Dollar Collapse

It's just about official: With corporate sales and profits shrinking and consumer spending flatlining, the US economy will grow hardly at all this year while the rest of the world will probably drop back into recession. The result: Massive policy changes here and abroad, with major implications for stocks, bonds, precious metals and real estate.

If easy money has stopped working, then what's left? Massive deficits, of course. Pressure is building on governments around the world to increase spending and pay for it with borrowed funds. Sound familiar? It should, since it's what they've been doing on and off for decades. But this time, "fiscal stimulus" will, like QE and NIRP, turn out to be too much of a good thing, with dire consequences for just about everyone.

What do record corporate share repurchases, the rise of Modern Monetary Theory, China's attempts to support its currency and Europe's political turmoil have in common? They're all examples of big players on the global stage repeating the same behaviors while each time expecting a different result. They'll be disappointed again, and the consequences will be epic.

Over the next couple of weeks the Chinese, European, US and possibly Japanese central banks will say things that move the markets. None of this will change the fact that the global economy is slipping into a deflationary depression, but in the short run, traders might once again be fooled. Gold, meanwhile, has had a great run and might be ready for a correction. But don't worry. Reality (terrible for mainstream investors, great for gold bugs) will win out in the end.

Gold just finished its best two months in several years, and a prominent gold mining analyst has finally turned bullish. Meanwhile, the European Union continues to suffer the death of a thousand cuts, with Britain threatening to leave and other members rebelling against Germany's liberal immigration policies. The world, in short, is becoming ungovernable.

Money is pouring out of banks and into home safes, leading to calls for the elimination of cash.  Britons are thinking of leaving the EU, sending the pound sterling down and gold up (in pound terms). Silicon Valley unicorns are dying (you'll have to listen to find out what that means). The global financial crisis, in short, has acquired some new facets, each of which could cause widespread trouble in the year ahead.

Another Monday, another extreme market move. This time, though, underlying conditions are changing in an especially serious way. European banks are running into various kinds of trouble that, if not resolved in a hurry, might lead to a replay of the 2008-2009 financial crisis. So keep an eye on Banca Monte dei Paschi in Italy and Deutsche Bank in Germany. As they go, so might go the world in 2016.

A few weeks of falling stock prices have led the world's central banks to respond in their usual way, with lower interest rates and easier money -- in other words with the same policies that failed to prevent the ongoing slide into deflationary recession. The result: Over $5 trillion of bonds worldwide now trade with negative yields (meaning they charge their owners instead of paying them interest), by far the most ever. Anyone who thinks this will return the economy to "normal" hasn't been paying attention.

Last week's dead cat bounce ended with a thud on Monday. Oil plunged, stocks retraced more than half of their bounce, and a couple of manufacturing reports reinforced the sense that the US is tipping into recession. Meanwhile, political systems around the world continue to teeter on the edge of (what establishment elites would consider) the abyss. A Donald Trump/Bernie Sanders race is now at least conceivable in the US this November, while formerly fringe parties of both the right and left are gaining power in Europe. That's what happens when you grossly mismanage the economy.

On Monday, stocks tanked around the world and so did oil, breaking $27. On Tuesday things looked better. Central banks were jawboning, with Mario Draghi making noises about intervening. The Chinese were also busy buying stocks. The true test is when the banks really start intervening and whether they will be able to reflate another cycle. At some point this strategy is bound to fail. Will it be now or the next time? That past couple of weeks have seen a very brutal bear market. If you look at the average stock, it has lost more than 20 percent. Sounds like a bear market in the making with tech stocks leading the way.