'It’s clear we need a lot of societal as well as personal healing.'
- John Mauldin,
The Distribution of Pain, Redux, August 4, 2018
'..an escalation of the unfolding EM crisis is at heightened risk of inciting a very problematic global de-leveraging - a "risk off" backdrop that would risk piercing vulnerable Bubbles even at the "core." The consensus bullish view - holding EM as a buying opportunity and the U.S. as the mighty pillar of growth and stability - could prove dangerously complacent.''The U.S. boom is built on a foundation of loose finance. Finance has meaningfully tightened globally. I'll reiterate my view that the global Bubble has been pierced at the "periphery" - more specifically, within the emerging markets. There are now serious fissures in China's Bubble, a circumstance exacerbated both by EM fragilities and rising U.S. trade tensions.
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..I believe the current backdrop creates extraordinary risk for a (surprising) reemergence of "Periphery to Core Crisis Dynamics". It's my view that massive global QE measures have for years been responsible for nipping de-risking/de-leveraging dynamics in the bud. The overabundance of cheap global finance ensured a surfeit of market liquidity that would readily accommodate incipient de-risking/de-leveraging at the "periphery." In short, a global "system" awash in "money" ensured de-leveraging dynamics never attained momentum. Contagion risk stopped being an issue - quite a boon for global leveraged speculation. Moreover, even the mildest "risk off" dynamic at the "periphery" would ensure waves of inbound liquidity for the "core." Latent fragilities at the "periphery" were kept under wraps, as global central bankers dragged their heels when contemplating the start of policy normalization.
An analyst on Bloomberg Television made the important point that global QE is today in the neighborhood of $25 billion monthly, down from $125 billion one year ago. Global QE will likely turn negative by year-end. This, I believe, significantly increases the likelihood of an unanticipated return of a destabilizing global contagion dynamic. Rather than instability at the "periphery" doing its usual handiwork to buoy Bubbles at the "core," de-risking/de-leveraging dynamics increasingly have the potential to attain sufficient momentum to negatively impact the "core."
The global liquidity backdrop is in the process of profound - if not yet obviously discernable - change. EM is increasingly vulnerable to a destabilizing bout of de-leveraging in a world of waning liquidity. Thus far, the faltering EM Bubble has incited flows to U.S. Bubble markets. However, an escalation of the unfolding EM crisis is at heightened risk of inciting a very problematic global de-leveraging - a "risk off" backdrop that would risk piercing vulnerable Bubbles even at the "core." The consensus bullish view - holding EM as a buying opportunity and the U.S. as the mighty pillar of growth and stability - could prove dangerously complacent.
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Meanwhile, China instability and trade fears see EM markets take another leg lower, with particular market concern for the highly levered Asian economies. De-risking/de-leveraging dynamics attain self-reinforcing momentum, as contagion effects engulf the global "periphery." Fears of global financial fragility and economic vulnerability see risk aversion begin to gravitate toward the "core." Fears of EM central bank and Chinese selling of U.S. Treasuries overwhelm safe haven buying, as de-risking/de-leveraging dynamics see a widening of Credit spreads and illiquidity begin to impact "core" fixed-income markets.
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It's worth noting that Italian yields jumped another 18 bps points this week to 2.93% (Greek yields up 25 bps). And while the Bank of Japan sought to comfort markets with "easy forever," the badly-distorted Japanese bond market is indicating instability. Mainly, it's a problematic market and geopolitical backdrop pointing increasingly to "Periphery to Core Crisis Dynamics." China, EM and the world are now just a disorderly collapse of the renminbi away from, in the words of Mr. Kudlow, "a heap of trouble." '
- Doug Noland,
"Periphery to Core Crisis Dynamics", August 4, 2018
'..His apparent belief in cheap credit is linked to a conviction that Turkey can grow without any limits and without overheating and exacerbating inflationary pressures..''Grow, grow, grow: Much of Turkey’s economic expansion over the last few years has been a result of a building explosion financed by easy credit that conveniently goes to construction and development giants that happen to be Erdogan’s political allies, by providing state loan guarantees and other tools to ease loans. His apparent belief in cheap credit is linked to a conviction that Turkey can grow without any limits and without overheating and exacerbating inflationary pressures. Erdogan seems convinced Turkey’s economy can grow at up to 7 percent annually without any side effects. But economists caution that unrestrained growth can actually hurl a country into a recession, with inflation — currently running at about 10 percent — eating into consumer savings and earnings. The International Monetary Fund and other economists say that Turkey should be growing at no more than 4 percent.'
- Borzou Daragahi,
Turkey’s president has made a huge bet that he's right and all of the world’s economic experts are wrong, May 25, 2018
Context'After decades of overuse, debt is increasingly less productive in all of these areas..'(Haptopraxeology)(To Heal, Teal)(Reinventing Organizations) - '..the realms of body, emotions, relationships, nature, and spirit..'Our Obsession with Consumption — while Ignoring Saving and Investment — Is a Big Problem