearly, something is very wrong.

Asia’s debt crisis starts to approach its endgame as the yen continues to tumble Read More

Bond markets reach “The End of the Beginning” as traders finally realise rates will be higher for longer

300+ years of Bank of England data shows that interest rates are typically inflation plus 2.5%. At today’s level, this would imply – US rates would be 3.7% + 2.5% = 6.2%: Japan would be 3.2% + 2.5% = 5.7%: Eurozone rates would be 5.3% + 2.5% = 7.8%; UK rates would be 6.7% + 2.5% = 9.2%

Bond markets reach “The End of the Beginning” as traders finally realise rates will be higher for longer Read More

Asia’s debt crisis edges nearer, as Japan’s interest rates rise and China’s property bubble bursts

Bubbles are great fun while they last. But they are much less fun when they burst. For the past 20 years, central bank stimulus has created some of the largest bubbles ever seen. But now, led by developments in Japan and China, they are bursting

Asia’s debt crisis edges nearer, as Japan’s interest rates rise and China’s property bubble bursts Read More

An Asian debt crisis would shake the global economy, now the ‘Presidential Cycle’ effect is over

The Presidential Cycle is now over. Instead, worries about the recession and the US debt ceiling talks are moving centre-stage. But Asian currency markets are sending a warning signal. A rising US dollar and US interest rates, and a falling yen and yuan, could soon raise the risks of a major Asian debt crisis.

An Asian debt crisis would shake the global economy, now the ‘Presidential Cycle’ effect is over Read More

FT Letters - Jackson Hole comment by Paul Hodges

Today’s financial crisis confirms that “failing to plan, equals planning to fail”

Companies and investors need to invest time now on having a genuine debate about the risks ahead. The regulatory failures of the past few days highlight what can quickly go wrong, if one hasn’t war-gamed out potential risks. As the saying goes, “Failing to plan, equals planning to fail”.

Today’s financial crisis confirms that “failing to plan, equals planning to fail” Read More

“FANGs” lose their teeth as stock markets relearn their key role of price discovery

Now, we are all starting to suffer for the central banks mistake in adopting Bernanke Theory. The bubbles they created are finally starting to burst as interest rates return to more normal levels. This will be very painful for all those who trusted them to manage the economy.

“FANGs” lose their teeth as stock markets relearn their key role of price discovery Read More

Interest rates break out of their 40-year downtrend – and start creating chaos in global markets

US inflation was last at 8.3% in January 1982. And then, the 10-year yield was 14.6%. History may not be a perfect guide, but it is the best we have. So it might be worth planning for rates to go much higher than most “experts” expect, now that they have broken out of their downtrend.

Interest rates break out of their 40-year downtrend – and start creating chaos in global markets Read More

FT Letters - Jackson Hole comment by Paul Hodges

Jackson Hole is a chance to prepare for a financial shock

The problems began with the supply chain crisis caused by the pandemic. Russia’s war in Ukraine then created a further challenge. And now we face the risk of famine as fertiliser costs become unaffordable. Central bankers at their annual Jackson Hole get-together should therefore focus on preparing for the arrival of a potential Fourth Horseman of the Apocalypse, in the shape of a major financial crisis.

Jackson Hole is a chance to prepare for a financial shock Read More

Markets will see plenty of rallies, but history suggests the real bottom will be at least 2 years away

The history of the 1929 and 2000 downturns suggests the real pain is yet to come. Housing markets look terribly over-valued around the world, as I noted last month. And US consumer sentiment is at all-time lows. So most company earnings seem set to fall, with more than 60% of US CEOs now expecting to see a recession.

Markets will see plenty of rallies, but history suggests the real bottom will be at least 2 years away Read More

Wall Street finally recognises a recession is underway – “It’s a hurricane…coming our way”

There are positives in all this, as the Green agenda will create new opportunities to replace those that are now disappearing. But for the moment, at least, the risks associated with a likely lengthy and deep recession are likely to dominate. Please be careful out there.

Wall Street finally recognises a recession is underway – “It’s a hurricane…coming our way” Read More

US housing bubble starts to deflate as sellers cut prices and mortgage rates rise

The Fed might change its mind and rush to support asset markets again. But that seems unlikely today. If it doesn’t, then debt, divorce and death will force an increasing number of people to sell their home. And if buyers continue to disappear, then sellers will have to continue cutting prices in order to try and achieve a sale, as the bubble finally bursts.

US housing bubble starts to deflate as sellers cut prices and mortgage rates rise Read More

US stocks set for long-term decline as Fed pivots to focus on “Putinflation”

Markets have returned to the 1970s. They have to cope with “Putinflation”, recession, rising interest rates and energy prices – as well as geopolitical and nuclear risk. Unfortunately, today’s traders do not even have the experience of the 1960s as a guide, having lived in a different world for 20 years.

US stocks set for long-term decline as Fed pivots to focus on “Putinflation” Read More

“When all the experts and forecasts agree — something else is going to happen”, Bob Farrell

At the beginning of the year, “everyone knew” that inflation was about to take off, and that the US$ was going to collapse. Last week, the great Bob Farrell’s Rule No 9 proved its worth, yet again. US interest rates fell sharply and the US$ bottomed for this cycle. The two charts above tell the

The post “When all the experts and forecasts agree — something else is going to happen”, Bob Farrell appeared first on Chemicals and the Economy.

