Economic Doom Returns: Emerging Market Currencies Collapse To Record Lows As Global Financial Chaos Accelerates

After a little bit of a lull, the international currency crisis is back with a vengeance.  Currencies are collapsing in Argentina, Brazil, India, Turkey and other emerging markets, and central banks are springing into action.  It is being hoped that the financial chaos can be confined to emerging markets so that it will not spread to the United States and Europe.  But of course the global financial system is more interconnected today than ever before, and a massive wave of debt defaults in emerging markets would inevitably have extremely serious consequences all over the planet.  It would be difficult to overstate the potential danger that this new crisis poses for all of us.  Emerging market economies went on an unprecedented debt binge over the past decade, and a high percentage of those debts were denominated in U.S. dollars.  As emerging market currencies collapse, it is going to become nearly impossible to service any debts denominated in U.S. dollars, and that could ultimately mean absolutely enormous losses for international lenders.  Our system tends to do fairly well as long as everybody is paying their debts, but once the dominoes begin to tumble things can get messy really quickly.

Let’s start our roundup today with India.  While India is currently not in as bad shape as some of the other emerging markets, the truth is that they could get there pretty rapidly if they keep going down this path.

On Thursday, concerns about rising oil prices drove the Indian rupee to a brand new all-time record low…

The Indian rupee fell to a record low on Thursday morning, following a declining trend all year — which economists attributed to rising oil prices, broader emerging market concerns, and strong month-end dollar demand.

It slid to 70.8100 against the dollar, after a previous new low just a day before at 70.475. That marked a 10.97 percent decline since the start of the year.

But at least India is doing much better than Argentina.

The Argentine peso collapsed to another all-time record low on Thursday, and at this point it has fallen more than 45 percent against the U.S. dollar so far this year…

The Argentine peso crashed to record lows on the news. It saw steep losses in the previous session and collapsed another 15 percent to hit 39 pesos against the U.S. dollar on Thursday morning.

The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country’s weakening economy while inflation is running at 25.4 percent this year.

As Wolf Richter has noted, the Argentine peso was worth one U.S. dollar in 2002.

Today, it is worth 2.4 cents.

That is what a collapse looks like.

In an desperate attempt to stop the bleeding, the Argentine central bank raised interest rates to 60 percent…

On Thursday, the central bank said it was increasing the amount of reserves that banks have to hold, in a bid to tighten fiscal policy and shore up the currency. It hiked rates by 15 percentage points to 60 percent from 45 percent and promised not to lower them at least until December.

Yes, I know that looks like a misprint, but it is not.

Interest rates in Argentina have not been raised to 6 percent.  They have been raised to 60 percent.

Could you imagine what 60 percent interest rates would do to the U.S. economy?

Well, we will get there someday if we don’t change our ways, because we are going down the exact same path that Argentina has gone.

Things continue to get even worse in Turkey as well…

The risks are fast multiplying in Turkey’s beleaguered economy. In a clear sign of deterioration, Turkey’s economic confidence index plunged 9% month-on-month to 83.9 points in August, its lowest since March 2009. The country’s currency, the Lira, resumed its downward spiral. And Moody’s downgraded 20 financial institutions in Turkey.

The financial nightmare in Turkey is the gift that just keeps on giving.  Their entire system is in the process of imploding, and President Erdogan seems to be in a persistent state of panic these days.

Also on Thursday, the Brazilian central bank directly intervened in the market to keep their currency from plunging to another new all-time record low…

The bloodbath in Argentina and Turkey is evident in Brazil also where Bloomberg reports that the central bank just intervened for the first time since June 22.

BCB reportedly intervened at 4.20 “to provide liquidity”adding that intervention intensity and frequency will depend on the market. The BCB also attempted to provide some confidence by reaffirming that monetary policy is not directly linked to recent market shocks.

A global financial crisis has begun, but because it has not really affected the United States too much yet, the mainstream media and most Americans aren’t really paying any attention.

