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Why The US' Economic "Shirt" Can't Stay Clean For Long?

Tyler Durden's picture


With any and every asset-gatherer capable of forming a sentence being trotted out on business media to proclaim victory and elucidate on why "there is no where else to invest but stocks" and "the US is the cleanest dirty shirt," we thought it might be useful to reflect on just how clean that shirt can remain as the rest of the world's growth slows down significantly. In the last decade, there has been particular growth in inter-regional trade, with a dramatic expansion in trade vis-à-vis Asia, reflecting globalization. At the same time, the deepening in global trade relationships means that the potential for a sudden shift in demand in one region can have a more significant impact on the rest of the world. This has been seen particularly in recent years, with the sharp retrenchment in domestic demand in southern Europe affecting the economy of Asia, particularly Japan. Looking at the rate of increase in regional imports (which we assume is what the 'heads' believe will power the US 'clean' shirt) and the picture is ugly. And while copper is enough of a tell for most, even the IMF (usually extraordinarily optimistic) sees World Trade slowing dramatically - and given these interconnections, perhaps being the cleanest shirt merely shows the stains even more clearly when they finally hit.


2002 Global Trade Flows...


2012 Global Trade Flows...

The world is far more interconnected - and thus prone to regional problems rippling through the supply chain.


And as Import Volumes for every region are slowing dramatically...


It is impacting the US macro-economic data very significantly - and as we have seen in the past few years, US equities can only withstand reality for so long... (red is Bloomberg Economic Surprise Index)


And while IMF projections of collapsing global trade and global growth may be shrugged off by hopers as pessimistic, SocGen's Albert Edwards reminds us that (just as in 2007) liquidity expectations (and we note the leverage extremes) and Dr.Copper suggest the party is over...

Back in 2007 investors were convinced that markets would remain buoyant because there was ample liquidity. In a note back then we said that this was a false crutch for investors and that the liquidity would vanish from the markets if price momentum took a turn for the worse. I have exactly the same view now. In the same way that QE seems, in large part, to be bypassing the real economy, liquidity will evaporate from equities if we dive into a deflationary recession. Where will all the liquidity then go as QE is ramped up still further? It will go into ridiculously expensive bonds.



Copper is acting exactly as it did when I wrote about the impotence of liquidity in the face of the (then imminent) 2007 recession. Once again it is giving us an early warning that liquidity will not save risk assets: time to get out of equities.

Source: Bloomberg, Barclays, and SocGen


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Thu, 05/02/2013 - 20:56 | Link to Comment Jackagain
Jackagain's picture

This empty, dirty shirt is busy blowing up the mother of all's the end game for the Dollar. 

Thu, 05/02/2013 - 21:30 | Link to Comment AssFire
AssFire's picture

Empty shirt, empty chair, empty coffers...GIANT FUCKIN GOOBERMINT

At least during the Great Depression they used federal workers to actually build they use the federal worker fuck with everything, everyone and anything they dreamed of doing.... non-stop.


Thu, 05/02/2013 - 21:12 | Link to Comment yogibear
yogibear's picture

The US dollar will get what it deserves Krugman, Bernanke, Evans, Dudley and Yellen!

Devalued to trash, like the people running the Federal Reserve bankster Inc, the PhD trash that helped transfer and steal US wealth.




Thu, 05/02/2013 - 23:00 | Link to Comment Pandorable
Pandorable's picture

The US economic shirt is already covered with shit. "Increase or decrease/reduce" QE as necessary? Shut the fuck up Ben---as if anyone believes you sitting on your golden fence and trying to sound all neutral.

Why is it we pay these FOMC fuckers to ruin our economy...when most people who breathe are smarter and would make better decisions on behalf of our economy? Why do we allow them to ruin our standard of living?

Wall Street is acting like it's surfing a wave that will never end..and even this ride can't get the stank out of this shirt.

Thu, 05/02/2013 - 21:01 | Link to Comment Black-Man
Black-Man's picture

Bill Gross in his latest missive says stay in equities short-term - by end of year bottom will fall out. I smell something.

