• Tag Archives GDP
  • Bond Market Bulls Embrace China Debt Downgrade

    It appears credit ratings agencies simply get no respect…
    Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how “stable” China truly is through its nationalized capital markets, S&P followed suit this week when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most important congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.
    ‘China’s prolonged period of strong credit growth has increased its economic and financial risks,’ S&P said.
    ‘Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”
    According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.
    The cut will ‘have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,’ said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. ‘It will affect corporate financing.’

    This post was published at Zero Hedge on Sep 23, 2017.


  • Pound Flash Crashes After Moody’s Downgrades UK To Aa2

    In an otherwise boring day, when Theresa May failed to cause any major ripples with her much anticipated Brexit speech, moments ago it was Moody’s turn to stop out countless cable longs, when shortly after the US close, it downgraded the UK from Aa1 to Aa2, outlook stable, causing yet another flash crash in the pound.
    As reason for the unexpected downgrade, Moodys cited “the outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise.”
    It also said that fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.
    Moody’s now expects growth of just 1% in 2018 following 1.5% this year; doesn’t expect growth to recover to its historic trend rate over coming years. Expects public debt ratio to increase to close to 90% of GDP this year and to reach its peak at close to 93% of GDP only in 2019.
    And so, once again, it was poor sterling longs who having gotten through today largely unscathed, were unceremoniously stopped out following yet another flash crash in all GBP pairs.
    Full release below:

    This post was published at Zero Hedge on Sep 22, 2017.


  • Fed’s Kaplan Makes A Stark Admission: Equilibrium Rate May Be As Low As 0.25%

    As we have hammered away at for years, “the math doesn’t work”, and it appears The Fed just admitted it.
    In a stunning admission that i) US economic potential is lower than consensus assumes and ii) that the Fed is finally considering the gargantuan US debt load in its interest rate calculations, moments ago the Fed’s Kaplan said something very surprising:
    KAPLAN SAYS NEUTRAL RATE MAY BE AS LOW AS 2.25 PCT, LEAVING FED “NOT AS ACCOMMODATIVE AS PEOPLE THINK” Another way of saying this is that r-star, or the equilibrium real interest rate of the US (calculated as the neutral rate less the Fed’s 2.0% inflation target), is a paltry 0.25%.
    What Kaplan effectively said, is that with slow secular economic growth and ‘fast’ debt growth, there’s only so much higher-rate pain America can take before something snaps and as that debt load soars and economic growth slumbers so the long-term real ‘equilibrium’ interest rate is tamped down. It also would explain why the curve has collapsed as rapidly as it did after the Wednesday FOMC meeting, a move which was a clear collective scream of “policy error” from the market.
    This should not come as a surprise. As we showed back in December 2015, in “The Blindingly Simple Reason Why The Fed Is About To Engage In Policy Error“, when calculating r-star, for a country with total debt to GDP of 350%…

    This post was published at Zero Hedge on Sep 22, 2017.


  • You Can’t Make This Up, But You Can Apparently Just Make Up the Data

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Back in 2014, the Federal Reserve was convinced that the labor market was better than it appeared to be in various data accounts. Though it was called the ‘best jobs market in decades’, researchers at the central bank were keen on showing it. Primarily lacking in wages and incomes, the labor segment was suspected of missing the very elements of sustainable economic growth.
    They came up with the Labor Market Conditions Index (LMCI), a factor model purported to give less weight to any of the 19 data points embedded within it that might be outliers. I assume they really thought the weaker points would be those outliers, and therefore the LMCI would overall gravitate toward suggesting the very robust jobs market they were sure was there.
    The LMCI, of course, behaved in the opposite fashion. It suggested instead that the labor market was weak and getting weaker, not strong and getting stronger. Worse, after suggesting something like recession, which even GDP revisions have subsequently shown as the correct position, the LMCI failed to indicate a robust rebound befitting the by-then ultra-low unemployment rate.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ September 22, 2017.


