<blockquote>'With commodities succumbing to another leg in an increasingly brutal bear market, worries quickly returned to EM. The Brazilian real declined 2.1% this week and the Colombian peso sank 6.4%. The Russian ruble fell 3.5% and the South African rand declined 1.6%. Mexican stocks were hit 3.6%.
November 9 – Bloomberg (Taylor Hall): “Debt in developing markets is estimated to have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand exceeding that of Latin America, emerging Europe and the Middle East, according to the Institute of International Finance. Emerging-market debt has grown $28 trillion since 2009, according to the IIF… Global debt has soared $50 trillion during the period to surpass a total of $240 trillion, or 320% of gross domestic product, in early 2015. While credit has increased for almost all countries included in the new monitor over the past decade, debt-to-GDP ratios in developing Asia for non-financial corporate, household and financial corporate sectors have risen the most… Non-financial corporate sector debt in emerging markets has risen $13 trillion since 2009, increasing more than five-fold over the past decade to surpass $23.7 trillion in the first quarter of 2015. The advance has been most concentrated in emerging Asia, where it rose to 125% of GDP.”
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The bursting global Bubble is especially problematic for China. EM currencies have been devalued, while the U.S. and Chinese currencies have skyrocketed. The old reflationary measures no longer work. Loose “money” only exacerbates overcapacity, inequalities and financial Bubbles. The strong dollar further pressures global pricing, while adding to heightened Credit stress globally (certainly including EM dollar-denominated debt). Meanwhile, China’s currency peg to the dollar ensures the already vulnerable Chinese manufacturing complex becomes further uncompetitive. It ensures major problems related to the country’s enormous lending and investing boom in global resources. The resulting Credit stress only exacerbates disinflationary pricing pressures.'
- Doug Noland,
Risk Off? November 14, 2015</blockquote>
'..The greatest casualty of the QE bubble will also likely be low-grade debt and the entire stock market, probably just as indiscriminately.'<blockquote>'The preferred objects of speculation, and the greatest casualties of the 2000 bubble, were technology and dot-com companies. The preferred objects of speculation, and the greatest casualties of the mortgage bubble, were housing and the financial companies that held those mortgages. Recognize that because QE provoked such indiscriminate speculation, the recent extremes in the median price/earnings and price/revenue ratios, across all stocks, actually
surpassed their 2000 peaks. Make no mistake: the preferred objects of speculation during the QE bubble have been low-grade debt and the entire stock market, indiscriminate of industry, sector, quality, or capitalization. We are now beginning to observe internal divergences that signal increasing risk aversion among investors. The greatest casualty of the QE bubble will also likely be low-grade debt and the entire stock market, probably just as indiscriminately.
Investors don’t like to acknowledge bubbles. Yet somehow we have little doubt that a few years from now, they will look back at the present moment and ask that tragically perennial question: “What were we THINKING?”
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Not surprisingly, if one had to choose a single weapon on the valuation front, my preference would be one of my own: nonfinancial market capitalization to corporate gross value added, inclusive of estimated foreign revenues (see my 5/18/15 comment introducing this measure). At present, MarketCap/GVA is about 128% above its pre-bubble norm, and implies negative 10-year S&P 500 nominal total returns, with expected 12-year S&P 500 nominal total returns averaging only about 1% annually.'
- John P. Hussman,
The Bubble Right In Front Of Our Faces, November 16, 2015</blockquote>
'..the gold standard did not fall away because it was inefficient or counterproductive; it was actively destroyed by governments which did not want to continue to be bound by its strictures..'<blockquote>'Today’s daily joke comes courtesy of Richmond Fed President Jeffrey Lacker, who according to Marketwatch stated at yesterday’s Cato Monetary Policy Conference that “History has demonstrated the gold standard is unworkable.” What he failed to mention, or perhaps what he fails to understand, is that it is not the gold standard that is unworkable, but the expectation that government will adhere to the gold standard that is unworkable. Remember that the gold standard did not fall away because it was inefficient or counterproductive; it was actively destroyed by governments which did not want to continue to be bound by its strictures. The gold standard provides a restraint on the growth of the size and scope of government, which is why rapacious governments sought to do away with it.'
- Paul-Martin Foss,
No, Virginia, the Gold Standard Is Not Unworkable, November 13, 2015</blockquote>
Context<blockquote>
Debt Market Distortions Go Global as Nothing Makes Sense Anymore, November 15, 2015
'..current valuations on similar measures already exceed those of 1929..' (October 26, 2015)'As the bubble collapsed, banks and other financial institutions plunged into insolvency..''..the phenomenon of wave after wave of economic ups and downs is ideological in character..''..activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses .. we fully expect the S&P 500 to decline by 40-55%..''There are ominous parallels to the late-twenties..'</blockquote>