• Tag Archives Recession
  • While Markets Get Pricey, Cracks Starting to Appear

    Financial Sense recently spoke with Caroline Miller, Senior Vice President and Global Strategist at BCA Research, one of the world’s leading providers of investment analysis and forecasts, to discuss the details of her recent webcast, Global Reflation: Where Next for Policy, Profits, and Prices?
    As Caroline explained to FS Insider last week, given the current trends underway, BCA believes that the US business cycle has another year left before a possible recession around the 2019 timeframe, preceded by a potential market peak next year, as monetary conditions edge into ‘overly restrictive’ territory from their presently accommodative levels. Caroline also outlined their current investment strategy and weightings on global equities, bonds, and other asset classes, while also commenting on signs of froth in commercial real estate and the dangerous levels of corporate debt.
    Here are some key sections and charts from that conversation.
    Ultra-Easy Money No Longer Required

    This post was published at FinancialSense on 07/26/2017.

  • 22 Troublesome Facts

    Below are 22 troublesome facts explaining why the herd may, in fact, have it wrong.
    Equity/Bond Valuations
    The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the late 1990s. It is currently on par with levels preceding the Great Depression. CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920’s and the late 1990’s. (LINK) S&P 500 Price to Sales Ratio is at an all-time high Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five year annualized profit growth was 7.95%. (note- period included two recessions) (LINK) Over the last ten years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned. The top 200 S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45b) than the size of their entire pension shortfall ($31b) which ranks as the largest in the S&P 500. (LINK)

    This post was published at Zero Hedge on Jul 26, 2017.

  • Bank Deregulation Back in Vogue: It’s time to dance the last fandango!

    The Great Recession was so great for the only people who matter that it is time to do it all again. Time to shed those bulky new regulations that are like clod-hoppers on our heals and dance the light fantastic with your friendly bankster. Shed the encumbrances and get ready for the new roaring twenties.
    The banks need to be able to entice more people into debt because potential borrowers with good credit and easy access to financing are showing no interest in taking the banks’ current enticements toward greater debt. That could indicate the average person is smarter than the banks and apparently recognizes they are at their peak comfort levels with debt. The banks, on the other hand, want to reduce capital-reserve requirements in order to leverage up more.
    Thus, President Trump, blessed be he, is working (in consort with the Federal Reserve) on cutting bank stress tests in half to once every two years and working to significantly reduce the amount of reserve capital banks are required to keep. He also wants to make the stress tests a little easier to pass. Such are the plans of his Goldman Sachs economic overseers to whom Trump has given first chair in various illustrious White House departments.

    This post was published at GoldSeek on 26 July 2017.

  • The Two Charts That Dictate the Future of the Economy

    If you study these charts closely, you can only conclude that the US economy is doomed to secular stagnation and never-ending recession.
    The stock market, bond yields and statistical measures of the economy can be gamed, manipulated and massaged by authorities, but the real economy cannot. This is espcially true for the core drivers of the economy, real (adjusted for inflation) household income and real disposable household income, i.e. the real income remaining after debt service (interest and principal), rent, healthcare co-payments and insurance and other essential living expenses.
    If you want to predict the future of the U. S. economy, look at real household income. If real income is stagnant or declining, households cannot afford to take on more debt or pay for additional consumption.
    The Masters of the Economy have replaced the income lost to inflation and economic stagnation with debt for the past 17 years. They’ve managed to do so by lowering interest rates (and thus lowering interest payments), enabling households to borrow more (and thus buy more) with the same monthly debt payments.
    But this financial shuck and jive eventually runs out of rope: eventually, the rising cost of living soaks up so much of the household income that the household can not legitimately afford additional debt, even at near-zero interest rates.
    For this reason, real household income will dictate the future of the economy. If household incomes continue stagnating or declining, widespread advances in prosperity are impossible.

    This post was published at Charles Hugh Smith on Tuesday, July 25, 2017.

  • The Central Banker Transition Is Happening Quietly In The Background – Episode 1341a

    The following video was published by X22Report on Jul 25, 2017
    Eight state have not recovered jobs since the great recession, we need to remember this is the manipulated job numbers. Case-Shiller reports prices for homes in the 20 cities have surpassed the housing bubble prior to 2008. Fed very worried about commercial real estate, apartment building are being built at an extremely fast pace. The Fed is pushing for a real-time payment system. The IMF has already hinted that they will most likely move their office to China within the next couple of years. The transition from one system to another is happening ever so quietly. The corporate media is now pushing the reason why the economy has been downgraded, its because of Trump.