  • Gold Investment ‘Compelling’ As Fed May ‘Kill The Business Cycle’

    Gold Investment ‘Compelling’ As Fed Likely To Create Next Recession
    – Is the Fed about to kill the business cycle?
    – 16 out of 19 rate-hike cycles in past 100 years ended in recession
    – Total global debt at all time high – see chart
    – Global debt is 327% of world GDP – ticking timebomb…
    – Gold has beaten the market (S&P 500) so far this century
    – Safe haven demand to increase on debt and equity risk
    – Gold looks very cheap compared to overbought markets
    – Important to diversify into safe haven gold now
    ***
    by Frank Holmes via Gold.org
    Global debt levels have reached unprecedented levels, pension deficits are rising and the US interest rate cycle is on the turn. Frank Holmes, chief executive of highly regarded investment management group US Global Investors, believes that investing in gold is a logical response to current, unnerving conditions.
    For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.

    This post was published at Gold Core on September 21, 2017.


  • S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

    Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how “stable” China truly is through its nationalized capital markets, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most important congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.
    ‘China’s prolonged period of strong credit growth has increased its economic and financial risks,’ S&P said. ‘Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”
    According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.
    The cut will ‘have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,’ said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. ‘It will affect corporate financing.’
    ‘The market has already speculated S&P may cut soon after Moody’s downgraded,’ said Tommy Xie, an economist at OCBC Bank in Singapore. ‘This isn’t so surprising.’

    This post was published at Zero Hedge on Sep 21, 2017.


  • Deutsche Bank: “Global Asset Prices Are The Most Elevated In History”

    In an extensive report published this morning by Deutsche Bank’s Jim Reid, the credit strategist looks at the “Next Financial Crisis”, and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. While we will have much more to say on this study in upcoming posts, we wanted to bring readers’ attention to one observation made by Reid, namely that “we’re in a period of very elevated global asset prices – possibly the most elevated in aggregate through history.”
    Here are the details on what appears to be the biggest asset bubble ever observed, courtesy of Deutsche Bank:
    Figure 57 updates our analysis looking at an equal weighted index of 15 DM government bond and 15 DM equity markets back to 1800. For bonds we simply look at where nominal yields are relative to history and arrange the data in percentiles. So a 100% reading would mean a bond market was at its lowest yield ever and 0% the highest it had ever been. For equities valuations are more challenging to calculate, especially back as far as we want to go. In the 2015 study (‘Scaling the Peaks’) we set out our current methodology but in short we create a long-term proxy for P/E ratios by looking at P/Nominal GDP and then look at the results relative to the long-term trend and again order in percentiles. Nominal GDP data extends back much further through history than earnings data. When we have tracked the two series where the data overlaps we have found it to be an excellent proxy. Not all the data in Figure 57 starts at 1800 but we have substantial history for most of the countries (especially for bonds).

    This post was published at Zero Hedge on Sep 18, 2017.


  • Atlanta Fed’s Q3 Real GDP Forecast Dwindles To 2.2% From 3.0% (NY Fed Nowcast Q3 Forecast Plunges To 1.34%)

    According to the Atlanta Fed, the GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.2 percent on September 15, down from 3.0 percent on September 8. The forecasts of real consumer spending growth and real private fixed investment growth fell from 2.7 percent and 2.6 percent, respectively, to 2.0 percent and 1.4 percent, respectively, after this morning’s retail sales release from the U. S. Census Bureau and this morning’s report on industrial production and capacity utilization from the Federal Reserve Board of Governors.

    This post was published at Wall Street Examiner on September 15, 2017.


  • New York Fed, Atlanta Fed, & Goldman Slash Q3 GDP Forecasts

    As ‘hard’ economic data in America crashes to its weakest since Feb 2009, so The New York Fed has slashed its economic growth forecasts for Q3 and Q4 dramatically.

    The drivers of the collapse are hurricane-impacted data from Industrial production and Retail Sales this morning…

    This post was published at Zero Hedge on Sep 15, 2017.


