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5 Things To Ponder: GDP, Dollar And Subprime

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

If you had fallen asleep at your desk recently due to the absolute lack of anything noteworthy happening, this past week should have woken you up.  A massive upset in the Virginia primary dethroned House Majority Leader Eric Cantor which sent moderate Republicans scurrying to shore up their voting bases.  Al-Queda backed forces, ISIS, have advanced through Iraq and are not closing in on Baghdad which has sent oil prices rocketing higher this past week. Lastly, the mainstream media was completely baffled by the "sea of red" on their monitors which caused one anchor to quip:

"Wow...stocks really can go down."

This weekend's reading list contains a smattering of topics from GDP to why we underestimate change.  As I stated earlier this week in "More Signs Of Bullish Excess:"

"Stocks have not 'reached a permanently high plateau' nor will 'this time be different.'  As with all late cycle bull markets, irrationality by investors in the financial markets is not new nor will it end any differently than it has in the past. However, it is also important to realize that these late cycle stages of bull markets can last longer, and become even more irrational, than logic would dictate.

 

Understanding the bullish arguments is surely important, however, the risk to investors is not a continued rise in price, but the eventual reversion (change) that will occur.  Unfortunately, since most individuals are only told to consider the 'bull case,' they never see the 'train coming.'"

With that in mind, let's get to our reading.

1) Q1 Economic Contraction Could Be Even Worse Than Thought by Ben Leubsdorf via WSJ

"The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government.

 

Some analysts said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession."

2) How Much Longer With The Dollar Remain King by Cullen Roche via Pragmatic Capitalist

"So, will the USA lose its reserve currency status at some point?  Yes.  In fact, it’s already starting to lose its reserve status to Europe and China.  Will it be the end of the world and will it cause everyone to suddenly ditch the dollar?

Probably not. It just means the USA will produce a lower proportion of global output and therefore, as a matter of accounting, the rest of the world will hold a lower percentage of US dollar denominated financial assets as a percentage of global output.  It’s not the end of the world.  It’s just a sign that market shares change and when you’re #1, well, there’s only one direction to go."

Dollar-ReserveStatus-Time-061314

3) Subprime Lending Drives Spending by Atif Mian and Amir Sufi via House Of Debt

"It appears that the key to boosting spending in the U.S. economy is subprime lending. The financial system was lending against homes before the Great Recession, and now it has moved to lending against cars. But the basic message is the same."

Subprime-Spending-Debt-061314

4) Fed Prepares To Maintain Record Balance Sheet For Years by Craig Torres and Matthew Boesler via Bloomberg

"Federal Reserve officials, concerned that selling bonds from their $4.3 trillion portfolio could crush the U.S. recovery, are preparing to keep their balance sheet close to record levels for years.

Central bankers are stepping back from a three-year-old strategy for an exit from the unprecedented easing they deployed to battle the worst recession since the Great Depression. Minutes of their last meeting in April made no mention of asset sales.

Officials worry that such sales would spark an abrupt increase in long-term interest rates, making it more expensive for consumers to buy goods on credit and companies to invest, according to James Bullard, president of the Federal Reserve Bank of St. Louis.

The Fed is testing new tools that would allow it to keep a large balance sheet even after it raises short-term interest rates, a step policy makers anticipate taking next year. They would use these tools to drain excess reserves temporarily from the banking system.

'It is pretty clear they are anticipating operating in a situation with a lot of reserves and a high balance sheet for a long time,' said former Fed governor Laurence Meyer, a co-founder of Macroeconomic Advisers LLC, a St. Louis-based forecasting firm."

5) Why We Underestimate Change by Nick Colas via ZeroHedge

“Human beings are works in progress that mistakenly think they’re finished”. That bit of pithy wisdom comes from Harvard professor of psychology Daniel Gilbert.

 

It is in that final point where the link to the investment process makes an entrance.  The standard construct of any capital allocation process centers on forecasting.  We predict everything from inflation to corporate earnings to risk tolerances to preferences in the market for growth or value or some blend of the two.  But if we find it hard to predict the thing we should know best – ourselves- what level of hubris do you need to reach to believe you can forecast the actions of other market participants?

 

The ultimate point here is not to be negative on risk assets like stocks, but rather to provide a fresh construct to understand why we underestimate change until it is right on top of us.  As the Gilbert research shows, predicting how we ourselves will change is a very large blind spot in our psychological makeup.  Yes, perhaps when we look outside ourselves some of our biases fall away and we can do better.  But not a lot better, if current market dynamics are any guide."