“When all the experts and forecasts agree — something else is going to happen”, Bob Farrell Read More

China’s property sector is at the epicentre of the crisis

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers threaten a domino effect on western credit markets , as I describe in my latest post for the Financial Times, published on the BeyondBrics blog Second-order impacts are starting to appear as a result of China’s lockdowns. These are having

China’s property sector is at the epicentre of the crisis Read More

“They may ring their bells now, before long they will be wringing their hands”

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to this weekend’s headline from the Wall Street Journal. How can a National Emergency ever be the basis for a major rise in stock markets? Of course, we all know that stock markets have become addicted to stimulus. But the

“They may ring their bells now, before long they will be wringing their hands” Read More

Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the collapse of China’s shadow banking bubble; 2017 was Bitcoin’s stratospheric rise; 2016 the near-doubling in US 10-year interest rates; and 2015 the oil price fall. This year, the ‘Chart of the Decade’ is in a league

Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis Read More

$50bn hole appears in New York financial markets – Fed is “looking into it”

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainly notice if $50k suddenly disappeared from their bank account. But a fortnight ago, it took the New York Federal Reserve more than a day to notice that $50bn was missing from the money markets it was supposed to

$50bn hole appears in New York financial markets – Fed is “looking into it” Read More

Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500

How can companies and investors avoid losing money as the global economy goes into a China-led recession?  That’s the key question as we enter 2019.  We have reached a fork in the road: Since 2008, Western central bankers have focused on supporting stock markets But the bursting of China’s shadow banking bubble means this cannot continue for

Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500 Read More

Why everyone ignored my warnings ahead of the financial crisis

It’s 10 years since my forecast of a global financial crisis came true, as Lehman Brothers collapsed.  I had warned of this consistently here in the blog, and in the Letters column of the Financial Times. But, of course, nobody wanted to listen whilst the party was going strong.  As the FT’s world trade editor wrote […]

The post Why everyone ignored my warnings ahead of the financial crisis appeared first on Chemicals & The Economy.

Why everyone ignored my warnings ahead of the financial crisis Read More

High-flying “story stocks” hit air pockets as credit finally tightens

“Nobody could ever have seen this coming” is the normal comment after sudden share price falls.  And its been earning its money over the past week as “suddenly” share prices of some of the major “story stocks” on the US market have hit air pockets, as the chart shows: Facebook was the biggest “surprise”, falling […]

The post High-flying “story stocks” hit air pockets as credit finally tightens appeared first on Chemicals & The Economy.

High-flying “story stocks” hit air pockets as credit finally tightens Read More

London house prices slip as supply/demand balances change

London house prices are “falling at the fastest rate in almost a decade” according to major property lender, Nationwide.  And almost 40% of new-build sales were to bulk buyers at discounts of up to 30%, according of researchers, Molior.  As the CEO of builders Crest Nicholson told the Financial Times:  “We did this sale because we […]

The post London house prices slip as supply/demand balances change appeared first on Chemicals & The Economy.

London house prices slip as supply/demand balances change Read More

Financial markets party as global trade wars begin

More people left poverty in the past 70 years than in the whole of history, thanks to the BabyBoomer-led economic SuperCycle.  World Bank and OECD data show that less than 10% of the world’s population now live below the extreme poverty line of $1.90/day, compared to 55% in 1950. Globalisation has been a key element in […]

The post Financial markets party as global trade wars begin appeared first on Chemicals & The Economy.

Financial markets party as global trade wars begin Read More

China’s lending bubble is history

As China’s shadow banking is reined in, the impact on the global economy is already clear, as I describe in my latest post for the Financial Times, published on the BeyondBrics blog China’s shadow banking sector has been a major source of speculative lending to the global economy. But 2018 has seen it entering its […]

The post China’s lending bubble is history appeared first on Chemicals & The Economy.

China’s lending bubble is history Read More

US Treasury benchmark yield heads to 4% as 30-year downtrend ends

The US 10-year Treasury bond is the benchmark for global interest rates and stock markets.  And for the past 30 years it has been heading steadily downwards as the chart shows: US inflation rates finally peaked at 13.6% in 1980 (having been just 1.3% in 1960) as the BabyBoomers began to move en masse into the […]

The post US Treasury benchmark yield heads to 4% as 30-year downtrend ends appeared first on Chemicals & The Economy.

US Treasury benchmark yield heads to 4% as 30-year downtrend ends Read More

Chart of the Year: Bitcoin, the logical end for stimulus policies

Last year it was the near-doubling in US 10-year interest rates.  In 2015, it was the oil price fall.  This year, there is really only one candidate for ‘Chart of the Year’ – it has to be Bitcoin: It was trading at around $1000 at the start of 2017 and had reached $5000 by August […]

The post Chart of the Year: Bitcoin, the logical end for stimulus policies appeared first on Chemicals & The Economy.

Chart of the Year: Bitcoin, the logical end for stimulus policies Read More

China’s central bank governor warns of ‘Minsky Moment’ risk

The world is coming to the end of probably the greatest financial bubble ever seen.  Since the financial crisis began in 2008, central banks in China, the USA, Europe, the UK and Japan have created over $30tn of debt. China has created more than half of this debt as the chart shows, and its total debt […]

The post China’s central bank governor warns of ‘Minsky Moment’ risk appeared first on Chemicals & The Economy.

China’s central bank governor warns of ‘Minsky Moment’ risk Read More

US tax cuts will fail as Trump’s demographic deficit replaces Reagan’s demographic dividend

No country in the world now has a top quality pension system.  That’s the conclusion from the latest Report by pensions consultants Melbourne Mercer.  As the chart above shows: Denmark and The Netherlands have fallen out of the top category In the G7 wealthy nations: Canada is in category B; Germany and UK in C+; […]

The post US tax cuts will fail as Trump’s demographic deficit replaces Reagan’s demographic dividend appeared first on Chemicals & The Economy.

