The economy...I am so confused....

[Devildoc]

So the divining of the tea leaves and going to the Ouiji board may work in figuring out the economy because the experts are not in consensus. I present two articles from today:

Obama cheers economy as 'pretty darn great' :: WRAL.com

Jim Rogers: There's a 100% Probability of a U.S. Recession Within a Year

 

[Red Flag 1]

So the divining of the tea leaves and going to the Ouiji board may work in figuring out the economy because the experts are not in consensus. I present two articles from today:

Obama cheers economy as 'pretty darn great' :: WRAL.com

Jim Rogers: There's a 100% Probability of a U.S. Recession Within a Year

I have no idea who Jim Rogers is, but his creds look good. Now the guy saying, "pretty darn good" ( wonderfully solid term ), I've watched for too long, questionable creds, and I do not believe him.

My "pretty darn good" $.02.

 

[AWP]

I worked at Merrill Lynch in one of its many IT departments from '06-'08 (I haven't always been a soulless AWP). When Stan O'Neal, the CEO, was ousted in late 2007, ML spun it and the media kind of shrugged. We could tell something was going on, but no one saw it coming. Few people predicted the economy's implosion and those who did were generally ignored. Post-bubble the "experts" all had opinions and predictions, but how many of those were right?

Economic predictions are maybe less reliable than your local weatherman.

 

[Devildoc]

Although I have a whole whopping 6 hours of econ with my poli sci degree, I admit there's just so much about the global economy I find a) utterly bewildering, b) utterly fascinating, and c) utterly terrifying. I posted these because I found it humorous that within 20 seconds I saw two totally divergent views on the economy's future.

 

[Brill]

I worked at Merrill Lynch in one of its many IT departments from '06-'08 (I haven't always been a soulless AWP). When Stan O'Neal, the CEO, was ousted in late 2007, ML spun it and the media kind of shrugged. We could tell something was going on, but no one saw it coming. Few people predicted the economy's implosion and those who did were generally ignored. Post-bubble the "experts" all had opinions and predictions, but how many of those were right?

Economic predictions are maybe less reliable than your local weatherman.

The economy is linked to money...:-"...and therefore is subjected to manipulation by forces who profit when it expands and when it shrinks. The economy is akin to an athlete who's medical stats are posted online and the "experts", depending on their slant (cuz they're in it for the $$$$), may be bearish or bullish (money is made on both scenarios).

Bottom line is to look/follow the experts who look at the data...not those who tell you what it means. Everyone is looking at China but who's looking at South America??? What's going on there?

Regarding future predictions, there is now a lot of credence in "Dragon King" theory (but also people try to debunk it). The vast majority of economists agree that QE is a short-term fix that was intended to get ease the world's economies into correcting the various bubbles. The problem is we've using it as an unsustainable way to convert red to black on our balance sheets (QE added 4 TRILLON dollars of unsecured debt to our books).

Now that QE is over, borrowing rates will rise but who's buying anything on credit? Major companies are hording cash but our consumer economy REQUIRES Joe-sixpack to take out a loan (bank makes $$$), buy something (seller makes $$$$), so seller can expand via borrowing more from bank, and Joe's neighbor buys (via loan, etc.).

Slow borrowing makes bank boards nervous so they call loans...inability to repay causes serious problems and tightens credit markets...unless the USG is involved and ensures that banks will NO MATTER WHAT get repaid (e.g. student loans).

GET OUT OF (OR MINIMIZE) PERSONAL DEBT, which is modern day slavery.

 

[Isiah6:8]

I would just say read as many as you can and try to formulate your own opinions on what you are reading and taking in. Realize that those reports are usually in line with their firms thoughts. Those reports are always pitching something, no matter who puts it out. Always.

The markets are simply put a series of under and over reactions to events in an attempt to find a perfect price for an asset. You should always see two sides and differing opinions, that is what gives us a market. Every transaction there is a winner and a loser and we need a buyer and seller so to speak.

Get out of personal debt is a great comment. Bigger take away is that if people lived within their means they will most likely better weather turbulence in the markets and economy. Get a safety fund started of 6 months of living, then set a goal for longer. What happens is that people get complacent and extend themselves, then some unforeseen event to them occurs and BAM, they are screwed. I can't stress that enough.

South America follows it doesn't lead, if something happens in SA it doesn't blow up the world economy. If something happens in the US, or with China and our T's, that changes the landscape. Which is why the emphasis is on China coupled with the fact that you can't trust state sponsored numbers so nobody really understands the exact shape of their economy.

