Fareed Zakaria GPS – CNN 05-29-16

Salient to Investors:

Fareed Zakari said:

The US has re-enforced its position as the world’s leading economic, technological, military and political power, and energy superpower.

The US dominates virtually all leading industries including social networks, mobile telecom, nano and bio technology.

The US is at the cutting edge of green technology.

The US is demographically vibrant, while all its major economic peers, including Japan, Europe and China, face certain population decline.

The US dominates the military and political world. The US has 10 aircraft carriers versus China’s one secondhand Ukrainian ship. The US counts numerous allies while China has only North Korea.

The US will not have a real rival for a very long time. However, China’s share of global GDP in 1990 was 1.7% versus 15% today, and developing countries accounted for 20% of world GDP in 1990 versus 40% today.

China’s global influence is large and growing – able to create the Asian infrastructure investment bank over US objections. Regional powers like Saudi Arabia and Turkey are rising.

Joshua Cooper Ramo says the US dominates all 9 global tech platforms, including Google Chrome, Facebook, and Microsoft Office.

Stephen Brooks and William Wohlforth say that China is the US’s only rising rival, but only when it comes to GDP: half its exports are imported for assembly and re-exported.

Bret Stephens at the Wall Street Journal said Donald Trump is the biggest loser in presidential history, manifestly unqualified to be president in any way.

Pro Publica says apartheid schools (schools with 1% or fewer white students) more than doubled since 1988 to 6,727 schools in 2011. GAO reports K-12 public schools with extremely high percentages of poor, black or Hispanic kids comprised 16% in 2013-2014 versus 9% in 2000-2001.

Paul Tractenberg at Rutgers says that between 2000 and 2013, the number of Americans living in high poverty neighborhoods rose from 7.2 million to 13.8 million.

Rucker Johnson at Berkeley said:

More than 1 in 4 poor blacks live in extreme poverty neighborhoods versus 1 in 13 for poor whites.

Blacks that attended desegregated elementary schools were more likely to graduate and 22% less likely to be incarcerated as adults. Blacks who spent 5 years in desegregated schools saw their health improved to the equivalence of being 7 years younger, and earned 30% more than those not attending desegregated schools.

The narrowing of the achievement gap and increased success of black students had no negative effect on whites on any metric.

Reid Hoffman at LinkedIn said:

The cost of sequencing the genome is falling faster than Moore’s Law.

The US has a unique advantage not in start-up culture but in blitz scaling. The majority of the super interesting tech companies are on the west coast, primarily Silicon Valley, an area 25 square miles with 8.5 million people.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1605/29/fzgps.01.html

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Fareed Zakaria GPS – CNN 05-01-16

Salient to Investors:

Parag Khanna said

America ultimately benefits from trade agreements.

Economists world-wide consider Mexico to be a hot emerging market.

The union of Canada, the US and Mexico is becoming more integrated and more productive than even the EU – a continental super power on an unrivaled scale.

China has twice as many countries with which it is the number one trading partner than America.

Connectedness is an extremely important way of measuring the leverage that a country can have.

In 10 years there will be more trade, more travel, more openness, more globalization.

 

The WHO says malaria mortality rates have fallen by 60% globally since 2000, and 21 countries will be malaria free in the next 5 years.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1605/01/fzgps.01.html

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Fareed Zakaria GPS – CNN 01-03-16

Fareed Zakaria said:

Trade accounts for 23% of the US economy vs. 71% in Germany.

The big trend in 2016 will be continued weak oil and commodity prices: the last dramatic decline of oil resulted in the collapse ofdemothe Soviet Union.

The stock market under Obama has compounded at nearly 14% a year but this cannot continue because we are overdue a recession, China is in a recession, Europe is going nowhere, and the oil-producing emerging markets have fallen off a cliff. At the end of the day the US always muddles through and looks better than everybody else.

In Rwanda, women comprise 64% of the parliament, 50% of the Supreme Court, 50% of the Cabinet.

