Posts Tagged ‘Economic Contraction’
Monday, August 13th, 2012
by Don Vialoux, EquityClock.com
Upcoming US Events for Today:
- No Significant Events Scheduled
Upcoming International Events for Today:
- The Bank of Japan releases the Minutes from its July meeting at 7:50pm EST.
Markets in the US ended positive on Friday, despite concerning signs of economic contraction with China posting a disappointingly low trade surplus number for the month of July. Investors were expecting a surplus of $33.0B, up from the $31.7B reported previous, but the actual was a mere $25.2B. A shockingly low increase in exports at only 1.0%, off from the 8.8% analyst expectation, was the predominant factor behind the weak headline number, which is being pinched primarily by slowing demand from Europe. According to Econoday.com, “this was their worst performance for a non-holiday month since November 2009.” The impact of slowing exports from China is being picked up in the Baltic Dry Index (BDI), which tracks the price to ship freight over the world’s oceans. The BDI is once again pushing towards the lows of the year, signaling that economic fundamentals remain severely depressed. This is typically a leading indicator to equity market weakness.
The Baltic Dry Index is not the only shipping gauge that is under pressure. The Dow Transportation Index has been significantly underperforming the market for almost a month, hinting of weak demand for goods. The Dow Transports typically confirm broad market equity moves, leading markets higher when economic fundamentals are strong, and leading the markets lower when fundamentals are weak. The fact that this cyclical industry, Transportation, is not showing the same upside momentum as what the broad market showing is a significant concern. Higher oil prices are also pressuring transportation stocks, a situation which is seasonally typical into September and October.
Turning to the equity markets, last week saw the lowest equity market volumes for a non-Christmas holiday week in years. The S&P 500 ETF (SPY) was shown on Friday with a 4-day volume moving average. The fifth day, Friday, only weakened the average further. The Dow Jones Industrial Average is also showing a similar volume profile to SPY. Now take a look at the NYSE Primary Exchange Index, which showed the lowest 5-day volume average since the 1990’s. Low volume implies low conviction, often a precursor to market declines. Volumes are typically lower than average during the summer months, albeit not as low as present levels, picking up once again in September as traders return to their desks from summer vacation. As a result, September and October are known to be the most volatile months on the calendar as regular trading resumes.
Concerning activity remains evident in the price of Copper, often referred to as “Doctor Copper” due to its ability to predict broad market moves. Copper has maintained a long-term declining path over the past year, underperforming the market in the process. With expectations of further monetary stimulus overriding economic fundamentals, it would be expected that copper would react positively as well, producing positive results and outperforming the market before central bank officials confirm activity, similar to what occurred prior to the last two QE programs. Investors in the cyclical metal are showing signs of skepticism toward the prominent stimulus expectations, perhaps warning that fundamental concerns are still too serious to ignore. Copper seasonally declines between August and October due to economic factors, such as weak manufacturing demand.
Despite a number of warning signals that remain intact, bullish characteristics are prevailing within the price action of equity markets. The S&P 500 continues to maintain a trend of higher-highs and higher-lows following a June low. Significant moving averages (20, 50, and 200-day) are curling positive. Even bond prices are showing signs of coming under pressure, a positive for equity markets. Sell signals for broad market indices have yet to be confirmed, so although risks are increasing, maintaining appropriate allocations to equities appears prudent until technical indicators roll over. Seasonal tendencies for Presidential election years turn negative into September, so equities are within a window where a peak could be realized at any time. Be prepare to react accordingly.
Sentiment on Friday, as gauged by the put-call ratio, ended neutral at 0.99. The ratio broke out of a falling wedge pattern, which could be the precursor to elevated levels of volatility. The VIX has fallen back to levels where the market has been known to correct as complacency reaches extremes. Volatility remains seasonally positive through to October.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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Tags: Baltic Dry Index, Baltic Dry Index Bdi, Bank Of Japan, Broad Market, Christmas Holiday, Don Vialoux, Economic Contraction, Economic Fundamentals, ETF, ETFs, Exports From China, Headline Number, Leading Indicator, Lows, Market Equity, Market Weakness, Oil Prices, Predominant Factor, Seasonal Weakness, Significant Events, Trade Surplus, Transportation Index, Transportation Stocks
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Thursday, July 12th, 2012
Submitted by John Aziz of Azizonomics
The Deleveraging Trap
Hayekians and Minskians agree on one key thing: an increase in debt beyond the underlying productive economy is unsustainable.
In my view, the key figures in defining this are total debt as a percentage of GDP, and its relationship with industrial production. Debt as a percentage of GDP tracks how much debt there is relative to one measure of economic activity, GDP. Yet GDP is a very limited tool of measurement; all GDP really tracks is the circulation of money. To get a clearer sense of the true relationship with underlying productivity, it is useful to compare the ratio of debt-to-GDP with the level of industrial production.
Up ’til the ’70s, debt-to-GDP grew more slowly than industrial production. That is healthy and sustainable. While the total market debt may grow in tandem with GDP, and with industrial production — indeed, this can be the case even under a gold exchange standard (as the gold supply increases) — there is no sensible reason for the ratio of debt-to-GDP to grow faster than industrial production. Indeed, this is symptomatic of just one thing — consumption without income, enjoyment without effort, living beyond the means of productivity. This is just an unsustainable bubble.
As the ’90s turned to the ’00s and the United States gains in industrial production ceased to accumulate, while GDP and most concerningly (and hilariously) while the debt-to-GDP ratio continued to increase. This was classical bubble behaviour, and the end came very poetically; the recession and the industrial production collapse hit just as growth in the debt to GDP ratio (as indexed against 1953 levels) finally surpassed growth in industrial production. Indeed, I hypothesise that a very strong indicator of a Minsky moment — when excessive indebtedness forces systemic deleveraging, leading to price falls, leading to widespread economic contraction — is the point when long-term growth in the debt-to-GDP ratio exceeds long-term growth in industrial output.
