Posts Tagged ‘austerity measures’

WE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET

Pragcap explains why "WE ARE NOT REPEATING THE MISTAKES OF JAPAN….YET".

Cherry blossom festival

Courtesy of The Pragmatic Capitalist 

When confronted with a balance sheet recession the math regarding economic growth gets relatively simple – either the government spends in times of below trend private sector spending or the economy contracts. For several years now I have maintained that we are in a balance sheet recession – an unusual recession caused by excessive private sector debt.  Although this balance sheet recession created the risk of prolonged weakness I have been quick to dismiss the persistent discussions that compare this to anything close to a second great depression - as I showed in 2009 the comparisons were always ridiculous.  The much closer precedent was Japan, where the economy actually expanded throughout their balance sheet recession, but a persistent malaise left a dark cloud over the private sector as they paid down debts.

Over the last year I have consistently expressed concerns that the USA was going to suffer the same fate as Japan, which consistently scared itself into recession due to austerity measures. At the time, most pundits were comparing us to Greece and attempting to scare us into thinking that the USA was bankrupt, on the verge of hyperinflation and general doom. I wrote several negative articles in 2009 & 2010 berating public officials who said the USA was going bankrupt and that the deficit was at risk of quickly turning us into Greece, Weimar or Zimbabwe.  Nothing could have been farther from the truth.  The inflationists, defaultistas and other fear mongerers have been wrong in nearly every aspect of their arguments about the US economy.

US government default was never on the table, the bond vigilantes were not just taking a nap and now, with the passage of the most recent stimulus bill it’s likely that we’ve (at least temporarily) sidestepped the economic decline that was likely to accompany a decline in government spending.  Richard Koo, however, believes we are repeating the mistakes of our past.  In a recent strategy note he said:

“The situation in Europe is no different from that in the US. I therefore have to conclude that the western nations have learned nothing from Japan’s lessons and are likely to repeat its mistakes.”

I have to disagree here.  The most important factor impacting economic growth in the prior year…
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Economists Surprised Again as German Factory Orders Unexpectedly Fall

Economists Surprised Again as German Factory Orders Unexpectedly Fall

Pig whispering in another pigs ear, close-up

Courtesy of Mish

Economists are surprised by the strangest things.

The UK has announced austerity measures, Greece, Spain, Portugal (3 little PIIGS) are in forced austerity programs, and Germany is paying more attention to deficit reduction than growth (rightfully so), yet somehow economists expect factory orders in Germany to keep improving.

Please consider the Bloomberg report German Factory Orders Unexpectedly Fell in May

German factory orders unexpectedly fell for the first time in five months in May as demand for goods made in Europe’s largest economy waned across the 16- nation euro region.

Orders, adjusted for seasonal swings and inflation, declined 0.5 percent from April, when they rose a revised 3.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.3 percent gain for May, according to the median of 30 estimates in a Bloomberg News survey. From a year earlier, orders increased 24.8 percent.

Europe’s sovereign debt crisis has pushed the euro down 17 percent against the dollar since late November, making exports to countries outside the currency bloc more competitive just as the global recovery gathered pace. With governments cutting spending to convince investors that budget deficits are under control, growth in the euro area, Germany’s biggest export market, may slow.

“You have to see today’s decline in orders in the context of strong increases in the previous months,” said Klaus Schruefer, an economist at SEB Bank AG in Frankfurt. “It doesn’t throw the German economy off its recovery track.”

Recovery Off The Rails

While it is true that any month can be an outlier, the European macro picture is anemic in light of austerity programs virtually everywhere you look.

Moreover, the Asia picture is anemic, the US macro picture is anemic, and indeed the entire global macro picture is anemic. Yet economists, an ever optimistic lot, still have faith in a recovery 100% based on unsustainable government spending even though governments in general are cutting government spending in an attempt to reduce budget deficits.

For now, the US is an exception to global budget tightening. However, it should be perfectly clear that Congress is taking a harder stance towards more stimulus efforts as a measure to extend unemployment benefits has died in the US senate.

Talk of continued recovery is nonsense. The best anyone can possibly hope for…
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Fed Ponders What To Do If Recovery Fails; Risks to Growth All on Downside

Fed Ponders What To Do If Recovery Fails; Risks to Growth All on Downside

Courtesy of Mish 

Low angle view of a man rock climbing up a vertical cliff

While nearly everyone seems convinced that the economy is improving and buy-the-dip is the right strategy, the Fed is having increasing concerns about what to do if reflation does not take hold.

The Wall Street Journal discusses "What if?" scenarios in Fed Weighs Growth Risks.

Federal Reserve officials are beginning to debate quietly what steps they might take if the recovery surprisingly falters or if the inflation rate falls much more.

Fed officials, who meet next week to survey the state of the economy, believe a durable recovery is on track and their next move—though a ways off—will be to tighten credit, not ease it further. Fed Chairman Ben Bernanke has played down the risk of a double-dip recession and signaled guarded confidence in the recovery.

But behind-the-scenes discussions at the meeting could include precautionary talk about what happens if the economy doesn’t perform as well as expected.

"If events in Europe evolve so that they have a more severe and broad impact on financial markets, then the scope of the problems for the U.S. could be magnified," Charles Evans, president of the Federal Reserve Bank of Chicago, said in a speech last week.

Brian Sack, the head of the New York Fed’s powerful markets group, has talked about "two-sided" risks to the economy—in other words, the risk that growth and inflation could turn out to be lower than expected, as well as higher.

"The European sovereign-debt situation is serious, and there are many unanswered questions about how events will unfold," James Bullard, St. Louis Fed president, said in Tokyo on Monday.

Officials don’t rule out the possibility that markets could settle and the economy could produce a few months of strong job growth and solid consumer spending and business investment.

