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5 More Signs That The Global Economy Is Careening Toward A Recession

5 More Signs That The Global Economy Is Careening Toward A Recession

The global economy is already in the worst distress that we have seen since 2008, and it appears that the global slowdown is actually picking up pace as we head into 2020. And this is happening even though central banks around the world have been cutting interest rates and pumping massive amounts of money into their respective financial systems. The central bankers appear to be losing control, and it certainly wouldn’t take much of a push for this new crisis to evolve into a complete and utter nightmare. The U.S. economy hasn’t been hit quite as hard as economies in Asia and Europe have been, but without a doubt things are slowing down here too. Corporate earnings have been falling quarter after quarter, auto loan delinquencies just hit a record high, the Cass Freight Index has declined for 11 consecutive months, and we just witnessed the largest drop for U.S. industrial production since 2009. Everywhere around us there is bad economic news, but most Americans are still completely oblivious to what is happening.

In this article, I am going to share even more evidence that a global economic slowdown has already begun. When you add these numbers to all of the other numbers that I have been sharing in recent weeks, it becomes impossible to deny that something major is taking place.

The following are 5 more signs that the global economy is careening toward a recession…

#1 It is being projected that global auto sales will be down approximately 4 percent this year. According to CNN, this will be the second consecutive year that global auto sales have fallen…

…click on the above link to read the rest of the article…

Brace For Impact! The U.S. Economy Is Going Down, And It Is Going Down Hard…

Brace For Impact! The U.S. Economy Is Going Down, And It Is Going Down Hard…

I have so many bad economic numbers to share with you that I don’t even know where to start. I had anticipated that the U.S. economic slowdown would accelerate during the fourth quarter of 2019, and that is precisely what has happened. The Federal Reserve is trying to do all that it can to keep us from officially slipping into a recession, and the federal government is literally spending money as if tomorrow will never come, but all of that intervention has not been enough to reverse our economic momentum. We are really starting to see conditions begin to deteriorate very rapidly now, and 2020 is already shaping up to be the most pivotal year for the U.S. economy since 2008.

Let me start my analysis by discussing how U.S. consumers are doing right now. According to CBS News, a major new study that was just released found that 70 percent of all Americans are struggling financially…

Many Americans remain in precarious financial shape even as the economy continues to grow, with 7 of 10 saying they struggling with at least one aspect of financial stability, such as paying bills or saving money.

The findings come from a survey of more than 5,400 Americans from the Financial Health Network, a nonprofit financial services consultancy. The project, which started a year ago, is aimed at assessing people’s financial health by asking about debt, savings, bills and wages, among other issues.

That sure doesn’t sound like a “booming economy”, does it?

And even though things are already really tough for millions upon millions of American families, it appears that things are rapidly getting worse. In fact, we just witnessed the largest decline for the Bloomberg Consumer Comfort Index since 2008

 …click on the above link to read the rest of the article…

GDP Estimates Crash on Dismal Economic Reports

GDP Estimates Crash on Dismal Economic Reports

GDP Estimates are well below 1.0% following industrial production and retail sales estimates.

The GDPNow model forecast for the fourth quarter took a dive today to 0.3% from 1.0% a week ago. Similarly, the Nowcast model fell to 0.4% from 0.7%.

Pat Higgins at GDPNow explains:

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2019 is 0.3 percent on November 15, down from 1.0 percent on November 8. After this morning’s retail trade releases from the U.S. Census Bureau, and this morning’s industrial production report from the Federal Reserve Board of Governors, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.1 percent and -2.3 percent, respectively, to 1.7 percent and -4.4 percent, respectively.”

Real gross private domestic development is now clocking at -4.4%.

Wow.

Recession Warnings

A bit ago I noted Industrial Production Dives and It’s Not All Strike Related.

Trucking provide another recession warning: Freight Volumes Negative YoY for 11th Straight Month

Donald Broughton, founder of Broughton Capital and author the Cass Freight Index says the index signals contraction, possibly by the end of the year. That’s just one one month away.

Strike Resolved

The GM strike is resolved. We will soon find out how much strike-related damage there was, but the risk is over-estimating the rebound going forward.

The trade deal with China is still unresolved.

What Heavy Trucks Are Saying

What Heavy Trucks Are Saying

“I do believe that in North America it is a cyclical downturn”: Cummins COO.