Angus Deaton and Anne Case found that over the past 15 years, middle-aged US whites died in increasing numbers; caused primarily by suicide, alcoholism, and drug overdoses, partly because doctors and drug companies were far too eager to prescribe drugs. The case is worse for those with a high school diploma or less. Jeff Guo at the Washington Post said this cohort is largely responsible for Trump’s lead among Republican candidates.

Carolyn Rouse at Princeton said that non-white US groups might have lower income, standard of living, and social status expectations, while blacks cope with disappointment through family, art, protest speech, and religion.

WHO says 663 million people still have no access to safe, clean drinking water. UNICEF says water-borne illnesses kill nearly 1,000 children every single day.

Ian Bremmer at the Eurasia Group said:

At the end of 2016 the trajectory of US-Iranian relations will be better than US-Saudi relations.

To resolve Syria requires leadership, people who actually care, and the ability to coordinate, all of which are lacking, so we will be much farther away from a federated Syria in 2016 than we are in 2015.

Weak oil prices puts Middle East countries under much internal pressure, and they will more likely play nationalism which does bodes ill for peace in the region.

It’s either Cruz or Rubio for the Republican nomination. 2015 was the year of Trump, but 2016 will not be. Middle class anger is insufficient to get Trump the nomination: he is going after the losers, who historically in the US do not vote.  Hillary has no serious challenger for the Democrats. Who wins is a coin flip right now.

Expect many geo-political fat tails to impact the stock market, and we are due a recession. China is the big mover: the most volatile, the most uncertain, and the country with by far the most tools to kick the can down the road – and they want to.

Richard Haass at the Council on Foreign Relations said:

Weak oil prices will last through 2016 – excepting major instability involving Saudi Arabia – hurting oil producers, Africa, and Latin America, but a boon to India though not China, which has internal economic problems adjusting its economic model. Weak oil prices will be a mixed blessing for the US but a major blanket on world economic growth, feeding political uncertainty.

Saudi Arabia is the most underrated global risk because of weak oil prices. Yemen is the Saudis’ Vietnam, there are simmering rivalries inside the Saudi royal family, and the beheading of Sheikh Nimr has poisoned the already terrible relationship with Iran while exacerbating the Saudi position in Bahrain.

We are seeing elements of a “Thirty Years War” in Syria. ISIS will be rolled back a little in Iraq but not Syria, and it sees Saudi Arabia as an extremely ripe target.

On the Democratic side, Hillary will prevail but not easily.

In 2016, we have a good chance of passing the Transpacific Trade Partnership with the benefit of Speaker Ryan’s ability to get a budget deal. 2015 ended positively with the US showing the world it can function sometimes.

Anne-Marie Slaughter at New America said:

Expect a settlement of the Syrian civil war in 2016 resulting in a ‘federated Syria’ where the Kurds, Sunnis and others effectively have their own regions, but for Turkey this presents a huge problem. Russia will play nice because of both oil prices and its inability to handle rising casualties in Syria. Europe is completely focused on a settlement because of the refugee crisis, and everybody knows we have to solve Syria to be able to fight ISIS.

It will be a Clinton beating Cruz presidential election because the worse the world becomes, the more people want a President who knows the leaders and who projects competence. A Cruz-Clinton election is good for America in the world because it is between a woman and a Hispanic man.

The Transpacific Trade Partnership will happen in 2016 because it will be seen in more a security context than an economic context, thanks to ISIS and China’s maneuvers in the South China Sea.

The US dollar will rise and rise due to China’s instability, the euro, and the eurozone crisis.

Mariana Mazzucato at the University of Sussex said:

The narrative about Steve Jobs and Apple misses the fact that every technology that basically makes an iPhone smart was publicly funded, including the Internet, GPS, touch screen display, and Siri.

In industry after industry, key basic innovations were publicly funded, not indirectly like with tax incentives, but with basic research, applied research, and early stage, long-term financing. Most venture capitalists want to exit in 3 or 5 years versus the Death Valley phase for many innovative companies that can last 10 to 15 years. There is plenty of finance available, but not the right kind of finance for innovation.

The government has financed many winners, including biotechnology where the NIH has spent $900 billion since the 1930s on the basic technology. Private companies basically surfed this wave, which is today missing in the green tech industry.