But if the markets start crashing here too, then it will suddenly be all over the news.

Most people are aware that most of the biggest stock market crashes in U.S. history have happened in the fall, and the calendar is about to turn to the month of September.

We have definitely entered a “danger zone”, and more shocks seem to hit the global economy with each passing day.  For example, we just learned that President Trump apparently intends to follow through on his threat to hit the Chinese with another 200 billion dollars in tariffs…

Bloomberg reported Thursday that Trump had told aides that he wants to follow through on a threat to impose tariffs on another $200 billion worth of Chinese goods as early as next week. That would mean more than half of all Chinese imports would be subject to tariffs.

The tariffs could go into effect after the public-comment period ends on September 6.

Of course the Chinese will retaliate, and that will mean more disruption for the global economic system.

Many people believe that the U.S. economy is much stronger than it was in 2008, and that we will be able to easily weather any shocks that come along.

Unfortunately, that is not true at all.

The truth is that all of our long-term problems are much worse than they were in 2008, and the stage is definitely set for an economic disaster of unprecedented proportions.

This article originally appeared on The Economic Collapse Blog.  About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Wild And Unprecedented Price Fluctuations Are Causing Financial Chaos For U.S. Businesses

In every war there is a high price to pay, and this trade war will not be any different.  The normal flow of goods and services around the globe is being severely disrupted, and even though this trade war has barely just begun, it is already having an enormous impact on the U.S. economy.  Even if we ultimately win this trade war and the Trump administration is able to achieve all of the goals that it is targeting, there will still be a great cost in the short-term.  We are going to see businesses fail, we are going to see workers get laid off, and global economic activity will inevitably contract.  Heck, at this point even Fox News is calling this trade war “economic suicide”.  We live at a time when a delicately balanced formula of economic factors allows us to live a debt-fueled standard of living that is far beyond what we actually deserve.  Now we are messing with that formula, and the consequences are likely to be far more severe than most Americans are anticipating.

Let’s start by talking about steel and aluminum.  One of the chief goals of the tariffs was to help the steel and aluminum industries, and thanks to those tariffs we have seen the price of U.S. steel rise 36 percent since the beginning of 2018…

For instance, US steel and aluminum prices have soared since the imposition of tariffs. US midwest hot-rolled coil steel price, the US steel price benchmark, soared 36% between the start of the year and the start of July. This in turn causes prices of goods made with the metal to rise.

That is good news for the U.S. economy, right?

Actually, it isn’t.

Every product that uses steel and aluminum is now going to cost more.

In many cases, a lot more.

For instance, one grill company is reporting that they have had to raise prices “by almost $350 per grill”…

Middleby Residential, a California-based company that makes Lynx grills, told the Dallas Morning News that even though the company uses US steel, the recent price pressures have driven up costs by almost $350 per grill.

Do you want to pay an extra $350 for your next grill?

Retail prices for washer and dryers are surging as well.  They have increased by 20 percent compared to a year ago, and that is because prices for raw materials are skyrocketing…

Whirlpool Corp trimmed its full-year profit outlook as it booked a large charge on its European operations and said it wouldn’t be able to offset the effect of steel tariffs with higher prices for consumers.

The company said Monday it now expects to pay about $350 million more this year from rising raw-material costs as it faces “a very challenging cost environment.”

Anybody that purchases any products that contain steel and/or aluminum will be feeling these prices increases.

And any business that uses steel and/or aluminum on a regular basis is going to be feeling an enormous amount of pain.  For example, the largest nail company in America is already laying off workers…

When President Trump imposed a 25 percent tariff on steel imports last month, America’s largest nail manufacturer had little choice but to raise its prices. Mid Continent Nail Corporation quickly lost 50 percent of its orders as customers opted for cheaper suppliers. Within weeks, the firm had to lay off 60 workers. Up to 200 more might lose their jobs by the end of this month.

