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A Bad Case of Economic Hypochondria?
- Bank of England
- Ben Bernanke
- Ben Bernanke
- Bond
- Brazil
- Brian Wesbury
- China
- Double Dip
- European Central Bank
- Federal Reserve
- Global Economy
- Greece
- Gross Domestic Product
- Housing Market
- India
- Ireland
- Netherlands
- New Normal
- Obama Administration
- Recession
- recovery
- Sovereign Debt
- Testimony
- Unemployment
- White House
- World Trade
Following my latest post on whether the Fed has defused the neutron bomb, a senior pension fund manager sent me a link to AXA Investment Managers' latest weekly comment by Eric Chaney, Deflation may have won a battle, but not the war.
It
is an excellent read which demonstrates why any discussion on the
inflation/deflation debate that doesn't take into account what's going
on outside the US is missing the bigger picture. I quote the following:
Although contemporaneous estimates of output gaps are somewhat elusive, the broad picture is clear: a
growing portion of the global economy is facing inflation risks and the
bulk of developed economies is no longer in the deflation danger zone.
This uneven dynamic distribution matters a lot for investors, who need
to make up their mind about inflation. One key lesson from the past
cycle is that price movements have a larger common component than in
previous times; call it the globalisation factor. Matteo Ciccarelli and
Benoît Mojon estimated that “(inflation rates of) OECD countries have a
common factor that alone accounts for nearly 70% of their variance” (ECB
working paper, October 2005), a finding that is consistent with later
research by Haroon Mumtaz and Paolo Surico (Bank of England working
paper, February 2008). In such a world, the fact that China, India and
Brazil have entered into the inflation risk zone matters more than
Spain, Ireland and Greece being on the brink of deflation.
Mr. Chaney concludes by stating:
In
sum, there is no evidence that deflation has gained much ground during
the summer. For sure, a double dip of the US economy would tick a few
boxes in the deflation camp. Yet the
most likely scenario in our view is that the US has embarked on a slow
growth cycle, the mirror image of the artificially debt-fuelled previous
decade, rather than on a stop-and-go cycle. Once the markets get
a clearer picture of business cycle developments, which may
unfortunately take several months, there are good reasons to believe
that the current deflation buzz will be quickly replaced by its
opposite. In the meantime, enjoy the bond rally!
There are
other encouraging signs suggesting that the global recovery is back on
track. This past week, the CPB Netherlands Bureau for Economic Policy
Analysis released its World Trade Monitor for June 2010, showing that world trade was up 0.7% month on month after an upwardly revised 2.3% increase in May.
Why
is this significant? Because, as Yanick Desnoyers, Assistant Chief
Economist at the National Bank of Canada discusses below, Global trade volume finally back to its previous peak:
According
to CPB Netherlands Bureau for Economic Policy Analysis, the volume of
world trade grew 0.7% in June after an upwardly revised 2.3% gain in
May. This represents the ninth increase in ten months. Global trade
volume is now expanding at a 21.2% growth on twelve month basis, just
shy of the 23% peak registered in May. In the second quarter as a whole,
global volume trade was up a significant 15.3%. As today’s hot chart
shows (click on char above), it took only about a year for world trade
volume to virtually get back to its previous peak.On
the global industrial output side, the index is already in an expansion
mode with a 0.7% gain above its previous peak, despite the fact that IP
is still down 10% in advanced economies. After all, it seems
that fears of sovereign debt contagion from the Euro zone earlier in the
spring did not have a material impact on global trade volume. Despite
an upcoming slowdown in the U.S., we are still forecasting an above 4%
global GDP growth in 2010.
What this tells you is that
this cycle is different than previous cycles because the emerging
economies are the source of growth. Too many analysts are focused solely
on what is going on in the US and other developed economies. I too had
written about Galton's fallacy and the myth of decoupling, but maybe this view needs to be revisited.
