Disruptive Markets  

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Causal Capital ~ The Knowledge Capital Specialists

The End of Alchemy

Tuesday, March 1, 2016

Last year we heard from Lord King on the state of the banking system, an interesting quick bite in the Telegraph that has Mervyn King describing the banks being in a place of "not fully recovered from the Global Financial Crisis".

 

Yesterday, Mervyn King was back at it introducing his new book "The End of Alchemy" which I look forward to reading might I add. The book is due for release later on this month and Amazon quotes it as the most important book to come out of the financial crisis [LINK].

 

Lord King's commentary was captured in a bearish light by The Guardian:

 

"Another financial crisis is "certain" and will come sooner rather than later, the former Bank of England governor has warned."

New Financial Crisis is Certain | Mervyn King

 

2014 Banks not yet completely recoverd from 2008 | Mervyn King [LINK]

 

Only a week or so ago, Neel Kashkari the Minneapolis Fed Chief was banging on with the same kind of rhetoric that too big to fail has not been resolved. Then if we rollback a week or so before that, we had Draghi from the European Central Bank illuminating us to his intention that he (the central bank) will never give up ...

 

"We don't give up, we are not surrendering in front of these global factors. The power, willingness and determination to act against persistently low inflation ... There are no limits to our action within our mandate of course"

 

Economic Unease | Mario Draghi

 

These handful of central bankers are not alone and from Japan through to South America, central bankers are driving interest rates lower, even negative in places and many of these people seem engulfed with the sense of not only a lost confidence in the banking system but also more broadly that of a stalled global economy.

 

Mervyn King isn't wrong with his assessment, we won't just see another banking crisis again, we are already on the precipice of a collapse of the entire global economy. The warning signs are there for everyone to see, some of which I will list below:

 

  • Let's start with global trade, part of the real economy and the dry bulk index has been at an all-time low for several months now [LINK].

  • Back to the central banks, if you don't believe they don't perceive a global recession is imminent, why are they testing the banks for such an economic scenario. The Fed stress tests the banks for a severe global recession [LINK].

  • 250 Billion dollar's worth of energy debt goes to junk [LINK], nothing unexpected there.

  • Stimulus bets from Chinese authorities are innocuous as China stocks tumble to a fifteen-month low [LINK].

 

We can go on and on, Japan, Venezuela, Russia, Saudi Arabia, nothing is untouched economically and the question that will inevitably be asked is, who or what did it this time? ... was it exotic banking structures or perhaps exuberance and hubris are back on the menu for financial markets, may be not Mervyn King believes; "the entire financial system is at fault not invidiual greedy bankers" and this time round central banks are limited with the types of actions they can take.

 

Sorry about the gloom and doom sentiment so early in the morning but the signs are starting to line up. We are walking into an entirely different kind of crisis, a disruptive market beyond what one can only imagine. We have witnessed the collapse of Lehman Brothers as a tipping point for broken banking contagion but I believe all of that pales into insignificance in comparison to where the world economy is currently positioned.

 

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