So, the holidays have passed and the new, 2019th year entered into force. What it will be – many predictions have already been made on this topic, they are very different. But now it is clear that he will not be calm in any way, and during his time we will have ‘terrible dangers and terrible adventures.’ (c) Well, get used to it – on the eve of the beginning of the full-era Eagle of the Foxrn rn These three events will definitely occur in 2019rn rn Much in 2019 is uncertain. But something is completely guaranteed, including the following:rn rn Government debt will grow faster. Like a man who has been on a diet all his life, but who has finally surrendered and decided to eat to death, the US is set up in the foreseeable future for a trillion-dollar deficit. And this is – bear in mind – if no recession happens in the next decade. During the next economic downturn, this trillion will turn into two or more, but in 2019 it is guaranteed that you can expect a little more than a trillion. But the American debt excesses are quite decent compared to most other countries. I would not say, but the trend itself is marked correctly.rn rn ..After Macron’s statement on Monday that he will raise the minimum wage, abolish the salary tax for overtime work and get rid of the contradictory pension tax, according to media reports, next year’s budget deficit will be 3.5% of GDP, The goal was 2.9%. This significantly exceeds the limit for Eurozone member countries in the amount of 3%.rn rn .. China’s growth has slowed, partly because it should have happened sooner or later. Representatives of the ruling elite of China confirmed that in 2019 there will be more monetary and budgetary support, as the second largest economy in the world is trying to cope with a slowdown, which it is not yet possible to cope with.
Corporate buybacks of own shares will slow down significantly.rn rn Corporations are the main ‘stupid money.’ Pay attention to the following chart, as in the previous cycle, the buyback of their own shares reached a peak at the record highs of the stock market in 2007. After that, the stocks collapsed, and the corporations, without any wisdom, became net sellers at the lows.
The first part of this pattern repeated in 2018, when corporations took advantage of changes in tax legislation to repatriate hundreds of billions of dollars, and, obviously, used all this money to repurchase their own shares – just before everything flew down in October breakage.rn rn Now corporate directors go to annual meetings of shareholders, having squandered a large part of their investors’ capital for revalued stocks. Tense times, definitely, and this is unlikely to fuel the desire to continue to buy shares.rn rn Politics will get even crazierrn rn There was nothing in the history of forecasts that would be easier to predict. In the US, the House of Representatives came under the control of the democrats, who for two long years had been burning with the desire to destroy the president. Having a chance to translate their dreams into reality, the Democrats will throw the executive branch with all sorts of dirty political tricks. The result will be worse than a dead end. Call it ‘chaos’ until the media come up with a catchier term. Year of Cross Trendsrn rn If we take the growing government debt and combine it with a reduction in corporate support for equities and widespread political instability, the impact on stock and bond prices remains unclear. The growth of government spending will underpin the stock, while reducing the buyback of shares by corporations will suppress them. Political instability will intimidate markets, but will also give rise to the hope that central banks will panic with better and more extensive quantitative easing programs, which, all other things being equal, will be good for bonds and, possibly, for stocks.rn rn As a result, financial assets can behave as they please; impossible to know anything for sure. I translate into a clear language – Arctic Fox can appear at any time.rn rn Yeah, these are really bad omens. The global crisis may begin this year.rn rn The stock markets around the world celebrated the Christmas holidays with a grand collapse. As a result, December last year was the worst for the American stock market since 1931, the height of the Great Depression. The S * P500 index for the last month of 2018 fell by 11%, the stock index of high-tech companies Nasdaq – by 12%. Analysts warn: the current collapse could be the first sign of a new global crisis, which is already very close.rn rn Analysts talk about the worst Christmas markets since the Great Depression. The Financial Times recalls that in December 1931, the S * P500 lost ‘only’ 14.5%. The hint is more than transparent: the world is on the verge of a large-scale crisis. And as usual, the world’s largest economy promises to become its epicenter.rn rn Serious problems in the economy of the United States are no news to anyone. Experts argue only about what is considered the main threat. Greg McBride, chief financial analyst at Bankrate.com, has calculated that in the entire history of the Fed’s existence, it has already tried six times to reduce its balance: in 1921-1922, 1928-1930, 1937, 1941, 1948-1950 and 2000. In five cases thereafter, a recession began in the country’s economy. Meanwhile, a survey