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Middlebrook Predicts the 2016 Market Crash

To be honest I had always assumed that the 2008 market crash was a false dawn.  When charts go parabolic you know something has to give. Since 2001 US interest rates have been close to zero, and since Obama was elected US federal debt has gone from US$10 trillion to around US$18 trillion and climbing. Everyone talks about Obama Care. Nobody asks where the US$10 trillion went to.

The problem with free money is that it is only free if you can turn a profit on it.  With much of the quantitative easing never actually meeting real business on the street, and with global central banks sinking around US$17 trillion into private equity markets, it is clear that big money has gambled on the private not public sector in accelerating growth and jobs. The problem is, with currencies being devalued globally, falling demand for increased production has meant that a very large proportion of this money is simply sitting in back accounts; being shuffled around money markets in a process called hypothecation.

The Yuan was let in as a reserve currency by the IMF because the life of the greenback is fatally uncertain.  Bringing in the redback, which has led to great market turmoil in China and the rest of the world, guarantees that by December 2016 when the Yuan is official implemented as a reserve currency, the Chinese Government will need to have liberalized the Chinese market considerably more than it has so far.  As a result, 2016 is going to be a very terrible year for those who do not understand the rules of this new game, though it will be a boon for those of us who do.

UK banking share prices have - for example - largely stayed flat for 8 years.  The Royal Bank of Scotland once traded at GBP 4 pounds, before falling to just 12 pence after the crash. I predict oil to head south of US$30 a barrel early 2016 and it could go below US$25.  Commodity prices too are slipping even further and global and regional growth for emerging economies has been revised down by the IMF.  If economic conditions in China and the emerging markets is hit as teh Fed looks to increase interest rates, then demand for good and services will also be affected.

There are trillion of dollars languishing in bank accounts and 3 billion people living below the poverty line.  The problem is that markets have become irrational and the 'human insecurity' driving people to yearn to be rich has led to the creation of ever more complex systems of wealth, much of which may be worth virtually zero once the plug is pulled out.

The 12 long month run up to the Yuan as a de facto reserve currency, combined with poorly timed interest rate hikes and other crisis such as refugees in Europe and sectarian rivalry in the Middle East mean that markets will remain highly volatile the whole of 2016, if not beyond. Equity markets are due more than a correction; a crash perhaps.

While traditional logic tells peopke ot hedge with gold, land and fully securitized bonds, the reality is that once the tide starts to go out, for the average person, it will be far too late.

  • Posted Date:  
  • 08 Jan 2016
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