This post was published at GoldSilver (w/ Mike Maloney)
Tag: Recession
Mohamed El-Erian: “The World Is Nearing A Tipping Point”
Mohamed El-Erian, chief economic adviser at Allianz, expects a fundamental shift in the global economy that will either result in a powerful economic boom or in renewed tremors at the financial markets.
In the world finance, there are few people as highly respected as Mohamed El-Erian. Not only is the chief economic adviser at Allianz well versed when it comes to navigating the global financial markets, he’s also brilliant at explaining complex developments in a comprehensible way. The most prominent example is the concept of the New Normal which he and his colleagues developed in early 2009 when he was at the helm of Pimco together with Bill Gross. Today, this concept of a new economic reality, defined by slow growth and super low interest rates, is widely accepted. However, Mr. El-Erian predicts that the New Normal won’t continue much longer. He sees significant changes ahead that will either lead to a powerful economic boom or to a recession with renewed tremors in the financial markets.
This post was published at Zero Hedge on Thu, 12/28/2017 –.
The Ghosts of Crashes Past, Recent, and Future as they Appeared on this Blog
It’s not boasting to state plainly that you were right if you are equally direct about your errors. I have until now rightly predicted all of the stock market’s major downturns, starting with the one in 2007 that gave us the Great Recession. The first of those led to the writing of this blog. The next two were predicted and recorded as they happened on this blog, and the latest, whether it proves right or wrong, waits shortly in the future. Each time I made such a prediction here, I bet my blog on it. The blog is still here, but will it continue to be?
I am using the term ‘crash’ loosely in this article because one time I clearly stated the impending plunge would not technically amount to a crash (a sudden drop of more than 20%) but it would be much more significant than just a correction (a decline of 10%) because of how drastically it would change the nature of the market. I’ll show here how it did. The next time, I predicted a ‘crash’ that did not quite turn out as significant as I claimed it would be, but it was an historic event in that the Dow fell further in January than it had ever done in its entire history, and it did so exactly the timing (to the day) that I laid out in advance.
I let myself off easy on that one as being both a hit and a miss because, after all, getting timing of a major plunge right to the exact day as well as the counter-intuitive manner by which it would start on that day is not something one typically sees.
Now we are about to see whether I will survive the prediction I made many months ago for January 2018.
The ghost of crashes past
On September 3rd, 2014, I wrote an article titled ‘Will There be a 2014 Stock Market Crash?’ In that article I predicted something big and wicked appeared to be coming right around the corner:
This post was published at GoldSeek on 28 December 2017.
The Great Recession 10 Years Later: Lessons We Still Have To Learn
Ten years ago this month, a recession began in the U. S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.
The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.
‘I was surprised by the sudden crisis,’ wrote George W. Bush, ‘My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.’
Ben Bernanke, chairman of the Fed wrote, ‘Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.’ He cited psychological factors rather than low interest rates, a ‘tidal wave of foreign money,’ and complacency among decision-makers.
This post was published at Zero Hedge on Dec 27, 2017.
The Fed Plays the Economy Like an Accordion
We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
This post was published at Schiffgold on DECEMBER 27, 2017.
The Yield Curve Accordion Theory
The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
***
Yield curves flatten out when investors believe a recession is looming. This results from the demand for long-term bonds rising as investor confidence wanes. As demand shifts out along upward sloping supply, long-term bond prices rise and yields fall. On the other end of the yield curve, short-term bond rates rise. This is a result of investors demanding fewer short-term securities and more long-term securities. In response, suppliers of short-term securities lower prices to attract investors. The black dots along the red line in the above figure gives the 2007 yield curve. It is flat because the Great Recession of 2008 and 2009 was just around the bend.
This post was published at Ludwig von Mises Institute on December 26, 2017.
“You All Just Got A Lot Richer” – Trump Confirms The Biggest Problem With The GOP Tax Cut
As we’ve pointed out time and time again, the biggest problem with the Trump tax cuts is that they overwhelmingly benefit the rich. In fact, shortly after the initial nine-page outline of the program was unveiled by Gary Cohn and Steven Mnuchin, the nonpartisan Tax Policy Center released an analysis that showed the wealthiest 1% of Americans would accumulate more than 80% of the benefit from the tax bill.
One need only glance at this chart from JP Morgan to see how shabbily middle- and working-class voters are treated by the tax bill.
This is a big problem – particularly if the administration hopes to come anywhere near the 2.9% rate of GDP growth sustained over the next 10 years, a feat that would amount to the longest period without a recession in US history. That’s because when the wealthy receive tax breaks, they tend to save the money instead of putting it to productive use – at least at first – as we discussed last week.
This post was published at Zero Hedge on Dec 24, 2017.
“I’m Truly Starting To Fear The Worst For The US Car Industry…”
Authored by Ethan Gaines via A Cold War Relic blog,
I love selling cars, the industry gave me a purpose after the shitty experience of being a corporate cog. But I’m truly starting to fear the worst for the American car industry.
The industry has shown growth since the dark days of the recession but the business model morphed into an ugly free for all.
Automotive credit has become easier in the last few years, and manufacturers are still seeking whatever growth they can come up with in our market at any cost.
This post was published at Zero Hedge on Dec 22, 2017.
The West Proves That Poland’s Loyalty Was Worthless
Authored by Andrew Korybko via Oriental Review,
Poland, one of the most loyal EU members, was just stabbed in the back by Brussels after the bloc initiated punitive Article 7 proceedings against it, proving that Warsaw’s unwavering loyalty to the West was worthless this entire time and thus giving Poles a reason to reconsider whether it’s time that they attempted to restore their long-lost Great Power status in Europe.
Many Poles were shocked to hear that Brussels had begun the process to sanction their country, despite knowing in the back of their minds all along that this was a very probable scenario. The EU had been warning Poland for months now that it wouldn’t tolerate the ruling Law & Justice party’s (PiS) judicial reforms, labelling them as ‘anti-democratic’ in spite of the same envisioned changes already being in place in many Western European countries. All that PiS wants to do is make it so that judges are accountable to the people, not to one another, and break the backs of the communist-era clique that still controls the country’s courts. This is crucial in the modern context because PiS follows a EuroRealist ideology that aspires to improve Poland’s sovereign standing in the EU, a vision which is directly at odds with EU-hegemon Germany’s EuroLiberalism that instead wants all member states to be subservient to an unelected bureaucracy in Brussels.
EuroRealism vs. EuroLiberalism
The matter is an urgent one for Poland because PiS’ Civic Platform (PO) predecessors stacked the courts with their allies before leaving power after the ruling party won the first-ever post-communist electoral majority in the country’s history in 2015. PO’s former leader is the current President of the European Council Donald Tusk, and he and his organization are popularly regarded as Germany’s proxies in Poland. PiS, on the other hand, is allied with Hungary Prime Minister Viktor Orban’s Fidesz party, with which it shares a strident belief in the conservative ideology of EuroRealism. It had long been the case that EuroLiberalism was on the ascent in Europe ever since the end of the Cold War, but the 2008 global economic recession and the 2015 Migrant Crisis sparked a grassroots movement all across Central and Eastern Europe which has seen the rapid rise of EuroRealism.
This post was published at Zero Hedge on Dec 23, 2017.
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