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Recessionspotting: "You Are Here"
Now that even the likes of Joe LaSagna are starting to throw out the R-word about as casually as they did a 4% 2011 GDP target as recently as 2 months ago, it is becoming increasingly clear that the market is pricing in the fact that post a few more historical BEA revisions, the prior two real GDP reads will end up having been, shockingly enough, negative, i.e., your garden variety recession. So where does that put us on a market performance continuum, for those wishing to extrapolate how much further stocks and, yes, bonds (because credit is and always has been a far better indicator of objective market reality) have to drop before we hit the proverbial floor. Well, according to Morgan Stanley, quite a bit lower: "Despite the recent decline in risk assets, we do not believe that recession is in the price. Exhibits 3 and 4 show the typical declines in developed market risk assets in recession. Compared to corrections in past recessions, S&P prices and corporate credit spreads would have more to go, though spreads are starting from a higher level than typically precedes recessions." What is startling is that should central planners lose all control (and with central bank intervention upon intervention, one can argue that should all artificial props be removed, the market really ought to plunge in a Great Depression-style tailspin), the drop from the April 29 peak to the bottom will be roughly 4 times greater... which means the S&P would hit the proverbial "S&P 400" which is the long-term target of the likes of some more popular skeptics such as Albert Edwards and Russell Napier. As for credit: watch out below.
Equities:
and Credit:
And completing the pain, again from Morgan Stanley:
Arguably if there were a recession next year the decline in risk assets would be larger than usual. Investors may be unsettled by two related factors. First, the limited policy options for policymakers. Conventional policy tools are near-exhausted in major developed economies. Moreover, there seems to be political, institutional and market obstacles to aggressive use of unconventional policy tools. Ultimately they may come – the bigger the crisis, the bigger the response – but they may only come after there are very significant asset market losses.
Second, a recession next year would increase deflation risks in developed economies. This is partly a matter of inadequate policy response. But the more important point is that the developed economies would enter recession with the lowest nominal GDP growth rate seen entering recession, so nominal GDP contraction would be a larger-than-usual threat. Falling nominal GDP with elevated debt levels is the deadly debt-deflation combination of the 1930s. We are not forecasting such an outcome, but it is a significant tail risk, and one that could lead to a larger-than-usual setback in risk assets.
Translation: we are on the verge of the biggest deflationary market collapse since the 1930s, which will, inevitably, be followed by the most powerful (read fiat dilutive) central bank response in history.
All those gloating that hyperinflation has not set in yet... give it a year.
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I would like to hear more discussion and exploration of the Infrastructure Bank idea. I.E. How it might be configured to provide reasonable private investment returns and jobs for our people?
Certainly there could be some progress on this front. Would be best served in the public/private partnership arena I think.
Our infrastructure needs maintenance and borrowing costs are at all time lows. No I am not a Krugmanite, but I do see some potential here. It has to be done anyway, so why not now?
Wind down TBTF and auction them off in pieces. Spend that money on rebuilding our crumbing infrastructure. Bondholders take haircuts.
S&P said they are FLAT-OUT AGAINST a "bank" as it would be corrupt and laced with graft and political use. NOT going to happen.
Obama is trying to do another massive giveaway repatriation of foreign profits for 5% tax plus put some in a "infr bank" this is the height of Chicago Mob politics, impeach this bastard Master of Deception Obama, worst most deceptive liar in US Presidents.
Gold trade will have to go underground. As if we didn't already know that. Barter will be the next financial system. I would say they can have my gold when they pry my cold, dead hands away from it, but I have a feeling TPTB would lose no sleep over a serf like me.
Look at PBI indicator, this chart does not lie and Swenlin is one of the best
http://www.financialsense.com/contributors/carl-swenlin/2011/08/13/perce...
READ THIS TOO,
http://www.financialsense.com/contributors/chris-puplava/2011/08/12/econ...
The Miscreants’ Global Bust-Out (Chapter 20): Uhm, Mr. President, We Might Have a Problem…
Old news for many, new news for some. Tick, tick, tick, tick...
