Tag: us economy

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The Secret To Predicting The Future Of The US Economy

Bloomberg Writes: The Enduring Mystery of Financial Markets

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Unfortunately, decades after the three economists had their groundbreaking insights, the crucial question remains unanswered: Can policymakers know with any certainty when markets are dangerously out of line, and is there anything they can do about it?

Economists can’t be expected to predict the future. But they should be able to identify threatening trends and to better understand the conditions that can turn a change in prices into a financial tsunami.

Read The Rest Of The Article Here

Once again, I do not understand why everyone claims that it is so hard to do. The Economy and its bubbles are very easy to see and predict.  For example, you could have looked at 2002-2007 period and have easily determined or came to a conclusion that there was a huge real estate and mortgage finance bubble developing.  When it would collapse, it would take down the entire economy, multiple financial institutions and our financial markets.

No crazy or complicated economic models needed. This is fairly basic and common sense stuff. Same thing applies to today’s environment. While the majority of the economist do not see any present issue either in the economy or the financial markets, they are there.  The majority of economic growth and market recovery over the last couple of years has been driven by an insane amount of credit pumped into our economy by the Fed through a multitude of channels.

Now the economy and the financial markets will have to pay for such a mismanagement by dropping over the next few years (as my timing work indicates). As the Fed perpetuates this cycle of boom and bust by dumping a lot of credit into the economy I remain puzzled why it is so hard to see by most economist and others participating in the financial markets. If you take conflict of interest out of the picture, this becomes very basic. 

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Buffett Agrees…..How US Politicians Just Destroyed America

Reuters Writes: Buffett calls threat to not raise U.S. debt limit a ‘political weapon of mass destruction

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NEW YORK (Reuters) – Warren Buffett, chairman and chief executive of Berkshire Hathaway (NYS:BRK-A – News), said Wednesday that the threat of not raising the U.S. debt ceiling is a political weapon.

The idea that Congress could fail to raise the $16.7 trillion U.S. borrowing limit is a “political weapon of mass destruction,” Buffett told cable television network CNBC.

Buffett said Berkshire Hathaway owns short-term Treasury bills and is “not worried” about the bills being paid, despite concerns about the U.S. debt ceiling.

Of course Mr. Buffett is correct. What happened in Washington over the last couple of weeks is nothing short of a disaster. An absolute disaster. What Mr. Buffett forgot to mention is that this “political weapon of mass destruction” has already gone off.

Surely, the US will not default on its debt. In my previous posts I have clearly stated that neither the market nor should you care about that. The damage has already been done and will be eventually felt on a different front.  This front has to do with our creditors.  I bet you my left leg that this situation was very closely watched and analyzed by both Japan and China (two of our biggest creditors). 

Their conclusion will be very simple. Washington is being run by idiots who have no problem putting the wealth and the future of our countries at risk. Therefore, we should diversify.  I bet you my right leg that these countries will start to lessen their US Debt exposure (if they haven’t started already) as soon as possible. Interest rates will go up and that will cause a significant slow down in the US Economy and a substantial DROP in the financial markets.

BOOM. Thank you Washington.  

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What Everyone Ought To Know About The Future

CNN Money Writes: Fed minutes: Decision not to taper was a ‘close call’

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Federal Reserve officials were torn on whether to continue their stimulus program at their last meeting in September, according to minutes released Wednesday.

At that meeting, the Fed surprised investors and economists, who were largely expecting the central bank to start reducing its $85 billion in monthly bond purchases — a gradual wind-down process that has come to be known as “tapering”.

The decision not to taper, was a ‘relatively close call’ for several members of the Fed’s policymaking committee, the minutes said.

What tipped the scale?

Read The Rest Of The Article Here

This is the most important news no one is talking about. Forget the Government shutdown.  That situation will resolve itself shortly. The subject matter above is much, much, MUCH MORE important.

As I have mentioned before the only thing that is keeping the US Economy afloat is QE buying of Bonds to the tune of $85 Billion per month. That is the only thing keeping interest rates down and the economy humming along. Even thought the velocity of monthly QE impact is getting weaker and should dissipate itself soon either way, removing or tapering this stimulus will have immediate negative consequences on the US Economy and the financial markets.

Basically, the interest rates will shoot up, the economy will slow down drastically and shift into the recessionary environment.  The stock market, the real estate market, car sales and the rest of the economy will decline substantially.