All over the country, companies are going to be forced to either raise prices, fire workers or move production facilities out of the United States.

Meanwhile, farmers all over America are facing a different problem.  Thanks to a massive decline in demand from China (thanks to tariffs that they have hit us with), prices are plummeting and warehouses are filling up with food that doesn’t have anywhere to go.

Every year, the U.S. usually imports about 14 billion dollars worth of soybeans to China, and I covered the plight of soybean farmers in a previous article.  But of course soybean farmers are far from alone.  It is being reported that more than 2.5 billion pounds of meat and poultry products that have been produced by our farmers is being stockpiled in cold-storage warehouses.  To help the agricultural community, President Trump announced 12 billion dollars in aid to farmers on Tuesday…

As President Donald Trump embarks on a multistate tour through parts of the country hit heavily by trade battles, his administration said Tuesday it will direct $12 billion to farmers whose harvests have been hurt by tariffs.

But the idea faced immediate criticism from Republicans on Capitol Hill.

Responding to farm groups and the Republican discontent, administration officials said they have been working since April on a short-term plan to shore up slipping prices for soybeans, pork and other crops hit with retaliatory tariffs from China.

Sure, this will help farmers get through the trade war in the short-term, but isn’t this exactly the kind of big government socialism that we are always railing against?

And who is going to bail out the real estate industry?

CNBC is reporting that home sales fell a whopping 11.8 percent year over year in southern California last month…

Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

And do you know who has been fueling the extremely hot real estate market on the west coast?

The Chinese.

At one time they were buying up everything in sight, but now they have become net sellers of U.S. real estate.

And there are rumblings that we could soon see some sort of “national boycott” of American goods in China.  The following comes from Zero Hedge…

The survey found that 54 percent of 2,000 respondents in 300 cities across China would “probably” or “definitely” stop buying US-branded goods “in the event of a trade war”. Just 13 percent said they would not.

The remaining 33 percent said they were unsure or did not at present buy US branded goods, according to the survey, conducted for FT Confidential Research (FTCR), a research unit at the Financial Times.

The survey was carried out between June 27 and July 10, mostly before the US imposed 25 percent tariffs on $34bn of Chinese goods on July 6. The move elicited an immediate tit-for-tat response from Beijing.

Of course something similar could be tried in the United States, but most Americans simply do not care if a product comes from China or not.  They are simply going to buy the cheapest stuff no matter what anyone tells them to do.

Look, I very much understand that we have been sending businesses and jobs overseas for a very long time.  I have been writing about this for years, and something had to be done.

But trying to fight trade wars with virtually everyone else on the planet simultaneously is madness, and the consequences for the U.S. economy are going to cause all of us an immense amount of pain.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters. Fonte: qui

Asia And The Emerging Markets Could Turn Into Chaos If China’s Economy Collapses

China has set itself up for a massive collapse, and it could take out the emerging markets with it. Here’s the details…

by Chris Vermeulen of The Technical Traders

Recently, quite a bit of news has been originating from Malaysia, China and other areas of South East Asia.  Much of it is concerns with multi-billion dollar projects and excessive corruption and graft.  Malaysia is taking the lead with this issue so far with the new Mahathir administration.  Yet, we believe these issues are far-reaching and could result in quite a bit of market turmoil over the next few months – possibly much longer.

What is at risk is the exposure of “cooked books” across much of China, India and likely throughout the globe with infrastructure and real estate projects that were designed to boost numbers while hiding real economic concerns.  You may remember we alerted our members and the general public to this concern in March 2018 – nearly 4 months ago in this blog post.  If you have not read our multi-part research post regarding how China has set itself up for a massive economic collapse, please take a minute to read all of our earlier research.