Orders for heavy trucks, after the historic boom in 2018, plunged this year, but they may have finally bottomed out. In October 2019, truck makers in the US received about 22,072 orders for Class-8 trucks, according to preliminary estimates by FTR Transportation Intelligence. While up by about 10,000 orders from the dismal levels in September, and the highest number so far this year, orders were still down 51% from October last year ago, “signifying a subdued beginning to the traditional start of the ordering season,” FTR said:

“The order level was boosted by a couple of big fleets placing large orders into 2020, but otherwise smaller orders were placed for the first quarter build,” FTR said in a statement. “Cancellations are expected to remain elevated as OEM’s shake out excess 2019 orders from the backlog.”

These OEMs are Freightliner, the largest truck maker in the US, and Western Star, both divisions of Daimler; Peterbilt and Kenworth, divisions of Paccar [PCAR]; Navistar International [NAV]; and Mack Trucks and Volvo Trucks, divisions of Volvo Group.

The historic boom of Class-8 truck orders that started in late 2017 and roared through most of 2018 was a result of a series of events triggered by all kinds of companies trying to front-run potential tariffs. Companies ordered excessively to dodge the tariffs, and they filled their warehouses, and it triggered a shipment boom. To meet this demand, trucking companies responded by ordering a historic number of trucks.

But this boom began to unwind in late 2018, and then turned into a collapse of orders that lasted through September 2019 when it appeared to have hit bottom. October looked better. But October 2016 looked better too, only to be followed by a very tough year. Orders in October 2019 were the lowest for any October since 2016:

 …click on the above link to read the rest of the article…

November 4th, 2019… Back in the Real World…

November 4th, 2019… Back in the Real World… 

Trawling through the market headlines this morning, I’m struck by the number of comments about how much better the investment environment looks. There is less likelihood of a global recession, corporate earnings aren’t as bad as expected, and jobs are growing. I am unconvinced. I see worrying connections across the wires.  From my perspective – which admittedly has been from a train in the middle of nowhere – its feels we’ve reached the end of the something.  Time has been called on this particular era of irrational market exhuberance. 

My spidey senses are tingling due to manner in which events across markets, individual stocks, politics, geopolitics and gut-instinct are connected. I’m not predicting sudden or massive financial collapse – just a wake up and smell the coffee correction in Bonds (which feels underway), and selective deflation in over-optimistic sectors of the stock markets. As always, any reversal will set off wailing and despair, yet most of the critical lessons will be missed.  Fear not – we will get another chance to relearn them in a few years time! (Blain’s Market Mantra No 2: The Market has no memory.)

It’s just as well we aren’t heading for the deep prolonged global recession so many naysayers have been predicting thru 2019. Slowdown yes. Trade is going to remain a problem. But growth drivers were changing anyway. Tech will change the world’s trade roads. China’s furious growth spurt of the last 20 years is over. India might be growing, but it lacks the state momentum to drive global growth the way China did. And climate change will prove deeply significant in the future as consumers are persuaded to believe food miles and imports matter. 

 …click on the above link to read the rest of the article…

The Allure and Limits of Monetized Fiscal Deficits

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The Allure and Limits of Monetized Fiscal Deficits

With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.

NEW YORK – A cloud of gloom hovered over the International Monetary Fund’s annual meeting this month. With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. Among other things, investors and economic policymakers must worry about a renewed escalation in the Sino-American trade and technology war. A military conflict between the United States and Iran would be felt globally. The same could be true of “hard” Brexit by the United Kingdom or a collision between the IMF and Argentina’s incoming Peronist government.

Still, some of these risks could become less likely over time. The US and China have reached a tentative agreement on a “phase one” partial trade deal, and the US has suspended tariffs that were due to come into effect on October 15. If the negotiations continue, damaging tariffs on Chinese consumer goods scheduled for December 15 could also be postponed or suspended. The US has also so far refrained from responding directly to Iran’s alleged downing of a US drone and attack on Saudi oil facilities in recent months. US President Donald Trump doubtless is aware that a spike in oil prices stemming from a military conflict would seriously damage his re-election prospects next November.

The United Kingdom and the European Union have reached a tentative agreement for a “soft” Brexit, and the UK Parliament has taken steps at least to prevent a no-deal departure from the EU. But the saga will continue, most likely with another extension of the Brexit deadline and a general election at some point.

