Friday, January 31, 2014

Markets Are Sliding Again......and suddenly you have all the ingredients for a broad market crash.

Markets Are Sliding Again

There is one major problem when the entire market is a rigged casino, favoring degenerate gamblers over traditional investors: at the first whiff of trouble everyone bails.

In the past week,over the past week or so investors got a whiff of trouble, and the degenerate gamblers, loaded up to the gills with record margin debt hightailed it out of the casino, leading to the largest weekly equity fund outflow in over two years! Add some record leverage to the equity withdrawal, continued EM turbulence, ongoing Japanese deflation exports, oh and of course the ongoing Fed taper which has been solely responsible for all S&P gains since 666, and suddenly you have all the ingredients for a broad market crash.

In Europe, Germany is down 0.7%. Italy is off 0.3%. UK stocks are down 0.18%.

Japan fell 0.48% and Hong Kong fell 0.62%.

US futures are much lower.

The wild volatility continues, with markets set to open well in the negative wiping out all of yesterday's gains and then some, only this time the catalyst is not emerging market crashing and burning but European inflation, where the CPI printed at 0.70%, dropping once again from 0.8%, remaining under 1% for the fourth straight month and missing estimates. Perhaps only economists are surprised at this reading considering last night Japan reported its highest (energy and food-driven) inflation print in years: so to explain it- Japan is exporting its "deflation monster", Europe is importing it.

Japanese stocks are back at fresh 2-month lows with the Nikkei 225 under 15,000 (down over 400 points from day-session highs) and testing debt-ceiling lows.

With China about to go dark for a week for the lunar new year, this could get interesting real quick.

The Wake-Up Call From China.......A MUST READ!

The Wake-Up Call From China


The market declined significantly in the face of the unexpected drop in the Chinese Purchasing Managers Index, following closely on the heels of China’s declining GDP growth and potentially serious credit problems.  According to HSBC, China faces a cash shortage in its financial system, creating a dilemma for the Chinese leadership that is focused on rebalancing the economy and reining in credit.  The market’s decline was on target, as the disappointments cast doubt on the widespread consensus of recovering global growth.  Without the impetus from the Chinese growth engine, the global economy cannot recover and is likely to fall into recession.  This is particularly true since U.S. economic growth has still not reached “escape velocity” at a time when the Fed seems set to wind down Quantitative Easing (QE) by year-end.

While the stock market seems to have accepted the prospect of an end to QE, the rationale for the continuation of the bull market has shifted to a belief in accelerating growth in the economy and in corporate earnings, both globally and domestically.  For the last few years the market was able to accept tepid growth on the grounds that QE would provide enough liquidity to move stocks ahead.  But without the prospect of continuing boosts to liquidity, tepid growth is no longer enough, and, unfortunately, it looks as if that is the most we are likely to get.

Despite the belief of most strategists and economists that the U.S. economy is picking up steam, it is far from evident in the data. Examination of the evidence indicates to us that the economy is still not at a point where we can conclude that growth is now self-sustaining in the new world of Fed tapering.

Where is the so-called consumer resurgence? Year-over-year real retail sales were up 4.1% in December, compared to an increase of 5.2% in the year ended December 2012 and 6.2% in December 2011.  Similarly, overall consumer spending increased 1.2% in the year ended November 2013 compared to 2.1% in the year ended November 2012.  Anecdotal information from retailors does not indicate much of a pickup, if any, in December.  And remember that consumer spending accounts for about 70% of GDP.  These results should not be surprising, since real disposable income was up only 0.6% year-over-year in the latest reported period.

In the same vein, payroll employment increased 1.62% in the year ended December 2013, compared to 1.65% and 1.62%, respectively, in the two prior year periods.  In addition, according to Factset’s survey of analysts, U.S. companies planned to increase capital spending 1.2% in 2014, the lowest level in four years.  In our view, the economy is still stuck in the same tepid 2% growth rate that has characterized the last three years. Sometimes it has been over that rate and sometimes under, but has never broken out to a point where it is evident that it has achieved “escape velocity”.

Without much global and U.S. economic growth, corporate earnings increases are likely to be subdued as well.  With revenue growth mediocre throughout the cycle, earnings growth has been propelled largely by stock buybacks and cost reductions as corporations have been reluctant to spend on labor or plant and equipment. But opportunities for further cost cutting are rapidly diminishing, placing greater reliance on more robust revenue increases.  However, corporate guidance so far for 2014 seems quite cautious, and we would not bet on this happening.

Overall, it seems to us that investors have been overly optimistic about the economy and corporate earnings, and are about to be disappointed.  The data from China should not be taken lightly, and the U.S. economy, contrary to prevailing opinion, is still in the same slow-growth zone that has characterized the last three years.  

In our view the market is in for a very tough period ahead!      


Is War With China Inevitable?.......AN ABSOLUTE MUST READ!

Is War With China Inevitable?

As a general rule, extreme economic decline is almost always followed by extreme international conflict. Sometimes, these disasters can be attributed to the human survival imperative and the desire to accumulate resources during crisis. But most often, war amid fiscal distress is usually a means for the political and financial elite to distract the masses away from their empty wallets and empty stomachs.

War galvanizes societies, usually under false pretenses. I’m not talking about superficial “police actions” or absurd crusades to “spread democracy” to Third World enclaves that don’t want it. No, I’m talking about REAL war: war that threatens the fabric of a culture, war that tumbles violently across people’s doorsteps. The reality of near-total annihilation is what oligarchs use to avoid blame for economic distress while molding nations and populations.

Because of the very predictable correlation between financial catastrophe and military conflagration, it makes quite a bit of sense for Americans today to be very concerned about the state of our world. 

Never before in history has our country been so close to full-spectrum economic collapse, the kind that kills currencies and simultaneously plunges hundreds of millions of people into poverty. It is a collapse that has progressed thanks to the deliberate efforts of international financiers and central banks. 

It only follows that the mind-boggling scale of the situation would “require” a grand distraction to match.

It is difficult to predict what form this distraction will take and where it will begin, primarily because the elites have so many options. The Mideast is certainly an ever-looming possibility. Iran is a viable catalyst. Syria is not entirely off the table. Saudi Arabia and Israel are now essentially working together, forming a strange alliance that could promise considerable turmoil — even without the aid of the United States. Plenty of Americans still fear the Al Qaeda bogeyman, and a terrorist attack is not hard to fabricate. However, when I look at the shift of economic power and military deployment, the potential danger areas appear to be growing not only in the dry deserts of Syria and Iran, but also in the politically volatile waters of the East China Sea.