How has this Ponzi scheme been setup to play out for so long?  Our assumption is that it goes something like this.  In late 2009/early 2010, China was feeling the crunch of the global credit market crisis and made an attempt to push easy credit out to internal and external infrastructure projects in an attempt to keep the manufacturing and export sectors in China clicking right along.  The objective was to keep building, while the capability was available and the supply was plentiful. The only thing China needed to do was to make it easy for capital (loans) to be acquired for builders and buyers.

Much like what happened throughout most of the world, China took advantage of an already steady economy to avoid any contraction in real economic output by creating capital out of thin air and allowing their banking institutions to loan capital for massive projects.  This fueled a huge wave of investment and speculation throughout most of Asia – including external projects like those in Malaysia, Africa, India and many other countries.  What we are learning, though, is that the projects may have been much more nefarious than we originally thought.

For example, the 1MDB investigation in Malaysia has shown that graft, corruption, nepotism and a host of other issues are raising many questions as to how and where multiple hundreds of billions of dollars vanished?  It appears one component of the 1MDB and other project were a commitment for the infrastructure project materials to be purchased from Chinese manufacturers and the payment schedule for said materials were set to be transmitted well before these materials were actually delivered.  In other words, China made a capital commitment to loan a portion of capital for an international project with the commitment being to purchase materials from Chinese manufacturers where the host country would also have a capital repayment agreement as their joint partnership in this project.  The problem was that China never really delivered on the materials and the host country, in some cases, has already paid for 80%+ of the project costs.  This is a classic “I’ll gladly pay you in advance for materials and work that I may never EVER see”.

In terms of how this type of deal cooks the books, think of it like this.  China just “booked” a $400 billion project where China must contribute 10~15% of the capital costs and the host country contributes the rest.  This results in a “sale” of $400 billion on the books with additional sales going out to manufacturers and suppliers.  As the host country begins payments for this project, China can quickly recover actual costs because they have not delivered much in terms of raw materials or actual building materials for this project.  Meanwhile they are bilking the host country out of hundreds of millions or billions on a “phantom project” that may never be completed.

It all seems to work well for the books because as long as no one actually finds out what is happening, China is selling “vapor projects” to other nations and booking profits for simply making a commitment – a shell game with billions, possibly trillions, at risk.

At the end of the day, China shows multiple massive infrastructure projects and this boosts their GDP, employment, and manufacturing data while covering the raw material and labor costs by sucking real revenues from host nations.  As long as the host nation does not lose faith in the deal or ask too many questions, no one is the wiser and China can keep playing their shell game.

We believe all of this started to change in early 2018 when the Chinese consumer sentiment started to change and when President Trump began to disrupt the “global think” in terms of trade, multi-national deals, and future economic expectations.  As soon as the curtain was pulled back and questions started being asked, China came under real pressure as consumers, nations, and corporations began to question the ongoing financial and economic capabilities of China suspecting that it had over-extended itself, it’s credit capacity and cooked the books with phantom projects, income, and economic output.  The real threat comes when the shadow banking system in China collapses as well as the investment grade debt, corporate debt, and project liabilities become too great for collapsing revenue.  This is when the collapse will accelerate beyond anyone’s imagination.

Right now, we believe we are in the early stages of a discovery process that could roil the markets a bit over the next 2~6+ months.  Once consumers in China get an idea of what is actually transpiring (if they ever really find out), they will move into protection mode and prices will decline in a massive asset bubble collapse.  Global debt issues will likely be resolved by the legal systems in place in various countries and a series of defaults will likely take place.  When one of my partners was doing business in SE Asia, he quickly learned that most Chinese businessmen keep three sets of books; one for partners – showing a big loss, one for the government – showing enough of a loss to not pay too much in taxes, and the last (real) set of books that shows the real profit or loss.

We believe the fallout from all of this could drop the Chinese economic credibility to new lows and could result in a massive wave of legal and financial woes as the Chinese credit, banking, manufacturing and asset markets collapse because of this.  It will start small with the Chinese government trying to inject billions into the economy to shore up failing enterprises and banks.  But once the total scope of this shell game is exposed, we believe it could disrupt nearly all of the Asian and partner nations economies and could land many foreign and domestic state and business officials behind bars or worse.  This is the kind of thing the ends very badly for some people.

