Sunday, July 9, 2017

The Inconvenient Truth About Globalization: It's Going Out Of Business

No Harvard dunce sees it coming. Because raising global interest rates at the end of an eight year debt binge "improves financial stability". They will be surprised to learn that it doesn't...

Harvard Business Review, this week:
"The Truth About Globalization"
The once-popular vision of a globally integrated enterprise operating in a virtually borderless world has lost its hold, weakened not just by politics but by the realities of doing business in very different markets with very different dynamics and rules. Now is the time for business and political leaders to find a balance—encouraging policies that generate global prosperity at a level that democratic societies can accept.

It's a bit too late, actually:

Globalization was never about raising standards of living it was merely about corporate arbitrage via demand displacement. Wherein lies the problem, because displacing real demand with debt creates a long-term reduction in real demand. Today's apologists for Free Trade call this "innovation", whereas I call it "insolvency".

Unfortunately, they are the ones who don't understand that demand displacement is temporary and wholly dependent upon marginal borrowing which in turn is dependent upon interest rates and the Minsky Ponzi cycle, which is rapidly imploding in broad daylight.

By amplifying corporate profits at the expense of wages, corporations permanently reduced demand, since robots and Third World factory slaves don't go to the mall that much:

There have been two rounds of corporate Shock Doctrine in the past 17 years, even more, going back 30+ years, but I'll focus on the most recent two rounds: The post 9/11 DotCom bust and post-2008. Each time, profits collapsed and the Fed lowered rates further to sponsor demand displacement. It apparently never occurred to anyone, if millions of people were laid off in 2002 and 2008, how did corporate profits rebound so quickly and so strongly to new all time highs?

In each successive round of Shock Doctrine, the increase in profit margins came at the expense of long-term revenue. Because in the long-term demand IS revenue, and revenue is profit. Hence rising interest rates will now collapse profits. 

And then everyone will realize that Globalization was "successful" in converging global incomes.

In the meantime, they will just keep buying Amazon while pretending that a company with a mere 5% of total retail sales is now taking over the entire economy.

Oil, each rally is shorter and each decline is longer...

Apparently stoned zombies don't question why the price of oil is lower since the output cut...

ZH: Everyone Has Been Conned This Time
"In the 2004-07 episode, as inflation was well-behaved, the pace of monetary tightening by central banks was slower than warranted, which resulted in a build-up of financial stability risks"

"In this cycle, central banks are more watchful of financial stability risks: It is in this context that central banks now appear to be keen to lean against easy financial conditions so as to pre-empt the rise of financial stability risks."

"We think that a late-cycle environment colliding with less central bank accommodation will lead to US credit underperformance versus equities"

Did you get that? The irresponsibility of three years at 1% was "fixed" by a far more responsible eight years at 0% combined with $21 trillion in printed money to juice the casino, so buy stocks at the end of the cycle. Sheeple who believe that will believe anything.

Which is precisely how we got here - a stampede of dunces at the end of the cycle, led by the usual psychopaths...