China is THE key to any outright implosion of the U.S. monetary system. 

Other countries, like Saudi Arabia, may play a part; but ultimately it will be China that deals the decisive blow against the dollar’s world reserve status. China’s dollar and Treasury bond holdings could be used as a weapon to trigger a global sell-off of dollar-denominated assets. China has stopped future increases of dollar forex holdings, and has cut the use of the dollar in bilateral trade agreements with multiple countries.  Oil-producing nations are shifting alliances to China because it is now the world’s largest consumer of petroleum. And, China has clearly been preparing for this eventuality for years. So, given these circumstances, how can the U.S. government conceive of confrontation with the East? Challenging one’s creditors to a duel does not usually end well. At the very least, it would be economic suicide. But perhaps that is the point. Perhaps America is meant to make this seemingly idiotic leap.

Here are just some of the signs of a buildup to conflict...

Currency Wars And Shooting Wars

In March 2009, U.S. military and intelligence officials gathered to participate in a simulated war game, a hypothetical economic struggle between the United States and China.

The conclusions of the war game were ominous. The participants determined that there was no way for the United States to win in an economic battle with China. The Chinese had a counterstrategy to every U.S. effort and an ace up their sleeve – namely, their U.S. dollar reserves, which they could use as a monetary neutron bomb, a chain reaction that would result in the abandonment of the dollar by exporters around the world . 

They also found that China has been quietly accumulating hard assets (including land and gold) across globe, using sovereign wealth funds, government-controlled front companies, and private equity funds to make the purchases. China could use these tangible assets as a hedge to protect against the eventual devaluation of its U.S. dollar and Treasury holdings, meaning the losses on its remaining U.S. financial investments was acceptable should it decide to crush the dollar.

The natural response of those skeptical of the war game and its findings is to claim that the American military would be the ultimate trump card and probable response to a Chinese economic threat. Of course, China’s relationship with Russia suggests a possible alliance against such an action and would definitely negate the use of nuclear weapons (unless the elites plan nuclear Armageddon). That said, it is highly likely that the U.S. government would respond with military action to a Chinese dollar dump, not unlike Germany’s rise to militarization and totalitarianism after the hyperinflationary implosion of the mark. The idea that anyone except the internationalists could “win” such a venture, though, is foolish.

I would suggest that this may actually be the plan of globalists in the United States and their counterparts in Asia and Europe. China’s rise to financial prominence is not due to its economic prowess. In fact, China is ripe with poor fiscal judgment calls and infrastructure projects that have gone nowhere. But what China does have on its side are massive capital inflows from global banks and corporations, mainly based in the United States and the European Union. And, it has help in the spread of its currency (the Yuan) from entities like JPMorgan Chase and Co. The International Monetary Fund is seeking to include China in its global basket currency, the SDR, which would give China even more leverage to use in breaking the dollar’s reserve status. Corporate financiers and central bankers have made it more than possible for China to kill the dollar, which they openly suggest is a “good thing.”

Is it possible that the war game scenarios carried out by the Pentagon and elitist think-tanks like the RAND Corporation were not meant to prevent a war with China, but to ensure one takes place?

The Senkaku Islands

Every terrible war has a trigger point, an event that history books later claim “started it all.” For the Spanish-American War, it was the bombing of the USS Maine. For World War I it was the assassination of Archduke Franz Ferdinand of Austria. For U.S. involvement in World War I, it was the sinking of the Lusitania by a German U-Boat. For U.S. involvement in World War II, it was the attack on Pearl Harbor. For Vietnam, it was the Gulf of Tonkin Incident (I recommend readers look into the hidden history behind all of these events). While the initial outbreak of war always appears to be spontaneous, the reality is that most wars are planned far in advance.

As evidence indicates, China has been deliberately positioned to levy an economic blow against the United States. Our government is fully aware what the results of that attack will be, considering they have gamed the scenario multiple times. And, by RAND Corporation’s own admission, China and the United States have been preparing for physical confrontation for some time, centered on the concept of pre-emptive strikes.  

Meaning, the response both sides have exclusively trained for in the event of confrontation is to attack the other first!

The seemingly simple and petty dispute over the Senkaku Islands in the East China Sea actually provides a perfect environment for the pre-emptive powder keg to explode.

China has recently declared an “air defense zone” that extends over the islands, which Japan has already claimed as its own. China, South Korea and the United States have all moved to defy this defense zone. South Korea has even extended its own air defense zone to overlap China’s.

China has responded with warnings that its military aircraft will now monitor the region and demands that other nations provide it with civilian airline flight paths.  China has also stated that it plans to create MORE arbitrary defense zones in the near future.

The U.S. government under Barack Obama has long planned a military shift into the Pacific, which is meant specifically to counter China’s increased presence. It’s almost as if the White House knew a confrontation was coming.

The shift is now accelerating due to the Senkaku situation, as the U.S. transfers submarine-hunting jets to Japan while pledging full support for Japan should war ignite.

And most recently, the Japanese press has suggested that war between the two countries could erupt as early as January.

China, with its limited navy, has focused more of its energy and funding into advanced missile technologies — including “ship killers,” which fly too low and fast to be detected with current radar.  This is the same strategy of cheap compact precision warfare being adopted by countries like Syria and Iran, and it is designed specifically to disrupt tradition American military tactics.

Currently, very little diplomatic headway has been made or attempted in regards to the Senkaku Islands. The culmination of various ingredients so far makes for a very sour stew.

All that is required now is that one trigger event — that one ironic “twist of fate” that mainstream historians love so much, the spark that lights the fuse. China could suddenly sell a mass quantity of U.S. Treasuries, perhaps in response to the renewed debt debate next spring. The United States could use pre-emption to take down a Chinese military plane or submarine.  A random missile could destroy a passenger airliner traveling through the defense zone, and both sides could blame each other. The point is nothing good could come from the escalation over Senkaku.

Why Is War Useful?

What could possibly be gained by fomenting a war between the United States and China?  What could possibly be gained by throwing America's economy, the supposed "goose that lays the golden eggs", to the fiscal wolves?  As stated earlier, distraction is paramount, and fear is valuable political and social capital.

Global financiers created the circumstances that have led to America’s probable economic demise, but they don’t want to be blamed for it. War provides the perfect cover for monetary collapse, and a war with China might become the cover to end all covers. 

