Recession

Bob Shiller Warns Of "Parallels To 1937"

The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by the second world war, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins. The current world situation is not nearly so dire, but there are parallels, particularly to 1937. Now, as then, people have been disappointed for a long time, and many are despairing. They are becoming more fearful for their long-term economic future. And such fears can have severe consequences.

Chinese Growth Slows Most Since Lehman; Capex Worst Since 2001; Electric Output Tumbles To Negative

China may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly - such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash. What's worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace  in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.

Why PIMCO Thinks "The Bursting Bubble" Is Not The Biggest Risk

Getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages. This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally “overvalued” relative to their long-term “fair value.” The dominant risk for Wall Street is not bursting bubbles, but rather a long slow grind down in profit’s share of GDP/national income. And you can stick that into a Gordon Model, too! Bonds and stocks may at present be rationally valued, but borrowing from the lyrics of Procol Harum’s Keith Reid: Expected long-term returns are turning a more ghostly whiter shade of pale.

5 Things To Ponder: "Bear-ly" Extant

"It is a bad sign for the market when all the bears give up. If no-one is left to be converted, it usually means no-one is left to buy.” The extraordinarily low level of "bearish" outlooks combined with extreme levels of complacency within the financial markets has historically been a "poor cocktail" for future investment success.

Defying Gravity: The Case For Hedging Against A Market Downturn

Today's markets exist in an Oz-like, fantasy world. For 5 years now, stock and bond prices have risen like Dorothy's balloon, with hardly a puff of downdraft to spoil the fun. Everybody likes higher prices, so let's have them always go up! Forever! But what if...

How The China Boom Unravels: One Person At A Time

The dashing of youthful expectations of open-ended wealth and security for everyone with a college degree is highly combustible when combined with a popping real estate bubble, systemic corruption, the implosion of a shadow banking credit bubble and the impending global recession.

Alan Greenspan's Nine Reasons "Why The Economy Stinks"

Yesterday, former Fed Chairman Alan Greenspan was the keynote speaker at KPMG’s 2014 Insurance Industry Conference Tuesday, where he answered questions such as 1) where the economy is going, 2) why, and 3) when (if ever) is it likely to improve. The answers, as reported by Property Casualty 360, are: 1) nowhere fast, 2) because nobody is willing to invest, and 3) eventually, but nobody can tell when. He listed 9 specific reasons why the "economy stinks", although surprisingly, nowhere did he mention the fact that the current and future economic disaster is all a direct result of his ruinous reign at helm of the Fed where as a result of his "great moderation" and the Fed's catastrophic monetary policies conceived mostly under Greenspan himself, the economy is now perpetually stuck in a boom-bust cycle, and where every time a bubble bursts another has to replace it or else the entire western way of life will be gone in a heartbeat.

Markets Digest Wristwatch, NIRP Monetization, Catalan Independence News; Push Yields, USDJPY Even Higher

Overnight the most notable move has been the ongoing weakness in rates, with USTs reversing earlier Tokyo gains after BoJ Deputy Governor Iwata, in addition to commenting on a lot of things that didn't make much sense,  said he didn’t see any difficulties in money market operations even if BoJ bought bought government debt with negative yields, as InTouch Capital Markets notes. As a reminder, yesterday we noted that in a historic first the "Bank Of Japan Monetizes Debt At Negative Rates." As Bloomberg notes, this may be interpreted that BoJ may target negative yields to penalize savers, which "all boosts the appeal of yen-funded carry trades." In other words, first Europe goes NIRP, now it's Japan's turn! So while this certainly lit the fire under the USDJPY some more, which overnight broke about 106.50 and hit as high as 106.75 on Iwata's comments, it does not explain why the 10Y is currently trading 2.52% - after all the fungible BOJ money will eventually make its way into US bonds and merely add to what JPM has calculated is a total $5 trillion in excess liquidity sloshing in the global market.

Obama Outperformed Reagan? Hardly!

Last week, Adam Hartung qualified for the "Mark Twain Award" if there was such a thing. In his article, "Obama Outperforms Reagan On Jobs, Growth & Investing," Adam goes to some length to try and show that unemployment rate, the S&P 500 and economic growth are currently better under the current administration than they were during the Reagan administration. Unfortunately, that is not the case. When considering that President Obama has been able to achieve real economic growth of just 2.04% annually despite historically low levels of inflation and interest rates combined with massive government interventions and balance sheet expansions; it makes his overall performance even more disappointing.

The Buyback Party Is Indeed Over: Stock Repurchases Tumble In The Second Quarter

We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to "only" $117 billion - the lowest since Q1 of 2013!

Obama's Former Chief Economist Calls For An End To US Dollar Reserve Status

"...what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status...The privilege of having the world’s reserve currency is one America can no longer afford."

- former Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.

Ten Reasons To Condemn Inflation

Inflation, defined as an expansion of the supply of unbacked money, is an elementary evil, always and everywhere that it occurs. It is the ignored and core cause of numerous problems in the economy and in society...

"Jobs Friday": Why Bubblevision Misses The Epic Failure Of The US Labor Market

CNBC’s long-running “jobs Friday” fetish is getting downright appalling.  Each month the BLS puts out a treasure trove of data on the rich and complex mosaic of the US labor market - a download that embodies a truly frightening trend of economic failure. Yet the clowns who assemble in its screen boxes to opine on Hampton Pearson’s 30-second summary of the BLS release never have a clue. Namely, that outside of health and education there has not been one net new job created in the American economy since July 2000! Yes, not a single new jo - as in none, nein, nichts, nada, zip!  The point here, however, is about economics, not social worth. And in the realm of economics, the notion implicit in “jobs Friday” - that all jobs are created equal - is simply a fatuous shibboleth.

Frontrunning: September 8

  • Scotland split jitters send sterling to 10-month low (Reuters)
  • S&P 500 Beating World Most Since 1969 Doesn’t Spark Flows (BBG)
  • Happy ending guaranteed: Vietnam building deterrent against China in disputed seas with submarines (Reuters)
  • China Posts Record Surplus as Exports-Imports Diverge (Bloomberg)
  • Russia, U.S. to hold talks on 1987 arms accord (Reuters)
  • Halcon’s Wilson Drills More Debt Than Oil in Shale Bet (BBG)
  • Deadly Disappointment Awaits at Ebola Clinics Due to Lack of Space (WSJ)
  • Latinos furious at Obama on immigration delay, vow more pressure (Reuters)
  • Japan GDP Shrinks at Fastest Pace in More Than Five Years (WSJ)