The debt-to-GDP ratio is gradually falling, yet it is still at a far higher level than the historical average, and it is still proportionately higher than industrial output. And at the same time, consumers are re-leveraging, and government debt is soaring. And industrial production is barely above where it it was a decade ago, and far below its pre-2000 trend line. We have barely started, and already this has been a slow and grinding deleveraging; rather than the quick and brutal liquidation like that seen in 1907 where the banking system was effectively forced into bailing itself out, the stimulationist policies of low rates, quantitative easing and fiscal stimulus have kept in business zombie companies and institutions carrying absurd debt loads. Like Japan who experienced a similar debt-driven bubble in the late ’80s and early ’90s, we in the West appear to have embarked on a low-growth, high-unemployment period of deleveraging; and like Japan, we appear to be simply transferring the bulk of the debt load from the private sector to the public, without making any real impact in the total debt level, or any serious reduction in the debt-to-GDP ratio.
Cutting spending — for both the private sector and public sector — is problematic. My spending is your income; as spending falls, income falls, which leads to more consumers, producers and governments attempting to deleverage. This leads to more monetary easing, simply to keep the zombie system stable, and keep the zombie debt serviceable. More consumers and producers can take on debt, at least for a time, but the high residual debt level makes any great expansion of productivity or growth challenging, as consumers and producers remain focussed on paying down the pre-existing debt load. It is a vicious cycle.
Quantitative easing does not even tackle the main challenge: reducing the debt load. In fact, it is targeted at precisely the opposite — increasing the debt load, by encouraging lending. But lending into a society that is already heavily indebted leads to no great uptick in productivity, because consumers and producers are already over-indebted to begin with, so few can afford new debt. And banks — flush with cash — have no real incentive to lend; the less they lend, the more deflationary conditions are prone to become, increasing the purchasing power of their excess reserves (on which the central bank already pays interest). The outcome is greater economic stagnation, ’til the next round of monetary easing which leads to a brief uptick, and then further stagnation.
To break out of the deleveraging trap, the debt load needs to be drastically reduced. In my mind there are three potential pathways there, each with various drawbacks and advantages:
- Liquidation; when a debt-driven crash happens, the central bank stands back and lets it happen, as happened in 1907. Prices will drastically fall, many companies and banks and debt will be liquidated, until the point at which prices have fallen to a sustainable level. But we may have missed the boat — the crash already happened, the system has already been bailed out, and the financial system today has already become zombified. And under a system where the central bank determines the availability of money and the level of interest rates this approach has in the past led to excessive central-bank-enforced liquidation, from which the economy may struggle to recover, as happened after 1929.
- (Hyper)inflation; the central bank prints money and injects it into the economy via the banking system. Prices rise, wages rise, and the nominal debt remains the same, thus reducing the debt burden. While most economists who advocate such an approach advocate a slightly elevated level of inflation, the higher the rate of inflation, the more the residual debt load will be devalued; under a Weimar-style regime, mortgages could be repaid in a week. Unfortunately inflation is nonuniform; whoever gets the money first (i.e. banks) can buy up assets on the cheap, and pass the cost of the inflation down the chain of transactions. As Keynes himself noted: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” Inflation discourages savings and capital formation, which are necessary for new growth. And most significantly — as the Fed’s experiment with QE shows — inflation unless it is very severe will not even necessarily have much bearing on reducing the debt-to-GDP load. The results of a severe (hyper)inflation could be very chaotic and dangerous.
- Debt Jubilee; the central bank prints money, and injects it into the economy via the citizens, with the explicit condition that they use it to clear their debts. This will have the desirable effect of directly reducing debt levels, and lifting over-indebted consumers and producers out of the deleveraging trap. Additionally, the inflation would be uniform and so not to the advantage of the banks or the financial elite. However introducing a large quantity of money to the system — even directly as a medium for debt-cancellation — does itself carry a high inflationary potential.
Certainly, the current status quo of high unemployment, low growth, sustained over-indebtedness and zombie banks and corporations surviving on government handouts is not sustainable in the long run. We shall see which route out of the deleveraging trap we take. Liquidationism seems unlikely, as central banks are afraid of the concept. Inflation (or its unintentional corollary, currency collapse) seems risky and dangerous. A debt jubilee would at least address the real problem of excessive debt, although it is in modern times uncharted territory, and would surely face much political opposition.
Copyright © Azizonomics
Tags: Circulation, Collapse, Consumption, Economic Activity, Economic Contraction, GDP, Gdp Ratio, Gold Exchange Standard, Gold Supply, Indebtedness, Measurement, Minsky Moment, Money, Productive Economy, Productivity, Recession, Sensible Reason, Tandem, True Relationship, United States
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Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness; Permabears?
Wednesday, July 11th, 2012
There is a big difference between making a claim the economy is in recession from a claim the economy is headed for one.
Case for a Global Recession
I think the entire global economy is in recession and said so on July 6, 2012 in Plunging New Orders Suggest Global Recession Has Arrived
However, we need to define the term “recession”
Contrary to popular myth, recession does not mean two consecutive quarters of economic contraction. Rather, two consecutive quarters of economic contraction is a sufficient, but not necessary condition.
In the US, the NBER is the official designator of recession start and end points. Many recessions have started with GDP still growing.
The “Conditions for Global Recession” are even looser. “The International Monetary Fund (IMF) considers a global recession as a period where gross domestic product (GDP) growth is at 3% or less. In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession.”
Given current conditions are what one would expect from outright stagnation (if not worse), I am confident a global recession has begun.
What About a US Recession?
On June 21, I gave 12 Reasons US Recession Has Arrived (Or Will Shortly).
Tipping the Balance to Now (Not Shortly)
- The Third Consecutive Weak Payroll Report
- The pending Global Collapse In Auto Sales
- Plunge in China Import Growth (For discussion see China Import Growth Plunges, Trade Surplus Hits 3-Year High; Will US Response Be Protectionism? Is China Headed For a Deflationary Shock?)
That is enough for me. And I am not the only one to feel that way.
ECRI’s Achuthan: “I Think We’re in a Recession Already”
Link if video does not play: ECRI’s Achuthan Says U.S. Economy Is in Recession
Partial Transcript of Video
Achuthan on whether he can reaffirm his recession call from last year:
“Yeah…I think a lot of people forget what our call was. What we said back in December was that the most likely start date for the recession would be in Q1 and if not then, by the middle of 2012. I’m here to reaffirm that. I think we’re in a recession. I think we’re in a recession already. As I said back there, it is very rare that you know you’re going into recession when you’re going into recession. It often takes some big hit on top of the head. In the last recession, it took Lehman to wake people up and the recession before, it took 9/11.”
Those are exactly the kinds of things that irritate me about the ECRI. The fact of the matter is Achuthan was calling for a recession in September, not December, and not June.
