Credit booms are powerfully reinforcing. New Credit provides additional purchasing power that spurs spending, economic output, corporate earnings/cash-flow and income growth. Monetary expansions, as well, fuel inflating asset prices, most notably in securities and real estate.
Friday was one of those market days that left an uncomfortable feeling in the pit of my stomach.
With markets on the rather quiet side, I awoke Friday anticipating a more theoretical focus for this week’s CBB. But then May’s surprisingly dismal jobs report – 38,000 seasonally-adjusted jobs versus consensus expectations of 158,000 – threw the markets for a loop. Bond yields sank – at home and abroad. Currency markets went haywire, with the Japanese yen surging 2% versus the dollar. The U.S. dollar index ended Friday’s session down 1.75%, its biggest one-day decline since December.
Key economic dynamic is neither growth or recession, but instead major imbalances and various boom and bust dynamics.
Friday headlines from Bloomberg: “Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback” and “Consumers Turn Out to Be U.S. Growth Lifeline After All.” Ironically, U.S. retail stocks (SPDR S&P Retail ETF) were slammed 4.3% this week.
Seemingly the entire world has operated under the assumption that Chinese officials (and global policymakers in general) have zero tolerance for crisis – let alone a collapse.
Let’s return to last week’s theme of China as the “marginal source of global Credit and liquidity” for a runaway global Bubble that has been pierced at the periphery. It is difficult for my thoughts not to return to the analogy of the matador’s sword initially piercing bull flesh.
This is a syndicated repost courtesy of Credit Bubble Bulletin. To view original, click here. Reposted with permission. Another unsettled week for global markets. Japan’s Nikkei equities index rallied 6.5%. Italian bank stocks surged 10%, with the Europe STOXX 600 Bank Index up 8.1%. Germany’s DAX equities index rallied 4.5%, with Spanish stocks up 5.0%…
From my analytical perspective, unsustainability is a fundamental feature of “Bubble Economies.” They are sustained only so long as sufficient monetary fuel is forthcoming.
It’s not as if we’re lacking history as to how this works. Some two decades ago the Greenspan Fed’s “asymmetrical” (baby-step “tightening” measures versus aggressive rate slashing and market support) policy approach emboldened speculation.