US tax cuts will fail as Trump’s demographic deficit replaces Reagan’s demographic dividend Read More

Investors ponder further shocks after North Korea jolt

Interviewed for this Reuters article, I suggest today’s low levels of market volatility could be “the calm before the storm”  Saikat Chatterjee and Vikram Subhedar, AUGUST 11, 2017 / 5:06 PM LONDON (Reuters) – After this week’s war of words between the United States and North Korea triggered the biggest fall in global stocks since the U.S. presidential […]

Investors ponder further shocks after North Korea jolt Read More

London house prices start their collapse

London’s house market has been slowing for some time, as I noted last year.  The issue is affordability.  Artificially low interest rates make the monthly payment seem cheap.  But the key question is whether your salary will allow you to repay the capital borrowed over time. Sadly, this has become increasingly impossible for many actual […]

London house prices start their collapse Read More

Markets question central bank power as Great Reckoning nears

TIME magazine covers often capture the mood of a moment.  And that was certainly true in February 1999, with their now famous cover picturing then US Federal Reserve Chairman, Alan Greenspan, under the heading “The Committee to SAVE the World“. In a further sign of the times, Greenspan was flanked by the US Treasury Secretary […]

Markets question central bank power as Great Reckoning nears Read More

Central banks defy slowing global economy by destroying markets’ power of price discovery

Markets have one main function in life – price discovery.  If I want to buy, and you want to sell, the existence of a market allows us to discover the price at which the market will balance in terms of supply and demand. History, however, provides many examples of times when rulers decided they knew […]

Central banks defy slowing global economy by destroying markets’ power of price discovery Read More

US 10-Year interest rates suggest Great Reckoning may be near

 ”History doesn’t repeat itself, but it often rhymes“, Mark Twain Bob Farrell of Merrill Lynch was rightly considered one of the leading Wall Street analysts in his day.  His 10 Rules are still an excellent guide for any investor.  Equally helpful is the simple checklist he developed, echoing Mark Twain’s insight, to help investors avoid […]

US 10-Year interest rates suggest Great Reckoning may be near Read More

6 impossible things not to believe about oil before breakfast

 ”Sometimes I’ve believed as many as six impossible things before breakfast.” Oil traders know how the Queen felt in Lewis Carroll’s famous book, Alice Through the Looking-Glass.  The list of impossible things that they are being asked to believe grows almost by the day:   Last week, prices jumped 4% on the basis that strong […]

6 impossible things not to believe about oil before breakfast Read More

Investors panic in “search for yield” as interest rates go negative

Its been a great few months for financial markets.  All the major markets have seen gains, as the chart shows – something that has happened only once before, since my half-yearly reviews began in March 2009: □   Long-term US Treasury bonds have gained, as long-term interest rates have been falling □   The 30-year bond […]

Investors panic in “search for yield” as interest rates go negative Read More

Suspense rises as Great Unwinding becomes the Great Reckoning

“There is a distinct difference between “suspense” and “surprise.”  Alfred Hitchcock It is now 2 years since the start of the Great Unwinding of policymaker stimulus.  On 15 August 2014, Brent was at $105/bbl, and the US$ Index was at 81. Since then, as the chart shows, Brent oil prices have fallen 53%, whilst the […]

Suspense rises as Great Unwinding becomes the Great Reckoning Read More

US pensioners pay the price for Fed’s monetary policy failure

There was one bit of good news this week.  For the first time since the financial crisis began, a Governor of the US Federal Reserve acknowledged that today’s demographic changes are having a major impact on the US economy. John Williams, of the San Francisco Fed, argued that: “Shifting demographics….(mean that) interest rates are going […]

US pensioners pay the price for Fed’s monetary policy failure Read More

Europe’s oil product glut halves gasoline margins in 2 weeks

We are approaching the 2nd anniversary of the Great Unwinding of policymaker stimulus, which began in August 2014: The initial movement was very sharp, with Brent falling 53% by January and the US$ rising 23% by March Oil then saw an initial correction – with Brent recovering to being 37% down by May during the “oil […]

Europe’s oil product glut halves gasoline margins in 2 weeks Read More

Brexit a disaster for the UK, Europe and the world

First, the good news.  It has long been recognised that the UK economy is over-dependent on financial services, and that its housing market – particularly in London – is wildly over-priced in relation to earnings.  The Brexit vote should ensure that both these problems are solved: Many banks and financial institutions are already planning to […]

Brexit a disaster for the UK, Europe and the world Read More

Investors fear Fed’s outdated theories have hit sell-by date

These are difficult times for companies and investors.  It is becoming more and more apparent that central bank stimulus policies have failed to counter today’s demand deficit, caused by ageing populations.  It is also clear that central bankers themselves have little idea of what is happening in the real economy. They have based their programmes […]

Investors fear Fed’s outdated theories have hit sell-by date Read More

Restocking boosts Q1 margins for chemical companies

Thank goodness for Janet Yellen, and China’s provincial governments.  That was clearly investors’ thoughts, when they bid up chemical company share prices during Q1.  For as the chart above shows, there was nothing in the fundamentals of supply and demand to suggest economic recovery was finally underway.  Instead, the latest American Chemistry Council data shows […]

Restocking boosts Q1 margins for chemical companies Read More

China’s G20 Summit shutdown highlights risks to buying “frenzy” in commodities markets

China’s polyester industry, like many others, is already preparing to shut down ahead of September’s G20 Summit in Hangzhou, to reduce pollution levels.  The phenomenon even has its own Wikipedia page, APEC Blue, to describe the moment in November 2014 when Beijing suddenly saw blue sky for the whole of the Asia-Pacific Economic Co-operation (APEC) summit meeting.  It […]

China’s G20 Summit shutdown highlights risks to buying “frenzy” in commodities markets Read More

Chemicals, the “flea on the tail of the currency/interest rate dog”

Markets are becoming increasingly chaotic, as the world’s major central banks each try to devalue their currencies. They have created a traders’ paradise, with oil on a particularly wild ride.  But this has not been based on supply/demand fundamentals.  Instead, it has been due to hedge funds jumping back into the commodities market. They don’t […]

