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Page added on February 10, 2016
The crash of 2016?
You cannot understand the vulnerable state of the U.S. and global economies — and nervous stock markets — without coming to grips with the crash of “emerging-market” countries. Led by China, these are middle-income countries that, along with the poorest countries, account for 85 percent of the world’s population and 60 percent of the global economy, according to Christine Lagarde, head of the International Monetary Fund.
In many ways, their voyage into the global marketplace is a triumph. Rapid economic growth, driven in part by trade and international investment, has catapulted hundreds of millions of people out of deep poverty. By World Bank estimates, about 13 percent of the world’s population lives on incomes of $1.90 a day or less, but that’s down from 37 percent in 1990 and 44 percent in 1981.
Unfortunately, emerging-market countries are now disappointing in ways that damage the world economy. After the 2008-09 financial crisis, a widespread expectation was that the rapid growth of emerging-market countries would create a safety net for the mature economies of the United States, Japan and the European Union. For a while, that happened. Since 2008, emerging-market countries have provided more than 80 percent of global growth, Lagarde said in a speech at the University of Maryland.
Compared with these heightened expectations, many emerging-market economies have crashed. China is at the epicenter of the problem. Its annual growth, once 10 percent, appears headed toward 6 percent. This, in turn, has led to a collapse in prices for raw materials (oil, metals, foodstuffs), because China’s demand has been weaker than expected. Commodity prices are down about two-thirds from recent peaks, Lagarde said.
The ripple effects have spread. Commodity-producing countries — Brazil, South Africa, Australia, Canada — have suffered setbacks. Companies that borrowed heavily to add capacity are now straining to repay debts. With prices depressed, some banks and bond investors may be stiffed. A Morgan Stanley analysis finds that most U.S. banks have ample reserves against likely defaults. This may be less true of banks in Europe and emerging-market nations. Facing large losses, emerging-market banks have already tightened credit, reports the Institute of International Finance (IIF), an industry group.
All this has revealed weaknesses in emerging-market economies that were camouflaged by the commodities boom. Brazil is struggling with high inflation, big budget deficits and a corruption scandal involving Petrobras, the national oil company. China is striving to “rebalance” its economy — shifting “from industry to services, from exports to domestic markets, and from investment to consumption,” as Lagarde put it. These problems are not superficial or easy to solve; they take time.
As a result, international trade and investment — engines of the world economy — are languishing. For many years, international trade grew faster than the world economy. From 1997 to 2006, trade expanded 6.8 percent annually compared with 4 percent growth for the world economy. The gap reflected greater globalization: more cross-border supply chains and more specialization. Now this is no longer true. In 2015, both trade and the world economy grew at about 3 percent.
The same thing has happened to foreign direct investment (FDI): factories and businesses in emerging-market countries owned by outsiders. In 2015, FDI in 30 emerging-market countries totaled $488 billion, down from a peak of $606 billion in 2011, says the IIF.
The United States cannot isolate itself from these realities. The weakening global economy would be less important if the U.S. domestic economy were booming. It isn’t. Americans spend cautiously because they’re still spooked by the shock of the 2008-09 financial crisis and Great Recession. Consumers try to protect themselves against a recurrence by raising their saving and reducing their debt. Businesses do likewise by skimping on investment projects. A recent Wall Street Journal story carried the headline: “Big Firms Hit Brake as Profit Slumps.”
The pessimism is often self-fulfilling. Consumers and companies act cautiously, producing a shaky prosperity that breeds more caution. To escape this trap, the U.S. economy needs a shove from abroad. The assumption once was that the boost would come from the emerging-market countries. This increasingly seems wishful thinking. It is hard to find large pockets of strong, confident growth anywhere in the world. This is the markets’ somber message: There is only a thin margin for error between continued recovery and dreaded recession.
19 Comments on "The crash of 2016?"
Truth Has A Liberal Bias on Wed, 10th Feb 2016 9:21 pm
Lol dreaded recession!? We have one only like every 8 fucking years. Take it down a couple thousand drama queen.
GregT on Wed, 10th Feb 2016 9:33 pm
“We have one only like every 8 fucking years.”
We have not had a global downturn like this since the Great Depression Truth, and it isn’t going to get better long term. It is going to get much worse than you seem able to comprehend. What’s coming will make the Great Depression look like a walk in the park on a midsummer’s night.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 9:42 pm
Yeah Greg I’ve been hearing that for a while now. Yet I somehow managed to earn about 40G in dividends in 2015. The Great Depression was a great time to buy into the market if you know how to pick a winner. Buy low- sell high. Recessions are the lows. Buy the bottom. I see a big opportunity coming my way. I’ve got my eye on one stock that has had a recent high (several years ago) of about $25. It’s now less than a dollar. I think I’ll grab it at 40 cents later this year and my bet is it’ll be back up to $10 by 2020. I could be wrong but I doubt it. I do my homework. I’m likely gonna make a small fortune. Some of which will be pulled out of the market and invested in ammo which I’ll be betting I need lots of by 2023 or so. If you losers put half as much effort into trying to be a success as you put into being a failure you’d probably get more attention from the girls. FYI girls don’t like losers. Girls like winners.
makati1 on Wed, 10th Feb 2016 10:04 pm
More WaPo bullshit, pushing the 3rd world as the cause of the coming collapse! maybe they should tell the Americans what their banking system//capitalism is doing to their futures?
makati1 on Wed, 10th Feb 2016 10:12 pm
Truth, buy into the casino if you feel lucky. Yesterdays income is no guarantee of today’s or tomorrow’s. I can guarantee that your future income will disappear if it is all invested in the market. That exit door is small when millions are trying to get out of the market during a crash.
