The Looming Recession & The Muted Delight Of Janet Yellen's Epic Failure

Tyler Durden's picture




 

Submitted by MN Gordon via EconomicPrism.com,

One week down.  Fifty-one more to go.  No doubt, this has been a wild start to the New Year.  We expect many more to follow.

For example, on Monday, Chinese investors overloaded the Shanghai Stock Exchange.  An abundance of traders hit the sell button in unison and nearly shorted out the sell side circuit.  By early afternoon the breakers had tripped to prevent a full market meltdown.  Here are the particulars, as reported by Bloomberg

“The worst-ever start to a year for Chinese shares triggered a trading halt in more than $7 trillion of equities, futures and options, putting the nation’s new market circuit breakers to the test on their first day.

 

“Trading was halted at about 1:34 p.m. local time on Monday after the CSI 300 Index dropped 7 percent.  An earlier 15-minute suspension at the 5 percent level failed to stop the retreat, with shares extending losses as soon as the market re-opened.”

Data showing Chinese manufacturing contracted for a fifth straight month was cited as having prompting the mass selloff.   Yet then, wouldn’t you know it, on Thursday Chinese traders fried the system again.  Circuit breakers were triggered for the second time this week.  Trading was again halted for the rest of the day.

Reality and the Fed’s Portrayal of Reality

Here in the U.S. stocks tripped over themselves all week too.  From market open on Monday to close on Thursday, the DOW dropped 891 points.  By our back of the napkin calculation that comes out to a loss of over 5 percent.  Like in China, U.S. manufacturing data reported on Monday may – or may not – have had something to do with it.

“The U.S. economy’s manufacturing sector contracted further in December, according to an industry report released on Monday,” reported CNBC.  “The Institute for Supply Management (ISM) said its index of national factory activity fell to 48.2 from 48.6 the month before.”  An ISM reading below 50 indicates contraction.

However, it wasn’t just manufacturing that started off 2016 with a bad report.  According to the Department of Commerce, construction spending during November 2015 dropped 0.4 percent.  This amounted to the biggest drop in construction spending since June 2014.

Then, on Wednesday, the Commerce Department reported that both U.S. imports and exports ran aground.  Specifically, exports fell 0.9 percent and imports fell 1.7 percent.   What to make of it?

The popular theme for the economy portrayed by the Fed is that economic activity is expanding and that the economy is sound.  San Francisco Fed President John Williams thinks the economy currently has strong fundamentals and a really strong trajectory.  He anticipated there being three to five rate hikes this year.  Williams also forecasts 2.25 percent growth.

His counterpart, Cleveland Fed President Lorretta Mester, expects the U.S. economy will grow by 2.5 to 2.75 percent.  She also thinks we’re in “very good shape” because of “very aggressive monetary policy actions” that were taken.

The Muted Delight of the Forthcoming Recession

Perhaps weak manufacturing, construction, and trade data are mere outliers.  Maybe the Fed can see beyond the fog to clearly capture the big picture.  Or maybe the Fed has lost its marbles.  Their outlook doesn’t jive with that of the regular working stiff.  Nor does it mesh with the outlook of Deutsche Bank economists.

"Deutsche Bank economists on Tuesday reduced their forecast on U.S. economic growth in the fourth quarter of 2015 and first quarter of 2016 due to recent disappointing data on trade, construction spending and manufacturing activity.

 

They said in a research note they pared their view on domestic gross product in the last three months of last year by 1 percentage point to 0.5 percent, which they added "still might be too high in light of what could be much larger inventory liquidation than what we have assumed."

Obviously, GDP can’t go much below 0.5 percent before it goes negative.  Hence, if 0.5 percent is too high, there’s a chance the U.S. economy is close to, or already in recession.

Of course, we won’t know for sure until after the fact.  Technically speaking, a recession requires two consecutive quarters of negative economic growth.  Thus the economy must be in recession for at least six months before it can be formally declared a recession.

One of the many delights in life is watching a public figure step up to the plate, pound their chest, let out a bellow, and fail spectacularly.  In this regard, we may be witnessing an epic fail by Fed Chair Janet Yellen.  For she may be hiking rates at the very moment the economy’s entering recession.

Unfortunately, in this instance, the delight is muted by the destruction being heaved upon the broad populace.

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Sat, 01/09/2016 - 20:38 | 7023760 ebworthen
ebworthen's picture

Frankenstein markets, I like it.

Frankenstein on the Titanic with a demonic homonculus known as "Mr. Yellen". 

Banksters re-arranging the deck chairs, the MSM playing in the band; to the lifeboats real people!

Sat, 01/09/2016 - 20:41 | 7023770 stant
stant's picture

And Obama on the bridge ordering " back up and hit it again"

Sat, 01/09/2016 - 20:47 | 7023785 red red wine
red red wine's picture

Pic of Dr. Yellenstein's monster

Sat, 01/09/2016 - 20:49 | 7023792 SumTing Wong
SumTing Wong's picture

I've said it before, I'll say it again.

The picked a half-black to be in charge when the shit hits the fan politically, and a half-woman to be in charge when it happens economically.

Sat, 01/09/2016 - 20:56 | 7023825 crossroaddemon
crossroaddemon's picture

I do think it was deliberate. Easy to play on racism and misogny. This is one of the reasons I am pretty damn sure that Clinton is going to be sworn in a year from now.

Sat, 01/09/2016 - 21:28 | 7023849 DownWithYogaPants
DownWithYogaPants's picture

But all racism is 99.9% made up in the USA.  What other country would accept the human refuse we do?