Chemicals, the “flea on the tail of the currency/interest rate dog” Read More

Global stock markets weaken as Great Unwinding of stimulus continues

It is 7 years since global stock markets bottomed after the 2008 financial crash.  But as my regular 6-monthly update on their performance shows, it has been a very mixed picture since then.  The chart shows how prices have moved since their pre-2008 peak in the world’s 8 major markets, and in the US 30-year […]

Global stock markets weaken as Great Unwinding of stimulus continues Read More

Brexit poll creates UK, euro interest rate rise risk

Financial markets are very bad at evaluating political risk.  They assume people will always be rational, and expect a ‘business as usual’ scenario to continue.  But as we all know, people are not always rational.  And emotion, as today over immigration may cloud their judgement. This week has seen the first signs of this complacency […]

Brexit poll creates UK, euro interest rate rise risk Read More

If only the central banks could print babies

The Financial Times has kindly printed my letter below, arguing that central bank stimulus can’t restore growth to previous Super Cycle levels. Sir, John Plender’s excellent analysis “Central banks’ waning credibility is the real threat to confidence” (Insight, February 17) highlights the need for a new narrative to explain the economic slowdown of recent years. […]

If only the central banks could print babies Read More

Coppock, Farrell indicators suggest financial market downturn underway

They don’t ring bells to warn of financial market tops and bottoms.  But there are 2 very good substitutes in terms of the Farrell and Coppock Indicators, as the above chart for the UK stock market since 1973 shows: It is based on the Financial Times All-share Index (FTA), as the FTSE 100 only began […]

Coppock, Farrell indicators suggest financial market downturn underway Read More

Financial markets head towards chaos as Great Unwinding continues

Financial markets are slowly descending into chaos.  The process began in China over the summer, and has now started to impact Wall Street and other developed markets as the Great Unwinding of policymaker stimulus continues. The problem is that successful investment, whether in financial or chemical markets, requires the combination of A clear understanding of […]

Financial markets head towards chaos as Great Unwinding continues Read More

Markets need more cash from the Janet Yellen tooth fairy

Central banks have acted as the proverbial tooth fairy towards financial markets in recent years.  But they have not just left a small amount of money under the pillow when a child lost its first tooth.  Instead they have printed trillions of dollars via Quantitative Easing (QE), to persuade investors to buy shares and commodities, […]

Markets need more cash from the Janet Yellen tooth fairy Read More

Stock market volatility surges as margin debt hits danger level

Global stock markets turned in a vintage experience last week for those who like horror movies. Continued sell-offs in China finally convinced some financial investors, and some senior Western policymakers, that its economy might not be quite as strong as they had assumed.  The ensuing panic led to record profits for the high frequency traders (HFTs), as the Dow Jones […]

Stock market volatility surges as margin debt hits danger level Read More

Contagion hits financial markets as Great Unwinding continues

Crude oil prices continued to fall towards $30/bbl last week.  Markets are finally starting to recognise, as the BBC reported last year, that ‘China fooled the world‘ with its stimulus programme. It had not suddenly become middle-class by Western standards in 2009.  Instead, aided by developed country stimulus policies, its own stimulus had helped create […]

Contagion hits financial markets as Great Unwinding continues Read More

Greece introduces capital controls; IMF says it needs to default

This morning, Greece introduced capital controls.  People can only withdraw €60/day ($65) from their bank accounts.  The government has also called a referendum on Sunday, after Eurozone talks on a new bailout package collapsed. The key issue is that Greece will never be able to repay its debts.  These are currently estimated at €322bn ($365bn) […]

Greece introduces capital controls; IMF says it needs to default Read More

Policymakers’ out-of-date economic models fail to create growth, again

Since 2010, May/June has seen the US Federal Reserve start to realise it would have to revise its optimistic New Year forecast that economic recovery was inevitable. As its deputy chairman, Stanley Fischer, noted last August “Year after year we have had to explain from mid-year on why the global growth rate has been lower than […]

Policymakers’ out-of-date economic models fail to create growth, again Read More

Market volatility jumps as Great Unwinding continues

As I have feared, major volatility is developing in financial and chemical markets, as the Great Unwinding of policymaker stimulus continues.  The chart above shows the dramatic increase in the benchmark portfolio since the Unwinding began in mid-August: There was very little volatility from January until August, with prices generally remaining within +/- 10% Volatility then […]

Market volatility jumps as Great Unwinding continues Read More

Europe’s QE programme fails to support US markets

Its been a fine run for the Boom/Gloom Index of financial market sentiment.  Every time it has weakened, as in January, central banks have rushed to support it with ever-larger volumes of free cash. But the European Central Bank’s new €60bn/month ($65bn) programme doesn’t seem to be providing the same support for US equities as before, […]

Europe’s QE programme fails to support US markets Read More

Volatility rises as central bank policies prove wishful thinking

Q1 was very difficult for many companies and investors.  They had wanted to believe since 2009 that central banks could somehow control the global economy: The oil price would always be $100/bbl The US $ would always remain weak Central banks would always be able to stimulate growth in the economy Stock markets would always go up in the […]

Volatility rises as central bank policies prove wishful thinking Read More

US watchdog warns on today’s “quicksilver markets”

What could go wrong in today’s financial world?  Many stock markets in the West are hitting new highs, and central banks are promising they will do nothing to spoil the party.  But as Gillian Tett of the Financial Times warned on Friday: “Before anyone gets too thrilled about equities, they should read a sobering research document from […]