The Dragon King theory I haven't heard been brought up once in a meeting with any economist this year. People understand tail risk, but that is why hedges are just in case and not just in time.

 

[Brill]

South America follows it doesn't lead, if something happens in SA it doesn't blow up the world economy. If something happens in the US, or with China and our T's, that changes the landscape.

I would argue it's the canary in the coalmine! Our QE is done, lots of talk of rich "paying their fair share", and Bakken is all but bust (our rig count is WAY down).

"COSTLY STIMULUS

Brazil, once the world's seventh-biggest economy, has been underperforming since 2011, the year Rousseff took office. A sharp increase in government spending and subsidized credit underpinned the labor market until 2014, at the cost of fueling inflation and eroding government finances.

The recession took root just as Rousseff started to roll back the costly stimulus policies, hiking taxes and interest rates and slashing investments in oil production."

Brazilian economy's steep slide raises specter of depression

Exactly like @Isiah6:8 wrote, every time there is a transaction, SOMEONE is making money.

 

[Marine0311]

Why is the price of gas going down?

 

[Isiah6:8]

Why is the price of gas going down?

Oil down, gasoline down in simplest terms. US attempted and succeeded in collapsing the price spread between the five different oils traded to hit oil centric countries (Russia primarily for Ukraine) in the pocket (just a thought). Saudis then made a decision that they would squeeze out the US shale producers and what happened was something that was not in any economic model. Oil fell below what many thought was rational and modeled for. Literally, the models had such a low probability of oil dipping that low that when it hit a certain price level, it was free to drop farther since it was so unexpected. We now have lower gasoline however, that is not a net benefit to GDP as many initially thought. I believe initial estimates thought it would be .3+ to GDP and it is actually a net negative to GDP.

@lindy I need to read up a bit and gather my thoughts coherently on this but I am leaning towards it not being a canary but more of a consequence without minimizing the importance of what you bring up. I will speak to someone on Monday who is much more informed than I on SA, and come back with some thoughts. Some of my initial thoughts are that many Latin American countries have flawed economic policy as is which muddles the water on what is their own flaw and what is pressed on to them from outside. Definitely interesting and lots to think about.

 

[Brill]

Why is the price of gas going down?

Many experts blame fracking in US for the oversupply and OPEC seems to desire to put them (US frackers) out of business.

Why crude oil prices keep falling and falling, in one simple chart

Crude oil increased 1.57 USD/BBL or 4.52% to 36.30 on Friday March 4 from 34.73 in the previous trading session. Crude oil lost 14.46 USD/BBL or 28.49 percent during the last 12 months from 50.76 USD/BBL in March of 2015. Historically, Crude oil reached an all time high of 145.31 in July of 2008 and a record low of 1.17 in February of 1946.

Crude oil | 1946-2016 | Data | Chart | Calendar | Forecast | News

Personally, my plan is holding tight in various "dividend aristocrats" and later this summer/fall, make a move to Chevron or Exxon.

 

[Diamondback 2/2]

Many experts blame fracking in US for the oversupply and OPEC seems to desire to put them (US frackers) out of business.

Why crude oil prices keep falling and falling, in one simple chart

Crude oil increased 1.57 USD/BBL or 4.52% to 36.30 on Friday March 4 from 34.73 in the previous trading session. Crude oil lost 14.46 USD/BBL or 28.49 percent during the last 12 months from 50.76 USD/BBL in March of 2015. Historically, Crude oil reached an all time high of 145.31 in July of 2008 and a record low of 1.17 in February of 1946.

Crude oil | 1946-2016 | Data | Chart | Calendar | Forecast | News

Personally, my plan is holding tight in various "dividend aristocrats" and later this summer/fall, make a move to Chevron or Exxon.

Yeah I totally agree with investing with a large well established oil company this coming summer. There will be money made if you can sit on it for a couple years.

Regarding your other post and the QE, I can't remember where I read or saw it, but the dude who basically ran the program for the FED said it was a big mistake and had little influence over the economy. Something like half that was given to banks, was sat on by the banks and not used to loans as it was supposed to be, etc.

Good posts.

 

[SpongeBob*24]

My family has been in OIL for 30+ years, right now life sucks for the entire region.
Other regions are happy cause gas is cheaper then it has been since Katrina hit.
Oil Towns are going under...but other towns are growing stronger cause people can afford to gas up and go shop.