The resulting fiscal damage and the terror Americans would face could be overwhelming. Activists who question the legitimacy of the U.S. government and its actions, once considered champions of free speech, could easily be labeled “treasonous” during wartime by authorities and the frightened masses. (If the government is willing to use the Internal Revenue Service against us today, just think about who it will send after us during the chaos of a losing war tomorrow.) A lockdown of civil liberties could be instituted behind the fog of this national panic.

Primarily, war tends to influence the masses to agree to more centralization, to relinquish their rights in the name of the “greater good”, and to accept less transparency in government and more power in the hands of fewer people. Most important, though, is war's usefulness as a philosophical manipulation after the dust has settled.

After nearly every war of the 20th and 21st century, the subsequent propaganda implies one message in particular: National sovereignty, or nationalism, is the cause of all our problems. The establishment then claims that there is only one solution that will solve these problems: globalization. This article by Andrew Hunter, the chairman of the Australian Fabian Society, is exactly the kind of narrative I expect to hear if conflict arises between the United States and China.

National identity and sovereignty are the scapegoats, and the Fabians (globalist propagandists) are quick to point a finger. Their assertion is that nation states should no longer exist, borders should be erased and a one-world economic system and government should be founded. Only then will war and financial strife end. 

Who will be in charge of this interdependent one world utopia? I’ll give you three guesses...

The Fabians, of course, make no mention of global bankers and their instigation of nearly every war and depression for the past 100 years; and these are invariably the same people that will end up in positions of authority if globalization comes to fruition. What the majority of people do not yet understand is that globalists have no loyalties to any particular country, and they are perfectly willing to sacrifice governments, economies, even entire cultures, in the pursuit of their "ideal society".  "Order out of chaos" is their motto, after all.  

The bottom line is that a war between China and the United States will not be caused by national sovereignty. Rather, it will be caused by elitists looking for a way to END national sovereignty. That’s why such a hypothetical conflict, a conflict that has been gamed by think tanks for years, is likely to be forced into reality.

Shinzo Abe Compares Japan-China Tensions To UK-Germany Before World War I.....A VERY DANGEROUS PESKY FACT!

Shinzo Abe Compares Japan-China Tensions To UK-Germany Before World War I

Japan Prime Minster Shinzo Abe said the current tension between Japan and China is a “similar situation" as the rivalry Britain and Germany before World War I.

From FT:

The comparison, he explained, lies in the fact that Britain and Germany – like China and Japan – had a strong trading relationship. But in 1914, this had not prevented strategic tensions leading to the outbreak of conflict.

The comparison of is a startling one, especially since any escalation that led direct military conflict would bring the U.S. to Japan's defense.

Unfortunately, there are parallels between the situation. Both are regional powers with strong trading relationships.

Abe told Rachman that Chinese military spending, which he says is increasing by 10% a year, is a major source of instability in the region. Last year Japan boosted its military spending by the most in nearly two decades.

Between 1908 and 1913, European powers increased military spending by 50% after Germany began building a navy to rival Britain's.

And then there are the strategic tensions.

The current Japan and China are centered around territorial disputes in the East China Sea that are exacerbated by sour memories of World War II. Japanese jets regularly scramble to intercept Chinese aircraft as China becomes more assertive in the area.

When Archduke Franz Ferdinand of Austria was assassinated in June 1914, Germany backed regional allies Austria-Hungary and the Ottoman Empire in the Great War. Britain then led the Allied Powers (which included France, Russia, Italy, Japan, and eventually the U.S.).

Abe noted to FT that any “inadvertent” conflict would be regarded as a disaster, and he again called for military-to-military communications between the two countries.

Thursday, January 30, 2014



Don't tug on Superman's cape. Don't spit into the wind. And most definitely, don't fight the Fed. That's what they say on Wall Street. When the central bank is printing, get your money in stocks. 

 "The famous saying 'do not fight the Fed' has worked for much of the last century, for the last 20-odd years it has been a very mixed bag.

Don't fight the Fed,is currently failing in a big way at this point in time.

We are now entering year six of the post-Lehman Brothers era, and the Fed's occupation of the market looks to be permanent. The new normal doesn't seem so normal as Ben Bernanke has desperately tried to pry every one's money out from under their mattresses and into stocks.

However, this is a market that Jim Grant describes as a "hall of mirrors." The Fed's looking glass makes some things tall, some things small. Objective value is nowhere to be found; instead, certain rates are scripted by a central bank that can only set a price for short-term interest rates with really little clue as to what the outcomes of that monetary command and control will be.

Now Janet Yellen takes over as Atlas, with world markets resting uncomfortably on her shoulders. Further shrugging may send nervous investors for the exits, not only in the US, but around the world. The least bit of monetary slowing, rather than a wide-open throttle, is now viewed by the world's monetary elite as the stuff of black swans. "This tapering] is a new risk on the horizon and really needs to be watched," Christine Lagarde, the managing director of the IMF, said at Davos over the weekend.

After a life time of work I'm sure your not very happy to be living through, investing in, and your retirement depending upon navigating this terribly interesting, manipulated market?

No one is...but their will be opportunities, you will just have to work hard to find them and you can't trust anyone else to do the work for you. You must understand what you are doing with your money.

Right now w
e have leadership that serves only themselves.

We have structural, monetary, economic and credit impediments to growth.

We have far to much debt at every level and the powers that be tell us the answer is more debt!

We have stagnant income growth, no job growth,and a consumer that is either tapped out or unwilling to spend anymore.  

We have currency wars beginning and emerging market turmoil that has only just begun. Many emerging market nations are very worried about how to finance their still growing current account deficits. 

We have a globalized world in which each and every nation is now starting to think not about globalization, but about saving their own bacon. We have over levered global markets that are dependent on carry trades that are unwinding.

We have asset prices in many areas that are at outrageous levels when compared to incomes and or our fundamental backdrop or historical facts. Remember Wall Street knows the price of everything and the value of nothing! They simply want to keep the corrupt game going so that they get paid.

We have the four largest economic powerhouses of the world economy, the U.S., China, Japan and Europe with more and growing problems and their collective answers or solutions are more debt and to give as many empty speeches and empty promises as possible in order to buy time.

It is time for all of us to realize that the Fed is all in, trapped in a policy that has not worked,could never have worked and is beginning to show serious signs of being the failed policy that it was always doomed to be.