For details, please see my September 30, 2011 post ECRI Calls Recession Based on “Contagion in Forward Indicators”; Just How Timely is the Call?
Tom Keen: “Single Sentence, why recession now”
ECRI’s Lakshman Achuthan: “Contagion in Forward-Looking Indicators”
That link clearly shows I thought a recession was imminent as well. Those are the facts. It is silly to try and hide them.
Yet, in December (after economic data firmed), Achuthan moved the date forward to June, wanting another 6 months to be proven correct.
My question in September “Just How Timely is the Call?” was a good one. The ECRI has been both very early and very late. Far from the perfect track record they claim.
That my friends is the nature of making predictions. No one is perfect, not me, not Achuthan, not anyone, and it is very foolish to pretend otherwise.
Actually, I have no problem at all with Achuthan moving the date forward. Conditions change. My problem, is revisionist history that makes it appear as if a recession call in September was a recession call for June (made in December).
All this nonsense goes away the moment Achuthan admits the ECRI does not have a perfect track record.
That said, I think Achuthan is now correct. However, I thought so in September. So be it. I was wrong. The solution when you were wrong is easy, simply say you were wrong.
The Other Extreme “Recession is Not Imminent”
Please consider the other extreme, Recession is Not Imminent by Dwaine van Vuuren.
Among the bearish voices I most respect is John Hussman, whose work I read regularly. He is thorough and quantitatively rigorous. Whenever I am convinced there will be no recession, I temper my enthusiasm by re-reading his articles to make sure I maintain a balanced view. One day he will be right and I will be wrong, but at least I won’t be blindsided.
But the data don’t show catastrophe. Looking at the Leading SuperIndex, we are a bit worse off than last summer and the summer before that. We just put in a leading SuperIndex peak on April 13 (10 days after the SP-500 peak) that is lower than the prior two peaks. This slowdown, if not checked in time, may well be the one that pushes us into recession. But even that worst-case scenario is still three to four months away, according to the SuperIndex recession-path projections in our regular weekly report.
Emphasis in italics added.
I disagree. The global data is an outright catastrophe. Moreover, the jobs reports in the US and the US ISM manufacturing numbers are a catastrophe as well.
I am amused by van Vuuren’s statement “at least I won’t be blindsided”. I suggest he already is.
“We Have Reached the Point that Delineates an Expansion from a New Recession”
John Hussman asks What if the Fed Throws a QE3 and Nobody Comes?
With regard to the economy, I noted two weeks ago that the leading evidence pointed to a further weakening in employment, with an abrupt dropoff in industrial production and new orders.
Mike Shedlock reviews the litany of awful figures we’ve seen since then, focusing on the new orders component of global purchasing managers indices: U.S. manufacturing new orders and export orders plunging from expansion to contraction, Eurozone new export orders plunging (only orders from Greece fell at a faster rate than those of Germany), and an accelerating decline in new orders in both China and Japan.
Recall that the NBER often looks for “a well-defined peak or trough in real sales or industrial production” to help determine the specific peak or trough date of an expansion or recession. From that standpoint, the sharp and abrupt decline we’re seeing in new orders is a short-leading precursor of output. As the chart below of global output suggests, I continue to believe that we have reached the point that delineates an expansion from a new recession.
On the employment front, Friday’s disappointing report of 80,000 jobs created in June may be looked on longingly within a few months, as we continue to expect the employment figures to turn negative shortly. That said, it remains important to focus on the joint action of numerous data points, rather than choosing a single figure as an acid test. I noted last week in Enter, the Blindside Recession, GDP and employment figures are subject to substantial revision.
Lakshman Achuthan at ECRI has observed the first real-time negative GDP print is often seen two quarters after a recession starts. Earlier data is often subsequently revised negative. As for the June employment figures, the internals provided by the household survey were more dismal than the headline number. The net source of job growth was the 16-19 year-old cohort (even after seasonal adjustment that corrects for normal summer hiring). Employment among workers over 20 years of age actually fell, with a 136,000 plunge in the 25-54 year-old cohort offset by gains in the number of workers over the age of 55. Among those counted as employed, 277,000 workers shifted to the classification “Part-time for economic reasons: slack work or business conditions.”
Hussman has been labeled a “permabear”. So have I. So has Dave Rosenberg. So have many others. It only seems that way. The reality is Hussman, I, and Rosenberg were bullish at the March 2009 bottom.
However, the market shot up so far, so fast, that valuations became quickly stretched.
I cannot speak for the others, but I surely underestimated the effect of global coordinated liquidity move by central bankers virtually everywhere (US, EU, UK, China, Australia, Canada, etc.).
The result was we had a 10-year stock market rally in three years. Those patting themselves on the back for their “no recession” call were correct only because of a massive coordinated liquidity pump by central bankers worldwide.
Unless the “no recession” callers specifically counted on that, then they were lucky with their forecast.
What about now?
What if the Fed Throws a QE3 and Nobody Comes?
What if stock market valuations reach typical bear market valuations?
What if a recession is really at hand?
I do not believe the Fed is in control. Such ideas are a myth.
If the Fed could prevent recession we would never have them. Yet we do, don’t we?
The fact of the matter is Fed tail-chasing policies combined with fractional reserve lending and moral-hazard bailouts have amplified the crest and trough of every boom and bust.
Hussman comments …
Our economic problems run far deeper than what can be healed by more reckless bubble-blowing by the Federal Reserve. At the center of global economic turmoil is a mountain of bad debt that was extended on easy terms by weakly regulated lenders with a government safety net. Global leaders have done all they can to protect the lenders at the expense of the public – to make good on the bond contracts of mismanaged financial institutions by breaking the social contracts with their own citizens. The limit of this unprincipled madness is being reached.
The way out is to restructure bad debt instead of rescuing it. Particularly in Europe, this will require numerous financial institutions to go into receivership, where stock will be wiped out, unsecured bonds will experience losses, senior bondholders will get a haircut on the value of their obligations, and loan balances will be written down. Bank depositors, meanwhile, will not lose a dime, except in countries where the sovereign is also at risk of default. Even there, depositors will probably not lose any more than they would if they held sovereign debt directly. In the U.S., the pressing need continues to be mortgage restructuring, and an emerging recession is likely to bring that issue back to the forefront, as roughly one-third of U.S. mortgages exceed the value of the home itself
Recognizing the Limits of Madness
I agree. The key statement is “The limit of this unprincipled madness is being reached.”
