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Here Comes the “Bathtub” Economy
Goldman Sachs’ chief US economist, Jan Hatzius, can articulate my own view of the economy better than I can, so I will just repeat what he said. The boost the economy received from an inventory rebuild is now over, and the best we can expect is an anemic H2 GDP growth rate of only 1.5%.
If you want to see what this looks like up close and personal, take a look at the chart below of intermodal rail traffic, which shows the economy definitely taking a turn for the worse. The private sector ran enormous deficits from the early nineties to 2007, which have only just started to unwind. Debt/GDP, debt/income, and debt service are all still at historical highs.
In the last three years, the private sector has flipped from spending 4% of GDP to saving 7%, a massive deflationary swing. The net effect of this sobering scenario is to keep unemployment stuck around 10% and interest rates at bargain basement levels until 2012.
But Jan doesn’t see a double dip occurring without a major shock. BP and the crisis in Europe aren’t big enough to do it alone. The bottom line: a “U” or “bathtub” shaped recovery in dire need of more government stimulus.
This has been my own forecast for the economy since the beginning of the year (click here for my piece on the “square root” shaped recovery at http://www.madhedgefundtrader.com/january_4__2010.html ). Hint: this is not good for stocks or assets anywhere.
I’m sure Ben Bernanke is listening.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page
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Like to see the cialis ad where the 60 + man takes a pill then reaches over his old hag of a dick hating wife in bed for the pocket pussy!
Now that is entertainment.
Excuse me but corporations aren't suffering for profitability.....
The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.
http://online.wsj.com/article/SB1000142405274870431210457529865256798824...
Record Corporate Profit Margins..
http://solari.com/blog/?p=7866
Well, if you cannot boost stimulus, and you cannot stimulate spending, why not try a novel approach?
What about increasing profitability? Lower corporate taxes, lower barriers to competitions, lower ther regulatory walls that stop businesses from expanding? Eliminate minimum wage?
Sorry, that probably sounds too much like capitalism.
Sorry, but most of that crap you just spewed given the last 3 years just sounds retarded. Maybe, lower taxes and regulatory walls for small business.....but, we really don't need to inflate any of these over-bloated, thieving corporations. And why would you attack the minimum wage? Not like you can survive making $7 an hour......why would people even work for say $4?
How about cutting costs by releasing all non-violent criminals? If they are white-collar, seize and liquidate all their assets and keep their criminal background clean (so they can become productive citizens again). It is ridiculous spending $50k a year to house someone who grew a weed plant when they were 19. This would lower taxes and increase your corporate profitability. Plus, adds revenue with the liquidation of these thieves assets. WIN WIN!
I think the more appropriate "Cialis" moment would be similar to a prison shower.
Few, if any, Fed watchers are expecting the U.S. central bank to raise rates when they announce their interest rate decision this afternoon. But most do expect the Fed to start tightening sometime in the foreseeable future.
Michael Pento, chief market strategist at Delta Global Advisors, is not one of them. Pento is confident the Fed’s next move will be to ease rates. “Ben Bernanke is a student of the Great Depression and he doesn’t want his tenure to be marked by the second Greater Depression,” he says. “So he will do whatever he can to boost money supply and fight deflation.”
How will he do that with rates already at 0-0.25%?
Obviously, they can’t lower rates. The Fed is also reluctant to start buying more mortgage-backed securities so soon after ending that program. The alternative, Pento says, is for the Fed to stop paying interest on excess reserves, a move that will drive banks to lend instead of sit on their cash.
Contrary to popular belief, that’s exactly what the economy doesn’t need, according to Pento. Increased lending “will bring money supply growth rates through the roof and we’ll have an inflationary recession/depression,” Pento forecasts. Instead of what Pento believes is a necessary evil – a short-term deflationary depression. "That’s the real prescription, that’s the only cure," for our debt problem, he says, even if it's a painful one.
Since Pento is sure Bernanke wont’ heed his advice, he recommends investors hedge their portfolios’ ”towards the inflationary scenario” by buying gold and short-term Treasuries. If he’s right about Bernanke’s policies, he says the appreciation in gold prices will accelerate.
"Obviously, they can’t lower rates." Of course they can. There is no law preventing the Fed from paying negative interest rates. The Swiss banks did it in the 1970s. Just pay the banks 0.5% to 1.0% to take money on the condition that they lend it out rather than buy T-bills.
A fiat currency can have an 'Use By' date stamped on it. Use it or it's worthless. Some at the Fed have floated this stupid idea.
Also...the 7% savings rate is bogus imo. More likely that most of that 7% is being used to pay down debts...also deflationary.
"Just pay the banks 0.5% to 1.0% to take money on the condition that they lend it out rather than buy T-bills."
Or, with the specific promise to buy T-bills. The incentives are very real for those with the relevant power to do so.
"You mean like in those Cialis commercials?"
I don't watch TV anymore so I hadn't seen those. But I went to watch the 4th round of the Open last Sunday and saw them. What a freaking hoot. This middle aged limp dick who passes out from lack of blood when he starts getting a hard on takes a pill and all of a sudden everything is roses. Let me tell you a little secret about post menopausal women. About 35% get hornier after menopause and the other 65% don't ever want to see another hard on so long as they live. So their limp dick husband takes a pill. like, so what. The idiocy of people to believe that bullshit is so aggrivating.
Didn't work for you, eh?
"desperately in need of more stimulus"? What part of the complete failure of Keynesian stimulus in Japan and the US did you not notice? How about some encouragement for business to move to the US and/or hire employees?
Bathtub economy due to kitchen sink fiscal policy.
+1 And kitchen sinks have more practical uses.
One of my running jokes was that the Fed would monetize everything -- including the kitchen sink. What with the buy-up of bad mortgages I guess the joke turned out to be the truth instead.
Bathtub economy
You mean like in those Cialis commercials?
Where everyone is happy/smiling and then gets f**cked, right?
Nail on the head, Bam_Man.
The only thing bathtubby about this economy will be the drain.
MHFT your pieces are interesting but your calls are terrible, BP and oil service stocks...really...
Too much Vegas.
Terrible? Depends on what side of the trade you're on, doesn't it.
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You mean he coulda been shorting since he said "BUY!" @ $44-46??!!!!
Nahhh, no way!
He'd neeeever do that.
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$29.95+0.27 (0.91%) Real-time: 1:23PM EDT (not my trade, but if he wanted to time this trade, today makes sense as compared to his ridiculous call, since it went up today in spite of the containment cap being removed and the gusher now visible) ___
Last year, Roubini predicted an inventory bounce in 2010 first half, followed by sinking in shallow to deep shit in the second half.
So the GS economist lifts his head up from his exquisite lines of coke, reads a Bloomberg terminal, and then "predicts" today what is happening today. That's worth fucking millions in performance bonuses. Thanks ever so much for the heads up.
"But Jan doesn’t see a double dip occurring without a major shock."
Roger that. This plus the government finance situation demands drastic action. Too bad said drastic action will most likely be a regional war.
I am not sure "more government stimulus" like the government stimulus we have had so far is the prescription the doctor has ordered for this economy. I think the pressure of writing a daily column is too much for you. Yesterday it was some bulls**t about paying $160 for a room worth $500. If the room is worth $500 how come you (and likely everyone else) were paying $160? Today it's this. Perhaps you ought to consider reducing the frequency of your posts to weekly. Or monthly. Or...
D-d-d-deflation? But I heard from experts that we're in a "solid" recovery, and even if we aren't, we're going to inflate our way out of this mess, gold to da moon.
WTF, over?
/sarcasm