  • Leading Indicators Not Suggesting Imminent Market Peak, Recession

    Several skeptics responded to our piece last week looking at the yield curve as a leading indicator (see Yield Curve Not Suggesting Imminent Market Peak, Recession) by saying that the yield curve is no longer reliable because of the Fed’s distortions on the market.
    This was essentially the same view given by Bill Gross in his July newsletter where he wrote: ‘the reliance on historical models in an era of extraordinary monetary policy should suggest caution.’ Gross highlighted the yield curve as a specific example.
    Assuming the yield curve has lost its predictability, what is the message coming from other leading indicators?
    One we cite regularly on our site and podcast is the Conference Board’s US Leading Economic Index (LEI), which has averaged a 6.5 month advance warning prior to recessions since 1965. It is a composite of ten different indicators and, as they write on their website, is ‘designed to signal peaks and troughs in the business cycle.’ It is currently at a 4% annual growth rate (positive growth in green, negative in red) and, in agreement with the yield curve, is not warning of a major market peak or recession in the US (click any chart to enlarge).

    This post was published at FinancialSense on 07/24/2017.

  • Does the Mainstream Have the Definition of Recession All Wrong?

    Pundits and government officials keep telling us the economy is strong. Everything is great. After all, GDP is growing.
    But a lot of people recognize things aren’t all that great. Some prominent economic analysts have said a major crash is looming. Nobel Prize winning economist Robert Shiller called stock market valuations ‘concerning’ and hinted that markets could be set up for a crash. Several other notable economists have recently expressed concern about surging stock markets, particularly in the US. Marc Faber has predicted ‘massive’ asset price deflation – possibly of a drop of as much as 40% in stock market value. Billionaire investor Paul Singer recently said the financial system is not sound. And former Ronald Reagan budget director David Stockman said we should get ready of ‘fiscal chaos.’
    So, how is it that some see a meltdown on the horizon while most of the mainstream sees nothing but unicorns and roses? If the economy is growing, how can anybody things recession is right around the corner?
    Well, what if the mainstream doesn’t understand a recession?
    In the following article originally published at the Mises Wire, Frank Shostak explains why the standard ‘two consecutive quarters of negative GDP’ is not a good definition for recession.

    This post was published at Schiffgold on JULY 24, 2014.

  • Three Black Swans

    ‘The world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects.’
    – Nassim Nicholas Taleb, The Black Swan
    ‘What do you do?’ is a common question Americans ask people they have just met. Some people outside the US consider this rude – as if our jobs define who we are. Not true, of course, but we still feel obliged to answer the question.
    My work involves so many different things that it isn’t easy to describe. My usual quick answer is that I’m a writer. My readers might say instead: ‘He tells people what could go wrong.’ I like to think of myself as an optimist, and I do often write about my generally optimistic view of the future, but that optimism doesn’t often extend to the performance of governments and central banks. Frankly, we all face economic and financial risks, and we all need to prepare for them. Knowing the risks is the first step toward preparing.
    Exactly 10 years ago we were months way from a world-shaking financial crisis. By late 2006 we had an inverted yield curve steep and persistent enough to be a high-probability indicator of recession 12 months later. So in late 2006 I was writing about the probability that we would have a recession in 2007. I was also writing about the heavy leverage in the banking system, the ridiculous level of high-yield offerings, the terms and potential turmoil in the bond and banking markets, and the crisis brewing in the subprime market. I wish I had had the money then that a few friends did to massively leverage a short position on the subprime market. I estimated at that time that the losses would be $400 billion at a minimum, whereupon a whole lot of readers and fellow analysts told me I was just way too bearish.

    This post was published at Mauldin Economics on JULY 22, 2017.

  • Albert Edwards: Only One “Aberration” Is Preventing A “Petrifying Bear Market”

    One month after he shared his preview of the endgame of this current centrally-planned economic regime (expect no happy ending there, as “citizens will soon turn their rage towards Central Bankers.”) Albert Edwards is out with a new note asking whether “H2 2017 will undo the trend of lower inflation, bond yields and the dollar?” and – if the answer is no – he cautions that “investors might give some thought to the fact that we are now just one recession away from Japanese-style outright deflation!”
    The creator of the “deflationary ice-age” concept starts off by noting that equities have risen to new all-time highs as weak US inflation data have reduced expectations of further Fed rate hikes. This has driven both bond yields and the dollar lower and in turn EM and commodity prices higher. But, Edwards warns, the trend might easily reverse as the second half of this year progresses.
    “This might dampen the impact of recent compelling evidence that core CPI and wage inflation seem destined to remain curiously weak throughout the remainder of this cycle.”
    But as the SocGen strategist concedes, a far bigger question is how the recent equity highs sit with our Ice Age thesis – is it dead or just sleeping?”

    This post was published at Zero Hedge on Jul 20, 2017.