of investment fund managers conducted in December by Bank of America showed that for them the Fed policy is only in second place in the list of main risks (54 respondents indicated it). The main threat to economic stability is 35% of respondents (61 people) consider trade wars.rn rn It is clear that not only the United States suffers from trade wars. The negative consequences of these disputes are beginning to manifest themselves in the Chinese economy. According to estimates by the Academy of Social Sciences of the People’s Republic of China, in 2018 Chinese GDP growth will be 6.6% against 6.9% in 2017. And this year it will slow to 6.3%.rn rn This threatens to lower world prices for commodities, whose main buyer today is Beijing, from energy to agricultural products. As a result, problems may arise in many developing countries supplying raw materials to China.rn rn In December, there was another potential source of the global crisis: Saudi Arabia’s budget for 2019 was laid out with a deficit of $ 35 billion, or 4.2% of GDP. That, by the way, is twice the budget deficit of Italy, which is considered the main threat to the financial stability of the European Union. In this case, the Saudis have put in the calculations the cost of oil at $ 80 per barrel. And to balance the budget, the kingdom needs an average price of black gold at $ 95 per barrel in the new year.rn rn The danger lies in the fact that Saudi Arabia, along with China – the largest holders of US government debt. Faced with economic and budgetary problems, both countries will simply be forced to sell off US government bonds. This will almost inevitably provoke a massive flight of investors from the US government debt. The consequence of which will be a collapse in the market value of treasurers and ‘holes’ in the balance sheets of banks that have been actively buying up American debt securities in recent months. Heh, no wonder Russia so abruptly threw pindobumagu ..rn rn After this, it remains only to wait for which of the banks will repeat the fate of Lehman Brothers, whose bankruptcy triggered the acute phase of the global crisis in 2008. That is, that will repeat – in this there is no doubt.rn rn Yes, not a very pleasant prediction. However. the rest is no better.rn rn Decline and Decline of Western Civilization and Other Forecasts for 2019
“I think this is a great shopping opportunity. Really great shopping opportunity. ” – President Donald Trump, Christmas 2018.rn rn And something I immediately remembered ..rn rn “Never before has the United States Congress, gathered to consider the state of affairs in the country, have such a pleasant picture as today. In internal affairs, we see peace and contentment … and the longest period of prosperity in history. In international affairs – peace and goodwill on the basis of mutual understanding. ‘ USA President Calvin Coolidge, December 4, 1928. Exactly 90 years ago ..rn rn Today, as we prepare to turn over the page we read, we offer a wide range of news. We carry words of doom and despair. We carry words of contemplation and reflection. But we also carry words of hope and sunshine.rn rn After all, the New Year is almost here. So the best moment has come to move to a new page. New dreams, new ways and new illusions – all this appears before us as a handful of ripe strawberries. Today is the day when you need to make a sharp lunge forward and scrape the whole strawberry with two hands.
What follows is free and intended for pleasure. These are just a few simple guesses for the year ahead. Stocks, Treasuries and Gold in 2019rn rn The article is very large, here I will give only a scan on one item. For example. And the rest – read the link.rn rn Stocks – a massive collapsern rn .. Let’s start with the fact that the great breakdown of the stock market, which followed the record high S * P 500 at the level of 2940 points, which was recorded on September 21, will grow in the course of 2019. In fact, the S * P 500 will no longer see 2,940 points for at least ten years — perhaps much longer.rn rn During the first six months of the new year, wild fluctuations of one hundred points in the S * P 500 index will become commonplace. Pre-programmed algorithmic trades will move the market up and down, causing nausea to the onlookers. Bulls and bears – both in human form and in the face of cars – will fight to the death.rn rn However, by the middle of the year the bulls will have exhausted their resources. Insightful investors will sell multiple jumps and go into money and gold. At about the same time, the rapidly spoiling gift for business from Trump in the form of tax breaks will lose its force. The economy will be on its way to recession.rn rn Predictive models based on incorrect estimates of income will be thrown into the garbage. Pre-programmed purchases will turn into pre-programmed sales, and there will be a sharp collapse. Equity markets will fall incessantly.rn rn By October, Wall Street and Washington will beg the Fed to do anything, and the US central bank will launch new experiments in the form of ZIRP, NIRP, QE. In addition, the Fed will begin to buy shares in full confidence in his own right. Nevertheless, the Fed’s efforts to pump liquidity into the financial system will be ineffective. Reality will collapse on investors like buckets of ice-cold