And
even in the US, I tend to think there is way too much gloom & doom,
a point underscored by Ross DeVol, executive director of economic
research at the Milken Institute, who wrote an op-ed in the WSJ this
past week, The Case for Economic Optimism:
Gloom
and doom is the hallmark of the current economic debate, as the most
recent congressional testimony from Federal Reserve Chairman Ben
Bernanke demonstrates. Despite Mr. Bernanke's generally upbeat message
on the Fed's official forecast, which calls for moderate economic
growth of somewhere between 3.0% to 3.5% this year, the market and the
media fixated on his acknowledgment that the outlook was "unusually
uncertain." Those words have only reverberated in the past few weeks,
bolstering economic pessimists.
There's
a point at which pessimism becomes a self-fulfilling prophesy, scaring
businesses away from investing or hiring. The dark tone of today's
discourse is at risk of doing just that.
The Milken Institute's new study, "From Recession to Recovery: Analyzing America's Return to Growth"
is based on extensive and dispassionate econometric analysis. It
concludes that the U.S. economy remains more flexible and resilient—and
has more underlying momentum—than is generally acknowledged. In fact,
our projections show cause for measured optimism: A return to modest
but sustainable growth is close at hand.
America's
businesses are capable of navigating around policy uncertainty and the
twists and turns of a volatile global economy. While slow
private-sector job growth is to be expected in the early stages of a
recovery, the U.S. should add 1.5 million jobs in 2010, 3.1 million in
2011, and 2.6 million in 2012. That will translate into real GDP growth
of 3.3% in 2010, 3.7% in 2011, and 3.8% in 2012.
In this
pessimistic climate, this forecast will likely be considered
contrarian. So why is our economic outlook more sanguine than the
current consensus? For one, robust (albeit moderating) economic growth
in developing countries, particularly in Asia, will provide support for
U.S. exports. Look no further than Caterpillar, which reported a
doubling of its earnings in the second quarter of 2010 and whose
product line is sold out for the rest of the year.
Improved
business confidence is already spurring strong investment in equipment
and software. Record-low U.S. long-term interest rates are supporting
the recovery. And the benign inflationary environment allows the Fed to
keep short-term interest rates near zero until late this year, or even
into 2011 if it desires.
Historical context offers further
reason to expect a rebound. The peak-to-trough decline in real GDP
during this recession was 4.1%, making it the most severe downturn
since World War II. But throughout the postwar period, the rate of
economic recovery from past recessions has been proportional to the
depth of the decline experienced. While this relationship has been
somewhat variable, it is well-established. Our projections for GDP
growth are above consensus but are substantially below a normal rate of
recovery after a recession of this severity.
The
naysayers are right that there's a "new normal" economy, but it's not
that the potential long-term growth rate of the U.S. is substantially
diminished, as they say. It's that this time, the fulfillment of
pent-up demand will be subdued because consumers were living so far
above their means during the bubble years. Nevertheless, consumer
durables and business investment in equipment will see some previously
postponed purchases finally happen—if not this year, certainly by 2011
and 2012.
What needs to happen on the policy front in order to build momentum?
In
the first place, small businesses need access to more bank credit to
create jobs. Banks feel conflicted by calls from the Obama
administration to increase lending while regulators are instructing them
to add to their reserves. Regulators need to be reminded that some
risk is necessary in a market economy.
The White House also
should press Congress to pass legislation modernizing Cold War–era
restrictions on exports of technology products and services that are
already commercially available from our allies. This would boost U.S.
exports and reduce the deficit. And if the White House is serious about
doubling exports by 2015, it needs to push trade deals with South
Korea, Colombia and Costa Rica through Congress.
For its part,
Congress must move immediately to restore the lapsed R&D tax
credit. Even better, it should expand the credit and make it permanent.Congress also should pass legislation to temporarily extend the
Bush tax cuts that are set to expire at the end of this year. It's
important not to remove any economic stimulus as long as the
sustainability of the recovery is in question.Another must-do:
by 2012, Congress needs a credible long-term plan in place to reduce
the deficit. If it doesn't, international financial markets might force
our hand by demanding a higher rate of return on U.S. Treasurys.
Washington
has to focus like a laser on helping businesses create jobs, while the
rest of us should avoid talking ourselves out of a recovery by
dwelling on the doom and gloom. The U.S. economy has already adapted to
serious imbalances in record time: There's ample reason to believe in
its dynamism in the months and years ahead.