  • Has The Fed Used The Same Tactic To Fool The People Again? – Episode 1337a

    The following video was published by X22Report on Jul 20, 2017
    As the Greek crisis continues to spiral downward, the housing market gets hit and value of homes decline dramatically. Rental growth declines, following a similar pattern in 2007 going into the 2008 recession. Philly Fed slumps. Corporate media reports that to many Americans are purchasing homes they can’t afford, it begins. ECB is ready to push stimulus if the economy starts to decline and falter. The central banks know that the collapse is headed our way, this is why they are prepared with stimulus. The Fed, like they have done in the past has fooled the American people, they will be rising rates, to bring down the economy.

  • Yield Curve Not Suggesting Imminent Market Peak, Recession

    One of the most frequently cited predictors of a recession is when short-term interest rates rise above long-term interest rates. This is referred to as an “inversion of the yield curve” and typically happens when bond investors have a negative outlook on the economy. If you’re not familiar with the basics of the yield curve, please see What Is the Yield Curve Telling Us about the Future? for more background.
    Here is what the Federal Reserve Bank of New York says on their website regarding the Yield Curve as a Leading Indicator:
    The yield curve has predicted essentially every U. S. recession since 1950 with only one “false” signal, which preceded the credit crunch and slowdown in production in 1967. There is also evidence that the predictive relationships exist in other countries, notably Germany, Canada, and the United Kingdom.
    Currently, the yield curve for the US is flattening – and not inverted – so there is no imminent signal that the US economy is facing a recession.
    The big question is timing.

    This post was published at FinancialSense on 07/19/2017.

  • Here’s the True Definition of a Recession – It’s Not About GDP

    According to the National Bureau of Economic Research (NBER), the institution that dates the peaks and troughs of the business cycles,
    A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.1
    In the view of the NBER dating committee, because a recession influences the economy broadly and is not confined to one sector, it makes sense to pay attention to a single best measure of aggregate economic activity, which is real GDP. The NBER dating committee views real GDP as the single best measure of aggregate economic activity.
    We suspect that on the back of the NBER’s much more general definition, the financial press as a shortcut introduced the popular definition of a recession as two consecutive quarters of a decline in real GDP. Also, by following the two-quarters-decline-in-real-GDP rule, economists don’t need to wait for the final verdict of the NBER, which often can take many months after the recession has occurred.
    Regardless of whether one adopts the broader definition of the NBER or the abbreviated version, these definitions are actually failing to do the job.
    After all, the purpose of a definition is to establish the essence of the object of the investigation. Both the NBER and the popular definition do not provide an explanation of what a recession is all about. Instead they describe the various manifestations of a recession.

    This post was published at Ludwig von Mises Institute on July 20, 2017.

  • The Plural of Anecdotes Is Beige

    As noted before, the Federal Reserve’s Beige Book collection of local bank district anecdotes are fascinating for all the wrong reasons. What is revealed is not the state of the economy, but rather the state of how policymakers perceive or often wish the economy was at various points. If the 2007 Beige Books are a collective case study in denial, those in 2008 are of borderline delusion.
    Everything had by summer 2008 turned or rolled over, including oil prices and, relatedly, Chinese currency appreciation. The global economy did, too, but you wouldn’t really know it from the Beige Book. The version from September 3, 2008, does not once include the word ‘recession.’ It does, however, mention the word ‘slow’ (or one of its semantic derivations like ‘slowing’ or ‘slower’) 62 times.
    The same is true for the Beige Book published on October 15, 2008, already after the initial panic had concluded. The word ‘slow’ appears 63 times, while again not a single mention of ‘recession.’ Finally, the word shows up just once in the December 3, 2008, Beige Book, but only in reference to the energy sector in the 11th (Dallas) District, talking about ‘recession-reduced industrial loads’ pertaining to just natural gas production.

    This post was published at Wall Street Examiner on July 19, 2017.

  • Trade War Games

    Comparative Advantage
    Consequential and Contentious
    What Would Steel Tariffs Really Mean?
    Buy American
    Tit for Tat
    Grand Lake Stream, Colorado (?), and Lisbon
    ‘We’re already in a trade war with China. The problem is we’ve not been fighting back.’
    – Peter Navarro
    ‘The battle for Helm’s Deep is over. The battle for Middle Earth is about to begin.’
    – Gandalf the White
    This letter should find you buckled in for the turbulence I described last week. If not, I hope this one convinces you. The storm is seven days closer now. There are times when normality slips out of reach, and I believe we are approaching such a time.
    I have lived through recessions and bear markets; I know what they look like. I wish I could forget what they feel like. They don’t come out of nowhere; there are always warning signs. Many investors choose to ignore those signs; I choose not to. I hope you make the same choice.
    The monster can come from different directions. Imagine the horror movie where the doomed victim knows the creature is out there. He hears its growls and desperately looks all around for their source. Then the camera pans left and you see the darned thing sneaking up on him from behind. [Cut, add scream, fade to black.]

