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New Year Market Turmoil
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Will 2016 be the year the artificially stimulated US economic house of cards collapses? It’s long overdue. What can’t go on forever, won’t. Markets levitate only for so long. Day of reckoning time inevitably arrives. Fed money printing madness turned Wall Street into a casino – high risk for ordinary people wanting their savings protected along with a reasonable return. Former Reagan administration Office of Management and Budget director David Stockman warns often of a coming collapse – calling America’s financial system an “unstable, bubble-prone gambling arena that undermines capitalist prosperity and showers speculators with vast windfall gains” on an ocean of easy money. Last year was the first negative year for the Dow and S&P 500 since 2008, the Nasdaq posting a small gain, a performance perhaps unlikely to be matched ahead. The new year began with a near-crash, a rare huge downturn on its first trading day, perhaps signaling rough times ahead, maybe a protracted bear market given weak global economic conditions. According to Stockman, “the stock market casino has just begun its descent,” how severely remains to be seen. “The Fed and the other central banks are out of dry powder…” “After two decades of runaway credit expansion and bubble finance speculation,” chickens are coming home to roost. Sell the rally is replacing buy the dip strategy. A major negative is China’s weakening economy. In December, its manufacturing index fell for the 10th consecutive month. Its latest 48.2 measure indicates contraction. US manufacturing and construction show declines. According to Chinese economist Xia Le, “(w)e haven’t seen any material improvement in economic momentum. Small and medium-sized companies are under growing pressure. Toward the end of the year, some decided to close down” because they’re not making money. Economist He Fan said declining manufacturing shows “the economy is facing a greater risk of weakening.” China is a major driver of world growth. Its economic slowdown affects global markets adversely. Weak oil and other commodity prices indicate slackening demand. Stockman believes China may be “heading for a crash landing,” its economy and markets levitating on a $30 trillion debt mountain, 60-fold greater than two decades ago – “the (lynchpin) of the entire credit-bloated and malinvestment-ridden GDP of the planet.” As China succumbs to its credit bubble, reverberations will be felt worldwide. South Korean exports fell 15% year-over-year. Japan is back in recession. Brazil faces Depression. Virtually all global economies are vulnerable. Easy money days appear over. “(O)bstacles to organic earnings growth” no longer can be helped by financial engineering, Stockman believes. Junk debt is cratering. No one’s sure how low energy and other bellwether commodity prices will go. Artificially generated windfall profits since the 1990s are ending. Sovereign wealth accumulation in parts of the world is over. A “cycle of liquidation…unprecedented in financial history” is replacing it, according to Stockman. It’s not a pretty picture, likely to continue until commodity deflation runs its course, he believes.
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