A New Global Recession

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[font size="3"][font color="blue"]A New Global Recession[/font][/font]

By Bill Bonner, Chairman, Bonner & Partners:


Yes, it seems to be coming. Our friend and longtime Bonner & Partners Family Office member Hense Ellis summarizes:

A new global recession has begun. The collapse in commodity prices and the slump in the emerging market economies will inevitably lead to a sharp drop in global investment and a new surge in unemployment. Moreover, the recent stock market selloff is making matters much worse by creating a negative wealth effect that will cause consumption to fall.

Another friend, economist and author Richard Duncan, adds detail via his advisory, Macro Watch:

• China’s economy is slowing rapidly.
• India’s economy is more fragile than generally understood.
• The plunge in commodity prices is taking a heavy toll.
• The sharp drop in emerging market currencies is destabilizing.
• The slump in global trade is a blow to corporate profits.
• Excess industrial capacity is worsening.
• Credit quality is deteriorating rapidly.
• Credit availability has begun to dry up and will become much tighter.

Duncan has a theory about why these things are happening – a lack of “excess liquidity.”

As he puts it, “It’s liquidity that moves the markets. When liquidity is plentiful, asset prices tend to rise, and when it is scarce, asset prices tend to fall.” What investors need, therefore, is some way of measuring and forecasting liquidity. Duncan’s answer is something he calls a “liquidity gauge.”

.....(snip).....

[font size="3"][font color="blue"]Broken Pumps[/font][/font]

Yesterday, we showed how excess liquidity bubbled up in the mortgage finance market. As money was easier to come by – thanks to low rates and rampant securitization of mortgage debt – people bought more houses at higher and higher prices. This pushed up the value of the collateral – houses – which enabled people to borrow even more… and it drove the industry to build more houses and sell them to increasingly marginal (subprime) buyers. Debt and equity raced each other higher and higher until both collapsed in 2007-08. Home prices plunged. And the value of mortgage debt plunged along with them.

Today, thanks largely to the Fed’s bubble, homeownership levels are back to where they were nearly half a century ago.

Now, we see the same phenomenon happening in other sectors. As we reported yesterday, student debt, auto debt, and corporate debt are all headed for trouble. And the bigger picture is that the pumps just aren’t working the way they used to. The growth of the last 20 or 30 years came largely – maybe entirely – from expanding credit. .....................(more)

http://wolfstreet.com/2015/09/11/a-worrying-development-for-stock-market-bulls/