Bad Economic Signs 2012

In January of this year, I wrote an analytic financial piece entitled ‘Baltic Dry Index Signals Renewed Market Collapse’: http://www.alt-market.com/articles/540-baltic-dry-index-signals-renewed-market-collapse In that article I discussed the record breaking low hit by the BDI and its implications for the global economy; namely, that it signaled a steep decline in true demand around the world for raw materials used in the manufacture of consumer goods, and that similar declines in the BDI’s past have almost always prophesized a crisis event in financial markets. The mainstream media attempted to write off the implosion of the BDI as a fluke, tied to the “overproductions of cargo ships”, instead of a warning sign of deteriorating demand. Of course, the past 6 months have proven that assertion to be entirely false. Manufacturing has tumbled in the U.S., the EU, and Asia simultaneously as orders drop back to the dismal levels last seen in 2008-2009 after the credit crisis first took hold: http://www.reuters.com/article/2012/06/01/us-global-economy-idUSBRE85008R20120601 http://articles.latimes.com/2012/jul/03/news/us-manufacturing-down-20120703 http://www.themanufacturer.com/articles/uk-production-falls-to-three-year-low-as-europe-crisis-worsens/ http://www.tokyotimes.com/2012/weak-demand-in-china-and-europe-hurts-japanese-exports/ Despite the astonishing amount of manipulation that goes into our fiscal system by major banks, there are still a few fundamental rules to economics that never change. The bottom line? Demand around the world is derailing, hinting at a broad spectrum disintegration of public buying power. Where demand goes, so goes the economy. As I have pointed out in the past when explaining the importance of the BDI, crashes in the index are usually made visible on mainstreet around 8 months to a year after the event. That is to say, the economies of multiple nations move into a widely felt crisis event around 8 to 12 months after the BDI crashes. There is a strange delayed reaction between the initial exposure of weakness in the financial system and the public’s realization of the truth, sort of like Wile E. Coyote dashing off a cliff in the cartoons only to continue running in mid-air above the abyss below. It is a testament to the fact that beyond the math, there is an undeniable power of psychology in our economy. The investment world naively believes it can fly, even with the weight of endless debt around its ankles, and for a very short time, that pure delirious oblivious belief sustains the markets. Eventually, though, gravity always triumphs over fantasy… In May, I also discussed the impending disaster in the EU in light of elections which would obviously lead to a clash (or engineered clash) between proponents of austerity and proponents of endless stimulus spending. I suggested that this clash would trigger a possible remodeling or complete breakdown of the European Union in the near future: http://www.alt-market.com/articles/765-economic-alert-if-youre-not-worried-yetyou-should-be Today, I do not think that it would be outlandish to suggest (even to the casual market observer) that the EU has indeed been fractured, though the establishment still strives to maintain the façade. Spain and Italy have both requested bailouts from the ECB, finally exposing a problem which alternative analysts have been warning about for years. While the mainstream media has been bicycle-kicking the long dead horse of Greece, the much more detrimental problems of the rest of the EU have been completely ignored. Only now are investors beginning to understand that there is no such thing as a “Greek Contagion”; the whole of Europe has been quietly suffering through a debt malaise that surpasses the Greek issue. Still, central banks pushed the idea that Greece was the gangrenous toe of the EU, claiming it had to be cured or amputated, or the infection would invade the entire body. The truth is, Europe has been host to a systemic disease from the very beginning. Greece is just a side-note. The UK has openly admitted that it has “returned” to recession. Mass credit downgrades have been issued by S&P and Moody’s in primary EU economies, including France and Spain. Italy’s credit rating has been cut only two notches above junk status and its bond sales have turned to Jell-O. Spain has declared austerity cuts which include the confiscation of employee pension funds. Does this sound like an economic body near “recovery”, as was the rhetoric spouted by the MSM a year ago, or, does it sound like the EU has gone off the deep end? In the meantime, China continues to court their global trading partners with bilateral trade agreements designed to remove the dollar as the world reserve currency, and recent events appear to be hastening this process. With American and European demand faltering, Chinese manufacturers are threatened with an even more severe export breakdown than they saw back in 2008, and so, it is only a matter of time before the BRIC and ASEAN economic blocs fully solidify their trade partnerships outside of the West, and away from the dollar. The year of 2012 has proven to be the most startling as far as financial news has been concerned. Vastly more startling to me than 2008. In 2008, the illusion of bank coherence and government action was carefully molded for the consumption of the masses. The intimate connections between government and corporate fraud were glossed over with expert care. There was an active and methodical effort to make us believe that the problems of 2008 were peripheral, and that the system at its foundation was sound. This time around, the corruption has become utterly blatant and disturbingly nonchalant. There is no attempt on the part of central and corporate banking interests anymore to hide the fact that the entire edifice is a cheap magic trick. In