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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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"Leo knew it would generate this level of response."
That is where I feel he is being disingenuous. He is after response more than anything. On a college campus, sometimes "preachers" will come out and preach in the open. Students will start to tell them to fuck off. They get more intense, calling the students possessed by the devil, more people stop to see what is going on, quite a crowd and drama build up. You can tell the preachers thrive on the negative action and their intent is NOT to preach.
Leo is striking me as this kind of character.
Devil = people who oppose you. Holy = preacher.
Preacher = right
Dissenters = wrong.
Preacher = good
Dissenters = evil.
Standard ordinary will polarization.
This piece. Yes inflation is occuring in emerging markets. Yes it looks good. Yes Zero hedge had a piece bout what happens when emerging markets inflate when it finally returns to source. Leo is being disengenuous. Because he is in pursuit of a goal. Which forces you to be some level of disengenous on the contiuum spectrum.
This is a harmful event. People don't mind harmful events as long as they are the ones doing the harming and not the ones being harmed. As the people who have not been harmed by it thus far get closer and closer to the entropy tipping point they will try to manipulate their way out of it.
People aren't doing what leo wants them to. So he is jumping on the projection meme. It's all in your head. You are not correctly sensing the entropy changes going on. Doctors employ this when something is wrong with a person but what is wrong is somehow hidden. The information doesn't flow because whoever or whatever did the damage doesn't want to be held responsible and be judged for it. So the monolithic nature of our king model allows the computer of thought to pull a semaphore lock on the information and divert it towards a focus on something mysterious or shove it back down the patients throat as their problem.
This is the source of most peoples frustrations. Groups disolved and the semaphore locking and monolithic nature of our thought and feeling processes are now inoperable. With groups literally able to think around over and under other groups. This is why the people who control the most powerful groups on earth right now are scared shitless and why all of a sudden bloggers are being given invitations to visit the white house. Because the bloggers are piecing together whole views of the situation and it's embolding main stream media to investigate with that focal point and are also coming to the same conclusions.
There are 15 groups and it's majority rule. If 8 groups can band together they can control perception the remaining 7 groups. Now that everyone is aware that it's not share and share alike but winner take most. It just naturally focuses towards the heaviest of manipulation. Once all the stupidity is over the groups will work better. Co-creating and parallel processing everything with amazing speed and accuracy and everyone in that group will have equal access to it. Conciousness will raise amazingly fast because lock-outs won't work. Then the groups will simply mix up and a true perfection of understanding will develop.
The herd is dead. Long live the hurd.
http://en.wikipedia.org/wiki/GNU_Hurd
It will necessarily be hybridization for a while just to get everything where it needs to go but will develope further.
Are a you guys a bunch of Tea Party supporters? How did you like the Palin, Beck rally? ZZZZZZZZZZZZzzzzzzzzzzzzzzzzzzzzzz!
Nope, actually I am (was) a registered Democrat. I have them all, including tea baggers, in the shit bin now.
Well, I can finally agree with you on something.
Rodney King was really onto something...
That is exactly the kind of thing this preacher guy I was talking about would say. Not reasonable, not a conversation, but he would try to incite folks to get angry. Thanks for demonstrating your colors so vividly for us.
You may believe what you post (I owe you that) but you try to turn the screw to get the maximum reaction out of us. Starting with your headline.
MsCreant,
I just posted something to counterbalance all the US-centric mumbo jumbo I see here. If the only thing you want to read about how the "US is fucked", then you're doing a great disservice to your readers. I read lots of stuff on ZH which I agree with, and lots of stuff which I disagree with. But I never start cursing people out because I disagree with their views. Are we in kindergarten here? I am sorry if YOU feel that my comments are just there to incite anger, but you're totally missing the point.
Honestly, I don't need to be angry with you to point out that I think you're just completely off-base. I've spent months looking for some sort of escape-hatch from the downward spiral of the economy AND our other morbidly failing abstract institutions (politics, contemporary culture, etc.) and it's just not there. In fact, the feedback loop that's formed among all of these institutions is only accelerating the pace of the decline.
That being said, I couldn't possibly agree with you that any indications of resurgent activity in this wasteful, hypocritical monetary/economic system of ours is a sign of anything good. The downturn has, as such events often do, torn the skin and fat off of the bones, and those bones are apparently riddled with malignant manipulation by the Fed and the government, who are all the while listening to TBTF banks and their lobbying minions. Of, for, and by the people? Not anymore, so...kill it with fire and let's start over. That feels more optimistic to me.
Fuck you lynnybee. Freedom Bitchez
Leo,
You slap the faces of those that are terminally unemployed.
Well Lynnbee,
When the Nazis were dragging their political enemies, Jews and Gypsies into the waiting trucks, then would you do a little cussing ??
Leo, ought to get out into the real world and stop reading massaged reports drawn up by reporters for Walt Disney.
Singing "Don't worry, Be Happy" is not going to float this sunken ship.
By the way, my granny could cuss like a trooper whenever she had too, and if she read the crap dished out by Leo, she'd be a cussing.
LMAO!!
Uncalled for...this type of comment really ruins the discussion..this is really saddening...
You know what is saddening to me Papa? MSM catch phrases such as "the new normal" used to gloss over the ugly reality of an accelerating decline in economic activity, accelerating corruption at the elite level, accelerating poverty below them, and accelerating odds you will witness events in your country and neighborhood you thought you would never see in your lifetime. If people don't become angry now... even more saddening.
Is "economic hypochondria" the new buzzword created by wall street to lure main street back ? Brian Wesbury used the same on a yahoo tech ticker talk !!
That and "recession porn".