US watchdog warns on today’s “quicksilver markets” Read More

US$ breaks out of 30-year downtrend

Attention has rightly been focused on the collapse of oil prices over the past 6 months.  These have further to fall, but the major part of the move must now be behind us.  After all, Brent was at $104/bbl when I first forecast the move in mid-August, and closed at $56/bbl last night, so probably “only” has $20/bbl-$30/bbl further downside. […]

US$ breaks out of 30-year downtrend Read More

European interest rates go negative as Draghi boosts stock markets

Historians will not look kindly on Mario Draghi, head of the European Central Bank. They will ask what he thought he was doing, issuing an extra €1tn ($1.05tn) of debt from March 2015, when the Eurozone was already struggling under a dead-weight of government debt: In the big countries, Italy has $47k of debt per person; […]

European interest rates go negative as Draghi boosts stock markets Read More

What a difference a QE programme makes

 ”What a difference a day makes Twenty-four little hours Brought the sun and the flowers                                            Where there used to be rain” (lyrics, Renee Olstead) What would financial markets do without Mario Draghi, the head of the European Central Bank (ECB)?  A month ago, they were worrying about deflation arriving in the Eurozone and the […]

What a difference a QE programme makes Read More

Mckinsey says global debt now 3x global GDP, and rising

A major new report from consultants McKinsey confirms my concerns over the dramatic increase in global debt levels since stimulus policies began in 2008.   As their chart above highlights: Global debt has risen by $57tn to $199tn since 2007, nearly 3x global GDP Government debt is up by $25tn, with three-quarters of this in the developed […]

Mckinsey says global debt now 3x global GDP, and rising Read More

US stock markets weaken as bond yields signal deflation is near

Increasing volatility in major Western financial markets suggests they are struggling to maintain their momentum. It is certainly hard to be very optimistic about the outlook for the major Western stock markets this year.  The reason is that investors are still failing to think about political risk.  They continue to believe, as they did a year ago, […]

US stock markets weaken as bond yields signal deflation is near Read More

One day, the Fed will try to talk the market up – and nobody will listen

In March 2007, the Financial Times kindly published a letter from me arguing that the US Federal Reserve seemed “to confuse being market-friendly with being friendly to markets“, and had forgotten “The famous dictum of William McChesney, the long-serving Fed chairman in the 1960s, that “the job of the Federal Reserve is to take away the punch […]

One day, the Fed will try to talk the market up – and nobody will listen Read More

Major investors worry about markets, focus on demographics

I had a breakfast meeting yesterday with the investment head of one of the world’s major asset managers.  He wanted to understand more about our Great Unwinding concept, and our correct mid-August forecast of $70/bbl oil prices. After that, we went on to discuss two critical and related areas: Would the oil price stay at today’s […]

Major investors worry about markets, focus on demographics Read More

Japan’s panicking policymakers create risk of hyper-inflation

“The basic function of a central bank is to defend the value of the currency.”  Paul Volcker was the great US central banker of our time.  Unlike Alan Greenspan and Ben Bernanke, he believed in taking firm action to avoid crises, rather than trusting in financial markets to regulate themselves.  He also believed that politicians had […]

Japan’s panicking policymakers create risk of hyper-inflation Read More

Danger and Opportunity await as the financial Crisis returns

The Great Unwinding began with the change of economic direction in China.  So it makes good sense for businesses and investors to view developments with a Chinese perspective in mind.  This is particularly relevant as the Chinese word for Crisis contains 2 characters – Danger and Opportunity – as the picture shows. DANGER It is not hard to identify the key Danger from the […]

Danger and Opportunity await as the financial Crisis returns Read More

China sees $13.5bn of fake September ‘collateral trade’ invoices

China’s ‘collateral trade’ is still a major force in world markets for iron ore, copper and even plastics such as polyethylene.  September’s data suggests $13.5bn of fake invoices added 56% to the value of China’s exports to Hong Kong, as property developers strove to raise cash to finish their buildings. Full details of the trade […]

China sees $13.5bn of fake September ‘collateral trade’ invoices Read More

IMF says economic growth may never return to pre-crisis levels

The Great Unwinding of policymakers’ failed stimulus programmes is now clearly underway in the global economy.  The headlines this week all focused on the latest International Monetary Fund (IMF) report: “IMF says economic growth may never return to pre-crisis levels.” And then, in response, the US Federal Reserve suddenly realised that the US economy was not […]

IMF says economic growth may never return to pre-crisis levels Read More

Interest rate outlook more uncertain as Bill Gross leaves PIMCO

Last week’s departure of Bill Gross from his role as Chief Investment Officer at PIMCO is likely to prove a turning point for interest rates in the West, and probably around the world. Gross founded PIMCO (Pacific Investment Management Co) more than 40 years ago.  During this time he built its assets under management to around $2tn.   That is […]

Interest rate outlook more uncertain as Bill Gross leaves PIMCO Read More

Polymer markets at risk if China’s ‘collateral trade’ unwinds

Global metal markets are at growing risk from developments in China’s ‘collateral trade’, as yesterday’s post highlighted.  Worryingly, so are products such as polyethylene and ethylene glycol, as it seems likely these have also been used as collateral more recently.  This will be bad news for producers already suffering from slowing demand: China’s economy continues to weaken as the […]

Polymer markets at risk if China’s ‘collateral trade’ unwinds Read More

China’s $10bn trade deal fraud hits iron ore and copper markets

Iron ore prices on China’s futures market were at 5-year lows yesterday.  Copper prices also weakened in Australia.  This adds to the blog’s concern that China’s ‘collateral trade’ market is getting closer and closer to its ‘moment of truth’. This will come as an awful shock to most outside observers, who have been led to believe China’s vast imports […]