Thu, 05/02/2013 - 22:08 | Link to Comment The Second Rule
The Second Rule's picture

Sounds more like a stay of execution than a good report-card.

Thu, 05/02/2013 - 22:10 | Link to Comment The Second Rule
The Second Rule's picture

Damn double posts.

Thu, 05/02/2013 - 21:02 | Link to Comment Yen Cross
Yen Cross's picture

       The 'Gong Show' in F/X is going to get started in Europe.  {7-9 hours from now.}

       I love this shit.  Liquid money can't be mani[pulated.


Thu, 05/02/2013 - 21:06 | Link to Comment Manipuflation
Manipuflation's picture

Yes, I have been monitoring copper and it does not look good.  Bad for the PM prices usually on the front side.

This news is bad for the BTCers out there unless they too operate under the new normal premise.  So much for the decentralized currency concept.

Thu, 05/02/2013 - 21:09 | Link to Comment mayhem_korner
mayhem_korner's picture

Bad for the PM prices usually on the front side.


By 'bad' you mean falling, right?  And that is bad why?

Thu, 05/02/2013 - 21:17 | Link to Comment Major Major Major
Major Major Major's picture

Bad because I will soon need a new boat.

Thu, 05/02/2013 - 21:46 | Link to Comment Manipuflation
Manipuflation's picture

You have a good point Mayhem depending on how you trade.  It's bad for me because I stack and have for a long time.  In addition to buying, I also sell when I see a parabola in either case.  The premium is the problem.  If I want to buy, I am paying $30 an ounce for what I like to buy which lately has been BU pre-64 rolls of dimes and quarters.  I know I can buy sliders cheaper.  Perhaps that's the call here if buying, but they are still sliders.  If I took the BU rolls, after they have been picked through of course, to sell at my LCS, he will only pay spot minus his slice of the pie.  Fair enough.


  The point I was originally attempting to make, is that some gold and silver production is the by-product of copper mining operations.  Low demand for copper will mean less mining and less gold and silver "by-product".

I'll be honest here though. I can't time the market anymore.  It's just too fucked up now.  I guess I don't care anymore Mayhem.  I guess I will pay the premium to get the phyzz but now I want potential numismatic value as a hedge.  I also need another inexpensive used boat.


Thu, 05/02/2013 - 21:41 | Link to Comment OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Mt. Gox is a bunch of spoiled script kiddies with servers under the desk, the sooner they go away the better. LOL the real guys like CampBX and the new set of super-secure real exchanges will eat their lunch.

Thu, 05/02/2013 - 22:06 | Link to Comment Manipuflation
Manipuflation's picture

I am not so sure about BTC.  The P2P part seems to work.  It's the BTC exchanges that are the issue.  Mt Gox et al might as well be Wall Street.  You will get fleeced. (disclosure:  I have a blockchain wallet but it has 0.000000 BTC in it)

Thu, 05/02/2013 - 21:09 | Link to Comment IridiumRebel
IridiumRebel's picture

Our "shirt"(read economy) is like the euro trash I see out in the club with Axe Body Spray permeating olfactory sensitivity; the Drakkar Sauna. Initially hits you like a sweet nostril tickling sledgehammer, but underneath it all you know it's just sweaty BO.

Thu, 05/02/2013 - 22:24 | Link to Comment Manipuflation
Manipuflation's picture


Nice allusion and use of simile IR.LOL

+1 again.

Thu, 05/02/2013 - 21:08 | Link to Comment buzzsaw99
buzzsaw99's picture

I look for a continued profit margin squeeze. For example golf clubs. They are mostly made in china these days but some dumbasses still pay made in usa prices. I raff my ass off at them. As people get poorer they will not buy $400 golf clubs or $40 polo shirts. The 1% can only use so much crap and without the demand from the over-levered and oft abused middle class consumer factory orders go to shit right quick. It doesn't matter how cheap won dum fuk is willing to work when unit orders are crap and so are margins.

