David Rosenberg, in one of his recent missives, wrote: "...based on the current trend in the LEI and the level of the diffusion index, history suggests that the next recession is at least four years away." While anything is certainly possible, it is highly unlikely that the current economic environment is supportive of another four years of a "struggle along" economy. Given the artificial supports during recent years, the extreme extension in assets prices, record levels of margin debt and the chase for yield in "junk credits," it is highly possible that the next recessionary decline could be much larger than the historical average.
As they say, you're the average of the five people you spend the most time with...
This weekend’s “Things To Ponder” is comprised of a variety of readings that cover a fairly broad spectrum from educational to informative and even a little bit sarcastic.
What if Janet Yellen is wrong?
Children display beautiful and at times brutal honesty
When it comes to disruptive technologies, being pro-active rather than re-active is a far smarter strategy.
Sticker shock. Expect to pay a lot. Hellishly hot in the summer and shockingly less sexy than advertised. But the city and local people, called Cariocas, are clean and the crime is greatly exaggerated. The Marvelous City is amazing in many ways. But if you look closely, you see the same old corruption and thuggery, the same painful poverty and injustice, that plague many states. And then there's the Brazilian prostitutes, called programas, who frequent the bars and brothels of Copacabana and Ipanema as well as Central Rio... People in Rio and Brazil are the same as anywhere. They want the same things. Happiness, diversion, laughter, distraction, the so-called good things in life. A slightly larger piece of the pie. The World Cup is just a showcase and a distraction. Bread and circus on a grander scale.
"The meaning of modern existence has devolved to nothing more than comfort and status; discovery is a non-factor. All modern man seeks are food, sex, and comfort, and he/she devotes his/her life to nothing more than mundane things." - Paul Rosenberg
The days of Bernanke's "non-Giffen good" speech circuit may come to an end far sooner than the ex-Chairsatan wishes: "UBS and Goldman Sachs considered his fees too high." Others were quick to point out the obvious:"You can spend $250,000 for Bernanke’s time at a private dinner, or you could just sit down and read what people like Janet Yellen and Mark Carney have to say," David Rosenberg said"... Indeed, this is one deflation which we are confident the Fed Chairman wishes he was 100% certain he could stop in 15 minutes. Sadly, like in the case of everything else relating to Bernanke, when paying for smoke and mirrors it is only a matter of time before everyone, even the uber-richer poseurs, realize that the product they are buying is nothing but a cheap commodity.
One Wall Street strategist who appears to have thrown in the towel on the entire rising wages debate is none other than BofA's chief economist, Ethan Harris, who in a note released on Friday fires the proverbial shot across the David Rosenberg bow regarding rising wage pressures: "Don't hold your breath."
Since 2012, almost every economist has predicted that the housing recovery would continue into each coming year and would be a key driver of economic growth. That was again the plan for 2014, but with the housing recovery now on the ropes those same economists are perplexed as to why. Yet, "hope" remains that the recent slowdown is just a "weather related" casualty. The slowdown in housing is not due to the "weather." It began prior to the onset of the recent winter blasts. Nor will reduced distressed sales, delinquencies, negative equity or rising inventories salvage the predictions. These are all indicators "OF" the housing market, but not what "DRIVES" the housing market. The real answer to the slowdown in housing is not so difficult to comprehend...
Market consensus is that deflation remains the greatest threat to the global economy. But that's ignoring signs of impending inflation, particularly in the US.
If the current pace of reductions continues it is reasonable to assume that the Fed will terminate the current QE program by the October meeting. If we assume the current correlation remains intact, it projects an advance of the S&P 500 to roughly 2000 by the end of the year. But... the question is, can the US economy can stand on its own when QE completely winds down, not to mention when the Fed actually hikes rates? Amid such weak levels of economic growth does not leave much wiggle room to absorb an exogenous event, or even just a normal downturn, in an economic cycle. If the Fed is indeed caught in a liquidity trap, then the current withdrawal of support will quickly show the cracks in the economy pushing the Fed back into action. It is at the point of "monetary impotence" where the word "risk" takes on a whole new meaning.
While the Fed's interventions have certainly bolstered asset prices by driving a "carry trade," these programs do not address the central issue necessary in a consumer driven economy which is "employment." In an economy that is nearly 70% driven by consumption, production comes first in the economic order. Without a job, through which an individual produces a good or service in exchange for payment, there is no income to consume with. With the Federal Reserve now effectively removing the "patient" from life support, we will see if the economy can sustain itself. If this recent Bloomberg poll is correct, then we are likely to get an answer very shortly, and it may very well be disappointment.
- No need to use military force in Ukraine for now: Putin (Reuters)
- Russia Orders Drill Troops Back to Bases (WSJ)
- Ukraine premier agrees to reforms for aid package (FT)
- Japan Base Wages Rise for First Time in Nearly Two Years (WSJ)
- Only the algos are trading: Citigroup Joins JPMorgan in Seeing Trading-Revenue Drop (BBG)
- Vietnam sends blogger to prison for critical posts (AP)
- At White House, Israel's Netanyahu pushes back against Obama diplomacy (Reuters)
- Obama to offer new tax breaks for workers in election year budget pitch (Reuters)
- China Banks Show Too-Connected-to-Fail Link to Shadow Loans (BBG)
- Ex-BOK Deputy Lee Named to Head South Korea Central Bank (BBG)
- No mortgage origination problem in the UK: Mortgage approvals climb to six year high (Telegraph)