Venture capitalists know that for every success there are 8 or 9 failures. Unlike public investors, private venture capital gets to reap the winners to cover the losers. Tesla received approximately the same public funding as Solyndra, yet gained massively for private capital, whereas the latter was written off by taxpayers. Israeli government investments take royalties through their public venture capital fund. In the US we see this as socialism.

Google, whose algorithm was funded by the National Science Foundation, Apple, Amazon, et al, pay little tax, despite tax rates that have fallen dramatically. NASA, founded when the top marginal rate was 93 percent, is not allowed to make money, yet SpaceX and Galaxy make use of its publicly funded infrastructure for free.

 

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ , listen at http://podcast.cnn.com/fareed-zakaria-gps/episode/all/TkwD3eujmTzNlz/fzgps-2015-12-20.html or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1601/03/fzgps.01.html

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Fareed Zakaria GPS – CNN 11-01-15

Salient to Investors:

Fareed Zakaria said:

  • Most transitions to democracy bring bitter struggles, viz South Korea, Taiwan, Chile.
  • Tunisia is almost entirely Sunni so has no sectarian and tribal differences and has had wise political leadership.
  • The end of China’s one-child policy was an admission that its greatest obstacle to long-term economic growth was its demographics.
  • The global population is twice that of 1968.
  • The Pew Research Center reports 98% of the American Association for the Advancement of Science scientists believe in evolution theory versus 65% of Americans. Ben Carson represents the height of arrogance to believe that humans can understand God’s mystery.
  • The Defense Department says that in just 20 months China reclaimed 17 times more land than Vietnam, Malaysia, Brunei, the Philippines and Taiwan have claimed over the past 40 years combined.

Richard Haass at the Council on Foreign Relations said:

  • 50 US ‘so-ops’ in Syria is not the beginning of restoring Syria as a country but an effort to stabilize it to allow diplomacy to succeed. Success in Syria would be 4-6 enclaves. The US goal is not to restore Iraq or a functioning national Syria but to keep innocent people alive and the terrorists from gaining territory.
  • A Middle East where Sunnis are dominated by ISIS would not be a success for Iran, who, along with Russia, understand that Bashar al-Assad has to go eventually.

Ruchir Sharma said:

  • The UN predicts over 2 billion more people in the next 35 years, but the rich world, especially Europe, faces a population implosion. As countries develop, their birthrates plunge: work population growth that averaged nearly 2% per annum for decades is now down to 1%. Women average less than 2 children in 83 countries that account for nearly half of the global population. The fertility rate in India is down to below 3 from over 6 in 1960.
  • Countries will thrive economically only if they become immigrant-friendly or increase their fertility rate.

Ann Selzer at Selzer & Co. said

  • US political debates do matter.
  • A candidate can conquer Iowa but not a California or a Texas in a meaningful way.
  • I never make predictions because they always include a wish.

Richard Dawkins at Oxford said:

  • Evolution is a fact, as much of a fact as the Earth orbiting the Sun.  The most powerful evidence for evolution is molecular genetics.
  • That all the Republican candidates except one say they do not believe in evolution is a disgrace. Evolution is the bedrock of biology, which is the bedrock of medicine, so for Ben Carson not to understand the fundamental theory of his own subject is a terrible indictment.
  • It is arrogant to say we know what God does.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1511/01/fzgps.01.html

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Wall Street’s Latest Bounce – Ostrich Economics At Work – David Stockman’s Contra Corner 10-20-15

Salient to Investors:

David Stockman writes:

The price of financial assets is now artificial and wildly inaccurate. $300 trillion of global finance cannot remain stable much longer.

Bulls believe the Fed is on hold until at least next March, while Wall Street is projecting S&P 500 earnings of $130 per share on an ex-items basis for 2016, and which will never happen. The S&P is overpriced at 21 times earnings, and at 30 times trailing earnings or more when honest GAAP earnings for Q3, 2015 come in at $95 per share or less, versus the peak $106 per share in Q3 2014. More than $5 trillion of current cash flow and new debt is now allocated to corporate stock buybacks, M&A deals and LBOs.

