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Economic Death Spiral? Potential :roost:ing ahead


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I don't want to be alarmist, but it appears that a variety of chickens are coming home to roost once again in the global economy. This shouldn't be construed as investment advice, but with the S&P 500 really only a few percent off of an ALL TIME HIGH, it might be a good time to consider how much exposure you want to have.

Key Reading:

http://www.bloomberg.com/news/articles/2016-02-05/citi-we-should-all-fear-oilmageddon?bcomANews=true

A couple items from a few months back that are still very relevant:

http://www.businessinsider.com/china-is-in-the-midst-of-a-triple-bubble-2015-7

http://www.economist.com/news/leaders/21678220-first-america-then-europe-now-debt-crisis-has-reached-emerging-markets-never-ending?zid=295&ah=0bca374e65f2354d553956ea65f756e0

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We're nearing the end of a bull cycle IMO - I wouldn't call it a death spiral, but I think there is some pain to be felt.

Edit: Unless the government intervenes and just kicks it further down the road.

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We're nearing the end of a bull cycle IMO - I wouldn't call it a death spiral, but I think there is some pain to be felt.

Edit: Unless the government intervenes and just kicks it further down the road.

The Fed could potentially blunt or forestall the risk of the "death spiral" by making it clear that we really aren't in a tightening cycle after all. That has been a meaningful part of the recent appreciation in the USD. But that is only one piece of the puzzle. And the market doesn't really believe the Fed will tighten further in 2016 anyway.

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I was reading participation rate was near a 30 year low

It is. If you add long-term discouraged workers back into the ranks of the unemployed (the government magically defined them away in 1994), then Unemployment has barely come down from its peak.

http://www.shadowstats.com/alternate_data/unemployment-charts

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I was reading participation rate was near a 30 year low

It is. If you add long-term discouraged workers back into the ranks of the unemployed (the government magically defined them away in 1994), then Unemployment has barely come down from its peak.

http://www.shadowstats.com/alternate_data/unemployment-charts

:lmao:http://rationalwiki.org/wiki/Shadow_Government_Statistics

Explains the guy who's blog you linked to...... The irony of the entire website is that Williams takes government reported statistics to make his apocalyptic predictions. He is a chronic doom and gloomer.

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I was reading participation rate was near a 30 year low

It is. If you add long-term discouraged workers back into the ranks of the unemployed (the government magically defined them away in 1994), then Unemployment has barely come down from its peak.

http://www.shadowstats.com/alternate_data/unemployment-charts

:lmao:http://rationalwiki.org/wiki/Shadow_Government_Statistics

Explains the guy who's blog you linked to...... The irony of the entire website is that Williams takes government reported statistics to make his apocalyptic predictions. He is a chronic doom and gloomer.

The only thing I linked was his employment chart. The long-term discouraged workers thing is factual. His figures may not be precisely correct, but directionally they are much more accurate than saying "we are near full employment".

Here is the labor force participation rate

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With today's jobs numbers, US economy is nearing full employment.

:lmao:

Government reported unemployment rate is 4.9%. Full employment is generally considered an unemployment rate between 4-5%.

Yep. And that stack is a joke that only journalists, politicians and the severely deluded would believe.

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To be completely honest, I'm actually fairly nervous about what could be on the horizon. As nervous as I've been in a while. Specifically, feels like the tech industry could be entering some major headwinds.

Not 2000 level bc these are real companies, with real products, and real revenues, however even as someone who works in this industry, I know some of these valuations are just silly.

Corporate investors who see a destabilizing market and are moving revenue to cash/bonds as their "safe investments" (The Apples, Googles, Verizon's, P&Gs, major banks of the world) start to fall will be pulling their investments from these high flying companies first (NFLX, LNKD, TSLA, AMZN, etc.).

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The prime age (25-54) employment rate is more relevant than that stupid overall participation rate stat (16 and older). Prime age has been making a comeback since the recession.

http://data.bls.gov/timeseries/LNS12300060

That may be a better measure, sure.

The point remains that by any reasonable measure (and the headline Unemployment rate isn't a reasonable measure), we are a long ### way from full employment.

There are still 6 million people who are working part-time but would prefer to be working full-time. http://data.bls.gov/generated_files/graphics/latest_numbers_LNS12032194_1980_2016_all_period_M01_data.gif

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One of these has to be right at some point.

Redmond = Lhucks?

I don't always post about doom & gloom, but when I do, the chickens come home to ####### roost.

The Original Chickens Coming Home to Roost Thread

Jesus that's one creepy thread.

Post from FavreCo on 7/26/2007:

The housing debacle WILL put the US into recession. Guaranteed. Watch and learn.

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what about the negative interest rate talk that's being broached by us and a reality for Japan? How does that factor into the death spiral?

