August 3-9, 2024
Big news The Tokyo Stock Exchange has fallen by more than 25% in 4 weeks, recouping all of the gains of the last 15 months:
Рис. 1
Other markets were also shaken, but not as much. In the US, mainly the IT giants fell, having been inflated to an extreme level in terms of capitalization.
Overall, nothing mortally dangerous has happened and most likely will not happen. Just as we have warned ( https://fondmx.pro/en/weekly-wrap/the-way-is-defined/ ). But some issues need to be paid attention to. In particular, at the beginning of the week (specifically, on Monday), when the market opened with a serious drop (but not a huge decline), there were proposals or leaks that the Fed could meet for an extraordinary meeting and lower the rate.
After some time, an official denial came, but we will note that it is very likely that this means probing the market for a serious weakening of the credit and monetary policy. However, to some extent, the Fed can do this quietly. Since the main problem of the financial system today is the extremely low level of liquidity. There is no free money in the system.
The Fed can print money for the financial sector and prop up markets, but that money won’t get into the economy. Since banks cannot significantly increase lending, potential borrowers do not have good collateral assets. The only option for supporting demand is to increase government debt (under the same issue), but this will almost immediately cause a serious increase in inflation. This is an option for October, the most extreme – the second half of September. And now it is only the beginning of August …
In general, the US monetary authorities have serious problems, which are exacerbated by political problems. So far, candidates for the prerogatives of the Fed are not climbing, but if the problems intensify, they will definitely climb. There is another problem, but it is of a medium-term nature and about it – in the final section of the Review.
Macroeconomics. Industrial orders in Germany -11.8% per year. Not counting the fluctuations around Covid (2020/23), this is the worst dynamics since autumn 2009:
Рис. 2
And industrial production in Germany is -4.1% per year, the 13th consecutive monthly decline:
Рис. 3
That is, the German economy has been falling for over a year now.
In the Netherlands -3.4% per year, the 12th minus (or zero) in a row:
Рис. 4
Argentina’s industrial output -20.1% y/y, near 22-year low in March (excluding Covid):
Рис. 5
Japan Leading Indicators at 14-Month Bottom:
Рис. 6
Eurozone investors (Sentix review) are pessimistic to the maximum in 7 months:
Рис. 7
Swedish construction output -9.0% y/y, 17th straight negative and near last year’s 15-year low (-9.5%):
Рис. 8
Australia’s building permits hold at 12-year levels:
Рис. 9
UK mortgage rates remain just 0.04% below 26-year high:
Рис. 10
Mexico CPI (Consumer Inflation Index) +5.6% per year, 14-month high:
Рис. 11
The number of people receiving unemployment benefits in the US has again reached a 3-year peak:
Рис. 12
Japan’s household spending -1.4% per year, 15th worst in past 16 months:
Рис. 13
The Central Bank of Australia left its monetary policy unchanged and does not expect it to be softened in the near future, and the Central Bank of India has not changed anything either.
The Central Bank of Mexico has cut its rate by 0.25% to 10.75%.
Main conclusions. It is absolutely obvious that the situation in the global and American economy in particular is becoming increasingly critical, the decline continues and shows no signs of stopping. Our readers understand that nothing else can happen, since this fully corresponds to the model of a structural crisis. But the supporters of liberal economic theory, who completely dominate all expert and management institutions, cannot understand this. Since within the framework of liberal theory, the concept of a structural crisis does not exist. And the current events do not fit into the cyclical theory.
Accordingly, more and more often the monetary authorities of different countries appeal (officially or unofficially) to various kinds of political reasons (Putin is always to blame for the woes of a liberal). It is clear that this does not improve the situation, not to say that it worsens it.
Politicians are also speaking out, Trump has openly said that it is time to make the Fed’s policy controlled by the president of the country. In fact, he (for the first time!) has fully voiced the scenario that I described in Dayton on November 5, 2014: “Either support the global dollar system at the expense of US industry, or save US industry, but at the cost of destroying the global dollar system.”
The rejection of the second part of this scenario cost him dearly in his first term, now the situation may change. If the hypothesis that the demiurges – the elite of the “Western” global project – could collude with those industrial elites who are moving Trump. Since there is little hope for Harris. If this is so, and we will soon see this by the “fading” of the Harris campaign, then we can almost certainly predict the US policy. Which will consist of a gradual “writing off” of the debt overhang and its possible transfer to the “crypto” mode. With the subsequent writing off of debts to all external creditors.
The most important thing is to prevent hyperinflation, since it destroys the real sector. In this case, the nominal indicators of financial markets will not change, the real value of assets will gradually fall, and the state will support investments in the real sector. But still, such a policy will require the emergence of new markets, so the US will almost inevitably begin expansion into Southeast Asia. There are no contradictions between the parties in this area.
Another thing is that this requires many complex decisions that will not directly relate to the economy (and, especially, to macroeconomics). In any case, we will closely monitor what scenarios the US monetary authorities are implementing, given that, according to the available information, this can far from always be done unambiguously.
In the meantime, we wish our readers a good vacation and fresh strength to continue their work!