Alan Blinder and Mark Zandi admit QE has possible negative side-effects, but say that for the most part they have yet to materialize. All the while the global economy heads into a deflationary conflagration.

This mother of all bond market bubbles will bring down the entire financial system when it inexorably bursts: central banks have vast powers, but they cannot repeal the law of supply and demand. $19 trillion of central bank bond-buying during the last two decades has dominated debt pricing on the margin for most of this century. Last week’s 60 basis points for 2-yr treasury notes or 210 basis points for 10-yr money do not reflect a surfeit of private savings or business and household hoarding of cash but a giant surplus of credit.

Real net business investment is still 17% below its 2000 level. Junk debt has risen from $1.3 trillion at the 2007 peak to more than $2.5 trillion today driven by yield-starved money managers and homegamers.

Debt-crippled, junk-rated Dell is buying EMC for $67 billion, or 17 times free cash flow for 1% annual growth, funded almost entirely with junk debt and tracking stock on EMC’s major asset, a public company that pays it no dividends or other regular cash returns. In a PC industry which is disappearing at a rapid rate.

China is headed for massive economic and financial conflagration, which will spillover into the rest of the world because the entire emerging market economy was built on China’s runaway economy and investment bubble. China’s insane accumulation of foreign exchange reserves over two decades of massive and blatant currency pegging could not continue indefinitely which is why it has seen $850 billion capital outflow of the last 4 or 5 quarters and a $500 billion drop in FX reserves since late 2014. There is no way to manage a $28 trillion house of debt cards, which grew by 56 times in less than two decades, to a soft landing.

The bubble is bursting in socialist Brazil, in Australian mining, in Canadian real estate, in the North Dakota Bakken, and in the German export machine, as China and its EM suppliers are being forced into liquidating dollar and euro credit, and stop buying luxury cars and engineering machinery on borrowed money.

Read the full article at http://davidstockmanscontracorner.com/wall-streets-latest-bounce-ostrich-economics-at-work/

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Inflation Targeting Unmasked – The August CPI Crushed The Case For ZIRP – David Stockman’s Contra Corner 09-17-15

Salient to Investors:

David Stockman writes:

The August CPI gives the Fed an excuse to keep shoveling free money into the casino. No Fed rate increase would be a clear indication of its fear of reining in Wall Street’s greedy and gamblers and that Keynesian central banking in the last two decades has been a fraud.

A market correction is long overdue and eventually unavoidable.

The BLS inflation report shows that prices of commodities and goods are falling due to global deflation, while the cost of shelter and domestic services is briskly rising: averaging the two is purely a statistical accident, and outside of the Fed’s ability to shape. Falling prices for commodities and goods cannot be countered by supplying more free money to the Wall Street casino.

The Fed’s 2% inflation target is arbitrary and there is no historical evidence that it is connected with economic growth or gains in wealth and living standards.

7 years of interest rate repression has fueled a near 45% rise in direct auto credit outstanding and even bigger rise in new leased vehicles, resulting in a flood of used cars, prices of which have fallen 1.5% during the past year, while new car prices have remained flat due to excess global production capacity.

Since 2000, inflation has outstripped real household incomes. The index for services less energy services has risen by at a 2.6% compound rate, with no deceleration evident. More than 66% of living costs for average households comprise shelter, transportation, medical care, education and entertainment; which have risen at annual rates of 3.1%, 2.1%, 2.2% 3.5%, and 2.7% respectively.

China is the epicenter of the global deflation and the leading edge of the collapse in the petro-states, commodity exporters and mercantilist exporters which fed on China’s boom. By pegging their currencies at artificially low exchange rates, they created huge current account surpluses which they then invested back into developed market stocks and bonds.

The US economy cannot be decoupled from the global deflation. Dollar denominated assets – treasuries, ETFs and individual stocks – were financed not out of savings from current global production, but from central bank fiat credit.

Saudi Arabia’s $350 billion annual surplus has become a deficit, where it will remain for years as world oil demand falters and supply increases from investments.

Financial markets will be hurt by petro states liquidating their assets to cover current account deficits.

