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Current Global Economy Like Nothing Before

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U.S. investment abroad has all but collapsed, nose-diving from $42 bln to $4 bln.

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The world's largest economies have really never been in this situation before. Last week I alluded to the fact that investors need to change their mindset. All the old "tells" don't work in a bear market. What you are witnessing is the most massive credit bubble in history first having trouble and next unwinding. We are seeing the beginning of the unwinding only.

Bulls are breathing a sigh of relief as the new TIC data shows foreign inflows into the U.S. picking up. What they fail to realize is that this is what is to be expected as the credit bubble starts to fizzle.

First, the real alarm should be sounding as U.S. investment abroad has all but collapsed, nose-diving from $42 bln to $4 bln. This illustrates the slowing economic activity as the result of credit unwinding. It is just starting.

Second, the increase in foreign inflows is mostly from the UK increasing its purchases of U.S. treasuries. Why? It is what we told Minyans to expect: as credit unwinds there will be demand for dollars. This is why the UK bought treasuries. Everyone wants treasuries. Debt is unwinding.

Don't mistake the old bull tells for positive news. Keep your eye on the ball. What is happening is the market is unwinding all these imbalances that central banks have fostered over the years.

It is just beginning. Risk is high.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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