water right in their faces. A harsh and destructive bear market will last until early 2020. When the dust settles, the S * P 500 drops to 60% of its record high.rn rn But this is all nonsense. Investors in Treasury bonds expect a much greater destruction of capital …rn rn Following are:rn rn The End of the Great Bubble in Treasury Bondsrn rn Death Puta Fedrn rn Decline and Decline of Western Civilizationrn rn Total social decayrn rn Culture flush down the toiletrn rn Hmm .. World Depression Is Coming 2019-2021? Or worse?rn rn The underlying issue that goes beyond the daily market drama that is observed during the holidays is the nature of the global economic slowdown that is happening now. Slowdown can be observed both in the United States and beyond. If you look at the historical laboratory — especially experiments with substantial asset inflation, not accompanied by high official estimates of consumer price inflation — in the coming weeks and months, three possible “echoes” deserve attention. (History does not repeat, but echoes!).rn rn Another big article, so I will give only the main thing.rn rn In the current situation, it is possible to imagine a similar process of two stages.rn rn The fall of the stock market in the coming quarters will be accompanied by a reduction in consumer and investment spending. Then, there will be upheavals in the financial and credit sector, when the value of collateral assets collapses and vulnerability is discovered. In the 1930s, the epicenter of the credit collapse was Central Europe (mainly Germany). Today, Europe will also be in the center, but it is also necessary to include Asia here (and in particular, of course, China). And the USA too, as if the authors of this article would not like it 🙂
Now, many possible scenarios are being built around the theme of the unpleasant development of political and geopolitical events, which can aggravate the hardships of the global recession. Serious shock events in the UK, France and Germany are quite within the limits of probability – this is a topic for another conversation. And such perspectives can also include China.rn rn Yes, the only question is WHERE it will begin. It is important enough, but – unprincipled. Because, as already begin necessarily.rn rn This is where the next crisis starts.rn rn The prerequisites for the expected financial collapse are well founded. Financial crises occur regularly. So, they happened in 1987, 1994, 1998, 2000, 2007-08. On average, over the past thirty years, this event occurred about once every five years. During the past ten years there has not been a single financial crisis, so the world has long been waiting for its occurrence. In addition, it happens that every next crisis is bigger than the previous one, and it requires more interventions from central banks. This pattern is explained by the scale of the system. In complex dynamic systems, such as capital markets, risk is an exponential function of the scale of the system. Scaling up the market is correlated with exponentially larger market crashes. This means that we will see a market panic, which will be much bigger than the 2008 panic.rn rn Renowned economist Carmen Reinhart says that the place to keep an eye on is the high-yielding debt of the United States, called ‘junk bonds.’
I also voiced the same argument. We are about to face a devastating wave of defaults on junk bonds. The next financial collapse may well be running on the junk bond market.rn rn .. The danger is that when the next economic downturn comes, many corporations will not be able to service their debts. Defaults will spread throughout the system like a deadly infection, and the damage will be enormous.rn rn If the level of defaults is only 10% – and this is a conservative assumption – then the corporate debt fiasco will be at least six times greater than the losses from subprime lending in 2007-08.rn rn Many investors will be caught off guard. As soon as the tsunami hits the markets, no one can escape from it. Stock indices will collapse due to growing losses in the credit market and as a result of tightened credit conditions.rn rn But corporate debt is not the only sword hanging over the economy. Credit conditions have already begun to affect the real economy. Losses from student loans are also growing rapidly. Losses grow on substandard auto loans, resulting in falling sales of new cars. As these losses affect the economy, mortgages and credit cards will be next in line.rn rn Could it be that we have already witnessed the onset of the next crisis? No one knows for sure, but now is the time to prepare for future cataclysms. As soon as the market falls apart, it will be too late to take any action.rn rn And some even have the feeling that “something of a truly biblical scale is approaching” ..rn rn The beginning of 2019 turned out to be calmer after very large volatility in the markets at the end of last year. The main attention of investors was focused on the trade deal between China and the United States, as well as on the statements of the heads of central banks, primarily to the words of Jay Powell. However, these are very minor things, sideshows. As we warned in December 2017, market volatility was only the first harbinger of the approaching global economic crisis. And as it turned out – still, yes.