Read the full article at http://davidstockmanscontracorner.com/inflation-targeting-unmasked-todays-cpi-crushed-the-case-for-zirp/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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David Stockman Interview On Yahoo – The Fed Painted Itself Into A Corner, Confidence In The Casino Is Headed For A Fall – David Stockman’s Contra Corner 09-17-15

Salient to Investors:

David Stockman said:

  • The Fed is on a jihad against retirees and savers.
  • 80 months of ZIRP has not helped the economy because we are at peak debt, with US business $12 trillion in debt, versus $10 trillion before the crisis.
  • The massive money printing has all gone to Wall Street: into stock buybacks, M&A, etc.
  • The weak US economy is due to a lack of investment over the past 15 years and uncompetitive US labor costs.
  • China’s debt has increased from $2 trillion to $28 trillion in the past 15 years and created a house of cards with enormous overcapacity and huge speculation that is beginning to deflate.
  • If the Fed raises rates unequivocally expect a long market correction: if it does not raise rates expect a short-term relief rally before a huge correction. However, if the Fed raises rates today, expect them to hedge by saying they are ‘one and done’.

Read the full article at http://davidstockmanscontracorner.com/david-stockman-interview-on-yahoo-the-fed-painted-itself-into-a-corner-confidence-in-the-casino-is-headed-for-a-fall/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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Macquarie: Emerging Markets Are Not Facing a 1997-Style Crisis—They’re Facing Something Worse – Bloomberg Business 09-16-15

Salient to Investors:

Viktor Shvets and Chetan Seth at Macquarie said:

  • Emerging markets and economies are in a worse situation than in the 1997 Asian financial crisis because they now face far longer, more painful and insidious disease with limited or no cures or exits, punctuated by occasional significant flare-ups.
  • The effect of the 1997 crisis were mitigated by excessively loose monetary policies and China’s integration into global trade, which helped all markets recover quickly. However, this is not the environment facing economies in the next 5 to 10 years: long-term structural shifts, driven by the deflationary progress of the Third Industrial Revolution, is aggravated by overleveraging and overcapacity.
  • Turkey, South Africa, and Malaysia are at most risk, while China, the Philippines, and South Korea are at least risk. Brazil and Russia are at lessor risk but their low exposure to external debt could be undermined by slumping commodities and slowing trade.

Read the full article at http://www.bloomberg.com/news/articles/2015-09-16/macquarie-emerging-markets-are-not-facing-a-1997-style-crisis-they-re-facing-something-worse

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Fareed Zakaria GPS – CNN 09-13-15

Salient to Investors:

Fareed Zakaria said:

  • China’s economy is nearly 2.5 times that of Japan so even if growth slows substantially, China will continue to have seismic effects on the global economy.
  • Henry Kissinger said Republican candidate China-bashing is dangerous and could create an atmosphere a la Europe before WW I – a war no one wanted but no one knew how to prevent.
  • China’s renminbi has appreciated substantially against the dollar and yen over the past few years so devaluing it due to market forces is wise, which is why the move was praised by the IMF. China’s inconsistent and ineffective policies in the currency and equity markets does not make it evil.
  • Germany has tried as hard as any nation in history to repent for its past, and is now an exemplary liberal democracy and model global citizen. Reuters said West Germany accepted 13 million people from Soviet-ruled Eastern Europe after After WW II.
  • The countries in the Middle East that have taken in refugees are often not the richest: Jordan has taken in over a million, Lebanon a huge number, Turkey 1.5 million, but Saudi Arabia and Egypt have barely taken any.
  • If you put fruits and salads at the start of a buffet, people are more likely to eat good things. If you want people to save money, make the saving the default option.
  • An Australian study found that the longer humanitarian migrants stay in a country, the more likely they are to start businesses than other migrants. Historical refugees include Chopin, Freud, Einstein and Madeleine Albright.