China’s $10bn trade deal fraud hits iron ore and copper markets Read More

US ethylene outages boost European and Asian PE producers

Polymer traders must be already counting their end-of-year bonuses, as the value of the US$ rises whilst crude oil prices weaken.  The biggest bonuses will likely go to polyethylene (PE) traders competing with US producers. The reason is that US ethylene spot prices are currently at record levels.  An astonishing 10% of US ethylene capacity has been out […]

US ethylene outages boost European and Asian PE producers Read More

Shiller warning suggests S&P 500 bubble coming to an end

Nobel Prizewinner Prof Robert Shiller correctly forecast the dot-com collapse in 2000, and the 2008 financial Crisis, using the chart above.  Now he is warning we risk a 3rd collapse. The problem is that Western central banks have undertaken the largest financial experiment in history.  Their policy has been to boost financial markets, particularly the US S&P 500 – the world’s […]

Shiller warning suggests S&P 500 bubble coming to an end Read More

Global stock markets still depend on low-cost money for support

The blog’s 6-monthly review of global stock markets highlights the narrow nature of the advance since September 2008, when the blog first began analysing developments.  It shows their performance since the pre-Crisis peak for each market, and the performance of the US 30-year Treasury bond. Remarkably, only the US, India, Germany and the UK stock markets […]

Global stock markets still depend on low-cost money for support Read More

August highlights

Many readers have been taking a well-earned break over the past few weeks.   As usual, therefore, the blog is highlighting key posts during August, to help you catch up as you return to the office. Economic outlook:  Great Unwinding of stimulus underway.  Q2 results show slowing growth.  US retail sales decline in line with incomes, […]

August highlights Read More

US dollar rises as investors worry low-cost money may disappear

Nobody knows how the Great Unwinding of central bank stimulus policies will develop.  The world has simply never been in this position before.  Thus the senior economics and business correspondent of the Financial Times, John Plender, began an article this week: “In a market where asset prices are comprehensively rigged by central bankers, rational investment […]

US dollar rises as investors worry low-cost money may disappear Read More

Eliminating the impossible in China’s polyethylene market

Very large amounts of copper, iron and other commodities are in long-term storage in China as part of the ‘collateral trade’.  More recently, it seems large amounts of polyethylene (PE), ethylene glycol (MEG) and probably other chemicals have also started to be used for the trade. None of this used to matter when the Chinese economy was booming.  Why […]

Eliminating the impossible in China’s polyethylene market Read More

Markets slip as fears grow Fed’s cheap money may end soon

Western financial markets are getting nervous that the US Federal Reserve will cut off their supply of cheap money.  They went through the same panic in 2011.  Now they again have to wait to see what happens. The chart of the new IeC Boom/Gloom Index above highlights the parallels: Markets were strong through April 2011, with the […]

Markets slip as fears grow Fed’s cheap money may end soon Read More

China condom sales droop 1 million/day on anti-graft campaign

Condom sales have dropped by 1 million/day in China according to The Economist magazine.  It highlights how: Across China, luxury retailers and fancy restaurants are suffering from an edict against wasteful government spending. A chill has crept into karaoke parlours and brothels; mistresses also face a hard time. The reason is the new leadership’s anti-corruption […]

China condom sales droop 1 million/day on anti-graft campaign Read More

Polyethylene, shadow banking and China’s ‘collateral trade’

The blog’s latest post for the Financial Times, published on the BeyondBrics blog is below. By Paul Hodges of International eChem Strange things are happening in China’s polyethylene (PE) market. Despite a slowdown in the economy, demand is surging. Our research suggests that PE, like copper and iron before it, is the latest instrument of China’s […]

Polyethylene, shadow banking and China’s ‘collateral trade’ Read More

$20tn US, China stimulus and lending – but recovery elusive

Despite all the positive headlines, the world’s two largest economies have failed to deliver sustained recovery, even though the 2 governments have now spent a combined $20tn in stimulus and lending. US STIMULUS REACHES $10tn The US government and Federal Reserve have spent $10tn since the Great Recession began in 2008.  Federal deficits have increased by $6.27tn, whilst […]

$20tn US, China stimulus and lending – but recovery elusive Read More

The €2bn WiFi company that wasn’t

Blog readers often travel a lot.  And they certainly use WiFi.  So here’s a question: Q.  Do you ever remember using a WiFi service called Gowex? A.  Lots of puzzled looks in response Q.   Not sure?  You think it might be vaguely familiar, but maybe not.  Well this is what the company’s website says: “Your […]

The €2bn WiFi company that wasn’t Read More

$15bn gold loan scam revealed: Beijing property sales fall 50%

Almost every day brings new revelations about the growing evidence of major fraud in China’s ‘collateral trade’.  Yet the world’s financial markets remain very complacent.  They have forgotten the basic rule, that the first example is usually the tip of the iceberg – not a one-off mistake. They have also forgotten that the real problems only emerge when […]

$15bn gold loan scam revealed: Beijing property sales fall 50% Read More

Qingdao probe the ‘straw on the camel’s back’ for world markets

The blog’s new Research Note in the ‘Your Compass on China’ series highlights the way that China’s commodity imports have been used to finance its housing bubble.  This is clearly a shock for investors, who have till now believed the imports were a sign of its superior economic policies and long-term growth prospects. The Qingdao probe could […]

Qingdao probe the ‘straw on the camel’s back’ for world markets Read More

China’s commodity imports have financed its property bubble

Today, the blog launches a major new Research Note in the ‘Your Compass on China’ series, produced in association with leading Hong Kong-based financial advisory firm Polarwide. Titled ‘Here today and gone tomorrow – a simple guide to China’s world of trade finance’, it is probably the single most important paper it will publish all […]

China’s commodity imports have financed its property bubble Read More

Financial market melt-up takes S&P 500 to new record

A year ago, the blog suggested that financial markets were reaching their most dangerous ‘melt-up’ stage, driven by investor complacency about the ability of central banks to protect them from any downturn.  This analysis was confirmed in November, when absurdly high prices were paid for works of modern art, smashing previous records. Gillian Tett of the Financial Times (another of […]

