Juggling Dynamite

As Nick Hanauer so ably points out, a few people getting exorbitantly wealthy for short periods on asset bubbles that repeatedly implode is no way to create sustainable jobs and economic growth. In the end, bubble prices crash again, and the world is left farther behind with piles of worthless iou’s.

But re-engineering the power grid and building out renewable energy and electric transportation that the world desperately needs? Now that’s a job creator. As shown in this chart, $1 million invested in renewable technologies creates many more good paying jobs than a million invested in older, more polluting industries like natural gas and coal.

Also to learn more about driverless auto technology, and why it is a life saving revolution that is here to stay and increase human efficiency, watch, TED: How a driverless car sees the road.

On a long list of historically reliable metrics, the present global asset bubble is in the top 3 most extreme financial episodes of the past 100 years, surpassing 1929, 2000 and 2007. There is no question that we will be talking and writing about the mental and financial errors made during this manic period for many decades to come. Every bubble begins with an erroneous belief in a ‘new normal’ force that will not allow asset prices to go down. A belief in insatiable demand from China was a key catalyst behind the 2007 bubble peak. Belief in the supreme powers of central planners has been the catalyst behind the latest “QE” or central bank bubble peak. The train wreck unfolding in China is revealing just how foolish and misplaced these belief systems have been. And the revelation is spreading.

Discussing whether a Chinese market crash is ahead, with Ruchir Sharma, Morgan Stanley Investment Management. Here is a direct video link.

Today oil took another drubbing with most other commodities, as the slowing global economy met systemic shocks from collapsing speculative frenzy in China and a surprise “No” in Greece. As dramatic as drops have been so far, it is possible that mean reversion trends here are just getting started.

As shown in this long term chart of West Texas Crude since 1990, a retest of the 2009 lows for crude below $40 is well within reason.  Now that oil is firmly below the secular bull channel that supported it since 2001, a break below the prior cycle low of $37 in 2009 would confirm a fresh secular bear that can weigh on prices and producers for years.

The Canadian (and Aussie) dollar dumped along for the ride as short sellers renewed bearish bets on commodity centric economies and odds increased that the Bank of Canada will cut rates again this month.  See:  Would Stephen Poloz risk ‘inflaming’ Canada’s housing and debt with another rate cut.   Unfortunately, the answer is yes, because all central banks ever had to work with was cutting rates as a tool to encourage risk-taking. But because they used that prod repeatedly and recklessly for the past 15 years,  it is virtually impotent now.  The greatest effect is likely on the currency.  The loonie could easily dive toward the .70U$ area in the process (as shown below).