What I’m about to say may sound totally crazy at first. But keep reading, because I think you’ll agree that it’s dead-on accurate.
There’s a recession coming.
No, that’s not some Chicken Little “The Sky is Falling” statement. Far from it. It’s just a fact: economies and financial markets always go through boom and bust cycles.
There are good years and lean years, up years and down years. Continue reading
Today, additional evidence that recession — or worse — is in sight.
But first, it appears the “Powell put” may extend the countdown clock…
Since Jerome Powell’s dovish comments on Friday, the Dow Jones has been up and away… as an addict thrills to the promise of additional stimulant.
It leaped another 256 points today. Continue reading
During a live interview with Barry Ritholtz for his “Masters In Business” podcast on Monday, Bridgewater Associates CEO – who has been on a seemingly never-ending media tour to promote his new free e-book “A Template For Understanding Big Debt Crises” – once again expounded upon his “1937” markets thesis: That is, his theory that the US economy increasingly resembles the late-cycle dynamic from the 1930s where equity prices topped out as the Federal Reserve tightened monetary policy. Like the 1930s, the global economy is awash and debt, and populist politicians gaining power and influence in the West.
But more interesting than Dalio’s retread of his calls for a recession to begin some time during the next two years, he also repeated a claim he first made back in September, which has been getting more attention since BlackRock CEO Larry Fink said something similar earlier this month: That the US dollar’s days as the dominant global reserve currency are numbered. Continue reading
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If you have defective and obsolete models, you will produce incorrect analysis and bad policy every time. There’s no better example of this than the Federal Reserve.
The Fed uses equilibrium models to understand an economy that is not an equilibrium system; it’s a complex dynamic system.
The Fed uses the Phillips curve to understand the relationship between unemployment and inflation when 50 years of data say there is no fixed relationship.
The Fed uses “value at risk” modeling based on normally distributed events when the evidence is clear that the degree distribution of risk events is a power curve, not a normal or bell curve. Continue reading
“Every nation gets the government it deserves,” said 18th century French philosopher Joseph de Maistre.
If true, and we suspect there is justice here… the United States is a nation of no-good deadbeats.
For the nation hosts a spendthrift government perpetually on the borrow.
By some metrics, the United States now takes on more debt in one year than it did in the first 200 years of its lovely existence.
Its gross national debt rose $1.27 trillion in fiscal 2018… to a record $21.5 trillion. Continue reading
© AFP/File | BIS chief economist said central banks around the world had been administering “powerful medicine” to counter the effects of the 2008 crisis, with “unusually and persistently low interest rates,” which came with some “inevitable” side effects
ZURICH (AFP) – The Bank of International Settlements said Sunday the global economy risked a “relapse” of the crisis that rocked it a decade ago, warning there was little “medicine” left to treat the patient a second time.
“Things look rather fragile,” BIS chief economist Claudio Borio told reporters in a conference call.
“There is little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse,” he warned. Continue reading
The trade war is a rather strange and bewildering affair if you do not understand the underlying goal behind it. If you think that the goal is to balance the trade deficit and provide a more amicable deal for U.S. producers on the global market, then you are probably finding yourself either confused, or operating on blind faith that the details will work themselves out.
Case in point, the latest reports that the U.S. trade deficit is now on track to hit 10-year highs, after a 7% increase in June. This is the exact opposite of what was supposed to happen when tariffs were initiated. In fact, I recall much talk in alternative media circles claiming that the mere threat of tariffs would frighten foreign exporters into balancing trade on their own. Obviously this has not been the case. Continue reading
As gold has struggled through 2018, (down over 10% from $1,363/oz. on January 25 to $1,215/oz. today), my forecast for a strong year-end for gold has remained unchanged.
This forecast is based on a better-late-than-never realization by the Fed that they are overtightening into fundamental economic weakness, followed quickly by a full-reversal flip to easing in the form of pauses on rate hikes in September and December.
Those pauses will be an admission the Fed sees no way out of its multiple rounds of QE and extended zero interest rate policy from 2008 to 2013 without causing a new recession. Once that occurs, inflation is just a matter of time. Gold will respond accordingly. Continue reading
Not to Americans
The housing market is now apparently turning down. Consumer incomes are limited by jobs offshoring and the ability of employers to hold down wages and salaries. The Federal Reserve seems committed to higher interest rates—in my view to protect the exchange value of the US dollar on which Washington’s power is based. The arrogant fools in Washington, with whom I spent a quarter century, have, with their bellicosity and sanctions, encouraged nations with independent foreign and economic policies to drop the use of the dollar. This takes some time to accomplish, but Russia, China, Iran, and India are apparently committed to dropping or reducing the use of the US dollar. Continue reading
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Is the Fed ready for the next recession?
The answer is no.
Extensive research shows that it takes between 300 and 500 basis points of interest rate cuts by the Fed to pull the U.S. economy out of a recession. (One basis point is 1/100th of 1 percentage point, so 500 basis points of rate reduction means the Fed would have to cut rates 5 percentage points.)
Right now the Fed’s target rate for fed funds, the so-called “policy rate,” is 1.75%. How do you cut rates 3–5% when you’re starting at 1.75%? You can’t. Continue reading
It would appear that the US is seriously worried about China’s technological advancements. Fearing the loss of the last comparative advantage over the Asian superpower has caused a genuine concern over national defense and competitiveness among America’s ruling elite.
The US using every possible means to curb Asia’s technological rise, including the banning of sales of essential chips to ZTE for seven years, invoking Section 301 of the Trade Act to investigate China’s “unfair trade practices” and barring investment in the information-technology sector. The Donald Trump administration’s target might be the Asian power’s “Made in China 2025”, a strategy meant to make China self-sufficient in an array of technologies.
The 301 investigation was meant to slow down China’s technological advancements by imposing stiff tariffs on a host of Chinese imports and barring the sales of US technology to Chinese firms. In addition, the anti-China faction of the US Congress and the Trump administration have barred Chinese investment in technology sectors. Continue reading
While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure. Continue reading
Americans live a never-never-land existance. The politicians and presstitutes make sure of that.
Consider something as simple as the unemployment rate. The US is said to have full employment with a January 2018 unemployment rate of 4.1 percent, down from 9.8 percent in January 2010. https://data.bls.gov/timeseries/LNS14000000
However, the low rate of unemployment is contradicted by the long-term decline in the labor force participation rate. After a long rise during the Reagan 1980s, the labor force participation rate peaked in January 1990 at 66.8 percent, more or less holding to that rate for another decade until 2001 when decline set in accelerating in September 2008. https://fred.stlouisfed.org/series/CIVPART/
Today the labor force participation rate is the lowest since February 1978, reversing all of the gains of the Reagan years. Continue reading
Markets were up again big today and volatility was down. But we haven’t seen the last of rising volatility, nor of the central banks’ attempts to thwart it.
This week, new Fed Chair Jerome Powell will be giving his first congressional testimony, and you can be sure that markets are waiting on his words with bated breath.
Before his testimony, the Fed will be releasing its Monetary Policy Report, which will also give an indication to the direction of Fed policy. Continue reading
A big Federal Reserve meeting is coming up. Here is one thing that could happen if the Fed gets too aggressive.
Despite its independence, the Federal Reserve may quietly want a bear market that takes down a president that loves tweeting about the stock market. Continue reading
Global Geopolitics 