It's the playground equivalent of calling someone a pussy. Yep, we're there.
Yes, let us all amicably discuss our collective ass-pounding by the thieving class while we sip cabernet and line up for the bunny hop. That way we can be more like msnbc.com or any other financial site on the net.
Good call.
+ infinity^2
X googolplex
...I'll bring the Grey Poupon.
Oh, really? How long you been on this site, Papa? Because I've been here since the very beginning. For too long, I have listenend to this lying, deceitful propagandist spout this establishmentarian stooge-speak. I have finally, with this ill thought missive, had enough.
Leo, you, me, steel cage death match. I want your lying, prevaricating ass in the ring.
Ive about had enough of his shit too. he doesnt belong here, he's as blind and clueless as as any of the "dumb money" public. in fact far more so if this is anything to go by
http://www.zerohedge.com/article/confirming-dumb-moneys-resilience-wall-...
Leo's never been in a fight, and hence doesnt know himself at all.
he would be one of the people telling everyone around him "it's alright, they dont mean it, theyre not really going to hurtt us" as he and his town were herded into a field or made to kneel down by the ditches they'd just dug.
completely fucking clueless isnt even close to the whole truth.
got no problem with you taking on Leo, calling him a shill, troll, whatever...but no need to cuss out. There are some people that I think are soo corrupt and so powerful, so powerful that their utterances and writings can send people to war, to lynch mobs, to crashing a company etc...such people, if we know they are lying and manipulating people and doing great harm with it might reasonably elicit your type of reaction...but is Leo that powerful, that well placed, that believed. Seems he is routinely derided here and little considered, his ideas don't win much influence here, so if he was indeed insincere, which I don't think, but just say he was...really, all that MFing over Leo? Keep it civil unless people are being murdered, women being beat, old people's life savings are being stolen or children in danger...Last I sawm Leo was just being delusion like your average realtor....
I wish I could say differently, but...old peoples' life savings are, in fact, being stolen. Also, the mass of long-duration unemployment and underemployment is only fueling the ruin. Once you hack the passion out of such a situation, it pretty much demonstrates why we got here in the first place. If finance and money are the mechanisms by which prosperity is formulated, for the people who drive it, then interpreting it and it's effects in some purely sociopathic, PC context is never going to work.
++
What's missed here is Leo's spouting does nothing to evaluate our fundamental and structural problems. He thinks higher stock prices are a remedy to our sickness. Nothing could be further from the truth. And one has to wonder how someone who appears to be so well read would take such and absurd approach.
We have lost industries in this country and it was done by people like Leo trying to convince others that a hollowed out industry base is okay as long as we can keep money flowing. It's not okay Leo. I would have more respect for your analysis if you would at least occasionally talk about our unemployment and structural problems other than the appreciation of equities being the cure.
If someone says that his views are simply harmless and do not hurt people, I would remind them of a quote I feel is quite profound.
"Poverty is the worse form of violence"
Buddha
There are more and more people living in poverty because of people like Leo. I think that's why anonymous becomes hostile. Although I think he is being harsh, I understand his discontent.
Agreed, it's serious and this piece, in particular, is outrageous and insulting. Moreover, it's transparent in that it's being posted by someone who has a financial benefit in pushing the bullshit to extremes.
I agree with sentiment and cussing, at times (including these), aren't off limits.
Fuck yourself, Leo.
You're correct in your sentiments. I suppose the issue is the "civility" component we're supposed to try to observe. Still, I understand your frustration, which fueled my own post. May be Leo is just a hopeless optimist, and that's fine too, I guess. But as you point out, we risk much by being told to be patient and wait in our seats. Timmah, Jabba Jarry, Bennie and the rest of the Gang hope that's where we stay.
I'm past waiting. And I'm past civility.
It's time to get real.
Ok, get real. That involves convincing your government and fellow american to let the financial parasites gamble their way out of their buildings and turn them into industrial parks. Reboot the HTF machines and give their programmers the task of serving the research and dynamics needed to innovate and restructure the fabric of modern society before you starve to death by the exchange of bullshit.
You seem skeptical.
Yes, i am. Until you settle all the worlds debt with Gold, close the casino and get real money flowing into the real production economy you will suffer.
Payment in fiat money is not settlement, it will only increase tension by growing obligations and obstruct productive cooperation.
I feel the same way.
Economic Hypochondria ??
1. Unemployment at 10%, real unemployment at 20%
2. A financial/housing bubble caused by easy (stupid) credit and the solution is
easy (stupid) credit
3. the U.S. trade deficit shows no end- China is laughing all the way to the bank.
4. the criminals on Wall Street have been rewarded with the taxpayers money.
I, too, am out of civility.
Leo, you have your head so far up your ass, you're looking back through your eyeballs.
There, I said it.
You guys have it right- Leo is a stooge for someone, he cannot believe the crap he is peddling. Tyler- banish Leo to CNBC.
Agreed, I have heard enough fluff from someone that is obviously shilling. Who is signing your paychecks for these pie in the sky screeds, Leo?
The Boiler seconds Mr. Wipsnae's motion!
This crap seems to keep the sheeple calm while heading to the slaughter house. Like taking a nice shower after a long train ride in a cattle car.
Charts? I'll give you some charts:
http://www.consumerindexes.com/commentary_2010_dailygrowthindexvsgdp_ful...
http://www.consumerindexes.com/commentary_2010_contraction_watch_full.png
http://dshort.com/charts/Consumer-Metrics-GI-GDP-SPX.gif
This roller coaster ride is about to get really interesting. Hang on tight, Leo.
Wow. Fabulous charts. Wished TD tracked these like he tracks the ECRI. Thank you.