"Equities Will Be Devastated" Crispin Odey Warns, Looming Recession Will Be "Remembered For 100 Years" | Zero Hedge

"I think equity markets will get devastated," warns famed $12bn AUM hedge fund manager Crispin Odey in his latest letter to investors. Having been one of the biggest bulls of this particular central bank artificial-bull cycle, his dramatic bearish tilt (as we discussed what he thinks are the biggest risks underpriced by the market previously), is notable. Finally, Odey fears major economies are entering a recession that will be "remembered in a hundred years," adding that the "bearish opportunity" to short stocks looks as great as it was in 2007-2009.

Odey Asset Management (report for Dec 2014)

The themes I have been outlining since the second quarter of 2014 are now establishing themselves:

A faltering Chinese economy with growth ultimately slowing down to 3%.

A hard landing for those countries plugged into China’s growth - especially Australia, South Africa and Brazil.

A fall in commodity prices bringing with it pain to those heavily exposed. For oil this is the Middle East, Venezuela, Argentina, mid-west USA, Canada, Norway and Scotland.

No one forecast how fast and how far those commodity markets would fall. However, the same people who singly failed to see this coming are the first to say that the benefits of falling prices will outweigh the costs. My problem with such a hopeful outcome is that, in my experience, those that lose out from a fall in their income are quicker to adjust than those that benefit. In that intertemporal space lurks a recession.

For me, the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure in the affected industr es and countries, something we are only just seeing. This obviously has knockon effects for incomes and employment. At that time the exchange rate is likely to be falling to give some support. In my world this slowdown in the commodity producer’s economy is felt via falling exports back in the beneficiary’s economy, which finds external markets weaken. Again, if I am right on timing, the effect can be great because it is not yet affected by a pickup in spending in the beneficiary’s economy.

As always, that is the theory and markets will show whether it works in practice. In my world, this hit to the world economy is the first experience of a business cycle since 2008. Most investors do not believe we can experi-ence such a downturn. They rely upon Central bankers who they think have solved the problem.

However, let’s also deal with three counters that I currently have to field:

1. ‘How long dare you be wrong?’

2. The opposite. ‘Do you think after a good quarter, this is all in the price?’

3. ‘But isn’t a downturn in the world economy leading to massive counter-measures in terms of liquidity, as en-visaged by Draghi and the ECB, which will push mar-kets and assets higher?’

My answers are as follows:

1. The performance of the fund since I decided that the world would end differently to my previous thinking, which was in March/April 2014, reflects that I have not been especially early in this call. It would have been rather nice to get the fall in oil spot on, but we didn’t.

2. No change in cycle lasts for nine months. This down cycle is likely to be remembered in a hundred years, when we hope it won’t be rated for “How good it looks for its age!”. Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it.

3. We need to go back to 2008. We had seen reckless spending and reckless borrowing, fraudulently obtained credit advances and overvalued housing. And yet, de-spite the banks losing a great deal of money and house prices in the USA tanking, we hardly saw a recession in 2009. Why? Because when the Anglo-Saxon central banks lowered interest rates from 5.25% to effectively zero, they put the equivalent of 30% of net income into the hands of the overborrowed. There were other QE measures taken but this was the important one.

Complete story at - "Equities Will Be Devastated" Crispin Odey Warns, Looming Recession Will Be "Remembered For 100 Years" | Zero Hedge

The Contractionary Vortex Of The Lumpen Proletariat - The Automatic Earth

The world stock markets big see saw zig zags over the last few days seems to be a harbinger of more to come. Christine Lagarde has warned of a fresh pan-European recession and just this once she may actually have a point.

Not that the old continent ever left the ‘old’ crisis, but since so much time and money was inserted into the recovery hologram, and we’re in a generous mood, let’s pretend and play along: it’s a new recession! That or a triple dip. The terminology is not the main point here; it’s going to be too nasty to occupy ourselves with semantics.

As I was writing about the shame of putting millions of young Europeans into the dark hole of long-term unemployment yesterday in The Disgrace of Sacrificing a Generation, Europe’s leaders met to discuss that very theme. Only, they didn’t.

They went on and on again about wanting the freedom to spend more, either through support from Mario Draghi bond purchases or by simply violating EU budget limits. EU PM Renzi called those limits outdated: it’s new world out there!

What they did say about the jobs issue was that more money was not needed, since there’s an existing $82 billion fund for youth jobs, of which only 12% has been used … That crazy detail tells us two things: Brussels and the European capitals don’t care about their children, as the entire situation also makes clear enough.

Complete story at - The Contractionary Vortex Of The Lumpen Proletariat - The Automatic Earth

Capitalism’s Deeper Problem | Perspectives | BillMoyers.com

Recent press reports refer to troubling price increases for such assets as real estate, government bonds, companies targeted for acquisition and artwork. A New York Times front-page headline read “The Everything Boom, or Maybe the Everything Bubble.”

Yet while asset prices soar, the production of goods and services, employment and workers’ incomes are not recovering and resuming growth. Instead, Western Europe, North America and Japan are stuck in a longer, deeper crisis than almost anyone expected. Millions have left the labor force. Wages, benefits and job security are declining; the so-called “middle classes” are evaporating. Having promised “recoveries,” desperate governments inject massive new quantities of money into their economies. What they accomplish most are fast-rising asset prices.

Given their persistent economic problems, consumers cannot borrow or spend more. Businesses neither borrow nor productively invest all the new, cheap money because they could not sell the extra output to distressed consumers. Instead, the newly injected trillions enable the speculation that drives up asset prices. The owners of those inflating assets celebrate a “recovery” that bypasses most of their fellow citizens. The Great Recession lumbers on.

To understand this puzzling and dangerous situation requires digging deeper than most current discussions of our economic problems. The global crisis since 2007 has captivated discussion about capitalism as a system. Yet we are faced now with more than just this latest of capitalism’s endlessly recurring “downturns” (or recessions or depressions). We see combined an extremely serious downturn in most of capitalism’s old centers, extremely unequal growth in its new centers and a resurgent global speculative bubble. This points to a deeper, worldwide problem that now challenges and threatens contemporary capitalism.

From its beginnings as the emerging, dominant class structure in 18th century England, capitalism concentrated production geographically in what were or became urban areas. This persisted as capitalism spread through Western Europe, North America and Japan. Capitalist growth in urban areas not only drew food, raw materials and laborers from the surrounding countryside, it also generated deepening divisions between town and country. The workers who gathered in industrial towns eventually mobilized and fought successfully for rising wages rarely matched by rural incomes. Urban laborers became an organized, disciplined, productive and relatively well-paid working class.

Complete story at - Capitalism’s Deeper Problem | Perspectives | BillMoyers.com