Meet The New Recession Cycle — It’s Triggered By Bursting Bubbles, Not Surging Inflation – David Stockman’s Contra-Corner 04-05-15

Salient to Investors:

David Stockman writes:

  • Chris Rupkey at MUFG Union Bank says consumers have emerged from the winter blues and if they spend anywhere as great as they feel, the economy will roar over the next few months. Rupkey and others have been expecting a roaring economy for several years but are wrong because they use a business cycle model that is erroneous and obsolete.
  • We are in a bubble finance world driven by Wall Street speculation.
  • The business cycle is essentially a product of central banking, which generates credit inflation and economic boom and bust.
  • The Fed of yesteryear was reactive, prudent and pre-Keynesian and mostly a passive watchman.
  • Global central banks are racing in the same direction of ease and rampant money printing, while for 80% of today’s debt saturated household balance sheets, spending is constrained to current wages and income regardless of the price of credit.
  • Capital markets are no longer honest with debt and equity capital priced correctly and executives rewarded for investing in long-term productive assets. Today, debt is drastically under-priced and financial engineering – stock buybacks and pointless M&A deals – are deeply subsidized and powerfully rewarded.
  • In the past, you got inflation in one country because there was no mobilized cheap labor pool and export factories in Asia to constrain the classic wage-price-cost spiral. Eventually, the Fed had to extinguish the very wage-price spiral it had caused.
  • The reason for the late 1970s consumer price explosion was not the presence of OPEC in the world oil market but the absence of the China labor force and the “china price” for tradeable goods in the face of massive monetary expansion.
  • ZIRP and QE have inflated financial assets rather than wages and prices as it did during the era of inflation in one country.
  • Central bankers believe that they can keep easing until a 1970s style inflationary spiral arises, but that will not come because their money printing of the last two decades has generated massive excessive capacity and malinvestment. Instead, expect an unprecedented global deflation as the financial bubbles burst for the third time this century.

Read the full article at http://davidstockmanscontracorner.com/meet-the-new-recession-cycle-its-triggered-by-bursting-bubbles-not-surging-inflation/

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U.S. Bond Sentiment Is Worst Since Disastrous ’09 – Bloomberg 12-29-14

Salient to Investors:

  • The median Wall Street forecast predicts the 10-yr T-yield to rise to 3.01% by the end of 2015, the 2-yr to rise more than double to 1.53%, and the 30-yr to rise to 3.70%. Wall Street calls for higher T-yields in 2015 are the most aggressive since 2009, when US debt securities suffered record losses.
  • Futures indicate an 88% percent chance the 2-yr will be at 1% or less.
  • 20% of investors, traders and analysts polled last month picked government bonds as the most likely asset to decline in 2015.
  • Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said 2015 should be the break-out year finally, and the market is wrong in ignoring Fed rhetoric that it is nearing tightening – expects the 10-year yield to rise to 3.4% by the end of 2015.
  • Boris Rjavinski at UBS said things are pointing to a pretty healthy recovery.
  • Peter Fisher at BlackRock Investment Institute said US interest rates will rise in 2015 and sees a global divergence in monetary policy and growth.
  • Guy LeBas at Janney Montgomery Scott said any rate increase will be tempered as the increasing number of older Americans leads to less spending and slower inflation while boosting demand for low-risk, fixed-income assets, and predicts the 10-year yield to end 2015 at 2.47%. The Census Bureau reports Americans 65 years old or older reached 14.2% of the US population in 2014 versus 12.4 % a decade ago.
  • Ira Jersey at Credit Suisse said increasing wage growth, stronger employment and the lowest gasoline prices in 5 years will boost household spending. Credit Suisse predicts 10-yr yields to rise to 3.35% by the end of 2015.

Read the full article at http://www.bloomberg.com/news/2014-12-29/u-s-bond-sentiment-is-worst-since-disastrous-09-as-fed-shifts.html

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Payrolls Rose in 33 U.S. States in June, Led by Florida – Bloomberg 07-18-14

Salient to Investors:

  • Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said we cannot keep getting payroll numbers like these and not admit that the labor market has healed. Rupkey said states with higher unemployment are seeing steep declines, and big-number declines equal big progress on putting America back to work.
  • BLS said state payroll figures are subject to larger sampling errors thus making the national figures more reliable.

Read the full article at http://www.bloomberg.com/news/2014-07-18/payrolls-rose-in-33-u-s-states-in-june-led-by-florida.html

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U.S. Economy Grew at 2.7% Rate, More Than First Estimated – Bloomberg 11-29-12

Salient to Investors:

Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ said the economy is growing moderately, and the disappointing pace of consumer spending is less worrisome as other sectors of the economy are doing better, like housing.

The median economist expects consumer spending to be at a 1.9 percent pace in Q3, and GDP to have grown at a 2.8 percent rate.

Two-thirds of global investors say the global economy is either stable or improving, the most since May 2011.

Jan Hatzius at Goldman Sachs said Sandy may trim as much as 0.5 percent from Q4 GDP, but reconstruction may add as much as 0.75 percent in Q1 2013.

Read the full article at http://www.bloomberg.com/news/2012-11-29/economy-in-u-s-grew-at-2-7-rate-more-than-first-estimated.html

.Austerity Doesn’t Pay as Debt Markets Ignore Rating Cuts – Bloomberg 06-18-12

Salient to Investors:

Bloomberg study of 314 upgrades, downgrades and outlook changes since 1974 shows interest rates moved in the opposite direction 47 percent of the time for Moody’s and for S&P. IMF studies show prices moved in the expected direction 45 percent of the time for developed countries and 51 percent for emerging economies. For outlook changes, the ratios were 67 percent and 63 percent.

Professor John Hund says the ratings have more potential to do harm than good, and are of little value.

Professor Paul Krugman says the austerity policies prized by the rating companies have the global economy on the brink of renewed recession, worsening fiscal prospects in an endless downward spiral.

The IMF has lowered its forecast for every EU country since last year.

NYU’s Richard Sylla said the SEC in 1975 foolishly increased the monopoly power of Moody’s and Standard & Poor’s and Fitch.

Chris Rupkey of Bank of Tokyo-Mitsubishi UFJ said the rating agencies are doing the world a huge disservice by frightening financial markets.

Read the full article at http://www.bloomberg.com/news/2012-06-18/austerity-doesn-t-pay-as-debt-markets-ignore-rating-cuts.html