We are headed for a financial crisis and societal upheaval on a massive scale.

Without truth and leadership and money based on truth, failure is guaranteed! 

How the Paper Money Experiment Will End.......VERY IMPORTANT!

How the Paper Money Experiment Will End

A paper currency system contains the seeds of its own destruction. 

The temptation for the monopolist money producer to increase the money supply is almost irresistible. 

In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. 

A paper money system leads to excessive debt.

This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.

We are now in a situation that looks like a dead end for the paper money system. 

After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. 

Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight.

At the same time banking systems and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government. 

It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.

So will money printing be a constant with interest rates close to zero until people lose their confidence in the paper currencies? 

Can the paper money system be maintained?

There are at least seven possibilities:

1. Inflate. 

Governments and central banks can simply proceed on the path of inflation and print all the money necessary to bail out the banking system, governments, and other over-indebted agents. This will further increase moral hazard. This option ultimately leads into hyperinflation, thereby eradicating debts. Debtors profit, savers lose. The paper wealth that people have saved over their life time will not be able to assure such a high standard of living as envisioned.

2. Default on Entitlements. 

Governments can improve their financial positions by simply not fulfilling their promises. Governments may, for instance, drastically cut public pensions, social security and unemployment benefits to eliminate deficits and pay down accumulated debts. Many entitlements, that people have planned upon, will prove to be worthless.

3. Repudiate Debt. 

Governments can also default outright on their debts. This leads to losses for banks and insurance companies that have invested the savings of their clients in government bonds. The people see the value of their mutual funds, investment funds, and insurance plummet thereby revealing the already-occurred losses. The default of the government could lead to the collapse of the banking system. The bankruptcy spiral of overindebted agents would be an economic Armageddon. Therefore, politicians until now have done everything to prevent this option from happening.

4. Financial Repression. 

Another way to get out of the debt trap is financial repression. Financial repression is a way of channeling more funds to the government thereby facilitating public debt liquidation. Financial repression may consist of legislation making investment alternatives less attractive or more directly in regulation inducing investors to buy government bonds. Together with real growth and spending cuts, financial repression may work to actually reduce government debt loads.

5. Pay Off Debt. 

The problem of overindebtedness can also be solved through fiscal measures. The idea is to eliminate debts of governments and recapitalize banks through taxation. By reducing overindebtedness, the need for the central bank to keep interest low and to continue printing money is alleviated. The currency could be put on a sounder base again. To achieve this purpose, the government expropriates wealth on a massive scale to pay back government debts. The government simply increases existing tax rates or may employ one-time confiscatory expropriations of wealth. It uses these receipts to pay down its debts and recapitalize banks. Indeed the IMF has recently proposed a one-time 10-percent wealth tax in Europe in order to reduce the high levels of public debts. Large scale cuts in spending could also be employed to pay off debts. After WWII, the US managed to reduce its debt-to-GDP ratio from 130 percent in 1946 to 80 percent in 1952. However, it seems unlikely that such a debt reduction through spending cuts could work again. This time the US does not stand at the end of a successful war. Government spending was cut in half from $118 billion in 1945 to $58 billion in 1947, mostly through cuts in military spending. Similar spending cuts today do not seem likely without leading to massive political resistance and bankruptcies of overindebted agents depending on government spending.

6. Currency Reform. 

There is the option of a full-fledged currency reform including a (partial) default on government debt. This option is also very attractive if one wants to eliminate overindebtedness without engaging in a strong price inflation. It is like pressing the reset button and continuing with a paper money regime. Such a reform worked in Germany after the WWII (after the last war financial repression was not an option) when the old paper money, the Reichsmark, was substituted by a new paper money, the Deutsche Mark. In this case, savers who hold large amounts of the old currency are heavily expropriated, but debt loads for many people will decline.

7. Bail-in. 

There could be a bail-in amounting to a half-way currency reform. In a bail-in, such as occurred in Cyprus, bank creditors (savers) are converted into bank shareholders. Bank debts decrease and equity increases. The money supply is reduced. A bail-in recapitalizes the banking system, and eliminates bad debts at the same time. Equity may increase so much, that a partial default on government bonds would not threaten the stability of the banking system. Savers will suffer losses. For instance, people that invested in life insurances that in turn bought bank liabilities or government bonds will assume losses. As a result the overindebtedness of banks and governments is reduced.

Any of these seven options, or combinations of two or more options, may lie ahead. 

In any case they will reveal the losses incurred in and end the wealth illusion. Basically, taxpayers, savers, or currency users are exploited to reduce debts and put the currency on a more stable basis. A one-time wealth tax, a currency reform or a bail-in are not very popular policy options as they make losses brutally apparent at once. 

The first option of inflation is much more popular with governments as it hides the costs of the bail out of overindebted agents. However, there is the danger that the inflation at some point gets out of control. And the monopolist money producer does not want to spoil his privilege by a monetary meltdown. Before it gets to the point of a runaway inflation, governments will increasingly ponder the other options as these alternatives could enable a reset of the system.

Does the Fed Really Create the Boom-Bust Cycle?.....A MUST READ!

Does the Fed Really Create the Boom-Bust Cycle?

Janet Yellen takes over as Fed chair at the end of January, stepping into Ben Bernanke's big shoes. Bernanke was Time's Person of the Year in 2009, andThe Atlantic magazine dubbed him "The Hero."

However, those who understand Austrian business cycle theory understand that the Fed causes more problems than it solves. Sure, maybe Bernanke's policies averted an economic meltdown in 2008. But Austrians understand that's akin to commending an arsonist for putting out a fire he set in the first place… while at the same time creating favorable conditions for the next blaze.

According to Austrian business cycle theory, if interest rates are allowed to reflect underlying market conditions and coordinate production over time, the resulting economic growth will be sustainable. There will be no boom-bust cycle.

However, if a central bank like the Federal Reserve forces interest rates down, those manipulated rates send false signals to businesses. Lower rates tell businesses that consumers are saving more today to increase consumption in the future—and so now is the time to take advantage of those low rates by investing in longer-term production projects that produce future products.

But when ultra-low rates are a result of phony credit rather than actual increased savings, businesses investing in long-term projects are acting on false signals. Since the resultant boom is not based on reality, the bust is inevitable.

Empirical Data

Figure 1 illustrates that the five US credit crises and four recessions since 1975 all share a common theme. Each was preceded by a period of loose monetary policy followed by tight monetary policy, as represented by the fed funds rate—a boom followed by a bust.