 …click on the above link to read the rest of the article…

Federal Reserve Chair Jerome Powell Insists There Won’t Be A Recession When All The Evidence Suggests Otherwise

Federal Reserve Chair Jerome Powell Insists There Won’t Be A Recession When All The Evidence Suggests Otherwise

It’s happening again.  Just like last time around, the head of the Federal Reserve is telling us that there won’t be a recession even though all of the evidence suggests otherwise.  Just before the recession of 2008, Federal Reserve Chair Ben Bernanke told the country that “the Federal Reserve is not currently forecasting a recession”, and shortly thereafter we plunged into the worst economic downturn since the Great Depression of the 1930s.  This time, it is Federal Reserve Chair Jerome Powell that is attempting to prop things up by making positive statements that are not backed up by reality.  Speaking to a group at the University of Zurich, Powell insisted that the Fed is “not at all” anticipating that there will be a recession…

Federal Reserve Chairman Jerome Powell said Friday that he doesn’t “at all” expect the U.S. to enter a recession, though he hinted the central bank will likely cut interest rates as expected this month.

“Our main expectation is not at all that there will be a recession,” Powell said in a panel discussion at the University of Zurich.

Meanwhile, things are literally falling apart all around us.  Just a few days ago, I put together a list of 28 data points that clearly indicate that a recession is imminent, and since then we have gotten even more bad news.

For instance, we just learned that Fred’s will be filing for bankruptcy and closing more than 500 stores

Discount merchandise retailer and pharmacy chain Fred’s filed for Chapter 11 bankruptcy Monday with plans to close all of its stores.

The company plans to liquidate its assets, punctuating a swift collapse of its operations that involved a cascading series of store closures in recent months.

 …click on the above link to read the rest of the article…

Sluggish Oil Demand To Keep A Lid On Oil Prices Amid Global Recession Fears

Sluggish Oil Demand To Keep A Lid On Oil Prices Amid Global Recession Fears 

John Kemp, senior market analyst of commodities at Reuters, cites a new report via B.P.’s finance chief that indicates global oil consumption will be less than 1 million barrels per day this year, an ominous sign that the global economy is quickly deteriorating.

Kemp said growth is expected to be less than one million barrels per day (bpd) would represent an increase of less than 1% in global oil consumption and the lowest level of growth since 2014 and before that 2012.

Back then, declining demand was due to elevated oil prices averaging above $100 per barrel in real terms. Now prices trend in the $50-$60 range for WTI, confirming that even with low oil prices, demand is nowhere to be seen.

B.P.’s global oil consumption is the most bearish among other predictions from the International Energy Agency (+1.1 million bpd), OPEC (+1.1 million) and the U.S. Energy Information Administration (+1.0 million).

Waning demand for oil across the world is the result of a global manufacturing recession festering underneath the surfaceThe global synchronized decline is structural and started in 4Q17, several months later, the trade war between the U.S. and China erupted in 1Q18.

Source: Bloomberg

Since global GDP drives oil consumption. Kemp shows that the World Bank (“Global economic prospects,” June 2019) data is indicating world growth will be in a slump this year. Estimates show global GDP has been revised lower from 3.0% in 2018 to just 2.6% in 2019.

Global GDP growth is at the same level as 2014 and before that 2012. So it makes sense why oil consumption has dropped to a five year low, it’s because the global economy has lost tremendous amounts of momentum, now reversing into a vicious downturn.

 …click on the above link to read the rest of the article…

Trucking Recession: Heavy-Duty Truck Orders Collapse, Production Slashed, Cancellation Orders Soar

Trucking Recession: Heavy-Duty Truck Orders Collapse, Production Slashed, Cancellation Orders Soar

New reports from the trucking industry show the transportation recession continues to gain momentum through the end of summer, likely to continue through 2019 into 1H20.

The US trucking industry had a blockbuster year in 2018, as high demand for freight allowed transportation companies to expand fleets. But since freight demand was artificial, sparked by importers pulling forward to get ahead of tariffs, the good times were destined to end and end rather sharply.

The Institute for Supply Management’s purchasing managers index plunged to 49.1 in August, the first time a contraction has been seen since 2016. Prints below 50 suggest the manufacturing economy is shrinking. Data also showed new orders dropped to a seven-year low, while the production index hit 2015 lows.

A transportation/manufacturing recession is developing, but it didn’t start overnight. The first signs of a slowdown began last summer when freight rates peaked last June, and have since collapsed 20% through this year, reported The Wall Street Journal.

“There are more trucks than there are loads now,” said Kyle Kottke, general manager for Kottke Trucking Inc. in Buffalo Lake, Minn.

Production for new trucks is still elevated, as manufacturers fulfill orders placed last year, but new purchases and production volumes are starting to weaken.

