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Pressures On The US Economy Just Increased
Submitted by Lance Roberts of STA Wealth Management,
I have been suggesting that the U.S. economy would likely be unable to meet current estimates of sustained and robust economic growth of 3% or more due to the global slowdown. Despite ongoing Central Bank interventions, the deflationary pressures in the Eurozone and Japan are likely to flow back to the U.S. sooner rather than later.
Just over a week ago, Japan fell into a recession as economic growth and inflation failed to gain traction despite the Bank of Japan's massive internal stimulus program. This, of course, is really no surprise as Japan has been fighting disinflationary pressures in their country for the last 30 years as shown in the chart below. Japan's internal struggle with an aging population, lack of savings and accelerating debt/GDP ratios continue to plauge economic prosperity.
While Japan has its specific issues, the Eurozone has now effectively entered into the same "liquidity trap" as the member countries continue to dismiss making the necessary structural reforms to cure their burdensome debt ratios. As shown, the decline rate in economic growth since 2007 shows the real problem, despite fits and starts of activity the Eurozone countries simply cannot generate an economic liftoff.
Furthermore, as I stated previously:
"...the recent surge in the US Dollar will likely suppress demand for exports, particularly with Japan, the Eurozone and China either in or near recessions. When you factor in that exports to our major trading partners comprise roughly 40% of domestic corporate profits, the impact to profitability could be greater than currently anticipated."
This is an important point as the dollar is not surging due to rapidly increasing economic strength, but rather due to a "flight to safety." Currently, the U.S. is the "only girl at an all-boy dance" and historically these "flight to safety" rotations have tended to be fairly short lived.
While none of this analysis suggests that a domestic recession is imminent, it does suggest that the hopes that the U.S. can "decouple" from the rest of the world's deflationary drags are likely misplaced. As shown in the chart below, the U.S. economy has historically been unable to achieve accelerating rates of economic growth when both the EuroArea and Japanese economies have been weak.
The current detachment of the U.S. economy (red dashed circle) will most likely be unable to withstand the drag of economic weakness from two of its major trading partners. With Q3 estimates already being ratcheted down, any impact from geopolitical unrest, weather or a misstep in monetary policy could have a substantial impact to already strained financial markets.
Of course, this does not mean that the ECB, Japan, or the Federal Reserve won't continue to implement further expansions of monetary policy despite limited evidence any efficacy. As Reuters reported this morning:
"European Central Bank Executive Board member Yves Mersch warned on Monday about the negative side effects were the central bank to start buying up government debt, urging political leaders instead to reform their economies to boost growth.
'Easing of monetary policy cannot work effectively when the European economy is structurally not in good shape,' Mersch said in a speech at an annual banking conference in Frankfurt.
He also questioned the impact that such purchases, known as quantitative easing (QE), had in Japan, referring to its unexpected slip into recession in the third quarter.
A central bank that began buying government debt risked being dominated by fiscal pressures, Mersch said, while rising debt levels may make it hard for the bank to control inflation.
'That in the course of this our balance sheet expands is neither an end in itself nor a fetish,' but rather a consequence, Mersch said."
All of this reminds me of Albert Einstein's definition of "insanity." With deflationary pressures surging in the Eurozone, China and Japan, it is unlikely that the U.S. economic "renaissance" has finally arrived. However, given that the U.S. already well advanced into the current economic expansion as the rest of the globe fades, there are relatively few options available.
The implications to investors are important. The current growth in domestic profits is one of the last remaining footholds of market "bulls." With valuations now expensive, interest rates near zero and yield spreads flattening, the risks to the markets have risen substantially. While this doesn't seem to be the case as markets push up against all-time highs; it is worth remembering that we saw much the same in early 2000 and 2007. This time is likely no different, only the timing and catalyst will be.
However, if you disagree and believe that we have entered into the next great bull market, it is worth leaving you with this quote from fellow "bull" Anatole Kaletsky:
"Even if economic conditions continue improving, equity prices are bound to fall sharply at some point, inflicting painful losses on investors. This is what happened in 1987, roughly five years into the last structural bull market. Boom-bust cycles are inevitable because improving economic conditions encourage speculative excesses, which are then blown away as greed gives way to fear.
But the bust cannot come before the boom — and global economic conditions suggest that a full-scale stock-market boom may be just starting."
My job is simple - I analyze the risk of having money invested. As Anatole correctly suggests, at some point "hubris" will give way to "fear." It is at these macro-turning points that it is crucially important to remember the "math of loss" and the long-term impacts on your financial well-being. We know very little about what the future holds and betting on the "fortune-telling" abilities of WallStreet has rarely been a profitable strategy.
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All we have to do buy more 4k TeeVee's and starbucks .. kick all the Aliens out ..
http//www.hedge.bz
This is a Wiley Coyote moment as you realize there is nothing underneath you as you look down the cliff to the ravine way, way, way down below...
*Beep* *Beep*
El Oregonian
I hope the article writer reads your comment "there is nothing underneath..."
Wonder why?
Article: "My job is simple - I analyze the risk of having money invested."
"... Boom-bust cycles are inevitable because improving economic conditions encourage speculative excesses, which are then blown away as greed gives way to fear. ..."
Bunk.
Central banks print money producing a speculative cycle and mal-investment based upon excessive liquidity / artificially low interest rates.
Then the bubble fails and investors realize they've been sucked-in by the central banks (again).