Figure 1: Fed Funds Rate, 1975-2013

The fed funds rate and the money supply move inversely: low rates accommodate easy money, and vice versa. There are many ways to measure the money supply, but for my analysis, I'll use Murray Rothbard's "True Money Supply" (TMS), which quantifies only the amount of money in the economy that is available for immediate use in exchange.

Overlaying the TMS growth with US crises and recessions since 1975 shows a close relationship. The Fed first sows the seeds of crisis by aggressively expanding the money supply. When the economy gets too hot, the Fed hits the brakes, and the slowing of money supply growth causes a crisis or bust. The Fed responds by opening up the money spigots once more, and the cycle begins anew. 

You can clearly see it in action!

Figure 2: True Money Supply (YOY%), 1975-2013

We can also see that each crisis or recession occurred shortly after the rate of growth of the TMS approached or broke below zero.

The Next Crisis

Until the most recent credit crisis and recession, the Fed was able to loosen monetary policy by simply lowering the fed funds rate. In the fall of 2008, however, the Fed ran out of room to manipulate in that manner, as the funds rate approached 0%. To continue to force down interest rates and increase the growth of the money supply, the Fed provided loans to key players and purchased Treasury securities, GSE debt, and mortgage-backed securities. This package of policy tools is commonly referred to as "quantitative easing," or QE for short.

Figure 3: Fed Funds Rate and Federal Reserve Balance Sheet, 2007-2013

More recently, the Fed's Operation Twist and QE3 were designed to force down long-term interest rates through the simultaneous sale of $45 billion of shorter-term Treasury securities and purchase of $45 billion of longer-term Treasury securities per month, as well as the purchase of $40 billion of agency mortgage-backed securities per month.

On December 18, 2013, the Federal Open Market Committee announced that it would reduce its aggregate bond purchases from $85 million per month to $75 million per month beginning in January of 2014. 

That's notable because although the TMS has been increasing during Operation Twist and QE3, its growth rate has been slowing, which is what really matters. The Fed's reduction of bond purchases will likely decelerate growth of the TMS even further, setting the stage for the next credit crisis.

When might that crisis hit? 

Figure 4: True Money Supply (YOY%), 1975-2013 Actual, and 2014-2015 Forecast

Watch what the Fed's doing to the money supply for early warning of the next crisis.

The Challenges Presented By Global Population Growth.......AN ABSOLUTE MUST READ!


The Challenges Presented By Global Population Growth

As we embark on a new year, it's important to keep the really big elements of our global predicament squarely in mind. To that end, we're surfacing this excellent discussion on population growth with Bill Ryerson of the Population Institute

At the heart of the resource depletion story is the number of people on earth competing for those resources. AND AT SOME POINT THE CENTRAL BANK PRINTING PRESSES MAY MAKE EVERYTHING MUCH MORE EXPENSIVE FOR THE FEW THAT CAN AFFORD TO PAY UP

The global population is more than 7 billion now and headed to 9 billion by 2050. If world population continues its exponential growth, we will hit the 
planetary carrying capacity limits with our key resources (or are we already exceeding them)? What are the just, humane, and rights-respecting options that are on the table for balancing the world’s population with the ability of the earth to sustain it? IF YOU DON'T UNDERSTAND THE LAST CHAPTER OF THE BIBLE, THIS SHOULD MAKE YOU WANT TO UNDERSTAND IT BEYOND A SHADOW OF A DOUBT! MAN'S SOLUTIONS ARE ALL GREED BASED WHICH WILL ONLY MAKE THINGS WORSE AS WE HEAD DOWN THE DEAD END PATH OF CONTINUOUS GROWTH IN A RESOURCE LIMITED WORLD!

Population management is an inflammatory issue. It's nearly impossible to discuss without triggering heated emotions, and rare is the leader who's willing to raise it. And by going unaddressed globally, the risk of problems created by overpopulation grow unchecked. 



The world needs to find the courage to address these very important issues directly. And to have an adult-sized conversation about these risks and what can done about them.

We are adding about 225,000 people to the dinner table every night who were not there last night. So that is net growth of the world’s population on an annual basis of a new Egypt every year. In other words, 83 million additional people net growth annually. 

Most of this growth is occurring in poor countries, so on a per-capita level, the people being added to the population have much lower impact than, say, if Europe were growing at that rate.  

Clearly resources like oil, coal, and gas are non-renewable and will eventually run out or become more and more expensive and therefore not reliable as a source of energy. 

But what is the renewable long-term sustainability or the carrying capacity of the environment in each geographic territory, and globally? 

What is the current and projected future human demand for those resources, and do we have sufficient natural resources to meet our needs?

Doing this kind of accounting is not difficult. There are very good robust scientific designs for measuring resource capacity and human demand, and projecting out what do we need to do in some time in the next few decades in order to get from what is clearly population overshoot to achieving something that is in balance. 

Because as long as we are in overshoot – and the global footprint network’s calculation is we are now at 50% overshoot –  that means we are digging into the savings account of our ecological systems, fisheries being one, forests being another. We are eating into the capital to sustain the growing population.

Not only are moral, civil, and religious beliefs in play, but the debate is also heavily influenced by large corporate and governmental organizations protecting their interests. So it's no wonder that a calm, respectful, and reasonable conversation on population remains so elusive.

Wednesday, January 29, 2014

Is a pullback ahead?........WATCH 1775 LEVEL!

Is a pullback ahead? If S&P dips below 1,775, YES!

In Friday’s trading, the S&P 500 SPX cash broke below both the 50-day moving average and the 1,800 support level. The next notable technical support is 1,775-1,780. With the exception of very minor support at 1,745, there is little support down to the 1,700 level.

More than one strategist has said in the past 24 hours that the 1,775 level on the S&P 500 needs to hold or it will open up a whole new phase of selling for markets.

At Credit Suisse, they were telling clients that the correction has started and it can keep going. Two things they noticed out of last week: “no panic selling,” but also “no one bought the dip.”

Goldman Sachs, said in a note on Monday that the downward bias for the S&P 500 could continue based on their sentiment indicator. That gauge shows institutional clients are holding high net-long futures positions, which implies negative returns over the four-to-eight-week period starting late December.

If The Public Knew How Screwed They economic disaster that is going to be much worse than 2008.