    This post was published at Mauldin Economics on JULY 19, 2017.

  • New U.S. Subprime Boom, Same Old Sins: Auto Defaults Are Soaring

    It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017.
    A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide.
    Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo & Co.
    Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles NV and Banco Santander SA. Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines.
    Details of that relationship, pieced together from court documents, regulatory filings and interviews with industry insiders, lay bare some of the excesses of today’s subprime auto boom. Wall Street has rewarded lax lending standards that let people get loans without anyone verifying incomes or job histories. For instance, Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s Investors Service. The largest portion were for Chrysler vehicles.

    This post was published at bloomberg

  • Preparing for the End Game

    A Potential Road Map for the End of the Current Bull Market & Economic Expansion
    History books refer to the last economic slowdown we experienced, triggered by the 2007-2008 financial crisis, as the Great Recession. Its impacts were so severe – the worst global recession since the Great Depression of the early 1930s – that central banks across the globe responded with an unprecedented emergency stimulus. But that era is now drawing to a close and, with it, the countdown to the next economic recession and bear market in equities has begun.
    Economic, Market Cycles and Monetary Policy
    Central banks raise interest rates when they feel an economy is overheating and they are more concerned about price stability (inflation) than growth. Central banks cut interest rates when their primary concern is growth. A natural question to ask is, ‘How do central banks know when to stop raising rates?’ When something breaks!
    Those who are the most leveraged with the weakest balance sheets are the first casualties when the Federal Reserve begins to raise interest rates and remove liquidity from the financial system. These are the entities Warren Buffet was referring to when he famously said, ‘It’s only when the tide goes out that you learn who has been swimming naked.’
    As the casualties build and those naked run for cover, eventually the increased financing costs and slower economic activity culminate in a recession (in red).

    This post was published at FinancialSense on 07/18/2017.

  • How to Profit When the $217 Trillion Global Debt Bubble Bursts

    While in London recently at an exchange with British Academy President Lord Nicholas Stern, Federal Reserve Chair Janet Yellen really let the cat out of the bag.
    She told Stern that banks are now ‘very much stronger,’ with another financial crisis like the one in 2008 unlikely to happen anytime soon, and not likely ‘in our lifetime.’
    According to Yellen, the Fed has ‘learned’ from the Great Recession of 2008 and is now more watchful over underlying risks in the financial system. She’s comfortable saying, ‘I think the system is much safer and much sounder.’
    Well, isn’t that reassuring…
    Really, it’s just more of the hubris that got us into the last financial crisis – the one that dragged the global economy to the edge of a precipice and vaporized trillions in wealth. I’m sure you remember it well, even if Yellen seems a little foggy on the details.
    On the one hand, central banks periodically warn us against overpriced assets, interest rates at or near extreme lows, and excessive borrowing.

    This post was published at Wall Street Examiner on July 18, 2017.

  • Recovery? Italy’s Poor Population Has Tripled In Last Decade

    Is it any wonder the Italians are revolting against the European Union?

    Italians living below the level of absolute poverty almost tripled over the last decade as the country went through a double-dip, record-long recession. As Bloomberg reports, the absolute poor, or those unable to purchase a basket of necessary goods and services, reached 4.7 million last year, up from almost 1.7 million in 2006, national statistics agency Istat said Thursday. That is 7.9 percent of the population, with many of them concentrated in the nation’s southern regions.
    For decades, Italy has grappled with a low fertility rate — just 1.35 children per woman compared with a 1.58 average across the 28-nation European union as of 2015, the last year for which comparable data are available.

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

  • Brodsky: This Is A Red Flag Warning

    Red Flag Warning
    Two identifiable dynamics may signal significant market shifts imminently:
    1. The US debt ceiling will be debated soon and signs point towards a messy outcome.
    2. Recent economic data have been weak, confirming our thesis that US economic growth is slowing and will not be reversed until a recession is acknowledged.
    Debt Ceiling
    Excessive debt has a way of catching up with people and institutions, and the first true test for the US government may be at hand. Congress was expected to raise the debt ceiling by October or else Treasury could not fund all the government’s programs and current obligations. Yet talk of Trump tax reform in 2016 may have given taxpayers incentive to defer their liabilities. As a result, Treasury received about 3 percent less in revenues than expected, accelerating the timetable to debate and raise the debt ceiling. Progress on raising the ceiling will unlikely be made in August, as Congress is in recess.

    This post was published at Zero Hedge on Jul 17, 2017.