We are beginning to see cracks at the FED in terms of QE decision making process. That is significant because it is the first clear indication that at least some at the FED are ready to start tapering. Eventually they will. When they do all of the above will happen.

Please be aware that the stock market is a future discounting mechanism and as such will decline long before the FED announces anything. That is why looking for first cracks is so incredibly important. You have been warned.

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Why Happy Fingers Bernanke Can’t Sleep At Night

BusinessWeek Writes: Slow Job Growth Suggests Fed Was Right to Delay Taper

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The private sector added 166,000 jobs in September,  fewer than most economists predicted, according to the ADP Research Institute’s monthly tally. ADP (ADP) also revised August’s jobs number down to 159,000 from 176,000.

The September number’s not bad—it’s right in line with the 2013 monthly average of 167,000. But it’s certainly not evidence of a labor market that’s picking up steam.

“The ADP report suggests the Fed was right to delay the tapering of its monthly asset purchases last month,” Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note this morning.

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Here is the bottom line. Happy fingers Bernanke will keep playing with his keyboard as he continues to print $85 Billion of QE per month. That is not even a question. I do not believe they will tapper anytime soon if at all. This is not the real issue here.

The really scary issue is that the QE is having very little impact on the overall economy.  The velocity of the QE money has slowed down so much that it is almost a non issue. 

Imagine a car engine that is stuck on 2000 rpm no matter how much gas or even jet fuel you supply the engine with. No matter what you add to the tank, the engine can’t go over 2000 rpm. What’s worse, after a while it start to sputter and eventually dies.  

You have that picture in mind? Well, that is an accurate representation of the US Economy.  EQ is no longer having an impact. As such, they can’t even consider stopping it now. 

Yet, the worst is yet to come. The economy is now starting to sputter even with QE. When that accelerates the downshift and the subsequent stock market and economic declines will be severe. 

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Obama Is Freaking Out, Should You?

Obama to Wall Street: This time be worried

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Wall Street needs to be genuinely worried about what is going on in Washington, President Barack Obama told CNBC in a White House interview Wednesday.

While gridlock in D.C. is nothing new, “this time I think Wall Street should be concerned,” Obama said.

“When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble,” Obama said

“I am exasperated with the idea that unless I say that 20 million people, ‘you can’t have health insurance, they will not reopen the government.’ That is irresponsible,” he said.

“It is important for [Wall Street] to recognize that this is going to have a profound impact on our economy and their bottom lines, their employees and their shareholders,” Obama said.

Read The Rest Of The Article Here

By now it is clear that President Obama will not negotiate with the Republicans, nor should he. Whether you agree or disagree with the new healthcare law, it was passed, signed and confirmed by the supreme court.  It’s called democracy.

Now, President Obama is basically freaking out about the stock market and the impact of the shutdown on the overall US Economy. Should he be and more importantly should you be?

As of right now my answer is NO. Here is why….

  1. The existing shutdown is inconsequential. The debt ceiling is a much more important one and that one is coming up on Oct 17/22.  Yet, one way or another, the US will not default.
  2. As of right now the stock market is not even concerned about this issue.  
  3. There is just way too much drama. The politicians and the media love it.  
  4. When it is all said and done, there are very powerful financial interest in the US who control the politicians. If they want to maintain the US Economy and say enough, all Republican issues will disappear overnight.

In conclusion,  as of right now this is an entertaining issue that I believe will resolve itself within a short period of time. The stock market thinks so and so do I. 

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US Corporations Have Saved $700 Billion In Interest Payments. Should We All Celebrate?

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The U.S. Federal Reserve’s efforts to boost the economy by holding down interest rates has saved corporate America $700 billion in interest payments over the past four years. Issuing debt at record-low yields allowed blue chips and shaky businesses alike to invest and expand

That’s great. My question is, at whose expense?

When the economic growth is steady everyone benefits over the long run, yet over the short run it’s a zero sum game. In order for businesses to benefit to the tune of $700 billion, many had to lose that money.  So, who are these poor souls?  

  1. Savers and older Americans who rely on fixed income for survival.
  2. Real economy. As most resources shift to the financial economy.
  3. You and I. Everyone will pay the price for artificially low interest rates.