According to ACT Research, heavy-duty truck orders from the four largest truck makers in North America (Daimler Trucks North America, Paccar, Volvo Trucks USA, and Navistar International) collapsed 80% in July YoY. Orders in June plunged 69% from a year earlier.

As heavy-duty truck orders collapse, suppliers, such as ones who produce transmissions have predicted that the outlook for sales this year will be horrible.

XL Specialized Trailers, a manufacturer of specialized trailers for hauling heavy things, has warned that in the last three months, orders have plummeted.

 …click on the above link to read the rest of the article…

Powell “Not Forecasting a Recession”

Powell “Not Forecasting a Recession”

In a speech today in Zurich Switzerland, Jerome Powell stated the Fed is not forecasting a recession.

YouTube Video of Zurich Conference

​The Fed has never forecast a recession, even after they have started.

It reminds me of Bernanke’s denials on the housing bubble.

No Comment on Trade?


1st and 3rd appear a bit opposing.

View image on Twitter

Everything’s Fine


The Economy is great. The only thing adding to “uncertainty” is the Fake News!


Accurate Reader Comment

“Not only has the Fed never forecast a recession they’ve never forecast a crash or bubble. But that hasn’t stopped them from telling us we don’t have a bubble or crash on the horizon.”

Uh Oh: U.S. Layoffs Rise 38 Percent – Highest Level For August Since 2009

Uh Oh: U.S. Layoffs Rise 38 Percent – Highest Level For August Since 2009

We continue to get more numbers that indicate that U.S. economic activity is really starting to slow down.  According to Challenger, Gray & Christmas, the number of layoffs in the United States was 38 percent higher in August than it was in July.  A 38 percent increase in one month is more than just a little bit startling, and many believe that if this momentum continues we could soon be facing an avalanche of job losses similar to what we witnessed in 2008.  And without a doubt, all of the other economic numbers that have been rolling in lately also confirm that the U.S. economy is heading into harder times.  But is our country ready to handle another major economic downturn?

Even though there have been moments of difficulty over the past decade, we truly haven’t seen anything like this since the last recession.  In fact, the latest job cut numbers that we just got from Challenger, Gray & Christmas are the highest that we have seen during any August since 2009

Employers also announced the most layoffs of any August since 2009, the outplacement firm Challenger, Gray & Christmas said.

Job cuts rose 38 percent over July, with 53,480 positions to be slashed from employer payrolls, led by workforce reductions in health care, which had been a mainstay of recent job creation, the tech sector and manufacturing.

So why is this happening?

Well, certainly there are many factors at play, but Andrew Challenger has singled out “the trade war” as one of the biggest reasons

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the US and China,” Andrew Challenger, the firm’s vice president, said in a statement.

Other nations are really starting to feel the effects of the trade war as well.  This week, Germany reported a startling drop in new manufacturing orders

 …click on the above link to read the rest of the article…

28 Signs Of Economic Doom As The Pivotal Month Of September Begins

28 Signs Of Economic Doom As The Pivotal Month Of September Begins

Since the end of the last recession, the outlook for the U.S. economy has never been as dire as it is right now.  Everywhere you look, economic red flags are popping up, and the mainstream media is suddenly full of stories about “the coming recession”.  After several years of relative economic stability, things appear to be changing dramatically for the U.S. economy and the global economy as a whole.  Over and over again, we are seeing things happen that we have not witnessed since the last recession, and many analysts expect our troubles to accelerate as we head into the final months of 2019.

We should certainly hope that things will soon turn around, but at this point that does not appear likely.  The following are 28 signs of economic doom as the pivotal month of September begins…

#1 The U.S. and China just slapped painful new tariffs on one another, thus escalating the trade war to an entirely new level.

#2 JPMorgan Chase is projecting that the trade war will cost “the average U.S. household” $1,000 per year.

#3 Yield curve inversions have preceded every single U.S. recession since the 1950s, and the fact that it has happened again is one of the big reasons why Wall Street is freaking out so much lately.

#4 We just witnessed the largest decline in U.S. consumer sentiment in 7 years.

#5 Mortgage defaults are rising at the fastest pace that we have seen since the last financial crisis.

#6 Sales of luxury homes valued at $1.5 million or higher were down five percentduring the second quarter of 2019.

#7 The U.S. manufacturing sector has contracted for the very first time since September 2009.

#8 The Cass Freight Index has been falling for a number of months.  According to CNBC, it fell “5.9% in July, following a 5.3% decline in June and a 6% drop in May.”

