Juggling Dynamite

Similar financial challenges are weighing on all the world’s major economies: too much debt, asset bubbles bursting, aging demographics, workers struggling to self-support, young people struggling to launch, and leaders all hoping exports will expand to offset domestic weakness. In reality, customers are tapped out worldwide, and lower prices, greater efficiency and debt restructuring are needed to restart—near-term pain is the set-up for longer-term gain.

Wei Yao, head of research and chief economist for APAC at Societe Generale, discusses China’s second quarter GDP and her outlook for the economy. China’s economy grew at the slowest pace since the country was first hit by the coronavirus outbreak two years ago. Here is a direct video link.

As policymakers fret over lagging inflation indicators and tighten financial conditions by the most in decades, demand contraction is widely evident; so far from the peak:

• the economically sensitive Russell 2000 small-cap stock index is -30%.
• the Baltic Dry Index is -64%, and the Dow Transport Index -24%.
• industrial metals index -40%, with copper -36%, silver -31%, nickel -60%, steel -34%, and lumber -56%.

Hoisington Management’s latest quarterly review and outlook is available here.  Always worth a mull; here’s a key takeaway:

A long list of pre-recessionary indicators is already present. These include declines in the volume of retail sales in five of the last seven months, a steep drop in new and existing home sales, housing starts, building permits and mortgage applications; vehicle sales at levels quite depressed from the 2019 level, severe erosion in the NFIB small business survey, flat trucking volumes thus far in 2022, and an outright decline in rail freight. New weekly unemployment claims have been working higher since the beginning of April. Manufacturing, at best, has plateaued, but indications of a downturn have been increasing along with signs of moderation in capital expenditures. Inventory investment, the main driver of growth in 2022, could slow and pose a major restraint on economic growth well before year-end. International economic conditions do not always line up with the U.S. business cycle, but conditions are extremely poor around the globe.

…Monetary considerations coupled with these real side indicators point to recession and a reduction in inflation and long-term Treasury bond yields.

The crypto space has seen one of history’s most giant and iconic financial bubbles. The circle of leverage on leverage, interconnectedness and mental illness are all classic, as are the predictable aftermath of missing and frozen funds with fleeing founders and a daisy bankruptcy chain.

Cryptocurrency prices have crashed in the last few months as the industry enters a new “crypto winter.” Crypto has seen this before, most recently in 2018. But things are different this time. CNBC’s Arjun Kharpal reports on the factors that have driven the price plunge in the most recent crypto cycle. Here is a direct video link.

Quote of the year: “One thing we can say is that this cycle has been characterized by poor risk management and some unsustainable business models.”  And how!

Read more about the madness in The ‘crypto winter’ is different from the last; here’s why.