Copper’s crash confirms global economic rout

Copper, the commodity often hailed as a prognosticator of future economic trends, is tumbling 8% today, after shedding more than 4% yesterday.  Prices have not seen these levels in over 5 years.  The weakness is attributed to a lack of conviction among speculators by reports circulating the media.  I hazard to guess that the real reason copper has been plunging has more to do with a lack of demand.

As goes copper, so goes the world?

copper

Copper is used in infrastructure projects, for electronics and a variety of industrial applications.  Weak demand is an indication that manufacturing is dwindling.  Such a slow down would be a confirmation that our earlier call for deflation is playing out and we may see further economic and financial market weakness to come.

In fact, it is becoming quite likely that the world realizes all of the recovery since 2009 has been predicated on stimulus and liquidity, rather than resolving the underlying economic and debt imbalances.

It’s time to default on our debt to China

Let’s face it, China is not our friend. They never have been. Their government regularly engages in military and industrial espionage against our interests. Hacking in to thousands of American companies, government installations and harvesting sensitive information for their benefit are not the acts of an ally. Neither is attempting to harm our people, interests at home and abroad as well as our economy.

The Chinese government is anxious to usurp US influence by using the bonds they own (about $1 trillion worth) to undermine US interests. In the past they’ve used bond purchases as a way to keep rates artificially low so they can exploit the consumption-oriented nature of our debt-ridden economy and now they’re threatening to use these bond sales as a tool to manipulate our government’s policies.

For example, the US sells arms to Taiwan and China sells bonds to “punish” our government. The Chinese government also reneged on energy derivatives contracts on behalf of their state-owned energy companies because the bets simply didn’t go their way. Are we really going to tolerate this childish economic warfare and these dishonest business practices?

I’m sure most people have read about the well publicised hacking of Google, but that was just the tip of a massive iceberg. China’s government has hacked in to countless Fortune 500 firms to steal valuable trade secrets and other intellectual property. They also gained access to sensitive US government communications and intelligence information.

It’s time that we show the Chinese government that we are not their ally any more than they are our ally. This dispute has gone on far too long and it has resulted in an economic catastrophe. We are losing jobs, wealth and our sovereignty is being eroded. And for what? So we can have children’s toys tainted with poison and poor quality consumer products? Why should we put up with this nonsense from a country that has nothing but ill intentions for our government and more importantly for our people?

America didn’t dig itself in to this recession alone. We had help and there is plenty of blame go to around the world. We are supposed to believe that China is helping us out of this mess, but China’s interests are only within making their communist regime more powerful and domineering in world affairs. Do we really want to see this goal come to fruition? China is not a world leader. They are more of a string pulling, manipulative bully.

The Chinese government censors the Internet trying to prevent its citizenry from communicating with each other or finding out the truth about past events like Tiananmen Square and the repeated massacres of the Tibetan people. They also monitor forums, e-mails and chat lines in real-time attempting to squelch any civil unrest with brutal force and often times indefinite detention or worse.

How can we put our trust in to a country that has absolutely no freedom? If you dare speak out against the government they’ll throw you in prison and you have a good chance of being executed, having your organs harvested for sale or being forced in to slave labor.

Their propaganda machine portrays the Chinese government as godlike and faultless. Nothing could be farther from the truth. Their government is a one party autocracy with no accountability or checks and balances against the corruption that is prevalent amongst government officials.

It’s time to ask yourself, is it truly worth sacrificing everything we believe in and stand for just to have lower interest rates? I don’t think so. Let’s show the Chinese government we mean business and tell them their actions against our interests have violated international law, constitute acts of aggression, if not war and we will retaliate by invalidating the debt that they own. In addition, let’s stop supporting this war against America by refusing to purchase Chinese made products. We must derail the money train to Beijing before its too late.

Where is the Japanese economy headed?

With deflation continuing despite long-term zero interest rate policy, how does the new Japanese government plan to expand its efforts to revive economic growth and lower unemployment?

Is this our future?