John Sawers at Macro Advisory Partners said:

  • The world is chaotic and dangerous due to the rise of ISIS, change in terrorist tactics to killing in shopping malls – much harder to stop – and cyber attacks, where we have no ability to deal with in a conventional way.
  • The great bulk of migrant refugees are people genuinely fleeing conflict. The bigger problem is our citizens visiting Syria and returning radicalized and terrorist.
  • The intelligence communities in America, Britain, France and elsewhere have been successful in combating terrorism, but one cannot have a 100% record.
  • Iran is transitioning from a revolutionary to a more normal state. Rouhani et al have a different vision for Iran’s security and future than the hard-liners in the Revolutionary Guard and Quds Force. Iranians, especially the young, have little respect for the concept of a revolutionary state, and just want a normal life.
  • Putin understands that any prospect of sanctions being lifted requires him to cooperate with the Ukrainian government, while the West has to understand that Ukraine holds a special place for Russians.
  • China is trying to change to a more market-led economy. The US relationship with China is key for global stability for the rest of this century. A failed China is a much more dangerous China.
  • Obama inherited the entrée from hell, but has been calm, steady and reliable. His initiatives on Iran and Cuba are important in normalizing those countries.

Naguib Sawiris said:

  • The war in Syria will not end in months or even years.
  • The whole world is united in identifying the enemy as ISIS, who are killers and gangsters.

David Halpern at Behavioral Insights Team said:

  • Peer pressure is effective in encouraging people to pay their taxes, especially if you tell them that most people in their area pay on time, and even more effective when you tell them they are one of the few who have yet to pay.
  • Most things that governments do actually concerns behavior.
  • People are much more likely to do something if they plan ahead, think more precisely and concretely, when, where and how they are going to do something. Asking questions in a different way makes people much more effective in their job search.
  • If you want people to save money, make saving the default option – as a result, more than 5 million Brits now save. 
  • Most healthy years lost are due to behavioral factors.
  • Economies bounce up and down because of what we think others are doing, and we are often wrong in those perceptions.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/

or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1509/13/fzgps.01.html

Why Hedge Fund Hot Shots Finally Got Hammered – David Stockman’s Contra Corner 09-06-15

Salient to Investors:

David Stockman writes:

A growing chorus of investors blamed last week’s stock market sell-off on esoteric but increasingly influential trading strategies pioneered by hedge funds like Bridgewater.

Hedge fund performance has benefited from broken capital markets rigged by the Fed. Thesecasino gamblers bought every one of the 30 identifiable dips in the SPX since the March 2009 low, confident that the Fed would intervene to keep the stock averages rising. A few ten thousand punters have made trillions in return for little economic value added.

Bridgewater profited by buying more stocks when prices were rising and equity volatility was falling, and more bonds when prices were dipping and equity volatility was rising as investors retreated to fixed income securities. Pumping out volatility and milking the market on alternating strokes is only possible when the regularity of market waves are unnatural, engineered by a Fed held hostage to the casino gamblers. However, bond prices in August did not rise like they were supposed to when the stock market dropped 12%, so Bridgewater’s entire profits for the year were wiped out in a few days. Bridgewater now pleads for QE4, while Goldman Sachs said the latest jobs report calls for no rate increase in September, despite the failure of 80 months of ZIRP.

China’s 20-yr long, $4 trillion cumulative bids for US treasuries and DM fixed income securities has now become “offers”, and which will prove to be one of the great financial pivots of history. China bought US debt to peg the RMB exchange rate and keep its exports humming, but eventually was forced to let the RMB slowly rise against the dollar, drastically accelerating global fund inflows into the Chinese economy. Deng’s naivete unleashed a credit monster that sucked in capital and resources from all over the globe into a domestic spending boom that was inherently unstable. To prevent the RMB exchange rate from plunging and inciting even more capital flight, the PBOC has now shifted into reverse in a large, sustained and strategic way.

If the market holds above next week’s retest of the SPX 1967 low, the Fed will likely announce a “one and done” move in September, and if the market does not hold this low, then the Fed will defer its rate rise: both outcomes will cause a short-lived, half-hearted rally, but not another leg higher in the phony bull market because the global “dollar short” is unwinding and China’s house of cards is cratering, causing economies to plunge throughout the China supply chain.

Read the full article at http://davidstockmanscontracorner.com/why-hedge-fund-hot-shots-finally-got-hammered/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM

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