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Jeremy Grantham: What’s Coming is Worse Than a Recession

Jeremy Grantham: What’s Coming is Worse Than a Recession

 

#243. The Great Inflexion

#243. The Great Inflexion

A SYSTEM UNRAVELS

INTRODUCTION

As everyone surely knows by now, the global economy has entered a recession which is likely to be both severe and protracted. For the most part, governments and central bankers are concentrating on the task of trying to tame inflation.

Their critics tend to argue for more expansionary fiscal and monetary policies, contending that stimulus could soften or shorten the recession. They claim, in defiance both of experience and of logic, that expansionary monetary policies needn’t contradict the effort to bring inflation under control.

Where almost everybody is in agreement is that, however long it takes, the recession will end. But there’s a striking absence of explanations for how or why growth is supposed to resume. The fall-back position is no more than an assumption – a recovery will arrive for no better reason than that all previous economic downturns have been followed by rebounds.

The underlying presumption here is cyclicality, a process accepted as routine, not just by policy-makers and central bankers, but by investors, business leaders and the general public alike. It is well understood that the Big Numbers – like economic output, and the aggregate value of the markets – oscillate in sine-wave patterns around central trends.

It’s further assumed that these secular trends are always positive – each recovery exceeds the preceding recession, and each market rebound more than cancels out the latest dip.

This latter assumption has reached the point of invalidation. What economies and markets are now experiencing is trend-inflexion. Cyclicality may indeed continue but, from here on, it will do so around downwards-inflected trends. This process of reversal can only be managed if it is recognized.

The consequences of trend inflexion are readily summarised. On an ex-inflation basis, economic output will deteriorate, whilst the real costs of necessities will carry on rising, even if there are some retreats from the severe spikes experienced in recent times.

…click on the above link to read the rest…

Europe May See Forced De-Industrialization As Result Of Energy Crisis

Europe May See Forced De-Industrialization As Result Of Energy Crisis

  • European industries including ferroalloys, fertilizer plants and specialty chemicals are shutting down as a result of the ongoing energy crisis.
  • Certain industries may not come back, even if the energy crisis eases.
  • An increasingly tight regulatory environment is another reason for de-industrialization in Europe.

The European Union has been quietly celebrating a consistent decline in gas and electricity consumption this year amid record-breaking prices, a cutoff of much of the Russian gas supply, and a liquidity crisis in the energy market.

Yet the cause for celebration is dubious: businesses are not just curbing their energy use and continuing on a business-as-usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization.

That the European Union is heading for a recession is now quite clear to anyone watching the indicators. The latest there—eurozone manufacturing activity—fell to the lowest since May 2020.

The October reading for S&P Global’s PMI also signaled a looming recession, falling on the month and being the fourth monthly reading below 50—an indication of an economic contraction.

In perhaps worse news, however, German conglomerate BASF said last month it would permanently downside in its home country and expand in China. The announcement served as a blow to a government trying to juggle energy shortages with climate goals without extending the lives of nuclear power plants.

“The European chemical market has been growing only weakly for about a decade [and] the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains,” said BASF’s chief executive, Martin Brudermueller, as quoted by the FT, in late October.

…click on the above link to read the rest…

NOPEC Bill Won’t Bring Oil Prices Down

NOPEC Bill Won’t Bring Oil Prices Down

  • Washington responded angrily to OPEC+’s decision to cut output.
  • U.S. legislators have suggested the introduction of a bill called NOPEC in order to reduce OPEC’s power.
  • NOPEC could send oil prices higher and end the dominance of the petrodollar.

“Nobody f*cks with a Biden,” said the U.S. president, and the oil ministers of the member countries of the Organization of the Petroleum Exporting Countries (OPEC+) replied, “Hold my beer.”  OPEC+ then proceeded to approve production cuts of 2 million barrels per day, despite a full court press by the administration in the weeks leading up to the decision, and raised the price of oil for the U.S., lowered it for Europe, and left it unchanged for Asia. According to National Security Advisor Jake Sullivan, “the President is disappointed by the shortsighted decision by OPEC+ to cut production quotas” and “the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC+’s control over energy prices,” neglecting to mention that Biden administration decisions to cancel the Keystone XL pipeline and to stop issuing new oil and gas leases on public lands gave OPEC+ the upper hand.

Apparently, a fist bump only gets you so far.

There followed a lot of “how dare they!” by the great and good, but OPEC+ was having none of it. The day before the announcement, the Saudi energy minister dressed down a Reuters reporter for shoddy work by his colleague who claimed that Russia and Saudi Arabia (the Kingdom) conspired to price oil at $100 per barrel, and later explained OPEC+ was being proactive as the West is attacking inflation with higher interest rates which, in turn, may cause a recession and drive down oil demand (and price)…

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

A historic global bond-market crash threatens liquidation of the world’s most crowded trades, says BofA

A historic global bond-market crash threatens liquidation of the world’s most crowded trades, says BofA

‘If the bond market does not function, then no other market functions, really,’ say Ben Emons of Medley Global Advisors 

A newspaper headline is shown after the Treaty of Versailles was signed in 1919. Global bonds are in one of their worst bear markets since the treaty went into effect in 1920, establishing the terms for peace at the end of World War I.