Financial market melt-up takes S&P 500 to new record Read More

Prime Beijing house prices drop 40% since December

China’s property market is the epicentre of the global debt bubble discussed yesterday.  It has been red-hot since urban residents became free to buy their own home in 1998.  Before then, they lived where the state told them.  With interest rates held low to boost state-funded infrastructure spending, people had few options for investing their money. The […]

Prime Beijing house prices drop 40% since December Read More

Central banks have created a debt-fuelled ‘ring of fire’

A new article by an IMF economist makes the point that in April 2008, not a single one of the mainstream economic forecasts covered by ‘Consensus Economics’ was forecasting a recession in 2009. The IMF itself expected growth to continue, as did the World Bank and the Organisation for Economic Co-Operation and Development.  Even by […]

Central banks have created a debt-fuelled ‘ring of fire’ Read More

China’s president highlights ‘new normal’ of economic growth

China’s President Xi Jinping became the first world leader to highlight the move into a “new normal” at the weekend: “China is still in a significant period of strategic opportunity. We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded” “Through […]

China’s president highlights ‘new normal’ of economic growth Read More

China’s PE imports jump 26% as credit bubble peaks

Strange things are happening in China’s polyethylene (PE) market, as the chart shows: Imports suddenly jumped 26% in Q1 (red column) versus last year (green) This would be an extraordinary amount at any time, but especially now with the economy slowing It comes at a time when China’s own production continued to increase, up 8% As a result, […]

China’s PE imports jump 26% as credit bubble peaks Read More

Ageing populations create repayment risk for government bonds

Government bonds in the larger, wealthy countries of the West have traditionally been regarded as being “risk-free”.  Most countries have failed to pay their debts at some time in the past, but it hasn’t happened in the post-War period for the major economies, and so investors have forgotten this can happen. This situation may well change […]

Ageing populations create repayment risk for government bonds Read More

High-frequency traders pay $millions to be legal highwaymen

In olden days, highwaymen would hang around stagecoach inns, waiting to see when wealthy people were travelling.  Then they would hide out along their likely route, getting wet and cold, in order to take their cash. Today the arrival of electronic trading has changed all this.  High-Frequency Traders (HFT) now have computer programmes to act as their lookouts, […]

High-frequency traders pay $millions to be legal highwaymen Read More

“It’s worse than 2007, because then it was a problem of the developed economies”

William White was the only central banker to publicly warn of the risks to the world economy long before the Crisis, when he was chief economist of the Bank for International Settlements (the central bankers’ bank).  He also warned of the problems that would be caused by their stimulus programmes as early as September 2009. A blog […]

“It’s worse than 2007, because then it was a problem of the developed economies” Read More

Interesting Quotes (7)

Every now and then, somebody in a senior position says something that really deserves to be noticed.  Often this is when they are in a state of Denial.  This was the case in the blog’s first post in the Interesting Quotes series, when CitiGroup CEO, Chuck Prince dismissed worries about subprime losses in August 2007, saying: […]

Interesting Quotes (7) Read More

Cement Shen’s $563m ‘Peach Blossom Palace’ bankruptcy

The sight above may become more familiar as China’s new leadership seek to burst the property bubble.  It shows unfinished town houses on the Peach Blossom Palace estate in Fenghua city, south of Shanghai. They were built by local developer ‘Cement Shen’, whose Zhejiang Xingrun (ZX) property company went bust last month, owing Rmb3.5bn ($563m).  […]

Cement Shen’s $563m ‘Peach Blossom Palace’ bankruptcy Read More

Fed Chair Yellen ignores demographics, goes back to stimulus

So, here we are again.  Each year it seems to take less and less time for the US Federal Reserve to give up on its confident New Year forecasts of economic recovery. New Fed Chair, Janet Yellen, argued in February that the weather was responsible for the economy’s poor performance.  But now she seems to have decided the […]

Fed Chair Yellen ignores demographics, goes back to stimulus Read More

China’s lending problems begin to worry wider world – too late

Suddenly, people are starting to talk about China and the risks it creates for the global economy.  There is a lifecycle to the way that such issues develop in the general consciousness, as John Mauldin has observed.  And so this development suggests that we are now well along the process, as highlighted in the chart above: […]

China’s lending problems begin to worry wider world – too late Read More

Crimea referendum highlights growing geo-political risks

Markets have been remarkably calm ahead of Crimea’s planned Sunday referendum to leave Ukraine and join Russia.  Yet as Associated Press has reported: “The Group of 7 world leaders say they won’t recognize results of a referendum for the Crimea region to split from Ukraine and join Russia.  A statement from the seven nations released from […]

Crimea referendum highlights growing geo-political risks Read More

5 years of stimulus have only delayed move to the New Normal

Coincidentally the blog began its 6-monthly review of global financial market performance on 7 March 2009, as the US market hit its post-Crisis bottom.  At this point, it was possible to hope that central banks would allow markets to resolve the issues that they themselves had created. After all, there would have been no subprime crash if the US Federal […]

5 years of stimulus have only delayed move to the New Normal Read More

Central banks have “attempted to manipulate asset prices and financial makets”

“The proper role for monetary policy is to work behind the scenes to promote long-term growth and price stability, yet central banks have instead attempted to “manipulate asset prices and financial markets” to fine-tune their economies. “I do not think this is a particularly healthy state of affairs for the central banks or our economies. […]

Central banks have “attempted to manipulate asset prices and financial makets” Read More

“Reservations are no longer necessary at many high-end restaurants”