The problem is not only recognizing the limits of “unprincipled madness” but also recognizing the market’s willingness to play along. It always lasts longer than one thinks possible.
At the end of the line, every possible person is sucked into belief current conditions can go on forever. We saw that in the 2000 dot-com bubble, the housing bubble, the commercial real estate bubble that followed the housing bubble, and we see it now in the “Fed is omnipotent belief bubble”.
The only reason we have escaped recession so far is the amazing effort central bankers and global governments have put forth to avoid what needs to be done. Congratulations to those who recognized this condition in advance.
However, no credit can be given to those with the misguided belief such policies and efforts will last perpetually. The end of the line always comes.
There was no decoupling in 2008 and there will be no reverse decoupling now. For further discussion please see Will the US Economy Continue to Decouple From the Rest of the World?
Recession Has Begun
In this case, the data speaks for itself. We are at the end of the line. The recession is not coming, it is not down the road, it is not likely, it is not at even at-hand.
Rather, the recession has begun. Fiscal stimulus from Congress is not coming and no amount of QE is going to stop it.
Tags: China Import, Consecutive Quarters, Current Conditions, Economic Contraction, GDP Growth, Global Collapse, Global Economy, Global Recession, Hussman, Import Growth, International Monetary Fund, International Monetary Fund Imf, Macroeconomic Factors, Nber, Necessary Condition, Partial Transcript, Payroll Report, Protectionism, Recessions, Trade Surplus, World Gdp
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Tuesday, May 22nd, 2012
by Brooke Thackray, Research Analyst along with Don Vialoux and Jon Vialoux for the Horizons Seasonal Rotation ETF that trades under the symbol HAC on the Toronto Stock Exchange.
Surprise….European countries are slowing down as more countries enter into a recession: eleven countries are now offi cially in a recession (WSJ May 1, 2012). Actually, it is not a surprise at all. Europe was already slowing down before austerity measures were put in place and now with government cutbacks economic contraction is taking place. Even the EU has even been surprised at the depth of the slowdowns underway (they tend to have a very positive outlook). The situation in Europe is looking bleak.
To complicate the situation further, Europeans are voting against the fiscal rescue packages and the resulting austerity measures. France has elected a socialist President who is promising to examine how the Euro-zone is dealing with the debt crisis. Greece has changed the political landscape with its election that has created big gains for the Coalition of the Radical Left at the expense of the mainstream New Democracy and Pasok parties, which had both agreed to major spending cuts in order to stabilize the country’s finances.
Holding the European countries together in the current state of mandated austerity measures for money is simply not going to work over the long-term. The “contract” between the countries that are giving the funds and the countries that are receiving the funds will not be able to stand the test of time. Solving the debt crisis will take a long time, one way or another. Either the “giving countries” will stop giving money, or the receiving countries will no longer put up with imposed austerity measures necessary to receive the funds.
The current politicians of the receiving and giving countries have shown a strong resolve to take action as they did not want to be seen standing on the sidelines and watching the EU crumble. The politicians have taken the stance that it is better to be doing something, rather than nothing. The citizens of both the giving and receiving countries do not share the same political resolve of their leaders.
The social fabric of the receiving countries is disintegrating: job losses, government cutbacks, pay cuts, pension reductions are contracting economies faster than even the EU had expected. Unemployment is skyrocketing in European nations, particularly with the youth. The most notable country with high youth unemployment is Spain with an eye-popping rate sitting just under 50%. The situation looks dire and populations across Europe are looking for someone to blame. They are just starting to turn on their political leaders. Rising opposition to austerity measures will bring forward more and more politicians that are willing to run on a platform that removes their countries out of the austerity contract.
Historically, social changes are often brought about during periods when the masses have too much idle time. The Romans knew of this danger. As a result, they developed the gladiator “sport” of sacrificing people for the purpose of entertaining their unemployed so they would not rebel against their emperor.
Read the complete letter in the slidedeck below – Fullscreen for the better read:
Brooke Thackray is a Research Analyst along with Don Vialoux and Jon Vialoux for the Horizons Seasonal Rotation ETF that trades under the symbol HAC on the Toronto Stock Exchange.
Tags: Austerity Measures, Debt Crisis, Don Vialoux, Economic Contraction, ETF, ETFs, Euro Zone, European Countries, Giving Money, Government Cutbacks, Hac, New Democracy, Offi, Pasok, Political Landscape, Positive Outlook, Radical Left, Socialist President, Standing On The Sidelines, Strong Resolve, Toronto Stock Exchange, Wsj
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Monday, April 23rd, 2012
I had a sense in the latter part of last week that each time we kept bouncing off S&P 1370, that this market was going to do the thing that frustrates the most number of people – that is (if we were headed lower) to gap down through that key level – where no one could position for it intraday. [Apr 20, 2012: 1370 - Resistance Becomes Support.... for Now] Tongue in cheek I said I could envision Joe Kernen of CNBC blaming any Monday morning weakness of the winning of “a socialist” in the first round of French elections – because that’s what Joe blames everything on. ;)
News stories this morning are in part blaming the “uncertainty” of French elections, along with the more likely reasons, continued weakness in PMI figures in China and Europe overnight.
- “The risk was always that the European crisis and associated weak economic activity would encourage more extreme politics. This is slowly happening and is something we need to watch going forward,” said Jim Reid, strategist at Deutsche Bank, in a note.
Germany is of particular concern as the wheelhouse of European manufacturing.
- Business activity across the 17-nation euro zone contracted at a faster-than-expected pace in April, according to the preliminary purchasing managers’ index, or PMI, readings released Monday by data firm Markit.
- Manufacturing PMI fell to 46.0, the lowest in 34 months, from 47.7 in March, defying economists’ expectations for a rise to 48.1. A reading of less than 50 indicates a contraction in activity.
- Services PMI fell to a five-month low at 47.9 from 49.2 in March versus forecasts for a reading of 49.3.
- The composite PMI also fell to a five-month low at 47.4 from 49.1 in March. Economists had forecast a rise to 49.3. “The flash PMI signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter,” said Chris Williamson, chief economist at Markit.
- Preliminary German PMI Manufacturing decreased to 46.3 points in April, from 48.4 points in March.