While US consumers were living beyond their means, they're paying down
debts fast. The amount consumers owed on their credit cards in this
year's second quarter dropped to the lowest level in more than eight years as cardholders continued to pay off balances in the uncertain economy.
Moreover, the FT reports that US credit-card losses are falling faster than expected,
with the six largest card issuers expected to earn nearly $10bn more
in the coming 12 months than predicted, says a study by Moody's:
Historically, US credit-card write-offs have tracked the unemployment rate.
But for the first time in a decade, loans considered uncollectible by
lenders are falling faster than the jobless rate, prompting analysts to
revise earnings models.
The divergence from past experience reflects bank efforts to weed out risky borrowers, moves by consumers to pare back debts after the excesses of the past decade and new credit card rules intended to discourage reckless lending.
“We
are getting back to an old-fashioned basis of lending, providing
credit only to people who have the ability to repay,” said Curt
Beaudouin, an analyst at Moody’s.
Finally,
while everyone is focused on weakness in the job and housing market,
listen to Brian Wesbury of First Trust Advisors below who thinks the US
economy is fine and that the country's just suffering from a case of
what he calls "economic hypochondria."
Wesbury blames stimulus for delaying the recovery, which is arguable,
and his assertion that the economy is "fine" is ridiculous, but I think
he's right on upward pressure on growth, expecting the economy to
accelerate over the next year.
»
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We have a whiner, I mean winner:
http://www.youtube.com/watch?v=2NVjq2py7BA
I demand a recount! :-)
Madeline Albright?
Paul Wolfowitz?
My vote is with you.
Leo, as someone who respects your writing and who grimaces at some of the egregious insults directed at you, I must say, this column is the worst. Let me be briefly specific:
In your first quote to use two pieces of research that predate the crisis as substantiation. After the huge dislocations we have been through using such dated research is simply irresponsible and misleading.
Second: "While US consumers were living beyond their means, they're paying down debts fast."
This is simply incorrect. Rather than engage in misstatement myself, let me direct you to your Canadian cousin, David Rosenberg, whose daily musings are available free and who has studied this issue. It will take many, many years just to get consumer debt as a portion of GDP back to 1980 levels.
You are a great guy and you often have very fine and interesting posts. But not this one.
Has the US done anything about its deficits (budgetary and trade)? No. Their pension timebombs? No. Their bloated governments and financial sector? No.
Has Europe done anything (besides kick the can) about Greece or Spain? No. Their pension timebombs? No. Their bloated governments and banks? No.
Has China dealt with their bubble in crappy housing? No. Their infrastructure problems (malinvestment and crappy quality)? No. Their opaque crony business and financial culture? No.
Seems to me all of the core problems are still in place.
Looks like a false dawn to me.
In similar news, Israel, Iran, and the entire Middle East should sign a mutual non-proliferation agreement, "senior pension managers" should be paid a whole lot more, and Leo's Hellenic Bonds should all magically trade at par.
I hope you're right. I'll plan for the worst anyway though.
Just saying, that all you may get from the PTB is a world that delivers food and gasoline mostly on time and at prices you might be able to afford. You can forget the parts about the pursuit of happiness, and forming a more perfect union.
Well, if you want to believe, as many do, that this recession is the same as the other post WWII recessions, as most of the thinking in this posts reflects, have at it. I do not think so. The credit engine has run its course, and I agree slow, incremental, accretion-like growth, closely tied to population growth itself, is the only possibility for quite a while. But the sound foundation for this growth has still not been laid - instead, we seek to build over the shaky layers of trillions of phony derivatives and bad debts that need to be cleaned out first. And the PTB will not allow it. So we remain "unusually uncertain." I don't mind optimism, but in this case, and on these crucial points of where we are, and where we are going, optimism is not realistic.