If The Public Knew How Screwed They Were

The government wants to maintain the illusion of prosperity, the illusion of economic growth and so the way they do that is through financial markets, through assets. They get the stock market to go up, they get the real estate market to go up and somehow they pretend that that means the economy is getting better just because asset prices are rising.

It’s not like we’ve got more factories turning out more stuff. 

All that they do is they get asset prices to rise so that people can borrow more money against those inflated asset values and then spend it. But we’re buying  things that are made in other countries. It doesn’t evidence economic growth here, it evidences the economic growth in the countries who are able to produce all the things that we have to borrow money to consume.

The financial policies of our government are a complete failure.

Everything they are doing now is just setting the stage for an 
economic disaster that is going to be much worse than what we had in 2008.

14 Questions for 2014........AN ABSOLUTE MUST READ!

14 Questions for 2014

“Those who cannot remember the past, are condemned to repeat it.” 

                                                                                      George Santayana

What mistakes from the past are we condemned to repeat?

2) Since unbacked paper currency systems have always failed in the past, why have bankers and economists promoted an unbacked paper currency system since 1971?

3) Would the Federal Reserve, which is owned by private banks, seek to enrich its member banks and the financial elite by implementing monetary policies such as QE that purchase distressed bank assetsand boost the stock and bond markets?

4) Janet Yellen is the new leader of the Fed and new leaders are almost always confronted with a financial crisis early in their term.What should we expect during the next 18 months?

5) ALL paper money systems have eventually failed due to excessive “printing” of the paper currency. How many years of “printing” $85 Billion per month qualifies as excessive “printing”?

6) Human nature never changes. Politicians have lied to most of the people most of the time during the past several thousand years to serve their own self-interest. Are politicians currently lying about ObamaCare, strength of the economy, employment, the NSA, big banks, the IRS, Syria, and so much more?

7) Why does gasoline currently sell for approximately $3.50 per gallon even though it cost only $0.15 per gallon about 50 years ago? Why does a cup of restaurant coffee no longer sell for $0.10? Why do $20 1 ounce gold coins containing nearly an ounce of gold now sell for over $1,250?

8) The S&P 500 Index is trading near an all-time high and is by most measures and sentiment severely over-bought on a weekly and monthly basis. Is it ready to correct downward?

9) Why is the official unemployment rate falling even though fewer Americans are working and the labor participation rate is at 30 year lows?

10) The Federal Reserve has been levitating the stock market and bailing out banks. Is it possible the Fed policies will backfire and those policies will eventually accomplish the opposite of what the Fed wants?

11) If the national debt of $17 Trillion can never be repaid, and if the U.S. government must borrow to pay the interest every year, and if the Federal Reserve must “print” those dollars, what is the real value of that debt? Is it $17 Trillion or perhaps a great deal less? The economist Hyman Minsky called this “Ponzi Finance” – the final stage of a debt based economic system when payments on the debt must be made from additional borrowing.

12) If a soaring gold price encouraged people to question the value of the U.S. dollar, and if the U.S. government had the means to suppress the price of gold, would the U.S. government manipulate the price of gold lower?

13) Germany requested their gold be returned from the NY Federal Reserve vaults about a year ago. It has NOT been returned. What happened to the German gold? Further, how much, if any, of the gold supposedly stored in Fort Knox is physically there and not “leased” or otherwise encumbered?

14) Gold has been money – a store of value, divisible, a medium of exchange, a unit of accounting, and intrinsically valuable – for 5,000 years. Paper money has usually been little more than a politician’s promise of integrity and responsibility. Which do you trust – gold or a politician’s promise?

These questions and their answers suggest that:

Drastic restructuring of the current monetary system seems inevitable, whether or not it is imminent.

Before the system resets it seems likely that governments around the world will scramble to locate and nationalize assets in order to maintain their power for a while longer. Capital controls and financial 
repression via artificially lowered interest rates are already in place. Pension plans, savings accounts, and IRA and 401(k) plans seem vulnerable to partial confiscation, bail-ins, or mandatory investment in government bonds. Such confiscations and bail-ins have already occurred in other parts of the world and could easily happen in the United States.

Gold and silver have protected purchasing power and assetsfor 5,000 years. In this twilight period of the current debt based monetary system it seems likely gold and silver will increasingly be necessary for protection of purchasing power and assets. Are you prepared?

10 greatest threats facing the world in 2014.......the views of 700 experts from around the world.


10 greatest threats facing the world in 2014

The World Economic Forum on Thursday released its Global Risks 2014 report.

"Taking a 10-year outlook, the report assesses 31 risks that are global in nature and have the potential to cause significant negative impact across entire countries and industries if they take place," is how the WEF describes the report in a statement accompanying its release.

"The risks are grouped under five classifications — economic, environmental, geopolitical, societal and technological — and measured in terms of their likelihood and potential impact," the statement says.

The report canvasses the views of 700 experts from around the world. 

Ten of what the WEF calls the "global risks of highest concern" for 2014 are as follows:

Fiscal crises in key economies

"Fiscal crises feature as the top risk in this year's Global Risks report. Advanced economies remain in danger, while many emerging markets have seen credit growth in recent years, which could fuel financial crises. A fiscal crisis in any major economy could easily have cascading global impacts."

Structurally high unemployment/underemployment

"Unemployment appears second overall, as many people in both advanced and emerging economies struggle to find jobs. Young people are especially vulnerable – youth unemployment is as high as 50% in some countries and underemployment (with low-quality jobs) remains prevalent, especially in emerging and developing markets."

Water crises

"Environmental risks feature prominently on this year's list. Water crises, for instance, rank as the third highest concern, illustrating a continued and growing awareness of the global water crisis as a result of mismanagement and increased competition for already scarce water resources."

Severe income disparity

"Closely associated in terms of societal risk, income disparity is also among the most worrying issues. Concerns have been raised about the squeezing effect the financial crisis had on the middle classes in developed economies, while globalization has brought about a polarization of incomes in emerging and developing economies."

Failure of climate change mitigation and adaptation

"Even as governments and corporations are called upon to speed up greenhouse gas reduction, it is clear that the race is on not only to mitigate climate change but also to adapt. Failure to adapt has the biggest effect on the most vulnerable, especially those in least developed countries."

Greater incidence of extreme weather events (e.g. floods, storms, fires)

"Climate change is the key driver of uncertain and changing weather patterns, causing an increased frequency of extreme weather events such as floods and droughts. The Global Risks 2014 report draws attention to the combined implications of these environmental risks on key development and security issues, such as food security and political and social instability, ranked 8th and 10th respectively."

