Weekly Commentary: Scorched Earth

Doug Noland2.86K FollowersFollow5ShareSaveCommentsSummaryThe week experienced the problematic scenario for highly levered global markets: sharply lower stock prices, widening spreads/risk premiums, rising Treasury/sovereign yields, and currency volatility.The S&P 500 dropped 2% this week, not reflective of the stress throughout global markets.Unprecedented leverage, having accumulated throughout global markets, ensures latent fragility.High-yield CDS jumped another 18 this week to a near nine-month high of 349 bps, with a notable two-week surge of 42 bps. David Trood/DigitalVision via Getty Images The week experienced the problematic scenario for highly levered global markets: sharply lower stock prices, widening spreads/risk premiums, rising Treasury/sovereign yields, and currency volatility. Seemingly no place to hide, with virtually all strategies faltering. De-risking/deleveraging has rapidly intensified. This is precisely howThis article was written byDoug Noland2.86K FollowersFollowI'm at about 30 years persevering as a “professional bear.” My lucky break came in late-1989, when I was hired by Gordon Ringoen to be the trader for his short-biased hedge fund in San Francisco. Working as a short-side trader, analyst and portfolio manager during the great nineties bull market – for one of the most brilliant individuals I’ve met – was an exciting, demanding and, in the end, a grueling and absolutely invaluable learning experience. Later in the nineties, I had stints at Fleckenstein Capital and East Shore Partners. In January 1999, I began my 16 year run with PrudentBear (that concluded at the end of 2014), working as strategist and portfolio manager with David Tice in Dallas until the bear funds were sold in December 2008. In the early-nineties, I became an impassioned reader of The Richebacher Letter. The great Dr. Richebacher opened my eyes to Austrian economics and solidified my lifetime passion for economics and macro analysis. I had the good fortune to assist Dr. Richebacher with his publication from 1996 through 2001. Prior to my work in investments, I worked as a treasury analyst at Toyota’s U.S. headquarters. It was working at Toyota during the Japanese Bubble period and the 1987 stock market crash where I first recognized my love for macro analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated summa cum laude from the University of Oregon (Accounting and Finance majors, 1984) and later received an MBA from Indiana University (1989). By late in the nineties, I was convinced that momentous developments were unfolding in finance, the markets and policymaking that were going unrecognized by conventional analysis and the media. I was inspired to start my blog, which became the Credit Bubble Bulletin, by the desire to shed light on these developments. I believe there is great value in contemporaneous analysis, and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke has referred to understanding the forces leading up to the Great Depression as the “Holy Grail of Economics.” I believe “The Grail” will instead be discovered through knowledge and understanding of the current extraordinary global Bubble period.