New Zealanders, especially pay attention. We are not being told about this as government and media are feeding us chickenshit.
This is the august, right-wing conservative DailyTelegraph.
Doomsday
clock for global market crash strikes one minute to midnight as
central banks lose control
China
currency devaluation signals endgame leaving equity markets free to
collapse under the weight of impossible expectations
16
August, 2015
When
the banking crisis crippled global markets seven years ago, central
bankers stepped in as lenders of last resort. Profligate
private-sector loans were moved on to the public-sector balance sheet
and vast money-printing gave the global economy room to heal.
Time
is now rapidly running out. From China to Brazil, the central banks
have lost control and at the same time the global economy is grinding
to a halt. It is only a matter of time before stock markets collapse
under the weight of their lofty expectations and record valuations.
The
FTSE 100 has now erased its gains for the year, but there are signs
things could get a whole lot worse.
1 -
China slowdown
China
was the great saviour of the world economy in 2008. The launching of
an unprecedented stimulus package sparked an infrastructure
investment boom. The voracious demand for commodities to fuel its
construction boom dragged along oil- and resource-rich emerging
markets.
The
Chinese economy has now hit a brick wall. Economic growth has dipped
below 7pc for the first time in a quarter of a century, according to
official data. That probably means the real economy is far weaker.
The
People’s Bank of China has pursued several measures to boost the
flagging economy. The rate of borrowing has been slashed during the
past 12 months from 6pc to 4.85pc. Opting to devalue the currency was
a last resort and signalled the great era of Chinese growth is
rapidly approaching its endgame.
Data
for exports showed an 8.9pc slump in July from the same period a year
before. Analysts expected exports to fall only 0.3pc, so this was a
huge miss.
The
Chinese housing market is also in a perilous state. House prices have
fallen sharply after decades of steady growth. For the millions who
stored their wealth in property, it makes for unsettling times.
2 -
Commodity collapse
The
China slowdown has sent shock waves through commodity markets. The
Bloomberg Global Commodity index, which tracks the prices of 22
commodity prices, fell to levels last seen at the beginning of this
century.
The
oil price is the purest barometer of world growth as it is the fuel
that drives nearly all industry and production around the globe.
Brent
crude, the global benchmark for oil, has begun falling once again
after a brief rally earlier in the year. It is now hovering above
multi-year lows at about $50 per barrel.
Iron
ore is an essential raw material needed to feed China’s steel
mills, and as such is a good gauge of the construction boom.
The
benchmark iron ore price has fallen to $56 per tonne, less than half
its $140 per tonne level in January 2014.
3 -
Resource sector credit crisis
Billions
of dollars in loans were raised on global capital markets to fund new
mines and oil exploration that was only ever profitable at previous
elevated prices.
With
oil and metals prices having collapsed, many of these projects are
now loss-making. The loans raised to back the projects are now under
water and investors may never see any returns.
Nowhere
has this been felt more acutely than shale oil and gas drilling in
the US. Tumbling oil prices have squeezed the finances of US
drillers. Two of the biggest issuers of junk bonds in the past five
years, Chesapeake and California Resources, have seen the value of
their bonds tumble as panic grips capital markets.
As
more debt needs refinancing in future years, there is a risk the
contagion will spread rapidly.
4 -
Dominoes begin to fall
The
great props to the world economy are now beginning to fall. China is
going into reverse. And the emerging markets that consumed so many of
our products are crippled by currency devaluation. The famed Brics of
Brazil, Russia, India, China and South Africa, to whom the West was
supposed to pass on the torch of economic growth, are in varying
states of disarray.
The
central banks are rapidly losing control. The Chinese stock market
has already crashed and disaster was only averted by the government
buying billions of shares. Stock markets in Greece are in turmoil as
the economy grinds to a halt and the country flirts with ejection
from the eurozone.
Earlier
this year, investors flocked to the safe-haven currency of the Swiss
franc but as a €1.1 trillion quantitative easing programme devalued
the euro, the Swiss central bank was forced to abandon its four-year
peg to the euro.
5 -
Credit markets roll over
As
central banks run out of silver bullets then, credit markets are
desperately seeking treprice risk. The London Interbank Offered Rate
(Libor), a guide to how worried UK banks are about lending to each
other, has been steadily rising during the past 12 months. Part of
this process is a healthy return to normal pricing of risk after six
years of extraordinary monetary stimulus. However, as the essential
transmission systems of lending between banks begin to take the
strain, it is quite possible that six years of reliance on central
banks for funds has left the credit system unable to cope.
Credit
investors are often far better at pricing risk than optimistic equity
investors. In the US while the S&P 500 (orange line) continues to
soar, the high yield debt market has already begun to fall sharply
(white line).
6 -
Interest rate shock
Interest
rates have been held at emergency lows in the UK and US for around
six years. The US is expected to move first, with rates starting to
rise from today’s 0pc-0.25pc around the end of the year. Investors
have already starting buying dollars in anticipation of a
strengthening US currency. UK rate rises are expected to follow
shortly after.
7 -
Bull market third longest on record
The
UK stock market is in its 77th month of a bull market, which began in
March 2009. On only two other occasions in history has the market
risen for longer. One is in the lead-up to the Great Crash in 1929
and the other before the bursting of the dotcom bubble in the early
2000s.
UK
markets have been a beneficiary of the huge balance-sheet expansion
in the US. US monetary base, a measure of notes and coins in
circulation plus reserves held at the central bank, has more than
quadrupled from around $800m to more than $4 trillion since 2008. The
stock market has been a direct beneficiary of this money and will
struggle now that QE3 has ended.
8 -
Overvalued US market
In
the US, Professor Robert Shiller’s cyclically adjusted price
earnings ratio – or Shiller CAPE – for the S&P 500 stands at
27.2, some 64pc above its historic average of 16.6. On only three
occasions since 1882 has it been higher – in 1929, 2000 and 2007.
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