  • Natural Disasters Have Not Caused a Single Muni Default: Moody’s

    For the first time since we’ve been keeping track, two separate Category 4 hurricanes struck the mainland U. S. in the same year. It should come as no surprise, then, that the combined recovery cost of Hurricanes Harvey and Irma is expected to set a new all-time high for natural disasters. AccuWeather estimates the total economic impact to top out at a whopping $290 billion, or 1.5 percent of national GDP.
    With parts of Southeast Texas, Louisiana and Florida seeing significant damage, many fixed-income investors might be wondering about credit risk and local municipal bond issuers’ ability to pay interest on time. If school districts, hospitals, highway authorities and other issuers must pay for repairs, how can they afford to service their bondholders?
    It’s a reasonable concern, one that nearly always arises in the days following a major catastrophe. But the concern might be unwarranted, if the past is any indication.

    This post was published at GoldSeek on Thursday, 14 September 2017.


  • Bank of America Stumbles On A $51 Trillion Problem

    At the end of June, the Institute of International Finance delivered a troubling verdict: in a period of so-called “coordinated growth”, total global debt (including financial) hit a new all time high of $217 trillion in 2017, over 327% of global GDP, and up $50 trillion over the past decade. Commenting then, we said “so much for Ray Dalio’s beautiful deleveraging, oh and for those economists who are still confused why r-star remains near 0%, the chart below has all the answers.”

    Today, in a follow up analysis of this surge in global debt offset by stagnant economic growth, BofA’s Barnaby Martin writes that he finds “that as global debt has been mounting to more than $150 trillion (government, household and non-financials corporate debt), global GDP is just above $60 trillion.” His observation is shown in the self-explanatory chart below.

    This post was published at Zero Hedge on Sep 13, 2017.


  • On Swamp Draining in Texas, Florida … and DC

    For this week’s Outside the Box we have a two-parter of short essays. They are unrelated but equally important. First, in ‘Time to Drain the Fed Swamp,’ Brian Wesbury and colleagues at First Trust make the case that it was the private sector, not the federal government or the Fed, that saved the economy after the Panic of 2008. The Fed has outgrown its britches, they argue, and it’s time to fill the Board of Governors chair and vice-chair positions with people who will hold the Fed to account for its mistakes. They conclude with this trenchant line:
    We need a government that is willing to support the private sector and stop acting as if the ‘swamp’ itself creates wealth.
    Then, in ‘Don’t Buy Into ‘The Broken Window Fallacy,” good friend Doug Kass shares Frederic Bastiat’s parable of a broken window to demonstrate why destruction la Harvey and Irma – is not a net positive for the economy in the longer term. I keep reading nonsense economics by people who say this is going to boost the economy; and in the seriously weird way that we measure GDP, maybe it will, however slightly; but it is a definite drain on the wealth of the country.

    This post was published at Mauldin Economics on SEPTEMBER 13, 2017.


  • Why Is the Euro Still Gaining Against the Dollar?

    The primary purposes of the incorrectly named ‘unconventional monetary policies’ are to debase the currency, stoke inflation, and make exports more competitive. Printing money aims to solve structural imbalances by making currencies weaker.
    In this race to zero in global currency wars, central banks today are ‘printing’ more than $200 billion per month despite that the financial crisis passed a long time ago.
    Currency wars are those that no one admits to waging, but everyone wants to fight in secret. The goal is to promote exports at the expense of trading partners.
    Reality shows currency wars do not work, as imports become more expensive and other open economies become more competitive through technology. But central banks still like weak currencies -they help to avoid hard reform choices and create a transfer of wealth from savers to debtors.
    The Euro Rallies So how must the bureaucrats at the European Central Bank (ECB) feel when they see the euro rise against the U. S. dollar and all its main trading currencies by more than 12 percent in a year, despite all the talk about more easing? The ECB will keep buying 60 billion euro a month in bonds, maintain its zero interest-rate policy, and keep this ‘stimulus’ as long as it takes, until inflation growth and GDP growth are stable.

    This post was published at Ludwig von Mises Institute on Sept 12, 2017.