Global governance failure

"The risk of global governance failure, which lies at the heart of the risk map, was viewed by respondents as one of the risks that is most connected to others. Weak or inadequate global institutions, agreements or networks, combined with competing national and political interests, impede attempts to cooperate on addressing global risks."

Food crises

"One of the top societal risks in the report, food crises occur when access to appropriate quantities and quality of food and nutrition becomes inadequate or unreliable. Food crises are strongly linked to the risk of climate change and related factors."

Failure of a major financial mechanism/institution

"Over five years after the collapse of Lehman Brothers, the failure of a major financial mechanism or institution also features among the risks that respondents are most concerned about, as uncertainty about the quality of many banks' assets remains." NOTHING WAS FIXED IT WAS JUST PAPERED OVER BY TRILLIONS OF PHONY CURRENCIES.

Profound political and social instability

"At number 10 is the risk that one or more systemically critical countries will experience significant erosion of trust and mutual obligations between states and citizens. This could lead to state collapse, internal violence, regional or global instability and, potentially, military conflict."


5 Signs That Say the Bear Market of 2014 About to Begin......AN ABSOLUTE MUST READ!

5 Signs That Say the Bear Market of 2014 About to Begin

1. This cyclical 
bull market is getting old. 

The average bull market since 1932 has been about 165 weeks in duration. This bull market is nearly 260 weeks in length, ranking it the fourth longest bull market out of the 16 bull markets we've had since 1932. If this bull market lasted another two months, it would be the second longest bull market in history (with only the bull market of 1990 to 1998 being longer).

2. Money printing can stabilize things short term,but leads to disaster longer term. 

It's like a drug or alcohol addiction: You feel good after you take your shot, but at some point you crash. People think that the market has stabilized and good times are here again; however, the inevitable hangover is going to be much worse than it would have been without money printing.

3. Sentiment. 

Indicators of sentiment, such as Investors Intelligence (a poll of investment writers), the Rydex Ratio (what investors are doing with their money), and NYSE Margin Debt (which has hit 2000 and 2007 levels) have reached levels that they normally see at major bull market tops, not just before corrections in the market.

4. Valuation. 

If you look at the CAPE (Shiller’s 10-year average P/E ratio), the P/E smoothed out over 10 years on the S&P 500 is now about 25, or the highest it has been since the 2000 bubble in stocks. This is a long-term indicator. However, at the very least it tells us that market returns in the next three to five years will be minimal at best.

5. Bubble symptoms in technology. 

Stocks like Yelp, Facebook , and Twitter all traded at 15 times revenues, or higher, at their peaks. In addition, even more established names such as Netflix , LinkedIn , and Amazon trade at well over 100 times earnings. This is reminiscent of the 2000 tech bubble.

While there are problems in numerous emerging markets (Turkey, Thailand, and Argentina) which often prop up during bear markets (especially when there has been easy money propping these markets high), the fact remains that we now have too many dislocations in too many sectors, and stocks are too expensive.

20 Warning Signs That We Are Approaching A Global Economic Storm.......A MUST READ!

20 Warning Signs That We Are Approaching A Global Economic Storm

Have you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don't seem to really care too much about what is happening in the rest of the world, but they should.

In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on banks. We are not at a "global crisis" stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major "turning point" for the global economy, and so far that is exactly what it is turning out to be.  

The following are 20 early warning signs that we are rapidly approaching a global economic meltdown...

#1 The looting, violence and economic chaos that is happening in Argentina right now is a perfect example of what can happen when you print too much money...

For Dominga Kanaza, it wasn’t just the soaring inflation or the weeklong blackouts or even the looting that frayed her nerves. It was all of them combined.

At one point last month, the 37-year-old shop owner refused to open the metal shutters protecting her corner grocery in downtown Buenos Aires more than a few inches -- just enough to sell soda to passersby on a sweltering summer day.

#2 The value of the Argentine Peso is absolutely collapsing.

#3 Widespread shortages, looting and accelerating inflation are also causing huge problems in Venezuela...

Economic mismanagement in Venezuela has reached such a level that it risks inciting a violent popular reaction. Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of basic consumer goods. At the same time, the Maduro administration has foreclosed peaceful options for Venezuelans to bring about a change in its current policies.

President Maduro, who came to power in a highly-contested election last April, has reacted to the economic crisis with interventionist and increasingly authoritarian measures. His recent orders to slash prices of goods sold in private businesses resulted in episodes of looting, which suggests a latent potential for violence. He has put the armed forces on the street to enforce his economic decrees, exposing them to popular discontent.

#4 In a stunning decision, the Venezuelan government has just announced that it has devalued the Bolivar by more than 40 percent.

#5 Brazilian stocks declined sharply on Thursday.  There is a tremendous amount of concern that the economic meltdown that is happening in Argentina is going to spill over into Brazil.

#6 Ukraine is rapidly coming apart at the seams...

A tense ceasefire was announced in Kiev on the fifth day of violence, with radical protesters and riot police holding their position. Opposition leaders are negotiating with the government, but doubts remain that they will be able to stop the rioters.

#7 It appears that a bank run has begun in China...

As China's CNR reports, depositors in some of Yancheng City's largest farmers' co-operative mutual fund societies ("banks") have been unable to withdraw "hundreds of millions" in deposits in the last few weeks. "Everyone wants to borrow and no one wants to save," warned one 'salesperson', "and loan repayments are difficult to recover." There is "no money" and the doors are locked.

#8 Art Cashin of UBS is warning that credit markets in China "may be broken".  The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?

#9 News that China's manufacturing sector is contracting shook up financial markets on Thursday...

Wall Street was rattled by a key reading on China's manufacturing which dropped below the key 50 level in January, according to HSBC. A reading below 50 on the HSBC flash manufacturing PMI suggests economic contraction.

#10 Japanese stocks experienced their biggest drop in 7 months on Thursday.

#11 The value of the Turkish Lira is absolutely collapsing.

#12 The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

#13 In Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

#14 The unemployment rate in Spain is sitting at an all-time record high of 26.7 percent.

#15 This year, the Baltic Dry Index experienced the largest two week post-holiday decline that we have ever seen.

#16 Chipmaker Intel recently announced that it plans to eliminate 5,000 jobs over the coming year.