We have been paying very close attention to the unfolding events in China and SE Asia.  We believe, for now, the US Equities markets seem immune to most of this, yet we believe we will soon start to see some credit issues spill over as trade issues and corporate liability repayments may soon begin to falter.  Be prepared for an unknown or unforeseen event to unfold very quickly over the next 6+ months.  We are not suggesting that investors or traders prepare for an immediate collapse in the global markets, but we are suggesting that the Chinese Dragon economy could very quickly unravel into a Chinese Gecko with little to really support pricing and valuations.

Our Custom China/Asia index has already retraced more than 38.2% from a recent price peak.  As of right now, we are not calling this a collapse because we have yet to cross critical price levels to the downside.  A move below the 50% retracement level, for us, would raise some additional concerns.

The Hang Seng Index has recently rotated above long-term resistance and collapsed back to the 2015 peak (support).  You can see from our BLUE price trend channel that support could still hold near these lows, possibly prompting a further upside rally.  Yet, we are watching these support/price channel levels because any break of the MAGENTA support line in conjunction with a breach of the price channel would be an ominous technical trigger that bottom has fallen out of the Chinese equity market – and possibly resulting in a massive asset valuation crisis.

Lastly, our BRICs custom index chart is showing a much deeper price correction that has already established a new downside price channel (in RED).  This is one of the bigger concerns that we have in regards to this Chinese debt/liability fallout.  China may be able to absorb some, or most, of the crisis by nationalizing companies and increasing capital through central bank activities.  But what happens to the other foreign nations that are left holding the empty bag of these failed infrastructure projects?  They could be out hundreds of billions with nothing to show for it except a “Chinese IOU”.  This Chinese shell game to “cook the books” could result in a global crisis involving some of the weakest and most vulnerable nations on the planet.  Yes, the BRICs emerging markets could be taking a wild ride in the near future if the fallout from all of this extends as we believe it could.

Our opinions at this point is that China is in a very fragile position; protect itself from complete disgrace and economic collapse by going “all-in” with central bank and currency manipulation while delaying or canceling projects in an attempt to gain control of this mess; or orchestrate a planned and organized economic crisis event that exposes the shenanigans that have been ongoing for a decade or more while attempting to “save face” and maintain some level of credibility throughout the world.  Remember, one of the most important aspects of the Chinese culture is “Asian face”. The term implies that one never disrespect or disgrace a leader or person of power.  It is, in some ways, the most disgusting and horrid thing that can happen to anyone – to lose honor and respect in front of one’s peers.

China is stuck between the proverbial “rock and a hard place”.  The only option they have at the moment is the “controlled/planned economic crisis event” (to the best of their abilities) while praying that nothing massive hits the news wires which could cause further damage to their fragile footing.  If something (think Malaysia/Mahathir and neighboring countries) does hit the news wires to further erode China’s plans – it could result in an all-out collapse of the Chinese economy.  Something that has really not been seen in well over 500 years (prior to the Qing Dynasty: 1644-1912).

We are advising our clients with regards to this unfolding event and continue to dedicate a large number of resources toward protecting our clients from unexpected and unknown issues.  We have developed a unique set of trade positions that we believe assist our clients in executing successful future trading strategies as well as executing a protected style of trading based on our research and objective analysis.  Our job is to deliver success for our clients and to keep them aware of the market turns and risks as we find and execute successful trades.

"Housing And Local Debt Are China's Time Bombs", Chinese Billionaire Warns

Via Investing In Chinese Stocks blog,

An interview with Chinese billionaire Zhang Baoquan. A top article in the real estate section at iFeng today.

iFeng: 张宝全：中国人缺乏投资工具 把不动产当硬通货

"China now has two 'bombs', one 'bomb' is a real estate bubble and the other is a local debt. Any explosion to the Chinese economy is devastating."