But there is a bigger problem. Due to artificially low interest rates most of the capital above was misallocated to create financial bubbles and other mispriced assets. Instead of increasing salaries (which is understandable given the current economic backdrop) US Corporations have spent the majority of that money of various financial shell games such as stock buybacks, dividends, off shoring, etc…

Of course, that will come back to bite us in the ass…..big time. Thanks a lot President Obama, the Fed and the US Government. 

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Epic Credit Bubble…..Says World’s Largest Hedge Fund

CNBC Writes: Blackstone: We’re in an ‘epic credit bubble’

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One of the world’s largest investment firms believes the financial system is overly leveraged.

“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group (BX)’s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”

“We’re not just levering up U.S. GDP into multiples today,” Baratta said. “I do expect mean reversion to happen at some point on interest rates, on credit spreads, on the cost of some investment grade corporate credit.”

The high valuation of many companies today makes it harder for them to grow. “The biggest risk to returns of this vintage is that exit multiples are depressed,” Baratta said.

Read The Full Article Here

I strongly agree with Blackstone on this point.  In relative terms we are in the largest credit bubble mankind has ever seen. The situation we find ourselves in now is like a very bad runaway science experiment that cannot be stopped.

How will it end? No one knows, but the outcome cannot be pretty. What we have experienced in 2007-2009 was just a preview. Now that the credit bubble is much bigger only time will tell us how this experiment will end.  Perhaps with a bang or perhaps with an extended period of economic suffering.

What I do not agree with is that Blackstone doesn’t necessary see it as a problems by indicating that they are still bullish on the economy. The only reasons we haven’t seen the full impact of this massive credit bubble is because “so far” the Fed has been able to control the interest rates. As soon as the Fed losses this control (and they will) the interest rates will zoom up.  At that point anticipate the credit bubble to implode and take the housing market, the stock market, car sales, retails sales and the overall economy down with it.

So, what’s the point here? I am not the only crazy person running around and screaming that we are in a massive credit bubble that is soon to explode. World’s largest hedge fund believes that much as well. As such, you have been warned. 

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American People Are Sick Of Economic BS

Bloomberg Writes: Americans in Poll Doubt Economy Rebound

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Americans are losing faith in the nation’s economic recovery even as forecasters expect growth to accelerate, according to a Bloomberg National Poll.

Fewer people anticipate improvement in the economy’s strength over the next year than in the last survey in June, with 27 percent saying the expansion will be more robust, down from 39 percent who expected improvement three months earlier.

Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening.

 “We’re still in a recession; I don’t know why they say it’s over,” says Chris Sams, 28, a disabled Navy veteran from Daingerfield, Texas. “It may be over in Washington, D.C., where the per capita income is higher than anywhere else, but down here the minimum wage is the highest wage.”

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President Obama and Mr. Bernanke, I have news for you. American people are no longer buying your bullshit. 

You can attempt to twist economic recovery numbers anyway you wish, but since the reality for most Americans is so much different from your reported number….. it will not work.  Only the richest 5% of Americans benefited from your one sided actions. Only those who had the direct access to your cheap capital reaped the rewards. The rest of Americans see their economic situation erode. The pole above clearly indicates that.

Now, a contrarian in me might even argue that this kind of a view from the majority of the population is great news for both the stock market and the economy. However, such an opinion would only be valid if we were at the bear market bottom……not sitting at an all time high.  I believe this is the case of American people finally waking up and saying “Wait a second, even though there are all these great economic news, my situation is not improving, as a matter of fact, it is declining”.

As such realization sets in across the nation and confidence erodes further, financial markets should feel the impact. 

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The United States Of Europe

Bloomberg Writes: The U.S. Economy Is Turning European

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The U.S. economy is getting as bad as Europe at bouncing back from recessions and generating jobs, and a decrease in societal trust may be a big factor, according to a research paper presented today at the Brookings Institution.

The paper is called “Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence,” and it’s by Olivier Coibion of the University of Texas at Austin and Yuriy Gorodnichenko and Dmitri Koustas of the University of California at Berkeley.

Amerisclerosis is the economic version of atherosclerosis, also known as hardening of the arteries—a disease that contributes to heart attacks and strokes. In the 1980s, economists coined the term Eurosclerosis to describe Europe’s malfunctioning jobs market. The U.S. is going the same direction, the authors say.

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Amerisclerosis.  Seriously??? Is that the best US Economist can come up with?