Obviously, there is a core economy which will keep running, the basics will be provided if you will, and we will run on fumes for a while as well (the raiding of 401ks being evidence of this). You would be wrong to think this will turn around anytime soon in the manner to which we have grown accustomed in post WWII recessions. A crucial point: there are no drivers this time. None. Zilch, Zero. No internet boom, no real estate boom, no nothing. If you want to spin a dramatic recovery narrative ("just wait until the next killer employment report"), you need to provide the driver. I watch everything around me, there is nothing going on, and so from simple observation, I already know the answer - there is none, but it is taking a while for this to sink in. 10%+ unemployment, government funding, creeping socialism, all our futures, with a grimly determined and unaccountable elite at the controls making sure they get theirs first. If you think the actions of a determined Federal Reserve chairman will save you, by the mere printing of money, you are a fool. And if you preach this gospel to others, you are worse than a fool, you are an enabler of those who have gotten us to this point.
However, you may take some modicum of comfort in the fact that their efforts may simply mean that that the world does not dramatically fall apart, and the "all or nothing, black or white" doomsters may be wrong (but only as to this point, not as to the underlying cancerous growths). I think facing an unyielding future of only drab, gray tones is not acceptable, but inevitable. As I told my wife, "dingy" is the new black, so get used to it.
Kovalis and others ignore a most basic reason why the US cannot “recover”.
For the last several decades, the basic underpinning of the US economy has been an extortion racket.
The US has been giving freely printed paper dollars (IOUs) in exchange for the resources and products of the rest of the world. The military and CIA have provided the “protection” for “stable” foreign governments who participate.
The mechanics of the whole financial scheme is predicated on the petrodollar extortion racket.
“If investors want to buy commodities, they have to have US dollars“.
http://www.marketoracle.co.uk/Article22161.html?
What has changed is that the corporations, the enterprises, the cartels have gone global.
And neither global EXXON, global Goldman Sachs, or the global Pentagon serves the common citizens of any nation.
Rather, the global enterprises have their own overriding and self-serving goals. Securing profits and power, controlling markets and resources ultimately means nothing less than full-spectrum dominance over humanity. And those who head those institutions consider whatever poverty, pollution, and destruction occurs to be a ’worthwhile’ price (for others) to pay.
The US, along with its government, has been outsourced and mortgaged. Prisons, policing, and militarization are the “growth” industries along with financial parasitism.
US citizens should no more expect their lives to improve than should the peoples of Haiti or Iraq, so long as policies are designed in the interests of too-big-to-fail globalized institutions (including the Pentagon).
?
Ned,
I agree with some of your comments, but you still fail to recognize the structural shifts going on in the world economy. This US-centric view, which dominates all MSM and financial blogs is missing the bigger picture. People love slamming me here, but they fail to respond to the facts. The global recovery, as measured by trade and world IP, is continuing, and led by emerging economies.
Sovereign debts teeter as a set of dominoes, ready to cascade across the globe. The only thing propping it up is printing, swaps, and shady accounting practices. Do you disagree with this?
Exactly. Singapore and Malaysia are thriving, India is doing OK but has a huge inflation problem, Brazil is doing Ok but has an inflation problem and is running low on oil reserves, Australia is a huge housing bubble; regardless of the good export numbers, the German and French banking systems will be bankrupt with any kind of Greek debt haircut and China is not only a real estate bubble but is facing increasing rises in wages.
Everyone likes to talk about "sustainability". So in light of these issues, even if Leo is correct, how sustainable is all this wonderful "growth"?
double post de;leted
Yes yes yes yes yes and yes.
Except I'd upgrade the dingy now to a sailboat. You may have really slow days at sea from time to time but where else are you going to go but on the sea?
You don't need the TSA to set sail. At least not yet.
Leo. What the F were you drinking on this one.
Great post, Ned!
You're right about a lack of drivers too, but I don't understand why. We've been talking about energy independence my whole life and you'd think now would be the time we could make that happen. But it seems like we're deliberately ignoring the best solutions, in order to pursue the worst. It's sad.
Well said. No drivers in sight. I am worried about treasuries being dumped and hyperinflation kicking in.
Excellent post. The difference tis time through is that the PTB are not even making a semblance of hiding that they are stealing from EVERYONE for themselves. They are raping everyone in the country to maintain their privileges.
You know what, Leo? Go fuck yourself. Fuck you and the propagandistic horse you rode in on.
Hypochondria? Why you disingenous little motherfucker. Is this your latest meme? Because it's going around. 'The economy's not bad. It's all in your head." You and your type are past sickening. You're the liars who tell people to stay in their seat, that smoke is an illusion and they'll never be burned alive.