fact, they now parade their distortions as if they are “helping” the country, instead of destroying it. When criminals are no longer concerned with hiding their crimes, it is time for the rest of us to start worrying. That is to say, the current behavior of the establishment leads me to believe that a new phase in the crisis is about to arise. Three recent events in particular (on top of all that has already happened this year) should be noted by those who wish to gauge the acceleration of financial hazard around the world: Multiple Central Banks Issuing Policy Changes Simultaneously Only a week ago, the supposedly independent and sovereign central banks of China, the UK, and the EU made multilateral policy changes including cutting interest rates to zero and reinstituting stimulus measure all within the SAME HOUR of each other: http://www.reuters.com/article/2012/07/05/us-centralbanks-action-idUSBRE8640RN20120705 This is a disturbing and open admission by central banks that they not only dominate the economic structure of their host countries, but they do so in a coordinated fashion. In the past, central bankers have made a point to at least pretend that they do not work in tandem with each other and are not centralized around a global methodology or hierarchy. Today, they do not seem to mind if the public is aware of how they really operate. Some might argue that central banks of individual nations have cooperated in the past, and that this is nothing new. Partly true. Central banks have enacted policy initiatives in tandem with each other before, but usually only after absurd levels fanfare and summits galore. The pageantry of G8’s and G20’s and Davos and any number of other global meetings were a fulcrum point which central banks used to buy political capital with sovereign populations. They had planned to institute these multilateral economic actions anyway, but the pageantry and theater came first. Today, private central banks are taking joint action without ANY public meetings, even fake meetings. I feel that this is the start of an expedited trend towards full centralization of sovereign economies, and that soon, central banks will act as if single broad spectrum global monetary policy measures and global economic governance are legal and “commonplace”. Trade Volume Collapsing The S&P has now generated the worst market volume in over a decade. Small market investors are fleeing in droves away from stocks, leaving only the big players to dominate the field: http://www.bloomberg.com/news/2012-07-02/volatility-surging-in-s-p-500-with-volume-lowest-in-decade-1-.html This extreme lack of volume will facilitate a return to volatility, and we are about to see the same kind of massive stock spikes and drops that we tasted three years ago. I would like to point out that the Fed, almost religiously, waits until stock markets go into cardiac arrest before announcing new stimulus measures and quantitative easing. They delay until the investment world begs for printing, and then, they give it to them, with a smile. The Libor (London Interbank Offered Rate) Scandal Like the bankruptcy of Lehman Bros. that heralded the credit crisis, the Libor Scandal has the potential to rock the pillars of the banking world like nothing I have ever seen before. The average person needs to understand three things about Libor: 1) The manipulation of loans and credit swaps through the Libor interest rate mechanism has allowed big banks to hide the true extend of their incredible debts since the 2008 derivatives implosion. Some mainstream economists are actually calling this a “good thing”, because, according to them, the lie of Libor fooled investors into supporting the markets where they may not have otherwise if they had known the truth. They say the lie “averted Armageddon”. Frankly, this is idiotic. Libor has saved nothing, and the lack of transparency and honesty from corporate banks has only postponed an inevitable calamity which will be even worse now because it was allowed to continue on for years longer than it should have. 2) Barclays and other institutions have claimed that they “had to use Libor fraud”. Why? Because every other major bank used it! Their argument is that they had to lie in order to remain competitive. Even if you buy this rationalization, you have to acknowledge the deeper problem here: Barclays is essentially pointing out that EVERY major bank uses Libor to hide the fact that they are in dire straights. In 2012, the system has openly confessed its own insolvency. You do not need a fortune telling gypsy to predict a major collapse for you; the banks have just told us exactly what is about to happen. 3) Finally, regulators and central banks on both sides of the ocean, from the U.S. to the UK, from the Federal Reserve to the Bank Of England, relent that they KNEW about the Libor fraud being conducted by numerous banks as early as 2008, but kept their mouths shut. This shows not only that central banks have been complicit in financial criminal activities, but governments have played along as well. This fits right in with what I have stated for years: The economic collapse could not possibly be a “random” event. Its culmination requires the collusion of so many corporate and government entities that it would be foolish to call it anything other than conspiracy. So, what comes next? According to the path which I predicted back in January, the economy is near a climax event. Perhaps an announcement of QE3 leading to ugly dollar devaluation, perhaps another bankruptcy by a “too big to fail” conglomerate leading to a firestorm in stocks, or perhaps even the exit of certain countries from the EU. Maybe all of this and more. The point is, keep your eyes fixed on the financial sector as we move into fall and winter. There is a bleak harvest on the horizon… You can contact Brandon Smith at: brandon@alt-market.com