Thu, 05/02/2013 - 21:10 | Link to Comment mayhem_korner
mayhem_korner's picture

As people get poorer they will not buy $400 golf clubs or $40 polo shirts.


Wait 'til they have to spend that for a loaf of bread.

Thu, 05/02/2013 - 21:15 | Link to Comment buzzsaw99
buzzsaw99's picture

Long angry mobs. Seriously I have noticed that there are very few people buying expensive sporting goods. Even second hand stuff is rotting on the vine.

Thu, 05/02/2013 - 21:37 | Link to Comment mayhem_korner
mayhem_korner's picture



Same here, man.  And the average age of cars has really climbed in the past 18 months.

Thu, 05/02/2013 - 21:39 | Link to Comment Major Major Major
Major Major Major's picture

Is it time for another round of cash for clunkers yet?  I really want to trade in my '02 Toy Taco 4x4 for a shiny new Volt.

Fri, 05/03/2013 - 01:20 | Link to Comment steelrules
steelrules's picture

With the exception of "Modern Sporting Rifles".

Thu, 05/02/2013 - 21:07 | Link to Comment venturen
venturen's picture

I will see your $85 Billion and raise you a $100 Billion!

Thu, 05/02/2013 - 21:15 | Link to Comment yogibear
yogibear's picture

It's coming. All the Federal reserve parrots only know how to print. If $85 billion doesn't work than double it. Once that fails double it again until teh US dollar blows. 

Thu, 05/02/2013 - 21:10 | Link to Comment optionsman
optionsman's picture

this is intended to end poorly for the rest of the world. US will escape relatively unscathed.

Thu, 05/02/2013 - 21:13 | Link to Comment mayhem_korner
mayhem_korner's picture



I missed the /s in your post.

Thu, 05/02/2013 - 22:52 | Link to Comment Jackagain
Jackagain's picture

The US won't escape unscathed if they lose the petrol Dollas status.

Thu, 05/02/2013 - 21:12 | Link to Comment lynnybee
lynnybee's picture

WOW!  look at all those charts, graphs, lines & numbers !  

Thu, 05/02/2013 - 21:15 | Link to Comment WhoMe
WhoMe's picture

I'm not a Phd, never went to Harvard so obviously I have no understanding of economics like our beloved Central Bankers have. That being said, when you push interest rates down to zero for many years to stimulate borrowing and spending on projects and such that more than likely are being pulled from the future into the present to take advantage of these ultra low rates, doesn't that inevitably make the future economic picture even more Grimm?? On top of this, there will be much higher levels of future debt to pay down plus more unfunded liabilities such as Medicare, Social Security etc. How in the world do our beloved Central Bankers anticipate this to be paid for if we are trying to pump up the present economy by pulling what would have been future spending into the present??

Fri, 05/03/2013 - 02:57 | Link to Comment mathdock
mathdock's picture

All QE and fiat interest rates are based on the premise that the payback date is at Day N + 1, where N is unimaginably far down the date.  Any time a payback date is set at some date certain, then indeed pull though from the future will be reversed as a function of time until the date certain.  It's what Krugman never speaks of when "winning" his arguments.  It's about like the Black-Scholes risk constant C, that unfortunately is not constant when risk pools double-back on themselves,   There are a finite number of greater fools, which Black-Scholes at its core assumes away for simplicity.

These economists think they have physics working for them when in fact it is nothing but a badly done math problem.  Annoys the crap out of me.

Fri, 05/03/2013 - 03:03 | Link to Comment mathdock
mathdock's picture

Oh, and I had forgotten the fact one of the readers noted that the Krug advised Enron.  Same crappy assumption:  the "relativity" idea that there is no boundary condition that makes everything snap back.  It can just flow on and on....  These math monkeys...errrrrr, economists really annoy the crap out of me.

