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Another US Slowdown Will Jolt Private Markets
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Reuters reports that according to ECRI, U.S. economic growth to ease by mid-year:
A The Economic Cycle Research Institute, a New York-based independent It was the lowest reading since November 13, 2009, when it stood at 127.5. The index's annualized growth rate declined for the 11th straight week "The decline in WLI growth to a 28-week low reinforces our earlier The chart above was taken from the Pragmatist Capitalist
forward-looking measure of U.S. economic growth was unchanged in the
latest week, while its yearly growth gauge continued to slide,
bolstering expectations that economic growth will ease by mid-year, a
research group said on Friday.
forecasting group, said its Weekly Leading Index stood at 128.4 for the
week ended Feb. 19, unchanged from the previous week.
to 14.9 percent from 17.0 percent the previous week, revised from an
original 17.1 percent. It was the yearly growth gauge's lowest level
since Aug. 7, 2009 when it read 14.6 percent.
expectation that economic growth would begin to ease by mid-year," said
ECRI Managing Director Lakshman Achuthan.
who also covered this story. Given ECRI's strong track record, it's
worth paying close attention to their warnings. What is worrisome from
a pensions' perspective is that commercial real estate is still in the doldrums and private equity is struggling to regain its footing.
If the US economy slows down again, then private markets will
experience a long, tough slug ahead, leaving many pensions funds
exposed to more downside risk.
This is why I agree with Peter Boockvar who thinks more money printing will go on until inflationary expectations pick up. Listen to the interview below and keep in mind that even if the Fed eventually succeeds to reignite inflation, private markets will still struggle over the next few years. And if deflation does materialize, then it's game over for private markets and global pensions stand to lose trillions.
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Its very hard to predict growth, or whatever you may call it (GDP?), based on a non-economy (stimulated), because we do not know what actions the FED may be forced to take and when.
For example, I am expecting a mini banking crisis in Q2 with Citi, BAC and JPM, perhaps even Wells, and if it turns systemic the FED may take action. Extending the MBS buy or some other interesting support for the GSEs or AIG. It will not be as big a headline as TARP, but still a systemic response from our central bank.
It is realatively safe to say, barring any real disruptions, that growth (however contrived) will wane when stimulus is pulled.
Mark Beck
wadr Mark, that isn't going to happen. The PPT has become so fucking emboldened that they don't even hide their massive intervention at key points. As markets have broken down this year around the world you see bounces at TA threshold trigger levels. No matter what the news, you can count on a low volume ramp every day and if a wave of selling hits the reversal comes after 2:00, the timing directly dependent on thevdepths that have to be recovered. This weeks action is a perfect example. 120 point reversal on nothing...
The banks are bankrupt. Goldman is running the show at great profit. Prosecutions ate not pending.
Buy gold, ammo, food, water, firewood.
Kill any politician or banker you can get your hands on. Don't get caught.
Nikki..
Pension funds stand to lose either way, Leo... Inflation will not save them, as that money is earmarked to keep the banskters in business.
That sums it up leo.
leo go see williams shadow statistics for a real view of the economic mess .
their is no uptick on the horizon,, debt is omnipresent with more coming ,,
still you think sinclair does not know his business after 55 years ,,.. ????
and some how the under 30 crowd raised on keynesian goo do ,,
those who flag as junk golds warning are deluded,,
have no understanding of austrian human cycles, have no understanding of the warning signals
After the stock markets around the world have been bled down to whatever
level the PPT is told to bring the markets down to by our shadow government, guess
who's next? That's right, the American people and their pensions, 401(k)'s and IRA's.
You will be offered the option to buy an annuity from an insurance company,
who will fund it's obligations under that annuity, with, well, you guessed it, US treasury
bonds. After the government gets its foot in the door with voluntary annuities, you can
be sure that mandatory annuities are next. The only problem with these proposed
annuities, beside abysmal rates of return, is that after the US government goes
bankrupt, the US treasuries will be worthless and the insurance companies will be
unable to deliver on their annuities, leading them into bankruptcy and further
government takeover, and leaving you with a big goose egg for retirement ... chapman
pension managers need gold to off set the coming wave of currency devaluations ,,
unless and until they do that ,, folks will be left with a big zero,, count on it,, and the dumpster will be here to remind you of this fact come spring of 2011,,
Thanks again, Leo. This pension problem is going to boil over in the next few years and bring about a crisis in the US Federalist system. Some states are broke for sure. And their pensions over-allocated to PE and CRE at the top. Maybe in your next post you could show some charts on this bad timing.
Hey Leo
Can Canada pay its Government Employee Pensions without help from its Private citizens.
And how much has Canada's Social Security invested in China ?