It would reverse the strong dollar trend. That would help mitigate things a bit, but it doesn't fix the EM debt problem or help the countries whose economies are levered to oil and other commdities.

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One of these has to be right at some point.

Redmond = Lhucks?

I don't always post about doom & gloom, but when I do, the chickens come home to ####### roost.

The Original Chickens Coming Home to Roost Thread

Jesus that's one creepy thread.

Post from FavreCo on 7/26/2007:

The housing debacle WILL put the US into recession. Guaranteed. Watch and learn.

He is/was one weird ####er, but he got that part right.

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Hey Red - I'm 48 and plan to retire at 60. My 401k is balanced just about right for someone at my age. Are you suggesting to reallocate 401k's? Or is this just day trading stuff with play money?

I am not giving investment advice of any kind. It would be irresponsible for me to do so. I am just pointing out what is going on that might have escaped the notice of people that don't follow the markets and global economics closely.

If you have some kind of advisor, talk to him.

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Yeah I should have phrased that better. Are you making any moves with your long term savings like 401k?

I haven't, to this point, but we have been telling our clients that nothing looks good on the Macro side for a while and have been recommending bearish positioning in all sectors since the beginning of the year (and much longer in some sectors).

I may adjust my allocations a bit though.

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Peter Schiff is another guy who is a bit of a perma-bear, but I happen to think he is spot on here.

Clueless in Davos
Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital.
By:
Peter Schiff
Tuesday, January 26, 2016
Making their annual pilgrimage to the exclusive Swiss ski sanctuary of Davos last week, the world's political and financial elite once again gathered without having had the slightest idea of what was going on in the outside world. It appears that few of the attendees, if any, had any advance warning that 2016 would dawn with a global financial meltdown. The Dow Jones Industrials posted the worst 10 day start to a calendar year ever, and as of the market close of January 25, the Index is down almost 9% year-to-date, putting it squarely on track for the worst January ever. But now that the trouble that few of the international power posse had foreseen has descended, the ideas on how to deal with the crisis were harder to find in Davos than an $8.99 all-you-can-eat lunch buffet.
The dominant theme at last year's Davos conference, in fact the widely held belief up to just a few weeks ago, was that thanks to the strength of the American economy the world would finally shed the lingering effects of the 2008 financial crisis. Instead, it looks like we are heading straight back into a recession. While most economists have been fixated on the supposed strength of the U.S. labor market (evidenced by the low headline unemployment rate), the real symptoms of gathering recession are easy to see: plunging stock prices and decreased corporate revenues, bond defaults in the energy sector and widening spreads across the credit spectrum, rising business inventories, steep falls in industrial production, tepid consumer spending, a deep freeze of business investments and, of course, panic in China. The bigger question is why this is all happening now and what should be done to stop it.
As for the cause of the turmoil, fingers are solidly pointing at China and its slowing economy (with very little explanation as to why the world's second largest economy has just now come off the rails). And since everyone knows that Beijing's policymakers do not take advice from the Western financial establishment, the only solutions that the Davos elite can suggest is more stimulus from those central banks that do listen.
Interviewed on an investment panel in Davos, American multi-billionaire and hedge fund manager, Ray Dalio, perhaps spoke for the elite masses when he said, "...every country in the world needs an easier monetary policy." In other words, despite years (decades in Japan) of monetary stimulus, in the form of low, zero, and, in some cases, negative interest rates, and trillions of dollars in purchases of assets through Quantitative Easing (QE) programs, what the world really needs is more of the same. Lots more. Despite the fact that no country that has pursued these policies has yet achieved a successful outcome (in the form of sustainable growth and a subsequent return to "normal" monetary policy), it is taken as gospel truth that these remedies must be administered, in ever-greater dosages, until the patient improves. No one of any importance in Davos, or elsewhere for that matter, seems willing to question the efficacy of the policies themselves. And since the U.S. Federal Reserve is the only central bank officially considering policy tightening at present, Dalio's comments should be seen as squarely addressing the Fed. But apparently they were not.
While economists are calling for central banks in Brussels, Beijing, and Tokyo to pull out more of the monetary stops, few have called for the Federal Reserve in Washington to do the same. Most on Wall Street are, publicly at least, supporting rate increases from the Fed, albeit at a slower pace than what was envisioned just a few months, or even weeks, ago. As many economists were very public in excoriating the Fed for moving too slowly in 2015, perhaps they are unwilling to admit that their confidence was misplaced. Many also may realize the colossal embarrassment that would await Fed policymakers if they were to reverse policy so quickly. To have waited nearly 10 years to raise interest rates in the U.S., only to cut rates less than three months later would be to admit that the Fed was both clueless AND ineffective. This could cause an even greater panic as investors became aware that there is no one flying the plane.
But perhaps the main reason other central bankers are reluctant to urge the Fed to ease is that the United States is supposedly the poster boy that proves quantitative easing actually works. After all, the rest of the world is being told to emulate the successes that were achieved in the U.S. Ben Bernanke had the courage to act while European central bankers were too timid, and the result was not only full employment and a recovery strong enough to withstand higher rates in the U.S., but a best-selling book and magazine covers for Bernanke. The world's central bankers are not quite ready to consign Bernanke's book to the fiction section where it rightfully belongs, as it would call into question their own commitment to following a failed policy.
But some doubt is starting to creep in publicly. An underlying headline in a January 25 story in the Wall Street Journal finally said what most mainstream pundits have refused to say: "Fed is a key reason markets have plunged and risk of recession is rising." But even in that article, which analyzes why six years of zero percent interest rates created bubble-like conditions that were vulnerable to even the small pin that a 25-basis point increase would provide, the Journal was reluctant to say that the Fed should begin to ease policy. At most, they seemed to urge the Fed to call off any future increases until the market could adjust and digest what has already happened.
However, George Soros, another legendary hedge fund billionaire (with a well-known political agenda), is dipping his toes in that controversial pool, by nearly telling the Fed that the time had come to face the music and eat some humble pie. In an interview with Bloomberg Television's Francine Lacqua on January 17, Soros claimed that the Fed's decision to raise rates in December was "a mistake" and that he "would be surprised" if the Fed were to compound the mistake by raising rates again. (Officially the Fed has forecast that it is likely to boost rates four times in 2016). When pressed on whether the Fed would actually do an about-face and cut rates, Soros would simply say that "mistakes need to be corrected and it [a Fed reversal] could happen." Look for many more investors to join the crowd and call for a reversal, regardless of the loss of credibility it would cause Janet Yellen and her crew.
But when I publicly made similar statements months ago, saying that if the Fed were to raise rates, even by a quarter point, the increase would be sufficient to burst the stock bubble and tip the economy into recession, my opinions were considered completely unhinged. My suggestion that the Fed would have to later reverse policy and cut rates, after having raised them, was looked at as even more outrageous, akin to predicting that the U.S. would be invaded by Canada. Now those pronouncements are creeping into the mainstream.
I was able to see through to this scenario not because I have access to some data that others don't, but because I understood that stimulus in the form of zero percent interest rates and quantitative easing is not a means to jump start an economy and restore health, but a one-way cul-de-sac of addiction and dependency that pushes up asset prices and creates a zombie economy that can't survive without a continued stimulus. In the end, stimulus does not create actual growth, but merely the illusion of it.
This is consistent with what is happening in the global economy. China is in crisis because commodities and oil, which are priced in dollars, have sold off in anticipation of a surging dollar that would result from higher rates. The financial engineering that has been made possible by zero percent interest rates is no longer available to paper over weak corporate results in the U.S. Our economy is addicted to QE and zero rates, and without those supports, I feel strongly we will spiral back into recession. This is the reality that the mainstream tried mightily to ignore the past several years. But the chickens are coming home to roost, and they have a great many eggs to lay.
Investors should take heed. The bust in commodities should only last as long as the Fed pretends that it is on course to continue raising rates. When it finally admits the truth, after its hand is forced by continued market and economic turmoil, look for the dollar to sell off steeply and commodities and foreign currencies to finally move back up after years of declines. The reality is fairly easy to see, and you don't need an invitation to Davos to figure it out.
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For those of us under 40, I assume this is not mega significant. Just keep investing and 401k-ing as per usual?