Japan paints a very sobering picture of what the future of the United States may be facing in the future should this loose monetary policy continue unabated. Zombie banks, real estate bubbles, deflation and stock market collapses are all themes very familiar to the Japanese economy in the 1990s.

Unfortunately the circumstances are all too similar here at home. Adding to that Japan also has a large aging population that will soon outnumber its workers, akin to the situation we face in the United States. All of these reasons and more are why it’s important to pay attention to where the Japanese economy is heading.

Severe economic routs have no easy cure

Every time a massive speculative bubble implodes it leaves behind a tremendous amount of credit destruction, which in turn absorbs liquidity and pressures equities, corporate bonds and derivatives like credit default swaps. All of these circumstances potentially create deflationary forces that can shrink the capital base of a country and even create a banking panic. After all, debt is money in many modern economies. As that monetary base shrinks each unit becomes more valuable.

Mitigating the risk of severe economic contraction requires an innovative and careful approach to the underlying cause with attention to stimulating the next catalyst. Green energy is one of many appropriate catalysts for a non-speculative sustainable global economic evolution. Others include technology, infrastructure, education and health system improvements.

Japan must lead or become obsolete

For many years Japan has enjoyed the status of second biggest economy in the world, but that status is quickly fading as Japan’s export-based economy contracts in the face of a global recession and slumping industrial production.

The new government in Japan has an opportunity to reverse policy mistakes of the previous ruling party and create a sustainable economic model that is more focused on durable growth rather than speculation. This would prove to be a model for the rest of Asia if Japan can take the lead.

If Japan’s economy can not evolve and take the next step forward, China and other neighbors will gobble up the industrial production for exports that was once taken for granted.

24 trillion ways to break the bank

The crisis in the United States is reaching a silent boiling point in the struggle between the citizenry and the largest banks.  Revealed today in a story breaking across various news agencies, the United States has potentially indebted itself by nearly $24 trillion dollars through various bail out programs since 2007.  This is effectively bankrupting our entire country and if allowed to continue will ruin any chance of a sustainable recovery.  We are already on the heels of a major change in how we live, work and save money.

Debtor nation

If this amount of debt is incurred on a federal level it is twice our GDP.  That is completely out of bounds with any kind of spending plan that is sensible.  It puts the creditors of our nation in to a very difficult position, because they understand we’re debasing the world’s reserve currency to buy our way out of a financial catastrophe instead of facing the pain and making constructive changes.  These $24T in financial commitments could literally strangle our nation’s economy for decades.

Some things never change

Wall Street is back to its old tricks.  Goldman is making “record profits” amid a crisis where its competition conveniently perished under the watch of former CEO Hank Paulson as Treasury Secretary.  Now Morgan Stanley is repackaging subprime mortgage debt as AAA while JP Morgan, Barclays and others are leasing supertankers full of crude oil.  All of these actions are benefiting the banks at the expense of tax payer dollars that provided the cushion so that these companies could continue to sustain their existence.

Time to wake up

Most of the time people turn off the TV, put down the newspaper or close their browser when they encounter the intentionally dull financial news.  They want to focus on the here and now, not projections of profit or bailout recapitalization.  It’s understandable that in a functional society people would have the luxury of ignoring the banking system because they have some implicit trust, a notion of safety, about where their money sleeps.  This relationship should no longer be taken for granted and the institutions holding the dollars we cherish as our future savings may be participating in the largest, most sophisticated power and money grab the world has ever seen.

The stock market is poised for more weakness

Now that we’re off the 925 S&P 500 support area we see a rolling top forming on major indexes here and around the world.  A pullback in equities and commodities may occur as a result, providing opportunity to further short the market and gain more exposure to commodities during buying opportunities.

I believe the short term target could be as low as 900 on the S&P and interim if we see a large correction we could retest the 875 area.  The main determinant factors here will be the news flow, economic data and hunger for raw materials.

The correction could also remove the possibility of the 50 day moving average crossing above the 200 day moving average, which fund managers are looking for as further indication that the market is worth buying in to at these levels.

Bulls continue to cling on the notion of green shoots, but the green shoots look more like poison ivy according to many traders who are closely tuned in to the technicals and fundamentals.