Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now? – The Economic Collapse 07-22-15

Salient to Investors:

Michael Snyder writes:

  • Global debt is at record highs, too big to fail banks have never been more reckless, and global financial markets have never been more primed for a collapse. Most people lack the patience to wait for long-term trends to play out so if the stock market is not crashing today, they think that everything must be fine.
  • Commodity prices crashed a few months ahead of the financial crisis of 2008, and we are seeing a repeat. The Bloomberg Commodity Index is down 26% over the past 12 months to a 13-year low. Copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber prices are leading indicators and their falling prices are forecasting a global economic meltdown. The FTSE 350 Mining Index dropped to the lowest since 2009 this week. Gold and copper are near the lowest in at least 5 years, and crude oil is down to $50.
  • The Australian and Canadian dollars are at 6-year lows, and the Brazilian real is at a 10-year low all vs. the US dollar – all commodity resource nation currencies. The Indian rupee is at a 17-year low vs. the US dollar because manufacturing is slowing, and if Americans are not buying, the Indians, Chinese, Vietnamese are not making things.
  • The junk bond market collapsed a few months before the last stock market crash and junk bonds are starting to collapse again.

Andy Pfaff at MitonOptimal calls the commodity bear market a train wreck in slow motion.

Marc Faber at The Gloom, Boom & Doom Report sees a stock market decline of easily 20% to 40% and cites the growing number of companies trading below their 200-day moving average, stock declines leading advances, and the high number of new 12-month lows.

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HSBC Sage Flags Emerging-Market Pullback on Dollar – Bloomberg 08-07-14

Salient to Investors:

  • David Bloom at HSBC said to sell emerging market currencies, including the Rand, Ruble and Mexican and Colombian Peso, on increasing signs of US growth supporting the US dollar .  Bloom said a mass investor exodus depends on what happens to volatility on long-term US rates moving up – if long rates rise then the resulting full-blown dollar rally will hit emerging markets hard.
  • Phoenix Kalen at Societe Generale expects the rand to weaken and become more volatile over the next 3 months.
  • Koon Chow at Barclays said volatility remains near record lows as investors seek higher yields with US rates in their record-low zero to 0.25 percent range.  Chow said low global market volatility and low yields in many developed fixed-income markets will continue to push capital to emerging markets, while gains in the dollar will help differentiate currencies.
  • Futures indicate the Fed won’t raise its benchmark rate until at least mid-2015.
  • Citigroup downgraded its view on developing currencies.
  • Roland Gabert at DWS Investment  dislikes the rand, Brazilian real, South Korean won and zloty and said discussion of a rate hike in the US is negative for emerging-market currencies.


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Did Bernanke Signal Return of Risk-Off Market? – Bloomberg 06-27-13

Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co. writes:

Short stocks and commodities, go long the dollar and Treasuries – if stocks continue to decline, the safety of Treasuries and investment-grade bonds will outweigh concerns about the end of QE.

World economies are growing slowly at best and hold no interest for equity investors, whose entire focus has been on QE.

Investors are facing two shocks: the end of QE and a hard landing in China.

China’s growth is slowed by huge excess capacity and declining numbers of labor force entrants. Official growth data are vastly overstated. and is closer to the 5 percent to 6 percent hard-landing level. China’s total domestic credit from banks et al was 207 percent of GDP in 2012 versus 145 percent in 2008, with much of the increase coming from shadow banking. Short-term interest rates rose to 25 percent last week.

Ultralow interest rates have pushed investors into the highest-yielding assets they could find, regardless of risk, including junk bonds, leveraged loans that finance private-equity buyouts, developing country bonds, investor-owned single-family rentals, and high-dividend stocks such as utilities and consumer staples.

Investors are dumping emerging-market assets and junk bonds. High dividend stocks which outperformed in Q1 underperformed in the recent sell-off. Pension funds have moved into private equity, developing-country stocks and bonds, hedge funds and even commodities.

The average closed-end bond fund has fallen 10.7 percent in the past month versus a 3.4 percent decline in open-end bond funds.

Developed country stocks have much further to drop. The sluggish US economic recovery has produced minimal sales volume growth and no increased pricing power as inflation rates fell to zero, resulting in companies cutting costs, pushing corporate profits’ share of national income to an all-time high.

Robert Shiller’s cyclically adjusted P/E indicates the S&P 500 is 30 percent above its long-term trend.

Slower Chinese growth in manufacturing undermines the rationale for the commodity bubble of the early 2000s. Higher interest rates are eliminating the incentive to store crude oil for sale in the futures market at higher prices.

Gold buyers who thought QE would promote instant hyperinflation are finding instead inflation rates dropping to zero and higher interest carrying costs.

The dollar should continue to gain as a haven, especially as protection from the euro. The strong dollar makes many commodities more expensive for businesses that operate in weakening currencies.

The yen will continue to drop against the dollar as Abe tries to turn deflation into 2 percent annual inflation and force the BoJ to double its purchases of securities.

Commodity currencies such as the Australian dollar, the Brazilian real and the Russian ruble remain vulnerable as exports and prices continue to fall.

Currency devaluations in Japan and elsewhere will be matched by competitive devaluations worldwide. No country wins in competitive devaluations as foreign trade is disrupted. In the end, most will end up devaluing against the US dollar.

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Goldman Says Real, Lira, Rand Must Weaken to Close Trade Deficit – Bloomberg 06-21-13

Salient to Investors:

Themistoklis Fiotakis at Goldman Sachs said to curtail widening current account deficits, the Turkish lira, South African rand and Indian rupee would need to depreciate 30 percent on a trade-weighted basis, while the Brazil real and Chile peso need to fall 20 percent.

Fiotakis said the EM bond and FX selloff of the last month is likely to constitute only a small part of a longer trend for EM assets.

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