I am not sure why so many smart people find it so difficult to understand our current economic environment and/or lack of economic growth/improvement. It is as easy as 1-2-3.

1. We exist in an artificial Credit Finance Economy:  Meaning that whatever recovery we have seen was financed not by real money, but “out of thin air” printed money to sustain the US Economy and to prevent a collapse/recession. The velocity of that money is slowing down now and the US Economy will soon roll over into a recession.

2. Robotics and Outsourcing: Brace yourself over the next 10-20 years. Whatever jobs robots can do or that can be outsourced  will disappear over that time frame. Nothing can be done about it. With real unemployment/underemployment already as high as 15-20% in the US, it doesn’t bode well for the overall economy.

3. Structural Problems: There are so many that I will just mention a few. Attempted currency debasement, healthcare, artificially low interest rates, unemployment, housing bubble, cost of education, car sales bubble, etc….  Of course most of these can be directly tied to issue #1 above.

Until these 3 issues are dealt with, the US Economy is not going anywhere. The only way to deal with it is to stop insane fiscal policies by the FED and the Federal Government and let the US Economy go through a severe recession and defaults.

Unfortunately, no one in the US Government has the balls to do just that as they all practice their can kicking ability. Since that is the case I would expect the US Economy to slowly decline over the next decade to further deteriorate the American standard of living.

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Derailed Recovery

Forbes Writes: Mixed Messages For Bernanke Shouldn’t Derail QE Taper, Despite Lower Inflation

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As investors intensify their scrutiny of the Federal Reserve, economic indicators continue to send out mixed messages.  Inflation, as measured by the CPI, eased once again in August, according to theBureau of Labor Statistics, but remains relatively anchored, indicating Chairman Ben Bernankeand the FOMC could be closer to tapering quantitative easing, possibly on Thursday.

Mixed economic indicators continue to baffle a market that seems to have prepared for a reduction in the Fed’s supportive asset purchases, or QE.  Inflation, one of the main monetary factors observed by Fed officials, has been consistently low, yet not alarmingly so.  Over the past 12-months, CPI is up a meager 1.5%, down from 2% in July.

While the U.S. economy has remained relatively resilient, with GDP growing 2.5% in the second quarter, it is by no means out of the woods, as the labor market remains weak and financial conditions have tightened, particularly in mortgage markets which are closely scrutinized by the Fed, Goldman Sachs’ economics research team said.

The Federal Reserve, which is in the midst of a transitional period as Chairman Bernanke’s term expires early in 2014, is looking to reduce its level of asset purchases to avoid inflating asset bubbles and creating further imbalances.  Investors are looking for the FOMC to cut down on QE on Thursday, possibly reducing asset purchases by $5 to $10 billion to $75 to $80 billion a month.

In order to continue with the plan laid out by Bernanke in his previous conference, in which the Fed expects QE to end by mid-2014, Fed officials will want to see a pickup in inflation that strengthens their view that deflation is not a looming problem.  “While the stabilization in core [CPI] is likely sufficient for Fed officials to start the tapering process [Thursday], officials are counting on some acceleration in coming quarters,” explained Jim O’Sullivan, chief economist at High Frequency Economics, who added, “such acceleration will likely be needed for a full wind-down of QE and will almost certainly be needed before the tightening cycle begins.”

Read The Rest Of The Article Here

A very good overall summary of the existing US Economic and Financial Market state that comes to a wrong conclusion.  It somehow assumes that the Fed and US Government are in control of the US Economy and will direct it into whatever direction they wish to improve existing metrics and to maintain the course.

However, that is a fools assumption.  They are not in control of anything. The 2007-2009 meltdown was a clear example of that. No matter what they have tried,  the market kept going down until it hit its March 2009 technical bottom and reversed itself. If that doesn’t convince you of the fact that they have no control, nothing will.

Now, the article states that the policies the Fed has instituted are design to avoid future financial asset bubbles and volatility associated with it. What it fails to mention is that we are ALREADY in the largest financial credit bubble of all time. Bigger than 2007.  And guess what, it was done on purpose by the Fed to avoid a deeper recession.

As Fed cut back on QE, interest rates will go up and in doing so will collapse the real estate market, the stock market and the overall economy.  Oh, I forgot to mention something. It will not be fast and will most likely take years. However, the process itself has already started. Get your affairs in order.  

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