People like you are the target of every huckster out there trying to keep the ponzi going for another day. They are called ‘suckers’ by those same hucksters. You have no idea how low the market is going to go or when. Paper and ones and zeros in a computer is not wealth. Real things that you need to live are wealth. Food, clothing, shelter. 401ks, mutual funds, retirement plans, savings accounts: ALL dreams of future wealth that does not really exist.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 10:20 pm
It’s not all invested in the market. Guns & ammo remember 😉
Thanks for the concern. I never bet more than I can afford to lose.
I have a very well diversified investment portfolio. Everything from guns & ammo to stocks and bonds. I can be liquid in three days come hell or high water. The most illiquid assets are my guns & ammo. They’d take time to flip to cash as I’d have to sell them. But to be honest I’m more of a buy and hold investor when it comes to guns & ammo. I might sell in a pinch but I’d rather leave them in my will. Once humanity starts passing through the population bottleneck guns and ammo will be priceless.
GregT on Wed, 10th Feb 2016 11:45 pm
“If you losers put half as much effort into trying to be a success as you put into being a failure you’d probably get more attention from the girls. FYI girls don’t like losers. Girls like winners.”
I’ve been happily married for 33 years Truth. I have a 31 year old daughter who makes 6 figures a year, and a 22 year old son who recently began a career in electrical engineering. I helped
jumpstart his career by getting him a job in one of my loser buddy’s companies. Us losers tend to keep in touch you know, even after retirement at 53.
“I can be liquid in three days come hell or high water.”
I wish my portfolio was as simple as that. Not that I’m worried about it much. I already have all of my bases covered, so to speak. Have had for a very long time. By the sounds of it, probably long
before you were born.
TimS on Thu, 11th Feb 2016 4:07 am
Hey truth? do “girls like lollipops too?”
I prefer women, you self-promoting tosser.
Davy on Thu, 11th Feb 2016 6:32 am
“Lol dreaded recession!? We have one only like every 8 fucking years. Take it down a couple thousand drama queen.” I was wondering why the Montreal boy wonder was so active lately. He is internalizing all the turmoil and trying to come across as the coolest thing since sliced bread as a psychological defense. He is the best looking, the smartest, and toughest on the block. Women hate braggarts more than losers.
It is the most arrogant that will be bitch slapped the hardest. What is coming is nothing like what we had in recent history. You can take tough people and humble them quickly. I am talking really tough people that do not brag. It happens all the time in boot camp and waterboarding. Life can do this slowly and with patience and impartiality. Everyone has a breaking point and most don’t know what it is because they haven’t had their ass kicked. I have had my ass kicked and I have a healthy respect for adversity. Knowing you limitations is a prerequisite to survival.
The best attitude for what is coming is humility and a low profile. Arrogance can’t remain out of the spotlight and under the radar. Arrogance has to spout of their big mouth and show the world how tough it is. There is a reason why it is said the meek will inherit the earth and that is because the arrogant will be the first to kill the arrogant thereby leaving only the meek.
I am not sure what is coming in the short term and anybody that does is fooling themselves. I am confident we are on a longer term trend of descent for the obvious reasons discussed here daily. I know enough about science and economics to know a species in overshoot can’t slow down or even tread water. Treading water is what we are doing and it has been clear since 08 we are treading water at limits of growth with diminishing returns to all those efforts needed to combat basic entropy.
What is not at limits is the range and depth of our fantasy and storytelling. The reason man should never have taken the step out of his traditional patterns as semi-nomadic hunter gathering is his mind is capable of fantasy and abstraction. Any species who can tell and believe stories has a short evolution ahead. We have told ourselves we are exceptional. We have told ourselves we can solve our problems with more of what got us into these problems. We have told ourselves that man has transcended nature’s cycles. Hell lately we have tried to tell ourselves there are no longer business cycles.
Anyone who believes the downturn we are now in is not something new and dangerous is obviously spinning fairytales. I have been here more than 3 years now preaching doom and prep. I have seen people come and go. Most of those who go are those preaching the modern cornucopian narrative of all is well and everything will be OK. This time it will not be OK. I can’t tell you when but I am confident I can tell you it will not get better. I can tell you it is all downhill from here on out.