 …click on the above link to read the rest of the article…

Negative interest rates and gold

Negative interest rates and gold 

The reason for persistent strength in the price of gold can be found in the changing relationship between time preference for monetary gold, and a new round of interest rate suppression for the dollar. Evidence mounts that the forthcoming recession is likely to be significant, even turning into a deep slump. Bullion bank traders are waking up to the possibility that dollar interest rates are going to zero and that pressure is likely to be put on the Fed to introduce negative rates. The laws of time preference tell us bullion banks must urgently cover their short bullion positions in anticipation of a dollar rate-induced permanent backwardation for gold, silver and across all commodities.

This article dissects the moving parts in this fascinating story.

Introduction

For some time now, I have maintained the wheels are likely to fall off the global economic wagon by the year-end. Furthermore, for many of my interlocutors, the recent rise in the gold price is just evidence of an impending cyclical crisis, anticipating and discounting the certain inflationary response by central banks. But in this, we are describing only surface evidence, not the underlying market reality.

In the combination of trade protectionism and an emerging credit crisis we face a problem upon which almost no formal research has been done, so it is not something that even far-thinking analysts have considered. To my knowledge, no mainstream economist has pointed out the lethal mix these two dynamics together present. Very few even recognise the existence of a credit cycle, traditionally called a trade or business cycle. Not even the great von Mises called it a cycle of credit, having identified and described it with great accuracy in his The Theory of Money and Credit, first published in 1912. But a spade must be called a spade: it is in its fundament a credit cycle.

 …click on the above link to read the rest of the article…

8-Reasons To Hold Some Extra Cash

8-Reasons To Hold Some Extra Cash

Over the past few months, we have been writing a series of articles that highlight our concerns of increasing market risk.  Here is a sampling of some of our more recent newsletters on the issue. 

The common thread among these articles was to encourage our readers to use rallies to reduce risk as the “bull case” was being eroded by slower economic growth, weaker earnings, trade wars, and the end of the stimulus from tax cuts and natural disasters. To wit:

These “warning signs” are just that. None of them suggest the markets, or the economy, are immediately plunging into the next recession-driven market reversion.

However, The equity market stopped being a leading indicator, or an economic barometer, a long time ago. Central banks looked after that. This entire cycle saw the weakest economic growth of all time couple the mother of all bull markets.

There will be payback for that misalignment of funds.

As I noted on Tuesday, the divergences between large-caps and almost every other equity index strongly suggest that something is not quite right.  As shown in the chart below, that negative divergence is something we should not discount.

However, this is where it gets difficult for investors.

  • The “bulls” are hoping for a break to the upside which would logically lead to a retest of old highs.
  • The “bears” are concerned about a downside break which would likely lead to a retest of last December’s lows.
  • Which way will it break? Nobody really knows.

This is why we have been suggesting raising cash on rallies, and rebalancing risk until the path forward becomes clear. Importantly:

 …click on the above link to read the rest of the article…

Peter Schiff: Gold Is Not Going to Stop This Time

Peter Schiff: Gold Is Not Going to Stop This Time

Gold has continued to push upward. The latest catalyst was another escalation of the trade war. Gold briefly moved above $1,550 in dollar terms. But it has done even better in relation to other currencies. In fact, the yellow metal is at record highs in nearly every currency except the dollar.

Peter Schiff appeared on RT America on Aug. 26 to talk about it. He said he thinks gold is eventually going to make news highs in the dollar as well, and this time, it’s not going to stop going up.

Peter said he doesn’t necessarily think that recession fears, in and of themselves, are pushing gold higher.

They’re worried about what the central banks, and in particular the Federal Reserve, is going to do about the next recession. That’s why the price of gold is going up — because the Fed is going to be going back to zero; they’re going to be going back to quantitative easing and all of this is good for gold.”

Peter noted that gold has been making record highs in almost every currency except the dollar.

And I think ultimately, we’re going to make a high in the dollar, probably before too long. And you know, when the Fed did quantitative easing the first time, the reason that the gold rally stopped at $1,900 was because everybody believed that the Fed had an exit strategy and that they could reverse the process, normalize interest rates, unwind their balance sheet. When they realize that they were mistaken to believe that, that there is no exit strategy, that it’s basically QE forever, that the balance sheet is going to grow into perpetuity  — gold’s not going to stop next time. It’s going to keep on going.”

 …click on the above link to read the rest of the article…

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