But the S&P 500 is almost at an all time high

Good point. I'll wait for it to hit an all time low

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For those of us under 40, I assume this is not mega significant. Just keep investing and 401k-ing as per usual?

I am, although I might throw some dollars at commodities while they are low (small % of what I own now, only through mixes of other index funds).

Under 40 for 5 more months. :suds:

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For those of us under 40, I assume this is not mega significant. Just keep investing and 401k-ing as per usual?

I am, although I might throw some dollars at commodities while they are low (small % of what I own now, only through mixes of other index funds).

Under 40 for 5 more months. :suds:

Right there with you, almost to the day :banned:

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Fed’s Mester downplays market volatility:
  • Cleveland President Mester (FOMC voter) noted recent market volatility poses some risks, but does not change her outlook for continued US economic growth and labor market improvement. Argued solid jobs and income growth suggest economic fundamentals remain intact and said she expects US economy to work through latest episode of market turbulence and soft patch, even as energy and manufacturing remain challenged. Also reiterated expectations for inflation to return to Fed’s 2% target, though conceded it will take a bit longer than planned. Said Fed still on track for gradual rate hikes. Asked about a hike in March, she said that while Fed does not want to “shock” markets, policy should also not reflect market expectations that are likely to shift.

If this is the attitude of the FOMC as a whole, this is going to get really interesting. If the Fed is seen as likely to raise rates in March then the US Dollar is only going to continue to get stronger.

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