Fuck you, Leo. Fuck you unto the end, you demented little creep.
I received this email message from Frank in Germany:
To which I replied:
Please follow Frank's advice.
Why should I stop posting here? Because you and a few others do not like my "propaganda" and only like articles that center around the "US is fucked" theme? Give me a break. I call it like I see it, and if you and others don't like it, tough luck!
Actually, I was giving you the credit of being a self-serving shill Benny-Hinn financial televangelist. Shit, I at least thought you to be bright albeit a fucking criminal.
"I call it like I see it"....well, so much for that. You're just a garden variety moron.
And you are a pure imbecile who offers NOTHING but imbecilic comments.
Isn't it wierd that I was just thinking the same thing about you except all of the facts are on my side?
Life shore is weerd.
LMFAO...
Boilermaker, laugh all you want, but the comments are so silly, so vicious that they turn people off. If you think we are in for the Mother of All Depressions, good for you. I'll take the opposite side of that trade.
No Leo, they turned "Frank in Germany" off. Frankly, pun intended, they echo very much what I hear for the vast majority of the people that interact with.
Hopefully, the ZH comments section is not going to become cluttered with pointless ad hominem attacks and adolescent insults - as is the case with many other sites (where perhaps those who wish to so indulge themselves should go).
Such tactics when used by either side, are equally unconvincing, and demean the side employing such tactics by implicitly connoting the lack of any effective rebuttal or refutation.
ZH has importantly provided us with an update of the latest establishment disinformation ploy (the naysayers are supposedly to blame for economic malaise).
Is it too much to ask for the comments to help fashion a concise and effective response?
Leo Kolivakis claims the US economy will improve because:
(1) “For one, robust (albeit moderating) economic growth in developing countries, particularly in Asia, will provide support for U.S. exports“.
(2) “Improved business confidence is already spurring strong investment in equipment and software“.
(3) “Historical context offers further reason to expect a rebound“.
But other than Caterpillar and weapons, what will the US be exporting? Is there really “improved confidence“ and “strong investment”? Does Kolivakis provide a reference?
Is now comparable to the US recovery after the ‘30s Depression when the US was the only major undamaged industrial nation?
Actually, I was hoping it wouldn't get polluted with factless but promotional propogada pieces.
You went way overboard. All you needed to do was disagree.
Great, eh? we're all happy to read and post on ZH until someone posts (an) article(s) that is/are disagreed with and then the vitriol is released. That's called zealotry and closed mindedness.
I've said it before and I say it now - I may not agree with (a large portion of) what Leo says, but I'll damned well stand his ground to be able to post articles. If it makes me THINK, that's a good thing.
It's like reading Bernanke's Jackson Hole transcript and the comments following from that - I was staggered at the market's reaction to what appeared to be a speech that said precisely nothing ('we may, we may not, and we may wait to see') but at least it gives an insight to what (may) be going on in Bernanke's and the Fed's heads.
DavidC
Dude you are an ass.
While I may disagree with lea a lot, I have learned from him, and a "news" site shouldn't be all bear. he has educated me on problems with corporate and state pension issues that will surely play out in the future.
I missed a great rally from the bottom (which I called out to friends) much because of the perma bear nature of this site. I made that error.
So I don't want too much of either as it clouds my judgement. As long as the articles are well reasoned that is what matters to me.
we can still be up shits creek because of awful economic leadership while the parts of the world that didn't buy into the debt fueled credit expansion do well.
I wish sites like this took away posting rights of people like you.
there are many ways to disagree. Why don't you write a long article with citations to disagree with Leo. Until you are willing to put up, you should shut up
Pension issues? Leo is far behind in publishing the reality of that.
WHAT PENSIONS? They are EMPTY. They have been EMPTY for years. Leo SHOULD know this. Without Obama there would be MUTINY from the union workers. The PENSIONS have been LOOTED by Union Leadership.
The PENSIONS ARE GONE. If you can't see this then it is you who is the DUMBASS.
Why else would they need Card Check? Really. Think about it. Why would you need to instill fear if people thought it were a great idea? If you idiots can't comprehend the Union takeover....