But there are other scenarios: if the recovery falters, or if inflation slows much further and a threat arises of deflation, a debilitating fall in prices across the economy. In such cases, there would be a few avenues the Fed could take.

One is asset purchases. During the financial crisis, the Fed purchased $1.25 trillion in mortgage-backed securities on top of buying debt issues by Fannie Mae, Freddie Mac and the U.S. Treasury. Mr. Bernanke has said the steps helped to lower long-term interest rates,


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Zero Hedge

Italian Cases Soar Past 300 As EU Stubbornly Refuses To Close Borders; 10 Dead: Live Updates

Courtesy of ZeroHedge View original post here.

Summary:

  • WHO warns the rest of the world "is not ready for the virus to spread..."

  • CDC warns Americans "should prepare for possible community spread" of virus.

  • Italy cases spike to 322; deaths hit 10

  • HHS Sec. Azar warns US lacks stockpiles of masks

  • Italy Hotel in Lockdown ...



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Phil's Favorites

World economy flashes red over coronavirus - with strange echoes of 1880s Yellow Peril hysteria

 

World economy flashes red over coronavirus – with strange echoes of 1880s Yellow Peril hysteria

Courtesy of John Weeks, SOAS, University of London

As the novel coronavirus pandemic continues to unfold, travel restrictions are being imposed around the world. China is the main target, with various countries including Australia, Canada and the US placing different restrictions on people who have travelled through the country ...



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Biotech & Health

World economy flashes red over coronavirus - with strange echoes of 1880s Yellow Peril hysteria

 

World economy flashes red over coronavirus – with strange echoes of 1880s Yellow Peril hysteria

Courtesy of John Weeks, SOAS, University of London

As the novel coronavirus pandemic continues to unfold, travel restrictions are being imposed around the world. China is the main target, with various countries including Australia, Canada and the US placing different restrictions on people who have travelled through the country ...



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Kimble Charting Solutions

Dow Industrials Reversal Lower Could Be Double Whammy for Stock Bulls!

Courtesy of Chris Kimble

Dow Jones Industrial Average “monthly” Chart

The Dow Industrials have spent the past 70 years in a wide rising price channel marked by each (1). And the past 25 years have seen prices test and pull back from the upper end of that channel.

The current bull market cycle has seen stocks rise sharply off the 2009 lows toward the upper end of that channel once more.

In fact, the Dow has been hovering near the topside of that price channel for several months.

But just as the Dow is kissing the top of this channel, it might be creating back-to-back “monthly” bearish ...



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Insider Scoop

Benzinga's Top Upgrades, Downgrades For February 25, 2020

Courtesy of Benzinga

Upgrades
  • Sidoti & Co. changed the rating for FormFactor Inc (NASDAQ: FORM) from Neutral to Buy. For the fourth quarter, FormFactor had an EPS of $0.41, compared to year-ago quarter EPS of $0.31. The stock has a 52-week-high of $28.58 and a 52-week-low of $14.20. FormFactor's stock last closed at $23.16 per share.
Downgrades
  • Dougherty downgraded the stock for Palo Alto Networks Inc (NYSE: PANW) from Buy to Neutral. Palo Alto Networks earned $1.19 in the second quarter. The stock has a...


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The Technical Traders

Yield Curve Patterns - What To Expect In 2020

Courtesy of Technical Traders

Quite a bit of information can be gleaned from the US Treasury Yield Curve charts.  There are two very interesting components that we identified from the Yield Curve charts below.  First, the bottom in late 2018 was a very important price bottom in the US markets.  That low presented a very deep bottom in the Yield Curve 30Y-10Y chart.  We believe this bottom set up a very dynamic shift in the capital markets that present the current risk factor throughout must of the rest of the world.  Second, this same December 2018 price bottom set up a very unique consolidation pattern on the 10Y-3Y Yield Curve chart.  This pattern has been seen before, in late 1997-1998 and late 2005-2008.

...

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Chart School

Oil cycle leads the stock cycle

Courtesy of Read the Ticker

Sure correlation is not causation, but this chart should be known by you.

We all know the world economy was waiting for a pin to prick the 'everything bubble', but no one had any idea of what the pin would look like.

Hence this is why the story of the black swan is so relevant.






There is massive debt behind the record high stock markets, there so much debt the political will required to allow central banks to print trillions to cover losses will likely effect elections. The point is printing money to cover billions is unlikely to upset anyone, however printing trillions will. In 2007 it was billions, in 202X it ...

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Members' Corner

Threats to democracy: oligarchy, feudalism, dictatorship

 

Threats to democracy: oligarchy, feudalism, dictatorship

Courtesy of David Brin, Contrary Brin Blog 

Fascinating and important to consider, since it is probably one of the reasons why the world aristocracy is pulling its all-out putsch right now… “Trillions will be inherited over the coming decades, further widening the wealth gap,” reports the Los Angeles Times. The beneficiaries aren’t all that young themselves. From 1989 to 2016, U.S. households inherited more than $8.5 trillion. Over that time, the average age of recipients rose by a decade to 51. More ...



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Digital Currencies

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

 

Altcoin season 2.0: why bitcoin has been outgunned by crypto rivals since new year

‘We have you surrounded!’ Wit Olszewski

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

When bitcoin was trading at the dizzying heights of almost US$2...



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ValueWalk

What US companies are saying about coronavirus impact

By Aman Jain. Originally published at ValueWalk.

With the coronavirus outbreak coinciding with the U.S. earnings seasons, it is only normal to expect companies to talk about this deadly virus in their earnings conference calls. In fact, many major U.S. companies not only talked about coronavirus, but also warned about its potential impact on their financial numbers.

Q4 2019 hedge fund letters, conferences and more

Coronavirus impact: many US companies unclear

According to ...



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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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