Thank you.
Kayman
The fact that Zimbabwe Ben wants inflation does not mean that he is going to get it, unless he is willing to print many trillions and go down in history as a criminal, which I doubt.
And everyone just flows ahead with their traditional analysis of a world that was defined by infinite oil.
Try questioning that assumption and see what the equations say.
Yep... Fundamentally, money is energy... Once you realise this, the future of an economic system reliant upon infinite credit expansion when surplus energy is the collateral for this credit, is clear...
I believe energy prices will play whack-a-mole with any nascent recovery.
latest tsunami forecasts:
http://twitter.com/BreakingNEWs
(if you are in Hawaii - RUN !)
Whoever acts the first, loses the least.
with snow melting all bad economic numbers will be blamed on tsunamis.
then, of course, we will have April showers which could be devastating to economic data.
I'm highly concerned about May flowers....and June bugs....and July power outages...and, the dog days of August are quite likely to slow productivity, greatly impacting GDP growth.
I wouldn't call for the double dip yet. However the current situation is anything but meaningful recovery, I call it a "no man's land." Japan has been in that state for decades while facing the same issues - huge none performing loans and hidden deflationary spiral. Since our government does its best to reduce the flexibility of markets, the stasis will continue for years to come. One could think of our economy as a sleeping beauty, capable of doing much better but waiting for a prince charming to wake it up.
At any rate, this year all of the fun will move oversees. The reason is simple, while most of our issues and RISKS are well known their issues are hidden and poised to bloom. The best summary for the global ex the US economy: "Expect the unexpected" - tnx ZH.
As of pensions and your 401K's there are two dangers. The first i unexpected increase in the interest rates (will kill any long term maturity/duration bond prices), the second lack of liquidity in Pension Funds due to over allocation into alternative funky junk. (Leo is right on the point.)
Well, I guess I ve' got to get my camera ready and prepare to shot the Tsunami pix @ ~ 2 & 4, while I sincerely hope those will not happen in Cali nor anywhere else.
Nice weekend yo'll, let's keep our arguments civilized and our anger down we all will benefit that way.
When Dubai and Greece came on the menu, I remember exactly how the markets reacted:
Stocks down; oil down; gold down; commodities down; dollar up.
That *is* the trade mark of deflation. If only the *threat* of a debt problem causes this behaviour, the market KNOWS that a debt default will trigger deflation. If a debt default is going to happen, it will be Lehman Brothers revisited.
I agree with this guy. Funny. I was wondering how long it would take for someone to use Chile as a reason for a reversal in commodity prices.
Chile ranks just ahead of Romania at the 50 spot in consumption. The mines are reopening and the distribution infrastructure is intact. Resume price destruction in the markets. A bounce will be a gift.
Are you realy our DNB Nout?
"Given ECRI's strong track record, it's worth paying close attention to their warnings. What is worrisome from a pensions' perspective is that commercial real estate is still in the doldrums and private equity is struggling to regain its footing."
Leave it to Leo the Fathead to peddle ECRI's garbage, and as for their "strong track record," I won't bother to dissect ECRI's ridiculous economic "model"--it's been sufficiently trashed elsewhere, including this site. Suffice it to say that if you look at the ridiculous Lakshman's pronouncements five or six months ago, he saw NO slowdown in economic growth. It was perfectly smooth sailing, up up and into the blue. Now the fact that the Federal Government directly controls 40% of the economy, has dragged down his balloon. ECRI is smiley face for our hyprecorrupt police state.
Hey Leo, c'mon and tell us the huge number of jobs created in February? Leo is a complete jerk, a complete clown.
Yeah, I am a "complete clown" and you are part of the Mensa club. Feb payrolls are likely to come in weaker than expected because of the snow storms. After that, job gains will pick up steam. The ECRI model is looking ahead a few months, and it might be right or may be off. We shall see.
26 million people are unemployed come rain or shine, it takes much more than a few months or a few storms to make any difference.
More from Leo the goombah. A combination of the fatuous and circular reasoning. Leo is Exhibit A for what is wrong with America: we produce these lumbering psychopaths. The dinosaurs didn't die out--they moved to America and are all named Leo.
What a morbid, creepy personality.
How do you get creepy?
Pensions will be completely isolated from all market turbulence if they buy solars on the dips.
Yes, liquidity will continue to pump (and dump) financial instruments. Fundamentals have little bearing on capital flows anymore.
It is just classic musical chairs and the tempo of the game has accelerated dramatically. Sadly, the FED encourages this behavior every time the PPT "saves" the day on a market decline.
And of course, every trader thinks they possess the discipline to bail at the right time.
I've seen this movie.
Risk is high.
