Recession

While much of the financial media and Wall Street analysts continue to ignore the risks of a recession, there are some important warning signs that suggest this might be a bad idea. As Charles Gave noted earlier, "We are swimming in an ocean of ignorance... It seems all the painful economics lessons learned over the last 300 years have been forgotten"

We are less than one week away from a historic monetary experiment in two parts: first, attempt the Sisyphean task of pushing up the rate of interest on over $2.5 trillion in excess liquidity, and second, to assure the market that it has correctly priced in the overnight evaporation of up to $800 billion (or more) in liquidity from asset prices. If one or both of these fail to deliver, than the embarrassing disappointment that marked the ECB's December announcement and its dramatic impact on asset prices and FX levels, will be a walk in the park compared to "disappointment" that the Fed will unleash once the market realizes that while in theory the Fed can and is ready to hike, it simply can't do so in practice.

The Energy names in the S&P 500 haven't broken their August lows in the recent downdraft for the group. That’s surprising for two reasons: first, spot crude prices certainly have – $36.52 today versus a $39.65 low on August 24th; and second, December is typically the month where investors harvest tax losses by selling losing positions and the Energy sector has a bumper crop of such candidates.

With sadly ironic timing, we noted just last week that the blowback from "unequivocally good" low oil prices was set to cross the border from an increasingly suicidal Canada, and so, as AP reports, it appears Alaska is facing the toughest of times. As oil prices make new cycle lows, Alaska Gov. Bill Walker has called for the state's first income tax in 35 years in order to close a $3.5-billion-dollar deficit the state is carrying. Alaska is currently the only state that does not have a state sales tax or personal income tax, having relied on oil income but, as Walker tweeted, "now is the time for Alaskans to pull together."

"2015 was like commuting by rollercoaster. There were heart-stopping drops, there were nearly vertical ascents, and when it was all over you got off just about where you started and it cost you money."

Without giving any reasons, South African President Jacob Zuma has fired his finance minister (after just 19 months in office). This has shocked investors, already anxious about the nation's surging debt and sluggish economy and South African bonds and FX have collapsed andhas given rating agencies “perfect justification” for further downgrades and the loss of investment grade status. 10Y yields spiked 140bps to 10.18% - the highest since July 2008 - and CDS have soared. The Rand has crashed to new record lows above 15 to the USD.

The media can try to hide reality all it wants. But an economic collapse is here. It will trigger another stock market crash just as it did in the early ’90s, the Tech Bubble, and the Housing Bubble. 

Americans have long lived in a nation made up primarily of middle-class families, neither rich nor poor, but comfortable enough, notes NPR's Marilyn Geewax, but this year - for the first time in US history, that changed. A new analysis of government data shows that as of 2015, middle-income households have become the minority, extending a multi-decade decline that confirms the hollowing out of society as 49% of all Americans now live in a home that receives money from the government each month. Sadly, the trends that are destroying the middle class in America just continue to accelerate.

Economists have put together models of how an economy works, but these models were developed years ago, when the world economy was far from limits. These models may have been reasonably adequate when they were developed, but there is increasing evidence that they don’t work in an economy that is reaching limits.

According to Bank of America's credit and debit card spending data, core retail sales (those excluding autos which are mostly non-revolving credit funded) just dropped by 0.2% in November, the first annual decline since the financial crisis!

More signs that the economy is actually not all that well. It may yet recover on its own (believe it or not, but from a historical perspective the data in their totality are not yet decisive), but we think this is a very low probability scenario at this stage. There is likely already way too much malinvested capital in need of a significant purge.

If you said just more of the same, with corporate management teams buying back their own stock in near record quantities (boosting their own stock-linked compensation in the process) and serving as the biggest marginal buyer in the market, then give yourself a pat on the back.

Following a roudy session in Congress that nearly dissolved into "chaos," the Brazilian Supreme Court suspended impeachment proceedings against President Dilma Rousseff until December 16. Meanwhile, annual inflation rose to 10.5% in November, the highest in 12 years as the country's stagflationary nightmare continues unabated.

Q4 GDP expectations are off to a bad start as October wholesale inventories dropped 0.1% (missing expectations of a 0.2% rise and well down from the September surge of 0.5%). Wholesale inventories rose only 3.7% YoY, the lowest since Sept 2013 but sales have now been negative YoY since December. This leaves the crucial inventories-to-sales ratio at 1.31 - post-crisis highs, and deep in recession territory.

Moments ago, the Bank of Canada's chief finally said what we had been patiently waiting for over the past several months: admission that Europe's experiment with negative rates is about to cross the Atlantic.