Fri, 05/03/2013 - 03:06 | Link to Comment mathdock
mathdock's picture

And, just look at those beautiful digraphs of the money flows around the world.  Well, one of those pipes is going to plug and split all the upstream pipes, which will just obliterate the region the plug is Just downstream of.   Idiots!

Thu, 05/02/2013 - 21:25 | Link to Comment NoDebt
NoDebt's picture

A recession WHILE the Fed still has it's foot to the floor might just sink things.  There was always another notch in their interest rate manipulation and liquidity operations.  Few additional notches left now, though.  With rates at zero and the QE engine pumping like crazy we might finally see our first REAL recession (in the middle of the larger, overriding depression) in decades. 

I suspect it won't be gentle like before (2008- a mere 5.2% pull-back, mind you).

Additionally, I don't think it will be quick blow-up like when Lehman went bust.  No, the banks and financial markets will continue to be supported at all costs (including wiping out shareholder equity, but the corpus will still live).  I think it will gather slowly over time, getting worse, lots of people calling the bottom along the way.... but it won't stop.  It will be a "stealth" recession, totally unlike 2008.  The various "fudged" government statistics (designed to "boost" confidence- what irony!) will help mask the reality and make many believe it's "not so bad", just a "garden variety recession" but at the end of the day, corporate profits will flatten and finally fall, there will be REAL defaults. 

Keynesian measures will FINALLY be shown to be what we've known all along- just borrowing from the future in a vain effort to save the unsavable present.  Someone will have to admit, finally, that the Great Depression (the first one) was NOT something that could have been easily avoided, had the government only "done more".  Mostly, they just made it worse and protracted it over a longer period of time, as we have now done on a grader scale in our time.

You can quote me on that if you like.  Mostly I just wish we would get on with it. I'd love to still be young enough to participate in the rebuild.  Sitting here waiting for the other shoe to drop, watching all the self-delusion and hopium captivating people is getting pretty old.  This bitch is DEAD.  Call time of death and notify next of kin.  The body is already starting to stink.

Thu, 05/02/2013 - 23:26 | Link to Comment W T F II
W T F II's picture

N D,

I cannot argue with ONE WORD you have written...!!!

I like what you said about the re-build. This is going to happen much faster than people think and you WILL be around for the re-build....GOD willing...!!

Thu, 05/02/2013 - 21:38 | Link to Comment realtick
realtick's picture

fixed the chart for ya

Thu, 05/02/2013 - 21:44 | Link to Comment Fuku Ben
Fuku Ben's picture

Ripple in the supply chain will mean big potential for chaos the way things work now


Thu, 05/02/2013 - 23:56 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

Dr Copper always messes up my shirts too


Dr Silver reminds me not to care.

Fri, 05/03/2013 - 03:16 | Link to Comment AnAnonymous
AnAnonymous's picture

They should find a chinese laundry to keep that shirt clean.

Oh, wait...

Fri, 05/03/2013 - 03:29 | Link to Comment akak
akak's picture

Chinese laundryanism takes second place to invading Indian territories.

Tibet was obvious not enough to satisfy the Chinese Communaughty appetite for blobbing-up new lands and new "half-man, half-things".

You may now return to your regularly scheduled monolization of the tired propaganda means.

Fri, 05/03/2013 - 05:59 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture


They should find a chinese laundry to keep that shirt clean.

Oh, wait...

Oh, wait, Chinese citizenism laundromaticians currently blobbing up in Ladakh region, stealing indian lands and spreading hypocritizenism. Line of Actual Control pushed back as Line of Roadside Lack of Bowel Control pushed out shamelessly.

All part of Chinese citizenism new world odor.

Bear with it.

Fri, 05/03/2013 - 03:18 | Link to Comment AnAnonymous
AnAnonymous's picture

The world is an 'american' world and it is organized to make the US the ultimate consumption sink.

Every place will be shut down before the US is shut down.

Fri, 05/03/2013 - 03:59 | Link to Comment dcohen
dcohen's picture

Retards in the Roman Empire said the same thing.

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