#17 CNBC is reporting that U.S. retailers just experienced "the worst holiday season since 2008".

#18 A recent CNBC article stated that U.S. consumers should expect a "tsunami" of store closings in the retail industry...

Get ready for the next era in retail—one that will be characterized by far fewer shops and smaller stores.

On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It's the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy's.

Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.

#19 The U.S. Congress is facing another deadline to raise the debt ceiling in February.

#20 The Dow fell by more than xxx 
points on ....It is becoming increasingly likely that "the peak of the market" is now in the rear view mirror.

And I have not even mentioned the extreme drought that has caused the U.S. cattle herd to drop to a 61 year low or the nuclear radiation from Fukushima that is washing up on the west coast.

In light of everything above, is there anyone out there that still wants to claim that "everything is going to be okay" for the global economy?

Sadly, most Americans are not even aware of most of these things.

The mainstream media is absolutely obsessed with celebrity scandals, and so is a very large percentage of the U.S. population.

A great economic storm is rapidly approaching, and most people don't even seem to notice the storm clouds that are gathering on the horizon.

In the end, perhaps we will get what we deserve as a nation.

Orders Of Computers And Electronic Products Plunge To 1993 Levels......ANOTHER VERY PESKY FACT!

Orders Of Computers And Electronic Products Plunge To 1993 Levels

In December the orders of computers and electronic products dropped to a level not seen since 1993.

Tuesday, January 28, 2014

Last week was pretty ugly for global stock markets.........investors should prepare for more volatility!

Last week was pretty ugly for global stock markets, and most closed in the red again on Monday.

The responsibility for that misery was placed squarely on the shoulders of emerging markets. 
Currencies in emerging market nations like Turkey, South Africa, and Argentina have taken a beating.

But BlackRock's Russ Koesterich thinks, that while emerging markets did play a part, the decline in U.S. stocks could be "attributed to issues closer to home." Stretched valuations and lackluster earnings are also to blame he writes.

"We have discussed previously that last year's gains were powered primarily by multiple expansion, meaning prices were rising faster than underlying corporate earnings. In fact, 2013 saw the largest single-year increase in market valuations since 1998. As stocks grew more expensive over the last year, bonds became less so. As a result, we have been seeing some investors (notably large institutional investors) shifting more assets into bonds over the past few weeks. This helps explain why bond yields have been declining since the start of the year.

"On a related point, corporate earnings so far have been less than stellar for the current reporting cycle. Last year's rally was, to a large extent, based on an act of faith that the economy and corporate earnings would improve, which would, in turn, justify higher stock prices. While the economy does appear to be mending, improvements are modest and so far are not evident in corporate earnings reports.

"It is still relatively early in the fourth-quarter reporting season, and to date, the results have been respectable, but hardly inspiring. The percentage of companies that are reporting better-than-expected results is actually below the four-year average, which appears to be frustrating investors. We're seeing this frustration in the form of fund flows: U.S. equity funds have been seeing outflows, while European and global equity funds have been attracting assets."

Koesterich thinks investors should prepare for more volatility this year and thinks investors should diversify into international stocks.

There has been a shift in the balance of global growth as Chinese demand for raw material wanes, and as higher wages and strong currencies make many EM economies less competitive. Meanwhile, the Fed policy cycle IS turning, and 4 years of capital being pushed out in a quest for less derisory yields, are ending. This isn't a repeat of the 1990s Asian crises, because domestic conditions are completely different but it is a turn in the global market cycle. We need to transition from a world where investment is pushed out of the US/Europe/Japan to one where it is pulled in by attractive prospects. When that happens, flows will be differentiated much more from one country (em or otherwise) to another. But for now, we're just waiting for global capital flows to calm down. In the meantime,  We'll watch the high-beta assets and currencies rally, and we'll wait to sell again. 

Around the world, emerging markets are tumbling. Their currencies are getting slammed and equity markets are selling off.

There are a combination of factors behind the sell-off, including the slowdown in China, unwinding of carry trades, domestic political issues, and monetary policy of the world's biggest central banks.

But the escape from emerging markets (EM) has been brewing for a while. Investors have been shifting out of EM since mid-2013, when long-term interest rates began rising in the U.S. as the Federal Reserve primed the marketplace for a long-awaited reduction in monetary stimulus.

Much of the inflows into EM assets in recent years were predicated on a search for yield in the absence of any in developed markets. But as U.S. interest rates have risen in recent months, there has been less and less of a justification to be invested in EM, and those flows have begun to reverse.

Since the beginning of 2014, however, U.S. Treasury yields have reversed course from multi-year highs and have fallen swiftly. Yet EM currencies have continued to tumble, breaking the relationship with Treasury yields established in 2013.

And while rising Treasury yields have proven to be a challenge for EM, falling yields in the past week or so have become even more toxic, given the environment in which that drop in yields has occurred.

Disappointing manufacturing data out of China last week and grim headlines on developments in the country's shadow banking system were enough to spark the unwind of levered bets in the hedge fund community that had become too one-sided.

One popular trade in this vein is shorting the yen against higher-yielding EM currencies. When market volatility picked up last week, fast money players started exiting these trades, which is why the sell-off in EM currencies has accelerated.

Meanwhile, many of these EMs are dealing with country-specific issues of their own, even as their currencies come under pressure due to risk aversion.

"The current period of market turmoil may have slower EM growth and the prospect of less accommodative Fed policy at its heart, but it has a lot of regional sub-drivers: China's shadow banking system, politics in Turkey, strikes in South Africa, more politics in Argentina, to name but a few," says Kit Juckes, a global strategist at Société Générale.

"There are too many fires burning to expect them to all blow out simultaneously."


South Africa is also at the forefront of the latest turmoil in EM.

Last week, workers at the world's three largest platinum mines went on strike, marking the latest in an ongoing string of wage battles that have disrupted the South African economy over the last year.

Platinum prices are surging as the rand declines.

"The threat of major industrial action in the South African platinum industry has come to fruition with a strike at the world's top three producers having started last Thursday," says Robin Bhar, an analyst at Société Générale.

"If the strike continues for a protracted period (of a month or more), refined PGM output will be hit as the pipeline is drawn down. The weakness of the rand means that South African producers are already receiving the highest rand platinum prices since mid-2008. At present rand weakness gives producers headroom to survive with lower dollar denominated prices, and, as the AMCU are doubtless arguing, in a position to settle at higher wages than would otherwise be possible."