The Threat of Global Deflation...

If the recent decline in global currency reserves is an adequate proxy for the forces of global deflation, then we are now possibly facing the most serious threat to the global bull market since it began in 2009. Central banks have a huge QE hurdle to overcome (more than $1 trillion).

I believe they will overcome it, thanks in part to the ECB and BoJ. But with the Fed missing in action from the QE battle (at least for now), let’s hope China doesn’t devalue its currency even more than it did in August, because that could drive emerging markets into a prolonged period of deflationary QT.

But then again, this is a dynamic game, so while a Fed lift-off and the lack of QE seem like a sure thing for now, that could change depending upon the gyrations of the global economy.