Recession, Depression, Barter, and the Dark Ages: all within the realm of the possible. The Roman's in their wildest dreams never imagined their highly developed civilization could end. And we think we're somehow better? Societal breakdown is beginning; the planet itself is indifferent.
Great Psychosis, soon to be followed by the Great Diet, aka The Great Thinning
+1000 zerohedge.com
Speaking of collapse, if you haven't been here you should go: http://www.collapsenet.com/262.html
This is Mr. Ruppert's website and as an authority of peak oil and former detective, he covers some important stuff.
Far as my two cents on a name, I think we've been in a "depression" since 9/08. Our government numbers are so out of touch with reality that if you remove the bullshit from them, we're squarely there. I'm guessing this will be much worse than GD-1. Maybe Great Depression II, the wrath of "W".
What a coincidence, I'm an authority on Peak Oil, too. Actually, everybody is an authority on that subject. All you have to know is that when the crude oil producers of the world pump up less oil in the current year than they they did in the preceding year, that's called Peak Oil.
When you get into the exact number of barrels of product, all us experts are completely reliant on the honesty of over 80 Ministers of Energy. The same is true of the estimates of proven reserves.
One can't help but think that the numbers of production and proven reserves is a lot like the 3 different sets of books that are kept by successful restaurants in New York: one set for the IRS, another set for all the partners, and finally the one set for the guy keeping the books.
We're not going to know when Peak Oil is going to arrive, until it actually gets here.
I don't think it's going to look too different from right now.
+1 !
There was "peak" coal too....
You must be thinking of the false Peak Coal in 1427 when Lorenzo de Medici cornered the coal market, claiming German coal caused global heating. He was able to sell his coal for 120 ducats a kilo, until imported coal started to arrive from what is now West Virginia.
"Global coal reserve data are of poor quality, but seem to be biased towards the high side. Production profile projections suggest the global peak of coal production to occur around 2025 at 30 percent above current production in the best case. There should be a wide discussion on this subject leading to better data in order to provide a reliable and transparent basis for long term decisions regarding the future structure of our energy system. Also the repercussions for the climate models on global warming are an important issue."
Weren't all the "budget ceiling" revenue projections based on 4% growth? How's that gonna work out in a rolling depression? Just asking...
So according to Morgan Stanley the risk is Europe blows up, simultaneous runs on the USD and EUR, equities tank. In the aftermath we get the biggest, globally coordinated QE seen.
So Morgan Stanley now sounds just like a whole lot of us here at ZH.
What the? I'm suffering from cognitive dissonance.
I'm much more concerned about Watts, Harlem, Detroit and Chicago blowing up.
But, hey, that's just me.
Every compulsive gambler in recovery knows that you can only begin recovery after you hit rock bottom. That's when you've lost everything; your job, house, marriage, relationships, car, savings, etc. At that point you are always plagued by a mountain of debt too which, ironically, helps you to stop gambling more than anything else. You simply can’t find anyone to lend you more money.
Take a look at the large integrated oil companies like Chevron and Exxon XOM.
How is it that they are earning so much money, and pay consistently rising dividends, yet the market values them like this with P/Es of 9 and dividends around 3%.
China is hungry for oil. The whole world is hungry for the stuff and will be for a long time.
yet the market does not value those earnings and dividends??? Exxon for example has been flat between a range of 60-85 these past few years. They bought 5 billion of their own stock last quarter at an average price of 82. And are green lighted to buy another 5 billion dollars of stock this quarter.
My Lord, this market is pessimistic. Oil = black gold and the market is proving itself to be a luny again.
What no one seems to understand yet, is that Peak Oil -- gradually declining production of crude oil-- and capitalism do not mix.
Peak Oil represents the gradual depletion of one of the most important ingredients of a capitalist based economy.. If there is not a replacement for oil -- at the moment there doesn't seem to be, except for the apocryphal stories that the Major Oil companies are sitting on one. -- then we have an economy, whose raison d'être is growth, but which is unable to obtain and use one of its most essential elements to achieve it.
"The fault, dear Brutus, lies not in the stars, but in those late 19th century Capitalists who hooked us on the internal combustion engine."