rajveersmarketviews.blogspot.in http://rajveersmarketviews.blogspot.in/2016/04/the-case-for-global-recession-in-2016.html

The Case for a Global Recession in 2016 and Beyond – TheObvious Evidence

Definition of a Recession: The textbook definition of a recession is two quarters of negative GDP growth. Some examples of recessionsinclude the great depression of the 1930’s, the dotcom crash of 2000 and the great recession of 2008.

Causes of a Recession:

Recessions are caused by several factors. These include:

Hyper Inflation

Deflation

Prolonged Fall in Exchange Rates

Credit Crunches

Collapsing Consumer Confidence

Collapsing Asset Prices

Collapsing Global Trade

Bust following Excessive Speculation – e.g., Property Market in Japan -1989

Evidence so far Leading up to 2016:

1) Collapsing Commodity Prices:

Recessions caused by deflation see massive collapses in asset prices. There has been a well over 50% plungein the prices of industrial commodities such as copper and oil (http://www.nasdaq.com/markets):

1/8

2a) Collapse in Shipping Activity:

A recent satellite picture showed that shipping activity appears to have come to a standstill, as pointed out byJeff Berwick viathe Market Oracle and this certainly has recessionary implications:

2b) Collapse in Freight Rates:

Freight rates as measured by the Baltic dry index have collapsed over 95% from their highs set in 2008. Whiletemporary dislocations can cause the index to fluctuate quite a bit, the well over 95% collapse in the index is anindication that all is not well with the global economy (http://investmenttools.com):

2/8

3) Collapsing Stock Markets:

Stock Markets across the world have been collapsing despite record low interest rates globally (data from yahoofinance):

China:

Chinese stocks are down over 40% from recent highs:

India:

India’s stock market has entered a bear market recently falling 20% from the highs set in 2015:

3/8

USA:

The US S&P 500 is very ominously breaking down from a massive multi-year rising wedgemuch like in 2000 and 2008 but much bigger this time around (http://www.charts.stocktwits.com):

4) Dollar Strength:

The Dollar has strengthened against virtually every other currency the last five years (datafrom marketwatch.com):

4/8

5) Yen strength:

The Yen has strengthened significantly off late against most currencies suggesting that carry trade liquidationmay begin in earnest globally much like in 2008 (data from marketwatch.com):

6) Excessive Speculation & Risk Taking:

We are all familiar with the excessive speculation in the housing market that led to the great recession of 2008following the collapse of Bear Sterns and Lehman Brothers. Fast forward to 2016 and the risk exposures at some bigbanks are reaching alarming levels as ETF daily news points out the case of Deutsche Bank:

5/8

7) The velocity of Money is below Great depression levels:

As forecaster Martin Armstrong points out (armstrongeconomics.com) the velocity of money is currently belowthat observed in the great depression of the 1930’s. This implies that despite multiple rounds of quantitative easingby global central banks the attempt to circulate money throughout the global economy has failed and money hasreached only a few pockets. The velocity of money typically declines during recessions and is probably forecastingone ahead:

8) Kondratieff Winter Wave Suggests a Collapse Ahead:

Finally looking at long term economic cycles we are entering a traditionally weak period for risk assets whichtend to make lows every 8 years or so marked by economic troughs. We recently had major economic downswingsin 1992, 2000 and 2008 and are due one in 2016. Other than this we have entered a Kondratieff winter wave in

6/8

2000 and are set to emerge out of it only in 2020. The last few years of the winter wave could produced the mostpronounced down swing in economic activity much like the last winter wave that was characterized by the GreatDepression of the 1930’s. Here is a summary from kondratieffwavecycle.com:

Conclusion: In conclusion several hall marks of a recession such as collapsing commodities, stock markets and collapsingcurrencies have already started to play out as we enter 2016 and deflationary forces seem to be taking control.Flight to quality in safe haven assets such as the Dollar and Yen suggest risk appetite is rapidly declining. Themassive fall in shipping activity is also providing evidence that a massive slow down is at hand. Excessivespeculation as evidenced by the risk exposures of prominent global financial institutions is also a major concern.Additionally the velocity of money has collapsed suggesting that the circulation of money through the economy issimply not occurring despite record low interest rates. Last but not least long term economic cycles also aresuggesting that the upcoming recession could last at least till 2020 and the final effects of this major down cycle areyet to be felt.

References:1) Commodity prices available from, http://www.nasdaq.com/markets2) Shipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt Available from,http://www.marketoracle.co.uk/Article53636.html3) Baltic Dry Index chart available from, http://investmenttools.com/futures/bdi_baltic_dry_index.htm4) Long term rising wedge on the S & P 500 available from,http://charts.stocktwits.com/production/original_50424141.?14567813055) Is Deutsche Bank AG (USA) The Next Lehman? Available from,http://etfdailynews.com/2016/02/04/is-deutsche-bank-ag-usa-the-next-lehman6) Velocity of Money Below Great Depression Levels, available from,https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/velocity-of-money-is-below-great-depression-levels7) Kondratieff wave cycle, available from, http://www.kondratieffwavecycle.com/images/kondratieff-wave2.jpg

7/8

8/8