China stabilized (bounced a tad), albeit at contractionary levels:
- China’s manufacturing activity contracted further in April, although the sector improved from levels seen in March, a preliminary reading from HSBC showed Monday. HSBC’s so-called “flash” Purchasing Managers’ Index rose to 49.1 in April, compared with a final reading of 48.3 in March. The flash PMI is based on responses from 85% to 90% of those surveyed in a given month.
If this break of S&P 1370 holds going into 9:30 AM EST, last week’s lows of 1365 and then lows of the previous week of 1357 are key levels that traders will eye. A close and hold below 1370 will have intermediate term levels of 1340 (March lows) on the radar. If you are playing at home the “bear flag” I keep mentioning seems to be fulfilling. Keep in mind Apple is at the 50 day moving average and perhaps buyers (and gamblers who love to pile in ahead of earnings) will help keep it up, which would help NASDAQ – and thus lend a hand to the market as a whole. We’ll see.
Tags: Business Activity, Chief Economist, Cnbc, Consecutive Quarter, Deutsche Bank, Double Dip Recession, Economic Activity, Economic Contraction, Euro Zone, Extreme Politics, French Elections, Gap, Joe Kernen, Manufacturing Business, Monday Morning, Pmis, Purchasing Managers Index, Strategist, Tongue In Cheek, Wheelhouse
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Wednesday, March 28th, 2012
by William Smead, Smead Capital Management
We saw Warren Buffett quoted the other day saying, “We like companies which buy a commodity and sell a brand”. We thought it would be very helpful to unpack his thought and put it into the context of today’s circumstances. We at Smead Capital Management believe these current circumstances are framed by the historical over-pricing of commodities, the coming economic contraction of China, the successful cleansing of the income statements of US households and the inevitable rebound in housing in the US. We will look at the makeup of our portfolio companies which buy a commodity and sell a brand to consider their upside potential in this interesting environment.
When non-economic investors load up on investments in anything which has had a big run up, please circle the wagons. When commodities were at their low point in 1999, it was hard to find any institutional investor or financial advisor recommending exposure in commodities for investors. As of the end of 2010, institutions are dedicating as much as 52% of their portfolio to alternative investments. This includes commodities, gold and energy. These investments are made today for diversification purposes and are simply bets on rising prices. These bets look good in a rearview mirror as we’ve had a once in a generation move into this asset class. We believe that commodities have never been more over-priced in the US and are entering a decade-long bear market.
We believe the reason commodities have been in a bull market for so long is the uninterrupted economic boom in China. When a country with 1.3 billion people grows at over 10% for a number of years without an occasional recession, it ends up relying on fixed asset investments for growth. When fixed asset investments dominate your GDP numbers, borrowed money prepares to turn sour and ultimately lead to a recession/depression. This is something that “getting rid of cable” can’t cure.
The Federal Reserve came out with their household debt service ratio (HDSR) last week. It shows that by the end of 2011, American households had brought the ratio down below 11% to 10.88%. This matches up with the levels seen in the early 1980’s recession and the “anemic” economic recovery of 1990-93. These earlier readings preceded two of the best modern economic growth periods since World War II. While the doomsayers moan about absolute debt levels, we feel they are missing the story on the health of the income statement of the average household. This has boded well for the economy historically. Also, if we continue to be slow to buy houses and cars, this HDSR could put discretionary spending into its most favorable position in decades.
Lastly, this current “anemic” economic recovery has been severely retarded by the boom commodity prices of the last two years, in our opinion. We’ve had to work off a huge number of foreclosed and short-sale housing inventories, while the deep recession temporarily crippled household formation (Jeff, Who lives at Home). It is rebounding as 20-somethings get sick of living with the parents and the parents get sick of living with Jeff. As Mr. Buffett said recently, “eventually hormones take over” and as Brett Arends pointed out in Smart Money,” renting is more expensive than buying in about 75% of American cities.” You add high lumber, copper, iron ore and oil prices to this mix and you get the worst depression in housing and blue-collar employment since the depression. All these headwinds are about to become tailwinds, in our vision, over the next five years.
Therefore, betting on the US economy and the US consumer looks very favorable to us, especially where the rebounds in employment and consumer confidence have an impact. In fairy tales, people are asked to spin straw into gold. We like to own companies which spin milk and coffee (SBUX), cotton (JWN and CAB), internet access (EBAY and ACN), tax returns (HRB) and chemicals (MRK, AMGN, BMY, ABT, PFE and MYL) into gold. Profit margins on commodity-related companies and companies reliant on emerging market growth could plummet in the near future. Just ask the folks at BHP Billiton. They announced March 20th, 2012 that they are seeing in a big drop off in demand from China. In turn, we believe margins could go up for anyone who is positively impacted by lower energy prices and/or commodity prices in general. This is especially true if you “buy commodities and sell brands”.
The information contained in this missive represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. Some of the securities identified and described in this missive are a sample of issuers being currently recommended for suitable clients as of the date of this missive and do not represent all of the securities purchased or recommended for our clients. It should not be assumed that investing in these securities was or will be profitable. A list of all recommendations made by Smead Capital Management with in the past twelve month period is available upon request.
Tags: Alternative Investments, asset class, Asset Investments, Bear Market, Bets, Capital Management, Circle The Wagons, Commodities, Commodity, Diversification, Economic Boom, Economic Contraction, ETF, ETFs, Generation Move, Income Statements, Institutional Investor, Portfolio Companies, Rearview Mirror, Rebound, Recession, Warren Buffett
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Sunday, January 22nd, 2012
Leading economic evidence continues to teeter at levels that have always and only been breached in recessions, but the sharp deterioration we initially observed late last year has been followed by modest stabilization – though still near the area that has historically marked the entry to economic contraction. The uncertain outcome and the incomplete view evoke a line from Leon Russell – “I’m up on a tightwire, one side’s ice and one is fire… but the top hat on my head is all you see.”
We can respond to the easing of downward momentum in several ways. We could pound the table about recession risk, based on the fact that previous breakdowns of the same magnitude in leading indicators have always resulted in recessions. Alternatively, we could emphasize the more favorable recent data and abandon our concern about recession, particularly because of the significant decline in new unemployment claims (though there is a great deal of seasonal impact here, and new claims also tend to be lagging indicators by about 3-6 months – see Leading Indicators and the Risk of a Blindside Recession ). The problem with both of these responses is that, in our view, each would overstate the case, and grasp at interpretations that are not supported by the data.