The new normal is when you find yourself in a deep hole, you get a bigger shovel and start digging faster. Since they won't accept austerity there is only the solution of collapsing your economy...painfully.
Two steps forward, three steps back...........on a treadmill.
Nah, tens of millions of unskilled, uneducated menial laborers is great for an economy with high unemployment. Look at how Mexico is booming with green shoots
All you need to know:
1973
1980
1987
1994
2001
2008
2015
For those who are not old enough 1973 and 1980 do not ring a bell, but unemployment was huge in 1980 with peak metal prices.
1994 might also be not be quite as obvious.
7 is a lucky number.
It is highly Lagarded.
Amazing how 1973 gets forgotten.
I remember it well.
You haven't been paying attention. Paul Krugman has done away with the boom-bust cycle. Now its just boom-print.
It's also "boom-boom...out go the lights."
September 2016
The definition of insanity is repeatedly quoting Einstein's definition of insanity and still expecting people to find it clever.
Cutting and pasting is clever in the new normal.
http://m.youtube.com/watch?v=Ggar6a7o1r4
Insanity is entrusting your livelihood and life to government which doesn't give a shit about you.
Oh, look! It's Einstein, the plagiarist!
Tell that to someone playing craps.
Good luck with your simple job.
Advice here is lots of liquor followed by curling up in fetal postion and rocking back and forth while saying "growth, growth, growth..." over and over and over. Trust me, it works every time. You know... markets only go up in the long term, same with RE. Incomes always rise to match... so stretch a little and grow into your investments. Buy, STFU, and hold bitch (oh, sorry, did that sound abusive... sort of lost my composure for a moment)... so, what were we talking about? Oh yeah, give me your wallet.
not much a student of history are you. Kind of like my realtor saying housing always goes up....funny....8 years on, not there yet. Do you count debt in your delusion? Own any property in Japan, Argentina, Venezuela, Russia, Zimbabwe? Know what happened to England and Germany from when they were powers at the turn of 1900? Sorry you have to have an honest economy. We are headed the way of many a socialistic failure. See what scandinavia had to do to recover after their socialistic endeavors. It is harder there to not work and collect than the US.
I have been howling this at the moon since January and while the argument is sound, I have simply zero clients left. I am losing market share to kids 30 years younger that argue that the 'old guys' don't realize that the Fed has our back and untiL I I finally 'get it', I will continue to lose clients.
How am I to argue with this line of reasoning...
The young guys are willing to pay tomorrow for a hamburger today.
You are willing to pay the same amount today for two hamburgers tomorrow.
Is this another definition of insanity?
US police are paranoid bunch of people...
http://www.msn.com/en-in/news/world/cleveland-police-shoot-12-year-old-boy-holding-toy-gun/ar-BBfkbLw?ocid=mailsignout
The only thing not in a recession (depression) since 2008 are stock indices.
There will be no "lift off" from: the bailouts, the money printing debt insanity, nor the failure to jail the crooks and revoke the charters of the money-changer banks.
You don't get a rocket to lift off by stuffing it full of charcoal briquets - a barbecue, maybe.
Main street is being slowly barbecued
Thanks, that is exactly what I was intimating.
The elites are barbequeing the populace, with assistance of .gov and the MSM.
Let the games begin/
China sets yuan fixing lower by 0.05%, most since November 11by Eamonn Sheridan
The People’s Bank of China (PBOC) have weakened the yuan reference rate (after the rate cut, more info from here)
6.1420 against the USD
Q3 GDP out Tuesday pre-market.
Worry not comrade Obamazovics just gave the Chinese ten yes thats 10 year visas!
Wages, real estate and retail sales fixed! Bamm!
You white racist American shit move to China and try hard work!
" inflicting painful losses on investors"
I hardly think PAINFUL is appropriate. Since the entire Run Up in stock values has been FAKE. So if FAKE valuations since, then they are FAKE losses. You can't benefit from fake prices and then claim painful losses when reality sets in.
Come on! Lets use a more fair language. Losses are not painful, but appropriate to correct for the fake rise in values.
But hell! It's all FAKE now days, the whole bloody lot of it. Lies and fakes. Rotten to the core.
Discounted for the BS inflation rate of 2.5 % annum the markets were higher at the end of 1999. Avg. net worth of Americans is down 43%. A middle class family income needs to be 425k a year today to compare to the same middle class family of 1969 in buying power.
Lies, myths and illusions presented by the banking cabal and govt cronies.
Tell that to someone who is putting into 401k at today's prices. They are gonna have real losses.
If there is a plan....and there probably is, few if any of us know the plan. There is no real strategy without precise timing. We will do what we always do and panic at the appropriate time and hope our wits preserve us.
You mean my panic was too early? Dammit.
Greed gives into fear. Fear runs to metals.
You have to get in touch with the FED software development team if you want to know what is in store.
I'm sure Anonymous, NSA, FSB, and a whole host of others are working on exactly that as we speak.
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Are not deflationary pressures just part of the ebb and flow of economics, and if we fight them, it will be like fighting the tides, it will only go around us, and swamp us far greater and longer in the long run?
•?•
V-V
#unFed as dollar surges like its 1999
Boom-bust cycles are inevitable because improving economic conditions encourage speculative excesses, Shiit, how about printing trillions to bail out TBTF and the banker clan. At some point when you taper so that milk does't go to $50 a gallon and tell the truth about inflation, the bubbles caused by printing burst, thus your boom and bust cycle.