Bonus Chart:

Evolution-of-markets


Have a great weekend.

 

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Fri, 06/13/2014 - 16:39 | 4854786 LawsofPhysics
LawsofPhysics's picture

What part of all fiat goes to zero don't people understand?  Considering the scale of the fraud on earth, there is no way to return to a gold standard folks.

the devolution continues, get your tribe in order, a hot WWIII will not be announced and that will happen long before any sort of resonable monetary system can be established.  There simply are too many liabilities on the planet.  Let culling begin.

Same as it ever was.

Fri, 06/13/2014 - 19:40 | 4855306 asdasmos
asdasmos's picture

France’s Noyer Says BNP May Prompt Shift Away From Dollar

 

http://www.bloomberg.com/news/2014-06-11/ecb-s-noyer-says-bnp-may-prompt...

 

Sat, 06/14/2014 - 02:46 | 4855978 svayambhu108
svayambhu108's picture

They have put in the game against the dollar, this man:

https://www.youtube.com/watch?v=VjrlTMvirVo

Fri, 06/13/2014 - 16:41 | 4854793 Yen Cross
Yen Cross's picture

  I'm a simpleton, so I'll stick with "GDP" for $50 Alex...

Sat, 06/14/2014 - 11:25 | 4856526 shovelhead
Fri, 06/13/2014 - 16:48 | 4854805 q99x2
q99x2's picture

I thought we were expting to be able to short the market since 2009 and waiting for the collapse since then. The FED and the globalists are doing this and they have been stealing everyone's money. So, the reason we don't see change is because we were and are lied to by the globalists that are about to kill us. They own the US Military, The monetary system and the media. Fuck TED.

And they own Al-Queda too. (Notice all the new Mercedes vehicles and US weapons in the photos) And, fuck the globalists too. Is this from that writer that was trying to get a job with CNN?

Fri, 06/13/2014 - 17:12 | 4854898 deflator
deflator's picture

 The Ponzi has very little resiliency against deflation left as governments are at the ready to pick up any deflationary slack in the private sector.

Fri, 06/13/2014 - 16:47 | 4854813 debtor of last ...
debtor of last resort's picture

That global reserve currency chart, that's the stairway to heaven?

Fri, 06/13/2014 - 19:24 | 4855263 zhandax
zhandax's picture

Looks like the reserve currency was whatever there was the most of at the time.  Why should we worry?  /sarc

Fri, 06/13/2014 - 16:53 | 4854822 Seasmoke
Seasmoke's picture

Yes. But none of those empires had Mr. Yellen.

Fri, 06/13/2014 - 16:52 | 4854823 orangegeek
orangegeek's picture

ah-haaaa!!!!!!

 

there's that "USD won't last long as a reserve currency" chart again - some nice add on squiggles

 

I count 54 appearances here on ZH....and counting

Fri, 06/13/2014 - 17:06 | 4854869 TVP
TVP's picture

"It’s not the end of the world.  It’s just a sign that market shares change and when you’re #1, well, there’s only one direction to go."

^Stopped reading at this point.  This guy sounds like one of those anti-paranoia crusaders.  

When all of the dollars that the rest of the world currently uses for international trade come flooding back home, that spells INFLATION.

 Not the end of the world, unless you have to EAT.  

 

Fri, 06/13/2014 - 20:19 | 4855402 r00t61
r00t61's picture

The author of article #2, Cullen Roche, is one of the leading proponents of Modern Monetary Theory, which is also known 'round these parts as "Magic Money Tree" economics.

In his view, there is no problem too big in the country that can't be solved by the federal government simply printing more money. 

Even losing reserve currency status.

Sat, 06/14/2014 - 06:30 | 4856147 August
August's picture

I'm a non-economist, but I get around a fair bit.  My take on the loss of reserve-currency status for the USA is that this will lead to a roughly 50 to 60% loss of the USD's international purchasing power, and do so fairly quickly.

So, it's no big deal, really.

Fri, 06/13/2014 - 17:09 | 4854880 Yen Cross
Yen Cross's picture

     It's ironic how the most "Draconian measures" are always taken just befor the  ponzi collapses...

   We've got 60,000 Illegal immigrants flooding our borders, and no way to house, ass'imilate them.