Sat, 01/09/2016 - 21:13 | 7023872 Jurgster
Jurgster's picture

How the thieves at the Fed CONQUERED and messed up the West >> https://goo.gl/bFYusM

Sat, 01/09/2016 - 20:47 | 7023787 MrNosey
MrNosey's picture

Maybe someone should make an appointment for Yellen to see this Russian doctor......

http://beforeitsnews.com/healthcare/2016/01/crazy-russian-doctor-kills-p...

 

Sat, 01/09/2016 - 21:10 | 7023860 DownWithYogaPants
DownWithYogaPants's picture

I think the doctor dispensed the correct medicine.  I did not think Russia let in Niggerian immigrunts.

Sat, 01/09/2016 - 20:45 | 7023777 Yen Cross
Yen Cross's picture

  Alan Greenspan?

Sat, 01/09/2016 - 20:51 | 7023806 BullyBearish
BullyBearish's picture

"Nobody saw this coming"

Sat, 01/09/2016 - 20:46 | 7023782 Peter Pan
Peter Pan's picture

I call all this paralysis by analysis.

We are better off preparing for whatever it is that is coming and whenever it is coming while living decent and reasonable lives.

These are the people who couldn't spot a bubble in the making, managed to then increase it even more and now we expect them to deflate it without the smell killing off a fair slice of economic activity?

The FED is just another Babel with a different label.

Sat, 01/09/2016 - 20:47 | 7023784 KuriousKat
KuriousKat's picture

If you can't put these bishes in Jail with everything at hand so far..then nobody is going..you need a flashpoint..a point where the capn sez its  every crook for himself and God bless us all..

Only Iceland did the right thing..

http://observer.com/2016/01/hillarys-emailgate-goes-nuclear/

 

Sat, 01/09/2016 - 20:49 | 7023796 nmewn
nmewn's picture

(Loudspeaker)

"Keynesian Air flights 1313 and -0050 are now boarding for Atlantis & Nirvana. Please have your boarding passes ready for these non-refundable flights." 

Sat, 01/09/2016 - 20:50 | 7023799 Yen Cross
Yen Cross's picture

 Lorerreta Lester..

loretta lester party planning studio

Sat, 01/09/2016 - 20:51 | 7023805 Aussiekiwi
Aussiekiwi's picture

San Francisco Fed President John Williams thinks the economy currently has strong fundamentals and a really strong trajectory.  He anticipated there being three to five rate hikes this year.  Williams also forecasts 2.25 percent growth.

Absolutely Hilarious, no wonder the country is going down the crapper.

Sat, 01/09/2016 - 20:54 | 7023822 I AM SULLY
I AM SULLY's picture

It might happen ...

(when they realize there's a motherload of oil in ur-anus)

Sat, 01/09/2016 - 20:53 | 7023814 gmak
gmak's picture

Schadenfreude.  I really want to see those clueless and deliberately unethical and malicious so-called elites and politicos to fail horribly - but it is all of us regular people who are going to suffer and have to pay for it all.

Sat, 01/09/2016 - 20:57 | 7023829 Atomizer
Atomizer's picture

Have a watch. I love our country. 

"The Real Donald Trump Story

Sat, 01/09/2016 - 20:58 | 7023831 Mr. Universe
Mr. Universe's picture

Young fool... Only now, at the end, do you understand... Your feeble skills are no match for the power of the Dark Side.

Now, you will pay the price for your lack of vision!

Sat, 01/09/2016 - 21:01 | 7023841 FreeShitter
FreeShitter's picture

Reminds me of the famous line "How can the baby be mine, I only fucked her once".

Sat, 01/09/2016 - 21:24 | 7023869 Witch-king of Angmar
Witch-king of Angmar's picture

I will disagree slightly with the idea that the Fed doesn't know how bad things really are. I believe they do; however, their number one job is to cheerlead the economy.Thus, Fed members, for the most part, cannot say that they really think or really know.

Can you possibly imagine the carnage if Yellen were to pubicly say that things were really terrible...worse than 2008? If she did, the 25% decline on the one day in 1987 (I still vividly remember that day) would be seen again...immediately.

Right now, the Fed knows that ZIRP and QE really isn't effective. There isn't anything else to try except NIRP. They are out of ammo (except for NIRP) and don't know what else to do other than say ridiculous things...hoping that people who don't read ZH will believe them. And most of those people do. It's sad.

Unfortunately, I think that Yellon and her merry band believe that if ZIRP didn't work, then NIRP will--despite the current empirical evidence in the EU. Thus, they may very well make things much, much worse.

 

Sat, 01/09/2016 - 21:28 | 7023905 Omen IV
Omen IV's picture

the problem with lying in one area is it undermines confidence in all the metrics and the people and policy which  requires greater risk aversion measures when you dont believe anything - and that is where we are - when the swiss central bank are buying apple and other stocks at ridiculous multiples to support the value of the franc from going up against the $$ and dont care about the value of the underlying investment - the market is destroyed

Sat, 01/09/2016 - 21:11 | 7023870 Boris Badenov
Boris Badenov's picture

Donald Trump's real estate empire's high value today is a direct result of the Fed's bailout policies of 2008. Looked at another way, has the fed put Donald in the bloviating position he is in now? Chest-thumping like King Kong because my rental income exceeds 10 year Treasury bonds by 3 fold?  Perhaps, I'd say most certainly. 

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