Davy on Thu, 11th Feb 2016 7:29 am
JPMorgan: “It’s Hard To Imagine An Uglier Morning”
http://www.zerohedge.com/news/2016-02-11/jpmorgan-its-hard-imagine-uglier-morning
“Trying to divine the end of the rout is difficult given the globe is in the midst of a series of tightly intertwined, self-reinforcing, and correlated trades and narratives (i.e. oil slumps and drags inflation down with it which prompts CBs to ratchet up accommodation which sinks banks which crushes general market sentiment and the overall price declines tighten financial market conditions and scares corporate execs and actual economic activity begins to deteriorate). A lot of the price action feels very forced and perfunctory but that doesn’t make it any less real or painful.”
joe on Thu, 11th Feb 2016 8:06 am
The best example of Chinas transition is of course America, they suffered a series of recessions as the dollar strength shifted jobs to China and Mexico and Europe, where profits were made. China though, cant go to some other sub-China. It has a weak currency, so things bought cheap, made cheap, must be sold cheap. So how can services grow there, if labour is, cheap?
Go Speed Racer on Thu, 11th Feb 2016 9:07 am
Choosing between women, girls, and chicks. The worst is women, because that would be Hillary Clinton, no thanks. Girl is ok, because that would be Taylor Swift. The reason that chicks are best of all, is they are easy to attract. All you need is a chick-magnet.
Baptised on Thu, 11th Feb 2016 1:02 pm
Why would someone be proud of making money they did not earn?
bug on Thu, 11th Feb 2016 4:16 pm
Baptised, some people are like that.
Same as thinking having guns and ammo is a beat all. All it takes is another with a high caliber rifle and ammo to wait to have guns and ammo person to be unattentive, and drill him between the eyes at a distance. Then the gun and ammo is the other persons.
TimS on Thu, 11th Feb 2016 6:00 pm
Speed Racer-that made me really laugh out loud….
makati1 on Thu, 11th Feb 2016 8:41 pm
bug, you are correct. The ‘opposition’ will likely be better equipped and manned than the doomsteader. After all, they will likely be heavily armed from the local police station or National Guard armory, or even the local gun shop. They will take their needs, not buy them.
They can lay siege to your doomstead for days and keep you from leaving the house. You may not even know they are there as a good rifle with scope can hit you from a half mile away easily. And fire will drive you out in the middle of the night if they want to use that method.
There is no safety as your neighbors will be busy defending their doomstead … or already dead. Best to be part of a tribe of at least 100. What skill do you have to offer them in trade? LOL
Go Speed Racer on Fri, 12th Feb 2016 12:25 am
Well TimS I guess that’s why I am here. ;O)
Apneaman on Fri, 12th Feb 2016 1:58 am
Investors Have Lost $1.78 Trillion so far this Year
“t’s happened in only 31 days.
It’s been a rough year for investors, and it’s just getting started.
The S&P 500 Index has plunged 10.5% since the first trading day of 2016, erasing $1.78 trillion in value for investors, says S&P’s Richard Peterson, a senior director of Global Markets Intelligence. On average, investors have lost a collective $57 billion per trading day this year. Ouch.
That’s roughly equal to the GDP of Canada in 2014, according to the World Bank.
The number appears as the S&P 500 extended its losses for the fifth straight day Thursday, falling 1.23% and closing at 1,829.08 Thursday—its lowest since April 2014. The Dow Jones Industrial Average dropped nearly 255 points, or 1.6%. The technology heavy Nasdaq was the relative winner for the day, down just 0.39%.
The drop in the S&P 500 on Thursday was led by a plunge in the shares of Mylan. The drugmaker’s stock fell 18% after announcing plans to buy Swedish pharmaceutical company, Meda. For the year, the S&P 500 has been led downward in 2016 by financials, consumer discretionary, and information technology sectors, posting declines of 15%, 12%, and 12% respectively.”
http://fortune.com/2016/02/11/investors-have-lost-1-78-trillion-so-far-this-year/?xid=gn_editorspicks&google_editors_picks=true
Apneaman on Fri, 12th Feb 2016 7:47 pm
1929 DEJA VU
“Today’s (short-covering) rally in bank stocks courtesy of JPMorgan CEO, Jamie Dimon, who bought 500k shares yesterday”
“JPMorgan Chase CEO Jamie Dimon plunked down $26.6 million of his own money on Thursday to buy his bank’s recently battered shares.”
Rewind to 1929:
“On October 24, 1929, “BLACK THURSDAY,” this massive sell-a-thon began. By the late afternoon, wealthy financiers like J.P. Morgan pooled their resources and began to buy stocks in the hopes of reversing the trend.”
But the bottom fell out of the market on Tuesday, October 29. A record 16 million shares were exchanged for smaller and smaller values as the day progressed. For some stocks, no buyers could be found at any price. By the end of the day, panic had erupted, and the next few weeks continued the downward spiral. In a matter of ten short weeks the value of the entire market was cut in half.”
http://ponziworld.blogspot.ca/2016/02/1929-deja-vu.html