The events of 2008 couldn’t kill the globalized (wage) slave trade. Policy-makers reached down into the toilet of history and rescued the globalized ponzi scheme from itself. It never once occurred to them that it’s logically impossible to indefinitely sustain a system that is inherently imbalanced with respect to supply and demand. However, it’s the actions taken since then that are critical in setting up the final death blow to globalization. The squandering of fiscal and monetary resources, the mass outsourcing of remaining jobs and industries, the renewed speculation and risk taking. It had to be this way. Had policy-makers made any incremental attempt to “reform” the system post-Lehman, they very likely could have nursed this globalized fiasco for another decade or more. However, given the renewed vertically manic disposition of markets, there is minimal chance of that happening now. 2008 weakened the foundation, and the past five years squandered all support. Now will come the death blow…
All In At Dow Casino (Yes, again)
I will be the first to admit, that exactly five years ago near the depths of the post-Lehman collapse, I would have said that the probability of new stock market highs in five years was zero. Yet here we are, new stock market highs, new highs in margin debt, new highs in risky loans, new housing bubbles, new IPO speculation, new highs in global debt levels, new high in billionaires. It’s unbelievable. After the 1929 crash my grandparents’ generation never touched debt or stocks again in their entire lifetime. All of which means that this current generation didn’t learn one thing from 2008. Therefore what comes next will teach these amoral dumbfucks a lesson that they will never, ever, ever, forget.
A Binary Catastrophe
Central Banks have created a one-way rally for five years, which means that we face a one-way collapse. As Prechter pointed out recently
, there is no easy exit from a bubble. There is no easy wind-down and gentle landing. Bubbles implode, leaving faint remnant of their existence. They are inherently hollow and therefore not based upon tangible asset values or collateral. Bubble valuations are premised upon what the next fool is willing to pay and therefore when the supply of fools with money are exhausted, assets experience “discontinuous price discovery”, which is accompanied by “soiling of the underwear”.
The initial catalyst for the global collapse could begin anywhere. Social mood has been manipulated higher by Central Banks so we have no idea when the masses will realize that they are all in at the casino and about to lose their asse(t)s yet again. In addition, the artificial suppression of volatility – economic, financial and social has suppressed geopolitical risk as well, so we should expect a major flaring of geopolitical tensions to occur concurrently with a market collapse.
Carry Trade Risks
The highest risks, as I’ve said before are the carry trades – borrowing in one currency and lending in a higher yielding currency and leveraging up 10x. The key to these trades are the funding currencies – Japanese Yen and U.S. dollar. Therefore if these currencies rally, the carry trades will have to come off, which means the nations being funded by the carry trades will experience higher interest rates and more than likely a credit “event”. So we need to keep an eye on currencies.
Interest Rate/Asset Reallocation Risk
That said, the other major risk is interest rates. The U.S. Treasury rate(s) are considered the risk free rates and therefore are baked into every financial calculation on the planet. So if the current rise in interest rates continues or accelerates, then that would bring about asset reallocation and put an end to the Central Bank drip feed levitation trick now supporting risk markets.
Ten Year Treasury Yields (Interest Rates) are at a two year high
Albeit, sadly and pathetically they are still lower than they were in 2009 during the depths of the recession, reflecting the deflating state of the real economy; however, if these interest rates continue to rise, they will likely continue rising until the wheels come off of the bus aka. a “Risk Off” event: