“Gird your loins and fasten your seat belts!” Below is Part 1 of my forecast for 2015 related to financial (incl. banking & oil) matters. Those related to geopolitical (incl. Russia, China, Japan, USA, Europe & the Islamic State) particulars (Part 2) and U.S. domestic (incl. political, economic & societal) particulars (Part 3) are covered in subsequent articles.
Finance and Banking
As 2014 closed out, that kit-bag of frauds, swindles, Ponzis, grifts, bait-and-switches, and three-card-monte scams is looking at least as wobbly as it did in 2007 when Wall Street was busy manufacturing booby-trapped MBSs and CDOs except we know the true aggregate risk at stake has only grown larger and more hazardous due to all the strenuous efforts by authorities since the panic of 2008 to evade any natural process for clearing mal-investment and debt gone bad. A lot of that stank was simply shoveled into the Federal Reserve’s basement, where it sits to this day, composting steamily. As to be expected…financial repression, market intervention, and statistical distortion will produce ever more financial perversity. That is the hazard in decoupling truth from reality. Imposed dishonesty will always express itself in unexpected ways. Who expected the price of oil to fall by nearly half in a few months? (More on that below.)
These days, perversity expresses itself in a morbidly obese dollar gorging on junk while bulimic currencies elsewhere projectile-vomit their value away as the economies attached to them die of malnutrition. Perhaps this comes as a surprise to central bankers standing at their control panels like recording engineers at the soundboard, tweaking all the dials and slides expecting to achieve a perfect repressive inflation rate of 2-plus percent so they can melt away the onerous debt of sovereign balance sheets and Too Big To Fail banks — incidentally squeezing the citizenry of purchasing power in small annual increments that add up, after a while, to worthless money. They did manage to extend the inflation of stock market indexes another year, which the public is supposed to interpret as “prosperity.” Half a trillion dollars in stock buybacks of S & P companies were executed in 2014, much of it done with money, i.e. “leverage,” borrowed at zero interest. Stock buybacks boost share prices, of course, but they don’t represent any real increased value in a given company. They’re just snakes eating their own tails.
The belief that the world’s “reserve” currency is an implacable force, and that central bankers are omnipotent has made this trade appear to be an irresistible trend — Don’t fight the Fed! Since it’s a matrix of fraud based on thin air money detached from real productive activity, it is certain to blow up and, since 2015 is seven years past the last blowup, it can happen any time. All it requires is some small slippage somewhere, that one equivalent extra grain of sand or snowflake to bring the accumulate mass of false value down in a financial earthquake or avalanche. That obese dollar has been gorging on the equivalent of cheese curds and Little Debbie Snack cakes, so it only grows more diseased as it gains weight. Sentient observers cannot fail to notice the advancing sickness.
Meanwhile, the U.S. is stupidly waging currency war against other nations that can only blow back by incurring the animosity of every trading partner we have on the only planet available to live on. In 2015, I expect Russia to enlist China’s aid in undermining the dollar’s reserve status. Both countries have weaponry in the form of cash reserves and gold in their vaults. They also have the computer hacking expertise to start seriously messing with U.S. markets — as much Fed technicians and TBTF bank algos do — bringing on mysterious flash crashes, derivatives “accidents,” and other abnormal events that will leave even the Goldman Sachs MIT graduates scratching their heads. Such hacking may accomplish what years of arrant market interventions by U.S. technicians failed to produce: a deadly loss of faith on all the institutions that govern money and markets. Then the U.S. will be the cleanest shirt in a laundry basket that is on fire.
The dollar these days represents two kinds of capital:
1. The first is the stuff that the U.S. has built and invested in since, say, the end of World War Two: a wasteland of aging and decrepitating suburban sprawl, that is, the infrastructure of a living arrangement with no future, the greatest entropic sink in human history. It extends to whole cities and their subsystems, e.g. the hell-hole of Las Vegas with Hoover dam and the dwindling reservoir of Lake Mead. Before mid-century, Las Vegas will be as desolate as Egypt’s Valley of the Kings. Try to imagine the money that went into building all that stupid shit in the desert. In another decade, across America, the housing subdivisions and commercial highway strips filled with tilt-up box stores, muffler shops and burger dispensaries will retain less value than the pyramids of Palenque had for the Mayans after their society rolled over and died. The so-called real economy is a New Age serfdom of burger fryers and janitors, indentured to that entropic sink. Below them is a widening slough of methedrine, child abuse, and tattoo art on its way to becoming Soylent Green. To put it bluntly, the dollar is entropy’s algo bitch.
2. The second kind of capital the dollar represents is the imaginary value based on sheer lying, making shit up, and borrowing from a future that has no chance of being paid back. This is the capital ginned up on “American exceptionalism” and “energy independence,” fairy tale memes functioning as collateral for the aforementioned malinvestments that add up to “The American way of life.” This capital has no substance, since it is just made up of intellectual and emotional dishonesty. This is the kind of constructed narrative that addicts and other functional cripples resort to to justify their behavior, and the fragility of it will sooner or later lead to the well-known condition of “hitting bottom.” That is the event horizon where the remnants of America enter what I call the World Made By Hand. It will be the greatest socio-economic shift since the fall of Rome, only much swifter.
…Despite the triumphal agitprop of the past few years, peak oil is for real. It just manifests more strangely than most people thought…as volatility and so, since the actual moment of peak conventional crude around 2005, we’ve seen pretty wild oscillations in the price of oil. This is due to the harsh reality that the price people and enterprises can afford to pay for increasingly harder-to-get oil is less than the price that makes it possible to get it setting up a yo-yo-ing instability in economic performance that exacerbates even normal wave patterns in the business cycle (which are, in turn, aggravated by banks and governments’ interventions such as ZIRP to suppress those cycles).
- Below $70-a-barrel the producers go broke;
- above $70-a-barrel the customers go broke
so the price wobbles up and down as financial Ponzis like shale oil are introduced onto the scene in the hope that debt finagling and mineral rights leasing scams can substitute for physics and geological reality. One trouble with this is that each violent oscillation generates more economic and financial destruction. Activities like motoring, aviation, manufacturing, and retail are badly affected and the entire financial system is made more fragile by worsening increments. Most importantly, the cost structure of the oil industry itself gets battered to a degree that fewer companies can survive to produce the remaining oil.
The big story for 2014 was the crash of oil prices. It is yet being celebrated in other blogger’s 2015 forecasts as a boon to America but:
- wait until they find out that almost all of the “good jobs” added in recent years were associated with the shale drilling industry that is now being put out of business by low oil prices,
- wait until they find out how the failure of junk bond financing thunders through the bond markets and the savage wilderness of derivatives — and ultimately into their ruined pension funds,
- wait until they discover that it was but a symptom of the compressive deflationary depression now gripping the entire techno-industrialized world.
Here are my financial forecast particulars for 2015:
- Early in 2015 the ECB proposes a lame QE program…[causing] European markets to tank.
- Greek elections in January produce a government that stands up to the EU and ECB and causes a fatal slippage of faith in the ability of that project to continue.
- [During the] second half of 2015, the rest of the world gangs up and counter-attacks the U.S. dollar.
- Bond markets in Europe implode in first half and the contagion spreads to the U.S. as fear and distrust rises about viability of U.S. safe haven status.
- Derivatives associated with currencies, interest rates, and junk bonds trigger a bloodbath in credit default swaps (CDS) and the appearance of countless black holes through which debt and “wealth” disappear forever.
- U.S. stock markets continue to bid upward in the first half of 2015, crater in Q3 as faith in paper and pixels erodes. DJA and S & P fall 30 -40% in the initial crash, then further into 2016.
- Gold and silver slide in the first half, then take off as debt and equity markets craters, faith in abstract instruments evaporates, faith in central bank omnipotence dissolves, and citizens all over the world desperately seek safety from currency war.
- Goldman Sachs, Citicorp, Morgan Stanley, Bank of America, DeutscheBank, SocGen, all succumb to insolvency. American government and Federal Reserve officials don’t dare attempt to rescue them again.
- By the end of 2015…the Federal Reserve’s mandate is publically debated and revised back to its original mission as lender of last resort. It is forbidden to engage in further interventions and a new less-secretive mechanism is drawn up for regulating basic interest rates.
- Oil prices creep back into the $65 – $70 range by May 2015, but it is not enough to halt the destruction in the shale, tar sand, and deepwater sectors.
- Oil sinks back to the $40 range in October as contraction in the failing global economy accelerates, unless mischief in the Middle East (in particular, the Islamic State messing with Saudi Arabia) leads to gross and perhaps fatally permanent disruption in world oil markets — and then all bets are off for both the continuity of advanced economies and for peace between nations.
[The above article is presented by Lorimer Wilson, editor of www.munKNEE.com and www.FinancialArticleSummariesToday.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
*Original Source: http://kunstler.com/forecast/forecast-2015/ (KUNSTLER © 2015. All Rights Reserved.)
- Register for our Newsletter (sample here)
- Like us on Facebook
- Follow us on Twitter (#munknee)
- Subscribe via RSS
The signal event of 2015 will be the disintegration of Tom Friedman’s global economy, the trade and banking relations we have known for about a quarter century, especially the frictionless flow of goods and capital between East and West. Read More »
Fasten your seat belts! Below is my forecast of what will unfold in the U.S. in 2015. Forecasts related to geopolitical particulars (covering Russia, China, Japan, USA, Europe & the Islamic State) and financial matters (covering banking & oil) are covered in subsequent posts. Read More »
The Mayans R us. One year, they were cavorting bloodthirstily atop their garish painted pyramids and a generation later the jungle was stealing back over the temple steps and the population was a tenth of its former size. The same thing is going to happen to us, except there will be a hell of a lot more worthless, toxic debris left on the landscape. We enter 2015 with greater tensions than ever before and therefore the likelihood that the inevitable breakdown will release more destructive energy and be that much harder to recover from. Read More »