While You Focus on the Trump Circus, World Markets are Burning

The US Republican-led Congress and the US media focuses on the Trump circus, but the US voter had better wake up to the reality that the conservatives’ idiotic austerity insistence is about to bring about a SERIOUS return to recession and there is nothing the Federal Reserve can do about it this time….they are out of bullets and the wolf is at the door.dancart3754

The rout in U.S. stocks continued for the fourth straight day on Friday, with all three major indices down more than 1 percent, as fears of a China-led global slowdown were heightened after grim data overnight.

The Dow Jones industrial average and the S&P were poised for their sharpest weekly fall since November 2011. The Nasdaq was on track for its steepest weekly fall since August 2011. The Russell 2000 .RUT entered correction territory.

The selloff was broad based as all 10 major S&P sectors were in the red, led by the consumer discretionary sector. Eight of the 10 sectors were down more than 1 percent.

Data from China showed its giant manufacturing sector shrank at the fastest pace since 2007, exacerbating worries about its health. The data comes on the heels of weaker-than-expected economic data in July, the yuan’s devaluation this month and a stock market plunge that saw Chin’s leaders DEMANDING the vast Chinese middle class to take the equity in their homes and buy Chinese corporate stock—for the sole purpose of propping up the stock market— or risk having their homes literally taken from them.

This, my friends, is China in panic mode.

Middle class families are literally being wiped out in order to try to stem the tide of the Chinese stock market because it’s the most visible sign to the outside world that China is in deep shit.

World stock markets tumbled towards their worst week of the year on Friday and commodities had another bruising day.

“China is the main concern. It looks like all of a sudden the market has latched on it,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis.

“You have to put this week’s move into perspective. We are about 5 percent off from record highs and the market hasn’t seen a 10 percent correction since the 2007 cras. We still think there is potential for more downside.”

At 11:13 a.m. ET (1513 GMT) the Dow Jones industrial average .DJI was down 294.67 points, or 1.73 percent, at 16,696.02.

The S&P 500 .SPX was down 36.78 points, or 1.81 percent, at 1,998.95 and the Nasdaq composite .IXIC was down 106.86 points, or 2.19 percent, at 4,770.63.

The consumer discretionary index .SPLRCT fell 1.55 percent. The consumer staples sector’s .SPLRCS 1.17 percent decline pulled the index into the red for the year. Now eight of the 10 sectors are negative for the year.

Those fears and a U.S. inflation rate below the expected target (reasonable inflation indicates a strong economy and enhances GDP) has caused some investors to scale back bets that the Federal Reserve will raise interest rates in September.

As I’ve been saying for months, signs China’s economic slowdown is deepening and weak growth in Europe and the U.S. reported on Friday further damaged the outlook for the global economy, sending stocks and commodity prices reeling, and the worst possible mistake the US could make is putting a so-called businessman in charge, like Donald Trump, who has absolutely no understanding of the difference between business economics (microeconomics) and governmental economics (macroeconomics).

China’s factory sector shrank at its fastest rate in almost 10-years in August, a private survey showed, pushing investors who fear China’s sagging economy will translate into slower global economic growth to take refuge in gold and bonds.

World markets had already been on edge after China’s surprise devaluation of the yuan last week and a 33 percent fall in its stock markets since mid-year.

“Uncertainty about China growth is now the main swing factor in markets,” said Tim Condon, an economist at ING Group in Singapore.

“Today’s data reinforced the doubts about global growth.”

The downdraft from China is particularly rattling economies of its trade-reliant Asian neighbors.

South Korea, which counts China as its biggest trading partner, said on Friday its exports slumped and Taiwan reported on Thursday its export orders in July fell more than expected.

Following three decades of fast economic growth, Chinese authorities have had limited success in shoring up activity this year despite four interest rates cuts since November.

The speed with which China’s economy is losing steam has led to analysts warning the government may struggle to meet its growth target of 7 percent this year if it doesn’t ratchet up policy support. China’s factory output, retail sales and investment all disappointed in July.

“While we do not have enough information to assess all the details of official releases, we share the view that real GDP growth probably slowed more than reported in recent quarters,” said Wei Yao at Societe Generale.

Stock markets around the world tumbled towards their worst week of the last 7 years on Friday as the weak Chinese data sent investors scurrying to safe-haven assets.

And Then There’s the Oil Plunge

U.S. shale oil production amounted to just 5 million barrels per day (bpd) at the end of 2014, less than 6 percent of world production and consumption.

Despite the shale sector’s small market share, it has disrupted the entire oil industry because it emerged in the middle of the cost curve and has accounted for more than half of the increase in global supplies since 2010.

Between 2010 and 2014, shale output rose by 4 million bpd, accounting for more than half of the 7 million bpd increase in global liquids production over the same period, according to the U.S. Energy Information Administration (EIA).

Shale is more expensive to produce than oil from the giant conventional fields of the Middle East but cheaper than deepwater megaprojects and competes directly against the North Sea and Canada’s oil sands.

Shale’s competitiveness on price and fast growth have scrambled the plans for every other participant in the oil industry.

Middle East exporters, accustomed to spending profits of more than $50 per barrel on social program, must now adjust to far smaller revenues as evidenced by Saudi Arabia actually selling government bonds to fill massive budget holes. Their budgets over the last three decades have relied upon $106/bbl oil price averages. $40/bbl oil is shaking the foundation in the Middle East’s primary economy.

And high-cost producers in the North Sea, Alberta, Latin America, Africa and frontier exploration areas are struggling just to survive. Therefore, any demand that was originating from these areas has vanished like the water table in California….yes, that means it’s dry….completely dry.

Experts originally put the marginal cost of oil from the shale plays in North Dakota and Texas at $70 per barrel but efficiency gains have cut breakeven prices to $60 or even $50 and they could be as low as $40 or even $30 in the best areas and it’s causing widespread panic, oil rig closures and oil field abandonments everywhere.

Shale can justifiably be called a revolution comparable to the introduction of rotary drilling at the turn of the 20th century and the opening of huge conventional reservoirs in the Middle East in the 1950s and 1960s.

The Affect on Currency Value

The debt-mongers in the GOP-led US Congress, on the other hand, are crippling the chances that the US could be a driving force in alleviating the precarious lack of global demand. Without the contractors that used to clean and maintain National Parks, the Natchez Trace, without the contracts to private companies that provided food to military bases around the country, without the demand by US middle class buyers who have confidence that they will be paid a decent wage or have confidence that the money stolen from Social Security to fund George W. Bush’s illegal wars will be paid back so that they can retire comfortably when the time comes, the US consumer will continue to buy only what it needs rather than what it wants.

And since the US is not competitive as an exporter due to stupid trade agreements like NAFTA and the 100 times worse TPP that is set to pass Congress, we must depend on domestic sales with no impetus for other countries to import our goods and services, there can be only one outcome if these reckless policies don’t change; and fast.

That outcome should rattle the US middle class to its core while it watches FOX Noise or has its focus trained on the circus-like atmosphere that the US media is exploiting for personal ad dollars that goes by the name of circus clown Donald Trump.

The outcome of all these things really points to only one historic repeat of history….a global depression.

Harvey Gold