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There's No Engine for Global Growth Pt 3 (the US)
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In the last few days we’ve assessed how both China and Europe are no longer engines for global growth.
So what about the US?
By all counts, the latest ISM (a measure of manufacturing in the US) was a complete and total disaster. In August the ISM hit 49. Anything below 50 is considered a recessionary rating.
However, things are even worse below the surface. The ISM is made up of several components. Its Production component is back to May 2009 levels. The New Orders component is back to April 2009 levels.
And worse of all, Prices Paid is up to 54, up from a reading of just 39 in July.
In simple terms this tells us that inflation is hitting “lift off” in the US at the very same time that we are entering a recession that could be on par with that of 2008. And with corn and soybean prices at or near record highs, we could be on the verge of a stagflationary disaster combined with a food crisis at the very same time.
We get additional confirmation of a major economic contraction from corporate earnings. Recently we’ve seen earnings forecast cuts from Fed Ex, Bed Bath and Beyond, Proctor and Gamble, Adobe, Starbucks, McDonald’s and more. Indeed, when you remove financials, S&P 500 earnings FELL year over year for 2Q12.
This is hardly indicative of a strong economy. The fact a record number of Americans are on food stamps doesn’t bode well either. And the Rasmussen Employment Index indicates worker confidence is at levels not seen since the FALL OF 2008!
All of this, combined with the following:
- Median income today is lower than it was during at the end of 2009 (when the recession supposedly ended)
- The percentage of Americans on food stamps has increased from 11% to nearly 15%
- The average unemployment duration has increased from 30 weeks to nearly 40 weeks
- The civilian employment to population ratio hasn’t budged
- Industrial production has yet to exceed its former peak (a first in post WW-II “recoveries”)
And this has happened despite the Fed’s massive intervention in the markets/economy.
To whit, the US Federal Reserve bought roughly three quarters of all Treasury issuance last year. Let that sink in for a moment. Roughly $0.74 out of every $1 in debt created by the US in 2011 was bought by the US Fed… not by the bond market, not by foreign countries, but by our own Central Bank.
Despite this massive intervention, the ECRI (which is a much better predictor of recessions than the National Bureau of Economic Research or NBER) believes that the US re-entered a recession in June.
And this is happening at a time when inflation is soaring due to the Fed’s money printing/ loose monetary policies. Agricultural commodities have risen some 20% since the last recession supposedly “ended.” Over the same time, Oil has risen by nearly $30 per barrel.
So… the Fed has engaged in record intervention in the market and economy. Despite this, the US “recovery” has in fact been a total dud: we’re officially back in a recession. And inflation is hitting lift off.
This means the US, like China and Europe, is no longer an engine for global growth. Combined these three regions account for 55% of global GDP.
Swing by www.gainspainscapital.com for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.
Best
Graham Summers
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Menetekel on the wall.
http://www.cmegroup.com/trading/fx/usd-renminbi-futures.html
Burrrrp!
After pumping trillions and monetizing all this illiquid debt, all we have is mild inflation. That means there is a huge deflationary undertow. Terms for borrowing have been lowered bowever borrowers credit rish is high. Debt has to be liquidated on every levelj which is deflationary.
But, but, but, but, you were saying the same thing in 2009 at 666 on the S&P, Graham. Every few days, (and only on down days in the market) we read your prognostications of doom and gloom and the S&P continues to rocket. Why? Because they are REFLATING stock prices higher by DEBASING the USD and the Euro in order to compete with 2 billion Asian workers living out of a dogfood can. Don't worry; be happy; buy gold. And CASH is TRASH. Period end.
100 thug cops and 1000+ protestors. Can't people count !
Truly the game is coming to an end all at once and what really is scary is that there isn't any major country that will escape this winter...We might be able to deal with one region but 2,3,4 or 6 is inescapable. Me thinks SWHC and RGR is looking better by the day.
Europe, Japan are here and now...US could muddle along for 2 more years but not with Europe in the tank...same with China and if China goes so does Australia