ECRI's Achuthan says no chance of a Double Dip (Feb 5 CNBS interview)
http://bit.ly/aJmXRb
ECRI's Achuthan says no chance of a Double Dip (Feb 5 CNBS interview)
Great, but he never says WHY! Here's WHY; the whole thing is being propped up by Uncle Sam!
To compound misery, its commodity prices skyward Monday -
as the magnitude of re-building an 8.8 quake in a major population center sinks in. This only adds to the LONG list of massive ruined civic infrastructure across the globe.
May God bless the people of Chile.
Watch out for a copper price drop on Monday instead!!
Leo, you made a great call in Q1 last year. But your bullishness over the past 4-5 months has been completely divorced from the fundamentals. You predicted strong job growth ; it's simply not happening. Is this post a U-turn on the V-recovery ?
leo so one week bullish ,, then next week pension will lose trillions ,
better strive for some gold in the various plans ,,sinclair, russell, and giants in the gold markets maybe have a good grip on these things .
but a quess it will take a little more time ..and the rush to gold to save wealth before you see. lol
I am neither bullish nor bearish right now. I see unprecedented money printing and quantitative easing continuing which will show up in liquidity spurts in certain stock sectors. But as far as private markets, they're in for a protracted period of weakness. Last night, I was speaking with a senior pension fund manager who is very worried about how the real estate crisis will affect private equity. In particular, he thinks pensions will face a liquidity crunch as RE prices tumble and PE funds make more capital calls. He sees little activity in the PE secondary market, and many endowments and pensions are looking to unload their private fund holdings. We shall see but 2010 is shaping out to be a very interesting year.
We are in the eye of the biggest shit storm in 80 years, reality trumps money printing and QE eventually.
Leo, if I am correct you were propagating long greenback, long solars, long oil and short gold. That makes no sense. If you think inflation is the name of the game, long oil and long solars is the right pick, but shorting gold is betting the wrong way. Money printing will push the gold price higher, not lower. If you fear deflation, your solar stocks are the wrong pick, as they will be totally smashed.
We are all having the same problem on this forum: will deflation come or not? If not, the choice is easy. But if deflation hits, all our stocks, commodities and gold positions will be smashed.
Nout,
why will gold bullion be smashed in deflation?
It is one of the few investments without counter-party risk.
Strong deflation will likely mean that some if not most countries default.
That makes even government bonds risky and a poor investment.
In a deflationary spiral all assets will be sold, also the good ones. Watch october 2008.
What this guy is missing, is that the Fed is not 'printing money'. It is facilitating credit. And too much credit (read: debt) is the problem here. So more credit will not mend the problem. The CRE market, the housing market, the credit market, the sovereign debt load, they are all in contraction mode. One trigger - Lehman - almost led to the collapse of the entire system. What kind of events will a sovereign debt default trigger? To me these are highly deflationary events, not even to speak about all the under water loans hidden on the bank's balance sheets, that are marked way too high.There is a LOT of debt destruction out there and there is still more to come.
As long as there is no disturbing event, the Fed looks smart. But wait until a big sovereign is defaulting on its debt (don't think this is impossible, just read Rogoff/Meinhart). Deflation will kick in, the consequences will be huge.
My pick: deflation will come, the central banks will panick, start to push the printing presses in turbo mode like mad men and then hyperinflation kicks in.
Deflation is asset prices is already here. That's why central banks are picking up the debt that should be written off and replacing it with fresh AAA money.
In the last year, companies have completed phase 1 and 2:
1. 1st round of cost cutting
2. Refinanced their debt at lowest rates in history
But the top line is going to keep on dropping for many so in a few quarters they'll be going for phase 3:
- 2nd round of cost cutting, selling divisions, trying to increase debt or refi. But with rates with nowhere toi go but up, that won't last and many will go bust.
That's when capacity stats to disappear at the exact same time that the effects of QE start being felt. Ouch.
When the Fed is buying MBS (that should be written off) from Pimco so Pimco can buy Treasuries, it's called printing.
That is just transferring bad debt from the private sector to the public sector and hasn´t solved the problem. The bad debt is still there. If PIMCO buys UST with newly created ´money´ there is simply more debt. There is no money in this system. Only debt. More debt will not solve the problem, it will make it worse.
This is true. Ben says he won't monetize "The Debt". He didn't say he wouldn't monetize any debt. It is absolutely printing to replace monies that should have been lost, and having the recipients buy Ts is monetization once removed. The Renton gang and the Caribbean offshores also do bidding with money so new the eye on the pyramid isn't open yet.
Thanks for posting, Leo. Nice and concise. Pretty hard to understand your bullish position though in view of this and all the other economic data released last week.