As the latest global PMI statistics show, the global economic downturn has begun, and the world is completely unprepared for this. Global imbalances that have increased over the years cannot lead to anything other than a global crisis. However, the upcoming crisis can develop in different ways.rn rn Next, we present three scenarios that may trigger events in the global economy, when the global economic recession turns into something much more sinister.rn rn Scenario I: Global Economic Depressionrn rn Under the conditions of depression, everything that was driven by economic expansion starts to go in the opposite direction. Asset markets decline significantly (over 50%), credit becomes limited, corporations and households sharply reduce their leverage, and global trade flows stop. GDP drops sharply by 10 -25%. Unemployment is growing rapidly. Standard incentives from central banks and governments by that time are exhausted, or they do not cause any noticeable improvement in the economic environment.rn rn .. Governments are also burdened with huge debts, and when interest rates go up, some countries may default that will only aggravate the global banking crisis, which is likely to be in full swing by that moment. Combined with a zombified global business sector and a hard landing in China, these factors will lead the world economy to economic depression. However, the possibility of something much more sinister is cut out in the background.
Scenario II: System Collapse
A systemic crisis will mean that global financial institutions will collapse due to a lack of trust between counterparties within the system. Until 2008, the systemic crisis was by and large a theoretical construct. However, in mid-October 2008, world leaders were faced with the possibility that banks would not open on Monday. The interbank markets froze because no one knew the amount of losses that banks suffered as a result of market chaos. The functioning of the global financial system has stalled. Politicians and central bankers rescued the situation by securing bank deposits and providing financial institutions with capital and emergency guarantees to maintain their liquidity and credit flows.rn rn The current problem is that many of these measures are already in place, and when the next crisis comes, the solvency of governments and central banks will also be questioned. This creates a dangerous situation, because, for example, shares of global systemically important banks have been falling since the beginning of last year, that is, since the Fed began to implement the program to balance balance (QT). This is not a coincidence, and this means that problems are re-emerging in the banking sector.rn rn Systemic collapse means that all banking activities — distribution of money, loans, swaps, banking services, etc. — will cease. Credit cards will cease to function, ATMs will stop issuing money, and loans will not be provided, and they can not be rolled over. After the likely collapse of world trade, the global economy will also collapse. This will mean that global GDP will fall by a whopping 20-40%. Modern societies will cease to exist in their current form. It depends on where, in different places it will be different. Wherever they are prepared for this, the consequences will be mitigated, although in any case it will be hard.rn rn Scenario III: A Talern rn I’ll skip this option if you want – read the link about it. For this is a fairy tale :)rn rn Approaching the finalrn rn The global balance of central banks began to decline in August 2018. This marks the beginning of a global QT and, therefore, the end of the most reckless experiment in monetary policy in the history of mankind.rn rn Given China’s slowdown, which has been the engine of the global economy since 2008, we can be confident that we have finally entered the final phase of the current business cycle. The desperate measures taken by the global central banks and the government of China after the financial crisis pushed global debt and financial alchemy to unprecedented heights. The global financial system has been distorted by leverage, moral hazard and perverse regulatory practices to such an extent that “purging” has become almost impossible to avoid. This is the end. The end of the world known to us, but not the end at all. Every end is at the same time a new beginning.rn rn Yes, not very happy predictions. That, in general, is understandable. Smart people see well the approaching tsunami of the 2020s ..rn rn The approaching darkness and the dawn of a new erarn rn ..The part of the inveterate debtor is bankruptcy. Our world will inevitably come to this. The day is coming when we should wake up on the day of the inevitable global financial collapse. What will those who are used to living by government borrowing, directly or indirectly (that is, practically all of us) do? Only the natives of Amazonia, New Guinea, or Borneo will survive this time painlessly. Unfortunately, for many of the more than seven billion people on the planet, a difficult time will come, and maybe even death.rn rn Yes, hard times are still ahead. Today it is – warm up.rn rn That does not mean the need to sharply panic. But to know about what lies ahead, I think, follows. And what to do .. it is already up to everyone to decide for themselves, the era of drastic changes in order is good, which makes it possible for everyone to express themselves in their abilitiesrn .