The interpretation best supported by the data is that recession risk remains very high based on the leading evidence and the typical outcomes that have resulted, but that the rate of deterioration has eased significantly, and it is simply unclear whether this is a temporary pause or a reversal. Rather than overstating the case one way or another, we remain strongly concerned about recession risk, but recognize the recent stabilization and the potential for a low-level continuation of that. On the indicator front, the economic data over the coming week could be informative (especially the introduction of the Conference Board’s revised LEI, the Chicago Fed National Activity Index, and unemployment claims), but if the new data also muddles around near the flat-line, it will essentially reinforce the overall view that the global economy is close to slipping into recession, but is at least temporarily stabilizing.
Importantly, the recession risk we’re observing is evidenced in a wide variety of indicators, various sets which we’ve reviewed in a number of recent weekly comments (see Dwelling In Uncertainty ). For example, the chart below shows three widely-followed leading indicators: the OECD (Organization for Economic Cooperation and Development) Leading Economic Indicator for the total world, the OECD LEI for the U.S., and the ECRI (Economic Cycle Research Institute) Weekly Leading Index growth rate. All are presented in standardized form – zero mean, unit variance. The blue shaded areas are actual U.S. recessions. The yellow brackets depict what we call a “discriminator” – a variable that strongly discriminates between two groups of data, in this case recessions versus expansions. This particular variable shows the points in history when all three of those leading indices were below -0.5 (based on standardized values), and the average of the three was less than -1.0. Recessions have always produced this condition, and this condition has only been associated with recessions. Notably, this discriminator is active at present.
Despite the record of this and other indicators, we have to suspend the inclination to view recession as a certainty. It’s still possible that this instance is different, and that the modest stabilization we’ve seen in recent economic data will be sustained enough to avoid a recessionary outcome. But in my view, the downside risk is high, and it entirely strains the evidence to say that we can discard recession concerns on the basis of the more comfortable data points we’ve seen in recent weeks.
Getting in is easier than getting out
My impression is that the recent stabilization is owed to a large extent to various central bank actions, primarily by the European Central Bank (ECB), that eased immediate liquidity pressures from the banking system late last year. Though many observers seem to be under the impression that the ECB has not yet “stepped in,” this is really only true in the sense that the ECB has limited its direct purchases of distressed European debt. More broadly, the ECB now has a larger balance sheet – relative to European GDP – than the Federal Reserve has relative to US GDP.
We aren’t convinced that the ECB or the Federal Reserve can get themselves back out. It’s easy to initiate a “liquidity operation” by creating new reserves and taking securities – be they government bonds or mortgage obligations – as collateral. These actions seem to have no cost or consequence, because people are eager to hold some sort of asset that doesn’t default, so monetary velocity simply falls in exact proportion to the increase in the money supply. And as long as people believe that the central banks can reverse their operations – so that the money being created is not a permanent addition to the money stock – there is no observable impact on inflation.
[Geek's Note: The value of one unit of a currency is the marginal utility of the expected long-term stream of "monetary services" provided by that currency unit - as a means of payment and store of value - divided by the marginal utility of goods and services. A dilution of the value of one currency unit is commonly observed as inflation. People are willing to exchange real goods and services for currency not just because they believe the next person will value the currency, but because the next person believes that the next-next person will value it, and so on. Even a large increase in the stock of money may not be inflationary provided it is expected to be purely temporary, because as with any discounted stream of future amounts, the total value is largely carried in the long-term "tail" of that stream, not in the first few years].
It is shortsighted to view the actions of the Fed and the ECB as costless, because the difficult question comes later – whether they will be able to reverse their actions and shrink their balance sheets without major economic disruption. This will require the financial assets they presently hold (sovereign debt and mortgage securities) to be willingly absorbed back by the private sector. From my perspective, central banks are playing a dangerous economic experiment, that has its main constituency – the banking sector – as the primary beneficiary. Of course, if the Fed and the ECB are unable to reverse these transactions, or if any of the assets they hold lose value for any reason (sovereign default, counterparty failure, etc.) they will ultimately have printed enormous volumes of currency, not for public benefit, but to reduce the losses experienced by the bondholders of financial institutions.
In any event, the upshot is that we have to remain comfortable with uncertainty here, recognizing that the very recent data has been fairly stable, but also that leading indicators and very identifiable economic headwinds are still very challenging. The risks remain asymmetric, in the sense that the potential downside in the event of a downturn overwhelms the potential gains in the event of further stabilization. This is not a fringe view anywhere but on Wall Street. Indeed, the World Bank’s just-released (January 2012) report on Global Economic Prospects warns that “developing countries need to prepare for the worst”, observing:
“Capital flows to developing countries have declined by almost half as compared with last year, Europe appears to have entered recession, and growth in several major developing countries has slowed… The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome. While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains. In particular, the willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured. Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out. The world could be thrown into a recession as large or even larger than that of 2008/09.”
“Importantly, because this second crisis will come on the heels of the earlier crisis, for any given level of slowdown its impact at the firm and household level is likely to be heavier. In the event of a major crisis, activity is unlikely to bounce back as quickly as it did in 2008/09, in part because high-income countries will not have the fiscal resources to launch as strong a countercyclical policy response as in 2008/09 or to offer the same level of support to troubled financial institutions… In the immediate term, governments should engage in contingency planning to identify spending priorities, seeking to preserve momentum in pro-development infrastructure programs and shore up safety net programs. Policymakers should also take steps to identify and address vulnerabilities in domestic banking sectors through stress-testing. Risks here include the possibility that an acute deleveraging in high-income countries spills over into domestic markets either as a cutting off of wholesale funding or asset sales. In addition, in the context of a major global recession the balance sheets of local banks could come under pressure as firms’ and households’ capacity to service existing debt levels deteriorate.”
So despite the stabilization of immediate liquidity strains, we can readily observe that the main sources of economic headwinds (excessive sovereign and household debt loads, global fiscal austerity, weakly capitalized banking systems) have not been addressed in any durable, meaningful way. Even if the economy has dodged a bullet, the bullet is probably from a machine gun.
From an investment standpoint, it is similarly evident that investors have adopted a renewed willingness to speculate in recent weeks. I use the word “speculate” because on a valuation basis, we estimate prospective 10-year total nominal returns for the S&P 500 of just 4.7% annually (probably much less after inflation, as we expect increasing price pressures in the back half of this decade).