“Why do local governments dare to bear so many debts, why Chinese financial institutions dare to lend money to locals, but also because of real estate.” Zhang Baoquan said the close relationship between the real estate bubble and local debt, and believed that the real estate bubble has one stone and two birds. effect.

He says China had more than 100 percent home ownership a decade ago:

Phoenix Network Real Estate: Before and after 2008, the first 10 years after the housing reform, then what do you feel when you look back?

Zhang Baoquan: Actually, I considered this issue in 2007. I personally think that from the perspective of China's real estate data in 2009, it should be the turning point of China's real estate, but I feel that there is no turning. What was the chance of becoming an inflection point? First, the private housing rate in China has reached 120% in 2009. A large part of this 120% is the housing reform housing. After the change, it entered the market. That is to say, the average household has reached 120%, while the private housing rate in the world is less than 60%.

Phoenix Real Estate: Not only is it self-occupied, but Chinese people also love to buy a house.

Zhang Baoquan: China lacks investment tools, so people treat real estate as a hard currency of their own importance. Therefore, I feel that if I turn around in 2008, I believe that the development of China's real estate can become very benign.

The reason for not turning around is twofold: at that time, real estate was an important engine for our economic development. It drove many industries and had a great impact on the GDP of each city. Most importantly, it has become an important source of local fiscal revenue. A very important reference indicator for predicting the future repayment ability of a local government is land sales data, which is also the main source of fiscal revenue.

Phoenix Network Real Estate: But people still have expectations for the future growth of the house, and a habit has been formed.

Zhang Baoquan: In the past 10 years, we have been safeguarding the interests of the industry. Today, I personally think that any economy does not exist in isolation, and any industry is not isolated. The real estate industry, especially our chamber of commerce, should look at China as a whole from a macroeconomic perspective. Economic structure and composition. The Chinese people have the lowest debt ratio in the world more than a decade ago. What is the current situation? The Chinese people are one of the highest personal debt groups in the world because the money is all in the house.

Phoenix Real Estate: What are the risks?

Zhang Baoquan: I think China now has two “time bombs”, one is a real estate bubble and there is a bomb local debt. I think China needs to consider how to prevent the real estate bubble from bursting. This should be one of our strategic priorities. If we are still pushing ourselves up, we can not cure the bubble if it is not limited, once there is a bad possibility. It will burst quickly. Just like the grievances of the Yellow River, it keeps raising and raising, and once it is gathered, it will quickly flood the underside. Therefore, today's two land mines in China, I think have to be prevented, any mine explosion may make the results of reform and opening up for so many years may be seriously damaged, and even have to retreat many years ago.

Fonte: qui

The European Crisis Is Back: Italian, Spanish Bonds Crash Amid Political Chaos

Just when you thought it was all over... the PIIGS chaos rears its ugly head as political crises start to spread across the periphery.

European stock markets are extremely mixed with the core relatively stable as the periphery plunges...

Italian banks stocks - so bloated with Italian sovereign debt - are accelerating lower...

Italian 2Y Yields are now at their highest since 2014...

As the entire BTP curve flattens dramatically...

And Italian sovereign risk is exploding...

Which leaves us wondering...

Is MF Global long Italian 2Y again?

— zerohedge (@zerohedge) May 21, 2018

As if Italy was not enough, Spain is now under pressure as PM Rajoy is under pressure from a potential 'no confidence' vote and Spanish bond yields (and sovereign risk) is blowing out...

The widest spread to Germany in almost 6 months...

Which means only one thing... the PIIGS are coming back to life and there is little that Draghi can do this time...

And all of this is weighing on the euro...

And finally - the scariest chart of all - reflecting the reality of Italy's 'Mini-BoT' parallel currency concerns...

"Get back to work Mr. Draghi..."

Fonte: qui