Slog’s interest rate warnings vindicated as Fragile 5 forced to defend themselves
New data this month shout the unmistakeable reality of a slowdown in Chinese manufacturing. Purchasing manager confidence has declined for the third month in a row, and the rate of laying off staff is higher than it was in the depths of doodoo we experienced in 2009.
The Obamascam on joblessness continues to be found out now that Christmas is over – you read it here first: unemployment claims leapt by 19,000 last week alone, massively exceeding expectations and returning to the more real levels seen during August and September 2013. US gdp fell from 2.8% growth in 2012 to 1.9% last year. So much for Dan Hannan’s “America is booming” bollocks.
The liquidity situation in the eurozone is down at Gobi desert levels: Draghi’s ECBhas published its latest monetary numbers. They show that M3 slumped to 1% in December, while overall loans to the private sector continued to shrink – the rate of decline accelerating month-on-month yet again. Deflation there is now beginning to look seriously real: Eurostat data show that Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May, once tax rises are stripped out. Underlying prices have been dropping in Poland and the Czech Republic since July, and in France since August.
Global stock exchanges were plumbing new lows today, following the Fed’s further taper, and that worrying Chinese data. But the Fed didn’t mention the turbulence in emerging markets: as predicted, the prospect of a steady withdrawal of QE lured funds away from many emerging markets. The bottom line is that more emerging market currencies are under more and more pressure: the Turkish lira continues to fall bringing on the distressed decision by the Turkish central bank to more than double the repo rate to 10%…..and raise the overnight lending rate from 7.75% to 12%. The South African rand fell by more than 2%, despite the central bank massively upping its repo rate to 5.5%.
I would remind readers of previous Slogposts about this:
‘Now is a period of great change. Most citizens of sovereign states in the developed world have unaffordable lifestyles financed by benefits that are no longer sustainable. As time moves on, economies will shrink, asset prices will fall; interest rates will rise whilst inflation will remain subdued, even deflation is possible. In deflation real interest rates become painfully high. Austerity will become the order of the day almost everywhere. Most investors will lose big, only a few will win.’
‘…the entire scheme is based on one decidedly dodgy assumption: that Zirp can be maintained at will for as long as is necessary. As I will now try to explain at some length, I don’t accept this…..We are going to get higher interest rates. And it’s hard to overestimate just how quickly higher interest rates could blow the West’s strategy sky-high….why must interest rates rise? Answer: because the policies being pursued will inevitably produce such a rise. Whatever one’s starting point, if half the planet owes more money than the noughts you can fit on a page, everything points to higher interest rates sooner rather than later….’
‘….here we are on August 15th, a couple of weeks from Labor Day and the end of the European holidays. The entire shtick about ‘interest rates’ is really largely significant in terms of what it costs big Sovereign debtors to borrow. Whether the clowns at the top want it or not, those costs are rising. My view remains that it’s only a matter of time before the markets analyse the corner into which everyone in the West is now painted, and respond. I think they will vote “No Confidence”….’
‘….The more people confidently predict that Zirp can be maintained, the more convinced I am that it can’t. Bernanke, Carney and even Draghi talk about this issue as if they really were Fat Controllers of the Universe, but they aren’t. The central conceit of globalism is that balance can be maintained in all regions at all times. But as the last eighteen months have amply illustrated, it can’t. China, Australia, India, and much of South America all represent wild cards whose value in the pack increases with every Quarter….’
Hoist by their own facade: the markets must decide…and they are doing. Things are coming to a head.