Maybe the F-Bombs could have been softened up a bit but I couldn't agree more.
Many of us spotted this ponzi as far back as 2007 and even 2006. And after 3 to 4 years of "You are sooooo negative" and "You just want Obama to fail" and "Why can't you be more positive" and "What do the unions have to do with anything?" and "You don't believe in Global Warming" and .....
You fuckin bet there are a bunch of us ready to throw more than f-bombs. Time to develop a new vernacular for the soon to be 50% unemployed 18-24 years old.
Hypochondria is rich. Greece is not. The only thing the Greeks have a surplus in are self-importance and self-entitlement.
Leo crossed the line here. And he deserves a Turkish whipping. Funny. As if the Turks are any better.
+1
Spot on. This article is the worts case of propaganda.
"demented little creep"
Why is Leo allowed to promote himself and the popular mainstream market spin here on ZH? I just don't get it, if I want the "spin machines " version of the world I can get it all over the place.
Give us and Leo a break, let him move on to a mainstream platform, he deserves it and so do ZH readers.
Ignoring alternate points of view just reinforces your biases. I give kudos to Tyler and crew for allowing Leo's "mainstream" opinions, even if he contradicts what most of we ZH regulars think we "know".
True. As sick as it may make some of us to hear it, we still NEED people like Leo to challenge our assumptions/biases.
I don't NEED Leo, but I read him just like I can't help looking over as they unpack a horrific crash. I know it is better to stay focused (I might crash myself), but the impulse is there. Oh, look, there are a lot more nickels in front of that steamroller! More than we thought!
So follow the retail crowd and buy bonds. Steamroller will crush them!
I have a clever idea Leo. How's about's we don't buy bond OR equities OR ETFs OR Mutual Funds.
Ain't that something? I mean, when I use the 'retirement calculator' provided, free of charge, by the finance industry it tells me I need about $4,000,000 more. So, I'll tell you what. Just fuck it, OK? I'll just squirrel away my meager 6 digit salary the best I can rather than literally 'letting it ride' and praying that I don't get swindled...again.
I know that's difficult to grasp as everyone must be 'chasing yield' at all times and can't even consider leaving the 'action' of the casino. But, you know what? I'm going to do it anyway and not contribute to the parasites pushing this shit.
The killer is sitting on your dollars and staying out of the casino, they will still confiscate your stored value by QE. Sucks all the way around.
And that's the rub...invest your money, it will be lost. Save your money, it will be debased. There is no way to win or even remain stable in such a thoroughly manipulated and gamed system. We're just totally fucked. All the indications that I've seen so far say that being able to grow your own food, shoot a gun straight, and build/repair/re-engineer simple technology are probably about the only "sound investments" one can make these days.
If anyone doesn't believe me, just remember this...the world as we know it obeys thermodynamic principles. Even we do, in an allegorical sense. That being said, the more stress you put on a system, the harder it will snap back to return to equilibrium. I think that the medicine that we have coming is going to be the bitterest stuff imaginable.
i think he meant he might manage it in a different way.. buy tons of non-perishables, buy lots of tools so you can fix your own shit, maybe buy some fine art, etc etc.. all those items will help dodge the poison you state
The problem is that it isn't a reasonable counter-point, it's just senseless and clearly contrary propoganda based on nothing.
.....believe it, there are respectable, older women on this website......women like me, a 60-year old mom & grandma who love this website for the education it provides. you are NOT free to be foul-mouth, it is not respectful to the creator of the website, nor to all the sincere people who post comments. this comment was one of the worst i've ever read, I feel ashamed to have read it.
Lynnybee,
I understand your distaste for foul-language. I'm not sure my 60 year old mother would like it either. HOWEVER, the site is quite full of people who are steaming mad and willing and ready to take action. Clearly, you aren't that kind of person (nothing wrong with that, either).
There is a time to fight and the tension in society is basically at the tipping point. If you even want to experience it personally, come see me in here in Detroit. I'll take you to a few working class communities and, I can promise you, the cussing won't be surpressed.
Nevertheless, you could avoid this by simply not reading. Of course, Leo knew it would generate this level of response.