Weekend Reading: Weighed, Measured And Found Wanting

October 16, 2015

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Courtesy of Lance Roberts via STA Wealth Management

One of my favorite movies to watch with my son was "A Knights Tale" starring Heath Ledger. A rag to riches story about a boy given by his father to a Knight as a squire. However, after the Knight dies, the boy takes his place and fights his way to nobility.

During his adventure the villain, Adhemar, discovers William's secret identity and has him imprisoned for impersonating a knight. As William awaits his fate, Adhemar visits him in his cell.

As I discussed yesterday, the "Fed Is Screwed" in their efforts to hike interest rates. With deflationary pressures on the rise, economic growth deteriorating and financial markets in turmoil the ability to tighten monetary policy has now passed.

This weekend's reading list is a compilation of views on the economy, the markets, and the Fed. Like William, it is becoming more apparent that they have each been "weighed, measured and found wanting."

THE LIST

1) 5 Reasons Americans Are Unhappy by Quentin Fottrell via MarketWatch

“One reason for all the unhappiness could be that wages are stagnant, and many people are still struggling to recover from the Great Recession.

'Money is a little like health, you don't want to talk about it with your friends because there's a little bit of shame around it,' says Andrew Meadows, a San Francisco-based producer of 'Broken Eggs,' a documentary about retirement, and vice president of brand and culture at Ubiquity Retirement + Savings.

Two recent studies carried out by independent pollsters say that more than 60% of adults have no emergency savings or less than $1,000 in their savings account. And among those who had savings prior to 2008, 57% said they'd used some or all of it in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Some people think you need to have tens of thousands of dollars to start saving and investing, so rather than save or invest a little, they do nothing, Meadows says. 'They ask if there's going to be another crash.'"

Read Also: American's Feeling Glum About Economy by Ronald Brownstein via The Atlantic

2) Deflation = Debt + Demographics + Disruption by Tyler Durden via Zero Hedge

“Disruption: Technological innovation and disruption are driving many goods & service sector prices lower (rent & health care are two important exceptions); extending human life and the propensity to save; fostering wage and job insecurity.

Demographics: The size of the working population of the developed world peaked in 2011 and will fall from 833 million to 799 million by 2025, putting downward pressure on potential growth and inflation (Chart 3). And by 2050, the world's 'Silver Generation' will increase by 885 million people, many of whom will save more in anticipation of old age.

Record Debt: 'Minimal deleveraging since the GFC and a large debt overhang remain impediments to nominal growth; global debt as a % of GDP actually rose from 162% in 2001 to 211% in 2013, an all-time high.'"

Read Also: Brainard Drops A Policy Bomb by Tim Duy via FedWatch

3) The Fed & Government Setting Up Next Crisis by Stephen Moore via Washington Times

“Here's the latest story line: bailouts, trillions of dollars of government spending and debt, easy money, and re-regulation of Wall Street ended the 2008 Great Recession. The myth took on new life last week when Ben Bernanke took a bow in The Wall Street Journal for in his mind saving the economy with his $3 trillion of quantitative easing and zero interest rate policy. No, actually this is what created the crisis. Don't be surprised if Mr. Bernanke receives a Nobel Peace Prize.

As Peter Wallison of the American Enterprise Institute and other scholars have thoroughly documented, the crash of 2008 was caused by the Federal Reserve's easy money policies for nearly a decade, government housing policies that led to preposterous mortgage loans being issued, and massive overleverage of government, companies, and households.

Why does any of this history matter? Since Washington doesn't understand what went wrong in 2007 and 2008, so the Fed, the White House and Congress are recreating the very same conditions for another financial bubble. If it pops, we could replay the same devastating effects as occurred during the first bubble in 1999 and 2000.”

Read Also: Bernanke's Incomplete Crisis Theory by Robert Samuelson via Real Clear Markets

But Also Read: What If The Future Is Better Than We Think? by Ben Carlson via Wealth Of Common Sense

4) Debt Ceiling Fight Could Get Ugly by Gary Halbert via Advisor Perspectives

"Last week's scare over a possible government shutdown may have been just the warm-up act for a much bigger threat that could cause the Treasury to default on trillions of dollars of debt. The latest shutdown scare was narrowly averted by a last minute deal in Congress that angered its most conservative members, and some believe prompted House Speaker John Boehner (R-OH) to step down. His presumptive replacement, House Majority Leader Kevin McCarthy (R- CA), abruptly announced Thursday that he would not seek the job for reasons that are still uncertain.

Now, amid the House leadership vacuum, Congress remains paralyzed over a long list of contentious issues, from budget battles to a sweeping new trade deal. But unless Congress acts in the next few weeks to raise the government's legal borrowing limit, the Treasury will be forced to stop borrowing and paying its bills – potentially including interest on government bonds that have already been sold to investors."

Read Also: Another Look At The Total Return Rollercoaster by Doug Short via Advisor Perspectives

5) We Are Entering A Recession, But Not Really by Myles Udland via Business Insider

""'We are experiencing a profit recession without an economic recession,' Sløk wrote in an email on Thursday.

'Lower energy prices and a higher dollar are hurting certain parts of corporate America at the moment, but with the China shock fading and the dollar and energy prices stabilizing it is becoming clearer that we are not about to enter an economic recession because the service sector — which makes up 85% of the US economy — is doing just fine.

Or put differently, to generate an economic recession we need a much more broad-based slowdown across companies and that is not what we are seeing and hearing in the anecdotes during this earnings season.'"