Think back a moment to September 16 2008.  Newly released transcripts analysed by the Wall Street Journal and Financial Times reveal for the first time what was really going on that day at the world’s most important central bank. Lehman Bros, one of Wall Street’s largest investment banks, had just gone bust.  Merrill Lynch, another giant, had […]

“Reservations are no longer necessary at many high-end restaurants” Read More

“Bad news barrage sinks New Year consensus”

Markets stopped operating in their true role of providing price discovery sometime ago.  Instead, they became dominated by the central banks, determined to prove their theory that increased asset values can stimulate sustained economic recovery. They, of course, have the firepower to bend markets to their will.  Nobody else could have spent $16tn in this manner […]

“Bad news barrage sinks New Year consensus” Read More

Aluminium shortage “temporary and artificial” says world’s largest buyer

When was the last time you told your customers that they would have to wait 570 days for delivery of material for which they have already paid? You’ve never done this?  Well, you need to take lessons from those super-smart people who own the aluminium warehouses, such as Goldman Sachs (pictured above by Reuters).  As the blog […]

Aluminium shortage “temporary and artificial” says world’s largest buyer Read More

China’s new policies send earthquake tremors through markets

The blog used the metaphor of a hurricane in 2007-8 to describe the likely impact of the looming financial crisis. Thus in July 2007, it discussed the potential for a “global hurricane” to develop.  And it repeated this metaphor as the crisis built, until writing in September 2008 that “the financial hurricane had arrived in New York” with the […]

China’s new policies send earthquake tremors through markets Read More

Aluminium stocks enough to build nearly 2 years’ supply of cars

We all know that strange things have been happening in global commodity markets in the past 5 years.  Central banks have been pumping out free cash, which has been used to fund speculative trading by many of the major investment banks.  In turn this has taken many prices to new records.  And this was all happening when […]

Aluminium stocks enough to build nearly 2 years’ supply of cars Read More

The trend is your friend, until it isn’t

Investing in today’s financial markets is relatively easy.  You simply have to believe that governments in the US, Japan and Europe will continue to provide plenty of free cash to investors as part of their Recovery Scenario of a quick return to ‘normal growth’.  It doesn’t matter whether the investor believes in the Scenario, the driver is simply the fear of […]

The trend is your friend, until it isn’t Read More

Boom/Gloom Index hits record high as western financial markets soar

The best view is always from the top of the mountain.  At least that is how it feels today, with this month’s IeC Boom/Gloom Index (blue column) hitting a record high.  Nor it is alone, as the S&P500 (red line), the world’s most important financial market index is also at record levels. Central banks broke […]

Boom/Gloom Index hits record high as western financial markets soar Read More

Record $142m for Bacon work shows markets now in “melt-up stage”

The blog is actually a fan of the artist Francis Bacon, and it rather likes the above painting of his friend and fellow-artist Lucien Freud.  But the reason for showing it is not to discuss the finer points of art criticism. It is instead simply to note that its sale by auction house Christies in New York last […]

Record $142m for Bacon work shows markets now in “melt-up stage” Read More

“I’m Sorry, America” says Fed’s official responsible for QE operations

Over the years, the blog has been very critical of the quality of people appointed by the US Federal Reserve to undertake the actual trading involved in its ‘Quantitative Easing’ (QE) programmes: In October 2008, it felt “distinctly underwhelmed” by news that the person supervising decisions on which financial institutions should live or die during the peak of the Crisis […]

“I’m Sorry, America” says Fed’s official responsible for QE operations Read More

Benzene highlights rising risks in financial markets

The blog is busy preparing its presentations for its World Aromatics and Derivatives Conference later this month, co-organised as always with ICIS.  As well as looking at the impact of the transition to the New Normal, it will be investigating the current state of benzene markets.  These are always an excellent leading indicator for the global […]

Benzene highlights rising risks in financial markets Read More

China’s empty cities create global lending risk

More details continue to surface of the wasteful spending that underpinned much of China’s GDP growth in recent years.  The empty city of Ordos (first highlighted 3 years ago in the blog) is just one example.  House prices there have recently fallen 50%, and the shadow banking system (critical for privately-owned companies) is reportedly in […]

China’s empty cities create global lending risk Read More

"Its going to be scary"

As the Financial Times wrote on Saturday:

“Earlier this year, it all seemed so straightforward. Central banks printed money and proffered soothing words, and markets went up. Now, it’s getting more complicated.”

In fact, nervous readers might want t…

"Its going to be scary" Read More

Barclays CEO finally resigns

Bob Diamond, Barclays CEO, has finally resigned this morning. It is a scandal that he, or any of the Bank’s Board, ever thought that he could hold onto his job. He was, after all, head of Barclays Capital when the fixing of LIBOR rates took place.

I…

Barclays CEO finally resigns Read More

Austerity levels jump

The blog’s Boom/Gloom Index (blue column) reaches its 3rd anniversary this month.

It was introduced to help monitor sentiment in financial markets, on the basis that “many markets are clearly being ruled by sentiment”. It has since done a good job in…

Austerity levels jump Read More

A is for Ambiguity

Today the blog ends its review of the VUCA world with A for Ambiguity.

The global economy often seemed to be on auto-pilot during the 25 years of the economic Supercycle between 1982-2007. The chart above shows US GDP since 1929 (when records began),…

A is for Ambiguity Read More

C is for Complexity

The blog’s series on the VUCA world today reaches C for Complexity.

Interest rates are key to company profitability. They determine rates of return for new investments, and their affordability. They also have a major influence on consumer spending p…

C is for Complexity Read More

Interesting quote (6)

Nobody ever bothers to deny something that is plainly impossible.

So when CEOs of a major bank deny something, the blog always worries.

The ‘Interesting quote’ series began in August 2007, when the blog noted Chuck Prince (then CEO of Citgroup) as sa…

Interesting quote (6) Read More