      That cocksucking halfbreed Kenyen is destroying this country from the inside out!  

   Question POTUS;   Do you still have an "comprehensive" plan for terrorist attacks?

 

Fri, 06/13/2014 - 19:27 | 4855277 zhandax
zhandax's picture

Park them on top of all the dead crops in California.  They already speak the language.  'Never let a good crisis go to waste'.

Sat, 06/14/2014 - 11:30 | 4856542 shovelhead
shovelhead's picture

The Dems are never gonna let you turn their new voters into fertilizer.

Fri, 06/13/2014 - 17:08 | 4854885 deflator
deflator's picture

1) Q1 Economic Contraction Could Be Even Worse Than Thought 

 

 The U.S. economy is all government spending and that is growing.

Fri, 06/13/2014 - 17:36 | 4854975 cro_maat
cro_maat's picture

The .GOV Parasite is growing but the Sheeple Host is shrinking and any productive citizen is dropping out of the Matrix as fast as they can.

The FED can monitize the debt all they want but at some point the circle jerk will be complete with the .GOV / MIC and FED the only ones playing the game. Maybe then it will be time for the FED to IMF the US and trade their toxic assets for Alaska and a player to be named later.

Fri, 06/13/2014 - 19:28 | 4855281 deflator
deflator's picture

 The FED, MIC and .gov knows full well the difference between debt and actual resources. They are steadily, everyday consuming more resources than the day before.

Sat, 06/14/2014 - 06:37 | 4856151 August
August's picture

>>>any productive citizen is dropping out of the Matrix as fast as they can.

If your skill-mix isn't conducive to growing your own sustenance off-grid, emigration is a good long-term solution.

Seriously.

Fri, 06/13/2014 - 17:11 | 4854892 zerocash
zerocash's picture

Netherlands followed Spain as holder of the reserve currency and now Netherlands has utterly vanquished Spain at the World Cup 2014 (score: 5-1) after having been defeated by them at the World Cup finals in 2010.

Fri, 06/13/2014 - 17:13 | 4854902 petaloka
petaloka's picture

Did you ever notice how full of themselves these "TED talkers" are? They probably think of themselves when they jerk off.

Fri, 06/13/2014 - 19:52 | 4855333 deflator
deflator's picture

 Are you supposed to imagine that you are someone else? Live vicariously through others?

Sat, 06/14/2014 - 06:40 | 4856153 August
August's picture

Any public presentation which begins "Why We..." is suspect.

Fri, 06/13/2014 - 18:23 | 4855099 infinity8
infinity8's picture

"Eat you Peas!"

JB's Pass the Peas: https://www.youtube.com/watch?v=mUkfiLjooxs

Turn It Up.

Fri, 06/13/2014 - 23:03 | 4855786 The Magus
The Magus's picture

This is Tyler for you. Oil prices go up about 1.5% and it's called "rocketing".

 

FAIL

Sat, 06/14/2014 - 07:29 | 4856190 jonytk
jonytk's picture

my god!, i'm i the first one in this thread to say

"bitcoin bitchez! " get bitcoins ?

the decentralized trustless deflationary crypto-currency will be the next reserve currency, when are are you going to accept it Tyler? gold it's so 20th century.

Sat, 06/14/2014 - 08:34 | 4856241 AdvancingTime
AdvancingTime's picture

A great deal of our economic system is about debt. It is important to remember not all debt is created equal. A mirage is a naturally occurring optical phenomenon in which light rays are bent to produce a displaced image of distant objects. Joining the idea of a mirage and contagion with the reality of collapsing debt forms an interesting subject.

It is important to remember all debts and obligations do not come due at the same time. Also, it must be noted when a bill is not paid or defaults it often starts a long and drawn out legal battle, this collection process that may extend years without harsh consequences. This my friends is the reality of modern life in America and much of the world. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/debt-mirage-always-moving-into-di...

 

Sat, 06/14/2014 - 12:16 | 4856653 moneybots
moneybots's picture

"Lastly, the mainstream media was completely baffled by the "sea of red" on their monitors which caused one anchor to quip: "Wow...stocks really can go down."

 

Stocks have been going down all along.  Just look at a chart of the market.  A whole bunch of zig zags.

The market hasn't gone down by any appreciable amount, yet.  Three or four up days and the headline will be new all time high, again.

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