With the bond market appearing ripe for a dramatic correction, many are wondering whether a crash could drag down markets for other long-term assets, such as housing and equities. Bond-market crashes have actually been relatively rare and mild. According to our model, long-term rates in the US should be even lower than they are now, because both inflation and short-term real interest rates are practically zero or negative. Even taking into account the impact of quantitative easing since 2008, long-term rates are higher than expected. Regarding the stock market and the housing market, there may well be a major downward correction someday. But it probably will have little to do with a bond-market crash.
With all deference to Dr. Richard Fisher, the surging dollar is not good for either the economy or ultimately a stronger labor market. This is particularly the case when the dollar is only stronger because the rest of the world is on the brink of recession and or deflation. The negative impact of a surging dollar in a weak economic environment will more than likely outweigh any positive inputs for the U.S. consumer. Time will tell, but the evidence is mounting that the we are likely closer to the end of the current economic cycle than the beginning.
Hint: It's not the economy and it's not unemployment.
On a daily basis individuals jump into the financial markets with their "savings" in the hope of a thrilling ride. However, very much like skiing, inevitably you are going to take a tumble. Importantly, that "tumble" generally occurs when one becomes overly confident in their abilities and pushes the "risk" just beyond their inherent capabilities to react quickly enough. The result has tended to not be a pretty one. As we discussed earlier this week, there are many signs that suggest the current market environment has begun to push the outer boundaries of the "risk" curve. While this doesn't mean that the markets are about to "crash," it does suggest that individuals with a lesser skill set may want to be a bit more cautious.
Echoing former US Treasury Secretary Larry Summers’ quip, “There is surely something odd about the world’s greatest power being the world’s greatest debtor,” it appears that economic reality is finally beginning to set in for Americans... Only hours ago, Gallup released a new poll showing that only a small minority (just 17%) of Americans still view the US as the world’s economic superpower.
“They were people with great dignity,” Ivo Costamagna said of his neighbors who committed suicide in 2013. Romeo Dionisi, 62, and Anna Maria Sopranzi, 68, hanged themselves after Ms. Sopranzi’s pension evaporated. “Romeo just wanted a job.” But no jobs were available in the dismal Italian economy.
In what may be another case of research confirming common sense, a new study finds, in all four regions of the world studied, “unemployment was related to an increased relative risk of suicide by 20-30%." While the tragic consequences of ZIRP, bailouts, and multiple QEs have so far been ignored, a tsunami of suicides are coming as the under-saved American baby boom generation faces the stark reality of having to work until they die to survive.
"...we are failing to deliver on our obligations as Americans, that is undeniable. We are allowing the political class to plunder our wealth, negate our freedoms and desecrate our Constitution. Sadly we have become the immoral populace our founding fathers warned all future generations not to become... The duty and obligation is ours and so too then are the failures and successes of our society. We are 15 years in to what is absolute denial regarding the competence of our nation’s policymakers. Yet here we sit, silent and indifferent to our own demise; so completely antithetical to the character of a true American."
While the economy is showing some signs of impact from falling oil prices, a port strike in California, weak global demand for exports and an exceptionally cold winter; the markets are pushing all-time highs. There is much hype being placed on the ECB's plans for launching QE in March, however, much remains to be seen as to just how effective it will be in a negative interest rate/deflationary enviroment. But then again...there is always "hope."
This is the war on success that our government is waging...
With economic data serially disappointing in 2015, it is probably not entirely surprising that Gallup's U.S. Economic Confidence Index fell to an average of -2 last week (with the biggest drop since July). This is the first time the index has had a negative weekly average since late December. Both the current conditions and outlook sub-indices tumbled but it was the future 'hope' index that fell the most with more people now saying the future will be 'poor' than believe it will be 'good'.
We are living in an era where a single statement of truth will drive a pin into the global bubble of phantom assets and debts, and the lies spewed to justify those bubbles.
Most Americans just assume that the economic numbers that we are being given accurately reflect reality. That is why it is so refreshing to have men like Gallup CEO Jim Clifton step forward and tell the truth. Don’t be fooled by all the happy talk from the mainstream media and from politicians like Barack Obama. The truth is that the percentage of U.S. adults that do have “good jobs” is actually far lower than 44 percent.
Given the spate of recent poor economic numbers in the U.S. and internationally, analysts are beginning to question the veracity of some of the U.S. government's economic statistics including their jobs numbers today. “The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie ...”
We can certainly "hope" that the markets will continue to march endlessly higher. However, "hope" has never been an effective portfolio management strategy. Considering that the decline in oil prices is supposed to good for the consumer, even though personal spending declined in the most recently reported period, the decline in dividends will certainly have a negative effect on those depending on those dividends. The current detachment between spending and the stock market will likely be corrected rather harshly at some point.
You know Merkel, Draghi, Dijsselbloem et al. have a problem when... More than one in three Greeks (35%) in 2014 approved of Russia's leadership, while fewer than one in four (23%) approved of the EU's leadership.