This 4.7% 10-year annual total return estimate would be less of a concern if our valuation methodology was less accurate historically. The exception to this record of accuracy was the much stronger-than-expected market performance in the decade from 1990 to 2000, associated with the late-1990′s bubble, but even this was essentially an exception that proves the rule, as total returns since the late-1990′s have been predictably dismal, as has the most recent 10-year total return from January 2002 to the present. I am not convinced that the dynamics of the U.S. economy have improved so dramatically since 2002 that our approach to market valuation – accurate both historically and as recently as the past decade – has suddenly lost its relevance.
[For an overview of our valuation approach, see Valuing the S&P 500 Using Forward Operating Earnings , The S&P 500 as a Stream of Payments , or numerous prior comments. For more on Wall Street's misuse of forward operating earnings, which is as rampant and naive as it is ineffective, see Long Term Evidence on the Fed Model and Forward Operating PE Ratios ].
Notably, our projections for 10-year S&P 500 annual total returns advanced above 10% at the 2009 market low. Anyone new to these weekly comments can fairly ask why we missed that opportunity by remaining defensive. It’s worth repeating that our avoidance of risk in 2009 and early 2010 was driven by my insistence to “first do no harm” by stress-testing our hedging approach in Depression-era data and other periods of extreme credit strains. The problem in Depression-era data is that even once 10-year prospective returns reached 10%, the market actually declined by two-thirds from there. While our existing “post-war” models performed well overall in that data, with far less drawdown than a buy-and-hold approach, they still would have experienced much deeper drawdowns than I was willing to allow shareholders to risk. Once we were forced to contemplate the possibility of Depression-era outcomes, I insisted that our methods should withstand that level of stress.
Having adapted our hedging approach to a much broader set of data, we are less concerned about the potential for extreme economic outcomes that are “out of sample.” At the same time, a material improvement in valuations should give us much broader ability to invest without defensive hedges in place.
We’ve recently seen some analysts crooning that present valuations are at the best levels we’ve seen in 15 years, which only demonstrates that a) they are using such noisy valuation models that they can’t even distinguish between today’s poor valuations and the better ones available at the 2009 trough, and b) they don’t realize “the best in 15 years” is not even a compliment, as the S&P 500 has turned in total annual returns of just 5.3% over the past 15 years (3.7% over the past 14, 2.3% over the past 13, and 1.2% over the past 12). Stocks would have achieved even less were they not also overvalued today.
While the past decade-plus has made long-term investing seem virtually pointless, I remain convinced that this unusual period of rich valuations and predictably poor returns will come to an end within a small number of years, and that prospective returns will become available that adequately compensate investors for the market risk they are asked to accept (which has been the case for the vast bulk of market history). We are not there now, but even if valuations don’t “wash out” durably, I expect that moderate-risk opportunities will become available in the interim, without requiring us to speculate in overbought, overbullish markets at rich valuations.
Over a shorter horizon, of course, we’re familiar enough with the speculative inclinations of investors, and the pump-pump-pump rhetoric of Wall Street, that we have to allow for a continuation of speculative pressures, regardless of how many tears they will likely produce in the end. While we remain strongly defensive here, we may have some latitude to slightly soften our hedges over a period of weeks, provided that market internals remain firm and leading economic evidence is consistent with at least a stabilization of economic pressures. Given that our long-term outlook for returns remains poor, any softening of our hedges would mainly serve to reduce the negative impact that lopsided “risk on” speculation has tended to have on our portfolios from time to time.
Given the larger structural issues facing the economy, and with an overvalued, overbought, overbullish profile of market conditions in place, there’s very little latitude for investment positions that could be considered “bullish.” But our approach is to respond in proportion to the return/risk profile implied by the evidence at every point in time. While the potential negatives remain daunting, we can’t ignore that more recent economic data has stabilized at least temporarily, or that investors appear to be adopting a speculative attitude toward risk-taking – reasonable or not. Still, there’s a difference between getting out of the way of a bandwagon and jumping on board. If the present stabilization in the data continues, we expect to soften our hedges enough to avoid being run over on “risk-on” days, but not so much that we would tie our fate with speculators if, as remains too great a possibility, the road to Sunny Acres suddenly takes a turn into the canyon.
As of last week, the Market Climate for stocks remained characterized by an overvalued, overbought, overbullish syndrome. At the same time, we’ve seen at least temporary stabilization in economic data, and evidence of speculative pressure in stocks.
We know from historical experience that overvalued, overbought, overbullish syndromes have a tendency to produce an extended period of small incremental advances and marginal new highs, often followed abruptly by “air pockets” where the market can give up weeks or months of gains in a handful of sessions. As noted above, we don’t have latitude here for bullish positions, but provided more benign data, we expect to modestly soften our hedges in order to reduce our vulnerability during periodic (if short-lived) waves of “risk-on” speculation.
Strategic Growth and Strategic International remain defensive here. Strategic Total Return continues to carry a duration of about 3 years in Treasury securities, with about 12% of assets in precious metals shares, where the Market Climate remains positive on our measures, but where potential volatility remains high enough to discourage significantly a larger exposure to that sector at present.
Tags: Activity Index, Breakdowns, Chicago Fed, Continuation, Deterioration, Economic Contraction, Economic Data, Economic Evidence, Grasp, Hat On My Head, Hussman, Lagging Indicators, Leading Indicators, Leon Russell, Machine Gun, Recession, Recessions, Several Ways, Top Hat, Typical Outcomes
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Friday, August 26th, 2011
by Russ Koesterich, Chief Investment Strategist, iShares
In recent days, market watchers from Bill Gross to Morgan Stanley have warned of the high possibility of a double dip recession for reasons ranging from more regulation and “policy errors”, to slowing consumption, weak economic data and the likelihood of further fiscal tightening.
While I do believe that the odds of a double dip have risen since the S&P downgrade of US debt, I still think the most likely outcome is a sluggish recovery, not another recession.
What’s my evidence? Leading indicators and retail sales data in the US and abroad.
Yes, virtually every economic indicator has dipped in recent months. But few are signaling a return to a 2008 style recession. In fact, major leading indicators that predict US gross domestic product (GDP) still suggest sluggish US growth and that the two-year-old expansion should continue.