Its a cycle.....and It always buffs out!

 

[TH15]

I think we are probably either already in recession or very near one. The unemployment rate is officially ~5%, but when you drill down into it that number isn't so great. For instance, the labor force participation rate is the lowest its been since the 1970s, so we essentially have a ton of people who have simply given up looking for work.

Second, the BLS numbers released every month that Obama, Wall Street, the markets, etc. tout so often are a joke. Reagan's former OMB Director David Stockman does a pretty good job debunking the BLS nonsenese and I'll link these at the end of the article [1] [2]. In short, the "recovery" has mostly consisted of service sector jobs (i.e. waitresses and bartenders) that are low paying, mostly part-time jobs. And, when you look at payroll data that companies file with the IRS, withholding are actually declining [3].

Corporate earnings are down. Our industrial and manufacturing industries are nearing or in recession territory. Other indicators of a recession on the horizon are credit spreads widening, and they are, and the inventory-t0-sales ratio is currently at levels not seen since the Great Recession.

In my view, I think we never really recovered from the last recession. QE was/is a lunatic monetary experiment that has done nothing to help the real economy. Artificially inflating asset prices doesn't help the average Joe, it benefits those who hold those assets who are mostly very wealthy individuals. And 0% interest rates for nearly a decade? Seriously? The Fed has starved savers at and forced them into riskier assets to find some sort of yield. Not to mention the distortion of virtually all financial assets that nearly a decade of 0% interest rates has wreaked on the market.

I'm rambling now, but I'll close by saying we ought to let recessions run their course without intervening.

[1]. Monthly Jobs Number Is the Most Useless Data Point Imaginable
[2]. Lies, Damn Lies, and BLS Statistics
[3]. Financial Time Bombs Hiding In Plain Sight

 

[Raptor]

My family has been in OIL for 30+ years, right now life sucks for the entire region.
Other regions are happy cause gas is cheaper then it has been since Katrina hit.
Oil Towns are going under...but other towns are growing stronger cause people can afford to gas up and go shop.

Its a cycle.....and It always buffs out!

I wish people would point out how it's affecting US oil businesses more. There's a lot less happiness about it among the families and friends of people who are losing jobs because of it.

 

[Isiah6:8]

@lindy thanks for a solid primer. The general consensus is that South America and namely Brazil would not be considered a canary in a coal mine. One would say that emerging markets in general could be and might be a canary in a coal mine.

For reasons listed above and namely that commodity producing countries are getting smoked right now due to China not being the end demand at this point would not lead one to say that they are a canary. Which answers some of your questions on why the emphasis on China. Look at how Canada, Australia, Brazil are fairing without Chinese production and need of commodity when they slow down production.

Here this could and might be a canary is when countries look at a weakening dollar and low treasury rate compared to the yield on their own country's "treasury" and thought they will borrow at a low rate and pay off debt in a weakening dollar environment and win on both ends of the trade. As that roll shifts and they go from winning on both ends to losing and now are facing a much tougher road ahead, that could be a solid indicator of future troubles in EM in general.

I would agree with a notion that EMs in general would have better predictive qualities than SA alone.

Just some thoughts and clearly not gospel, more of a sharing my thoughts from a discussion with another.

 

[Brill]

It's 3am, the bar lights just turned on, and the fatty is in the corner. Is our dollar high or are the world's currencies just in the shitter?

I highlighted Brazil because their fiscal policy was very similar to ours (cheap money for everyone) as well as a "green" (environmental) push but they were hurt by rampant corruption and inability to just increase their debt ceiling (simply add another zero to their balance sheets) so their interest rates are in double digits, high unemployment, GDP is negative, etc.

At least their debt/GDP ratio is only 67%...ours is 103% (we borrow our GDP + 3%!!!!).

 

[Isiah6:8]

They weren't hurt by rampant corruption as much as by the demand for what they produce. What government isn't corrupt? Milton has a great train of thought on that.

I guess I was saying it would be riskier to correlate things in SA to predict rather than taking a basket of EM countries and using the basket. SA and primarily Brazil wouldn't be my first choice.

I do think it is wise to look at the way EM countries attempt to use US/China monetary policy to their advantage especially when they start putting money on the table

 

[TH15]

The Fed once again proving it has no idea what it's doing. We're now 87 months into zero percent interest rates and real negative rates. At this point, I can only assume that the academics in the Eccles building have no idea what they're doing and are basically flying by the seat of their pants.