World Economic Outlook
A sharper than expected downturn in China, a soaring USD, sudden bouts of global risk aversion, and escalating geopolitical tensions will conspire to make 2016 a "bumpy ride," the IMF says, on the way to cutting its forecast for global growth for the fifth time in fifteen months.
At the end of the day, the Fed led central bank money printing spree of the past two decades resulted in what is functionally a massive dollar short. Once the Fed stopped expanding its balance sheet when QE officially ended in October 2014, it was only a matter of time before all the “near-dollars” of the world would come under enormous downward pressure in the FX markets. Our Keynesian witch doctors believe that sinking currencies are a wonderful thing, of course. They claim making your country poorer is a good way to stimulate export growth and a virtuous cycle of spending and growth. But there is another thing. It is also a good way to generate capital flight and the ensuing chaos that creates.
The Fed's Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The CasinoSubmitted by Tyler Durden on 12/10/2015 18:30 -0500
The chart below crystalizes why the Fed is stranded in a monetary no man’s land. By the time of next week’s meeting the federal funds rate will have been pinned at about 10 bps, or effectively zero, for 84 straight months. After one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino - the very outcome that has filled them with fear and dread all these years.
"Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."
- Bonds Rise as China Drags Down Metals, Selloff in Stocks Resumes (BBG)
- European Stock Rally Runs Out of Steam Amid China Growth Concern (BBG)
- Obama's immigration action blocked again; Supreme Court only option left (Reuters)
- Ukraine: Cyberwar’s Hottest Front (WSJ)
- With $170.4 Million Sale at Auction, Modigliani Work Joins Rarefied Nine-Figure Club (NYT)
- IEA Sees OPEC Market Share Growth in 2020 as Rivals Stagnate (BBG)
We have heard many explanations for the torrid market rally since last September, ranging from the rational - short squeeze - to the generic - "bad news is good news under central planning" to the deranged - "ignore the news, the U.S. economy is actually stronger and China is recovering." And now, courtesy of the U.S. Treasury's Office of Financial Research, here is the official explanation from the government itself.
Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies. This observer believes the two countries cannot long withstand the pain they have brought upon themselves - and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.
Russia can be seen as maneuvering to split OPEC into two blocs, with Russia, although not a member, persuading the “Russian bloc” to isolate Saudi Arabia and the Gulf Arab OPEC members within OPEC. This might persuade the Saudis to seek a compromise with the have nots.
The first is that by keeping rates lower for even longer, the EM imbalances the Fed is worrying about will grow even larger, making it harder to exit stimulus; The second is a question on the value of forward guidance, after the Fed has repeatedly called for a hike and then backed out; The third is that the Fed may have limited, or no ammunition to react to the next potential shock, and that financial booms and busts may grow even larger over time.
"The [Chinese] slowdown was predictable, predicted, unavoidable," Lagarde was quoted as saying." Well, yes, it was... by everyone but the IMF. Here is the history of the IMF's Chinese GDP growth forecasts taken straight from its World Economic Outlook quarterly pieces. The graph needs no explanation.
- Fed Chair Yellen To Speak As Global Tensions Rise (WSJ)
- Greek PM Tsipras seeks party backing after abrupt concessions (Reuters)
- France Hails Greek Aid Proposals as Germany Reserves Judgment (BBG)
- Greek PM says does not have mandate to exit eurozone (Reuters)
- France Intercedes on Greece’s Behalf to Try to Hold Eurozone Together (WSJ)
- Frozen Funds, Fleeing Tourists: Greek Startups Feel the Pinch (BBG)
- Doubts Simmer Despite China’s Gain (WSJ)
Who cares about constantly being wrong right here, right now (aside from 11 million Greeks that is) when your projections keep promising that growth is always "just around the corner" as they do in the following chart showing just why the IMF has now lost all credibility not only as an bailouter of last resort (see Greece), but as a forecaster.Presenting: over five years of glorious IMF hockeysticks.
It’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win. The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it. The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.
Storage withdrawals and falling rig count have been the main sources of hope that U.S. tight oil production will fall and that oil prices will rebound. That hope is fading as it is now clear that recent withdrawals from U.S. crude oil storage are because of price, not falling supply, and that the drop in rig count has stalled. Present data, however, suggests that the global over-supply has gotten worse, not better, that overall demand for liquids remains weak, and the world economic outlook is discouraging. At the same time, market movements are not always based on fundamentals. In the long run, however, fundamentals rule suggesting the current price surge is at best premature.