Take the most well known measure — the Conference Board’s Leading Index. The measure has increased in 11 out of the past 12 months, including a better-than-expected reading last Thursday. In contrast, in the year leading up to September 2008, the indicator rose on only one occasion.
Perhaps more relevant is the recent behavior of two lesser known indicators, the ISM New Orders component and the Chicago Fed’s National Activity Index (CFNAI). Both measures may provide a good prediction of next quarter’s US GDP — historically you can explain roughly 45% of the variation in next quarter’s GDP by watching the level of the CFNAI.
Currently, both indicators are weak, but they are still signaling positive growth of around 2% next quarter. This is in marked contrast to the situation heading into September 2008. Along with other leading indicators, the CFNAI started to slide in 2007. By the eve of the Lehman bankruptcy in September of 2008, the indicator was signaling a severe economic contraction.
Similar leading indicator measures in Europe also don’t suggest a significant contraction in the third quarter. For instance, the most recent IFO Survey — a business climate indicator with a good record of forecasting European GDP — has fallen modestly from its February all-time-high but still indicates growth.
Apart from leading indicators, retail figures – at least as of July – provide evidence that consumers continued to spend. July’s US retail sales numbers showed a gain of 0.60% on spending, stripping out food and autos. There also have been signs of healthy consumer demand in most emerging markets. In Brazil, retail sales recently grew by over 7% from one year ago, well above expectations. In China, retail sales have been growing steadily at around 17% year-over-year for the past several months.
You can read more about my take on double dip and recent market activity in my latest Market Update piece.
Copyright © iShares
Tags: Activity Index, Bill Gross, Brazil, Chicago Fed, Chief Investment Strategist, Double Dip Recession, Economic Contraction, Economic Data, Economic Indicator, GDP, Gross Domestic Product, Indicator Measures, Ishares, Ism, Last Thursday, Leading Indicator, Leading Indicators, Lehman, Morgan Stanley, Retail Sales Data, Us Gdp
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Wednesday, June 15th, 2011
by Trader Mark, Fund My Mutual Fund
While there are many pundits and economists out there making calls, what I’ve observed from the Economic Cycle Research Institute over the past half dozen years or so has been quite impressive. Whatever quantitative tools they are using, they seem to be creating a very nice mosaic in terms of forecasting the future. While many (hands up) thought we’d be heading relatively quickly into a double dip last year (totally underestimated the power of the federal government and Fed to flood the system with liquidity), the ECRI remained bullish on the economy – almost in arrogant fashion. However, they seem to be changing their tune now as this 10 minute video shows.
Courtesy of WSJ, email readers will need to come to site to view
- The U.S. economy is “not yet” headed for a double-dip recession, but a sharp and prolonged downturn is underway and may make jobs growth even tougher to come by, an influential analyst said Monday.
- In an interview with The Wall Street Journal, Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute, said that over the last few months key indicators of long-term economic growth have all begun pointing in one direction: downward.
- “We’re talking about a cyclical turn that’s pronounced pervasive and persistent, not a one or two month affair,” Achuthan said. He added that the slowdown is likely to last a couple of quarters at least — even as he stopped short of calling it a formal recession, which is defined by two quarters of economic contraction.
- “This isn’t a story about one country driving [growth] down: China didn’t do this, and the U.S. didn’t’ do this,” he said. “It’s very big…and not something you can deny.”
- “The broad economy is going to slow alongside the industrial sector starting in the middle of this year, so in that sense it may feel like last year,” Achuthan said, adding that closely watched gauges of economic growth will all begin slowing at the same time. “It’s all going to be synchronized.”
- Achuthan told The Journal that even before Japan’s wrenching nuclear disaster and turmoil in the Middle East created tumult in the global economy, ECRI’s longer-term leading indicators had already begun to soften. Some of those factors may have led to a more pronounced pullback in global growth, he added, which may bode for a temporary rebound.
- ECRI sees jobs growth as “slower” in the months to come, Achuthan says. “You’re not going to see the quarter of a million jobs [created] on average anytime soon,” the economist said, referring to the figure of employment growth that many analysts cite as a benchmark for sufficient growth in employment. “We’re going to get back into that 100 plus or minus range through the summer.”
Copyright © Trader Mark, Fund My Mutual Fund
Tags: Co Founder, Double Dip Recession, Downturn, Economic Contraction, Economic Cycle Research Institute, Economic Growth, Economists, Ecri, Industrial Sector, Lakshman, liquidity, Mosaic, Mutual Fund, Pundits, Quantitative Tools, Quarters, Slowdown, Wall Street, Wall Street Journal, Wsj
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Friday, April 1st, 2011
Hugh Hendry proposes a very simple thought experiment to all those (apparently the Fed) who believe that QE2 can end: who will drive global growth if the suddenly marginal economy, that would be the US for some ungodly reason, contracts, which it already is, and will do so even more once rates start rising. Sorry, but unlike last time China is not here to pick up the slack. And it appears that China will not be stepping in to fill the growth void, read inflation, (read Jasmine revolution) which can only lead to more social unrest.
The key observation from Hendry:
The ramifications of China’s actions during the crisis ensured the development of a nascent but very real over-investment/property bubble. The Chinese are at the same time nursing an unprecedented income gap between the haves and the have-nots. QE2 undoubtedly exacerbates these social disparities even further. The eerie similarities between the Great Recession and the depression of the 1920 shave to some extent dissipated, due in large part to the willingness of Asian creditors to stimulate their domestic economies and bridge the gap left in the wake of severe economic contraction in the West. Recently, however, the spectre of domestic inflation has prompted the East to remove the punch bowl. Now the question to ask has to be whether or not China would be prepared to assume the role of hero all over again if global GDP runs out of steam. The Fed’s antagonistic quantitative easing program may have sapped its willingness to help out “team world”, in which case the only remedy for a prospective slowdown will be further QE and a Western commitment for rates to remain lower for longer.
Full report – Click on the ‘cloud’ button to download the PDF, or read it in the slidedeck.
Tags: Bridge The Gap, China, Domestic Inflation, Economic Contraction, Eerie Similarities, Global Gdp, Global Growth, Hugh Hendry, Income Gap, Nots, Punch Bowl, Qe, Ramifications, Simple Thought, Slowdown, Social Disparities, Social Unrest, Spectre, Thought Experiment, Time China, Ungodly Reason
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