Saturday, August 29, 2015

Ponzi World Is Ending. The Race To The Bottom Is Reaching The Bottom

When China sneezed, the world caught a cold. The oblivious Idiocracy is swan diving into pavement, with no one to tell them otherwise. Ponzi schemes collapse from the bottom to the top...

The entire world is in a third wave down. Global Dow just lost two years of gains.
Emerging Markets and China are the world's marginal consumers, so GDP growth just got hammered...

BBG: August 26, 2015:
China's losses are DOUBLE the market cap of the other BRICs combined...

When China devalued their currency on August 11th, the entire developing world was devalued. The least paid people on the planet took an instantaneous pay cut vis-a-vis their currencies.

Most of these countries have high external debt loads, however it was just assumed that despite their devalued standard of living, they would prioritize debt payments ahead of everything else and continue paying their debts at the higher exchange rates. 

Unfortunately, Emerging Markets are the marginal buyers of everything. Therefore, the higher debt service costs crowd out other expenditures meaning that global GDP just took a haircut, which is why the commodity rout accelerated. The feedback loop is that many of these countries rely on resources for exports, so GDP took an additional chain reaction haircut from the revenue side.  You get the idea, these countries are in a death spiral race to the bottom:

EM stocks with oil stocks:

The oblivious developed world told themselves that everything is fine, because we are "decoupled" from Walmart land.

That ASSumption has already turned out to be extremely wrong, since the U.S. stock market has tanked -11% in a STRAIGHT LINE since the Yuan devaluation. Half of that loss has been recovered, however the S&P is still 70 points below its 200 day moving average which was broken for the first time in three years, exactly one week ago. 

Value Line geometric index with U.S. interest rates

The developed world is locked in the exact same race to the bottom, but unfortunately, they are too busy buying back Netflix to realize what just happened.

Swan diving into pavement visualized:

To say that this will all end with a big fucking bang, is an asinine understatement.

We've had ample warning, after warning, after 2008, but deep fried zombies don't believe in reality. 

Unfortunately, reality doesn't believe in them.