  • 2,000 Years Of Economic History (In One Chart)

    Long before the invention of modern day maps or gunpowder, the planet’s major powers were already duking it out for economic and geopolitical supremacy.
    Today’s chart tells that story in the simplest terms possible. As Visual Capitalist’s Jeff Desjardins notes, by showing the changing share of the global economy for each country from 1 AD until now, it compares economic productivity over a mind-boggling time period.
    Originally published in a research letter by Michael Cembalest of JP Morgan, we’ve updated it based on the most recent data and projections from the IMF. If you like, you can still find the original chart (which goes to 2008) at The Atlantic. It’s also worth noting that the original source for all the data up until 2008 is from the late Angus Maddison, a famous economic historian that published estimates on population, GDP, and other figures going back to Roman times.

    This post was published at Zero Hedge on Sep 11, 2017.


  • Who’s Going To Eat The Losses?

    Unsustainable.
    Many more people need to understand what that word really means, and how it applies to pretty much everything in the current human living arrangement. Especially the so-called ‘developed’ nations.
    Here’s the dictionary definition:

    Let’s take these three definitions one at a time.
    First: our entire economic model, which dependent on borrowing at a faster rate than income (GDP) grows, is something that simply cannot be maintained at its current rate or level. Check.
    Second: depleting species, soils and aquifers are all wildly unsustainable practices that are accelerating. Check.
    Last (and most glaring of all): the world’s leadership (and we use that term very loosely) continues to insist on adhering to the indefensible idea that infinite growth on a finite planet is possible Checkmate.
    Said another way, the daily comforting stories we are told about how all of this somehow makes sense are just a load of nonsense. Each is entirely unsupportable by the evidence, facts and data.
    What happens when a culture’s dominant narratives are not just unsatisfactory, but entirely unworkable?
    Well, for one thing, the younger generations that are being asked (goaded?) to step into an increasingly flawed future begin to resist. Which is completely understandable. They have nothing to gain if the status quo continues.

    This post was published at PeakProsperity on September 8, 2017.


  • “Solid Footing”… How Is The Average Joe Really Doing?

    When some think of the economy, they think of GDP. When I think of the economy, I try to visualize the average Joe and how he or she is doing.
    According to Federal Reserve Governor Lael Brainard:
    Overall, the U. S. economy remains on solid footing, against the backdrop of the first synchronized global economic growth we have seen in many years and accommodative financial conditions.
    This benign outlook is clouded somewhat by uncertainty about government funding and the fiscal outlook, and geostrategic risk has risen ….. Of course, the likely economic effects of Hurricane Harvey raise uncertainties about the economic outlook for the remainder of the year.
    Yes, employment seems to be improving (I look at employment-population ratios) – although it remains far from excellent

    This post was published at Zero Hedge on Sep 11, 2017.


  • Goldman Slashes Q3 GDP By 30% Due To Hurricane Disaster

    Yesterday, when commenting on the impact of Hurricanes Harvey and Irma, we noted that even before the two devastating storms were set to punish Texas, Florida and the broader economy, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth“), things were turning south for the US economy, which in turn prompted Deutsche Bank to point out that (adjusted) recession risk, at roughly 20%, is now the highest in the past decade, and that it was quite prudent for the Fed, which expects to hike rates at least once more in 2017, to pause its current tightening, especially since a period of both economic and market weakness is imminent.

    This post was published at Zero Hedge on Sep 10, 2017.


  • Deutsche: “Recession Risk Is The Highest In Ten Years; It’s Time For The Fed To Pause Tightening”

    Even before Harvey and Irma were set to punish Texas and Florida, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth”), things were turning south for the US economy, so much so that according to the latest Deutsche Bank model, which looks at economic data that still has to incorporate the Irma/Harvey effects, the risk of a recession starting in the next 12 months is near the highest it has been since the last recession.
    As Deutsche Bank’s Dominic Konstam writes, at first glance, the modeled probability is admittedly low at about 8% as of the end of August (down a touch from near 10% in June), but it has been generally trending higher despite a brief post-election dip. As a result, the bank “sees appeal to buying SPX put spreads and bull flatteners in Eurodollars given the emergence of downside risks.”

    This post was published at Zero Hedge on Sep 9, 2017.