SOURCE: UNIVERSITY OF DENVER

Global government-bond markets are stuck in what BofA Securities analysts are calling one of the greatest bear markets ever and this is in turn threatening the ease with which investors will be able to exit from the world’s most-crowded trades, if needed.

Those trades include positions in the dollar, U.S. technology companies and private equity, said BofA strategists Michael Hartnett, Elyas Galou, and Myung-Jee Jung. Bonds are generally regarded as one of the most liquid asset classes available to investors. If liquidity dries up in that market, it’s bad news for just about every other form of investment, other analysts said.

Financial markets have yet to price in the worst-case outcomes for inflation, interest rates, and the economy around the world, despite tumbling global equities along with a selloff of bonds in the U.S. and the U.K. On Friday, the Dow industrials DJIA, -1.62% sank almost 500 points and flirted with a fall into bear-market territory, while the S&P 500 index SPX, -1.72% stopped short of ending the New York session below its June closing low.

U.S. bond yields are at or near multiyear highs. Meanwhile, government-bond yields in the U.K., Germany, and France have risen at the fastest clip since the 1990s, according to BofA Securities.

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

 

OPEC agrees to produce slightly more oil as recession fears loom

OPEC agrees to produce slightly more oil as recession fears loom

London (CNN Business)The world’s oil-exporting countries have agreed to a tiny increase in output next month amid fears that a global recession will crimp demand.

The Organization of the Oil Exporting Countries and its allies — which includes Russia — also known as OPEC+, said on Wednesday that it would produce an additional 100,000 barrels a day in September.
This was the first OPEC meeting since US President Joe Biden visited Saudi Arabia last month. Biden urged the country — which is the group’s biggest oil producer — to start pumping more.
For months, prices have climbed as Western embargoes on Russian oil have limited global supply. Those prices have helped the world’s biggest oil companies reap record profits, even as millions face surging fuel bills.
A gallon of regular gasoline in the United States surpassed $5 for the first time in June, though prices have fallen back significantly since then.
The price of Brent crude, the global benchmark, also hit a high of $139 a barrel in March in the days after Russia invaded Ukraine, but Brent is now trading at around $100 as traders fear a global recession will hurt demand.
Brent crude and West Texas Intermediate crude — the North American benchmark — both rose initially on Wednesday after OPEC’s announcement, as oil investors expected a bigger increase in production. But prices fell about 2% by midday.
“As a production rise it is a very small percentage of overall production, and much smaller than previous months increases, and thus makes little difference to the overall supply picture,” Hazel Seftor, senior research analyst for global oil supply at Wood Mackenzie, told CNN Business.

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

‘We live in an Orwellian hell-scape’: Facebook fact-checks top economist for stating America IS in a recession after Biden refused to admit it

‘We live in an Orwellian hell-scape’: Facebook fact-checks top economist for stating America IS in a recession after Biden refused to admit it

  • Phillip Magness, the research and education director at the American Institute for Economic Research, believes the U.S. is in a recession
  • Economists usually say it is a recession when two successive quarters have seen negative growth: data on Thursday showed the definition had been met
  • The White House is instead relying on an ‘official declaration’ from the the National Bureau of Economic Research (NBER), which can be very slow
  • Magness’s post on Facebook about the U.S. being in a recession was fact-checked by Facebook and a warning posted online
  • ‘We live in an Orwellian hell-scape,’ he tweeted. ‘Facebook is now ‘fact checking’ anyone who questions the White House’s word-games’ 

Facebook placed a ‘fact-checking’ label on a post written by a top economist stating that the United States is now in a recession – a move he termed ‘Orwellian’.

Two consecutive quarters of negative growth is the standard definition of a recession, and Phillip Magness, the research and education director at the American Institute for Economic Research, posted on Facebook a commentary about the country now being in a recession.

The post – which is no longer visible – was marked by Facebook’s fact checkers as being misleading.

‘We live in an Orwellian hell-scape,’ he tweeted.

‘Facebook is now ‘fact checking’ anyone who questions the White House’s word-games about the definition of a recession.’

Biden on Thursday (pictured) insisted that the country was not in a recession, despite new data showing a second consecutive quarter with negative growth

Biden on Thursday (pictured) insisted that the country was not in a recession, despite new data showing a second consecutive quarter with negative growth

Phillip Magness, an economic historian, believes the U.S. is in recession - but the White House disagrees

Phillip Magness, an economic historian, believes the U.S. is in recession – but the White House disagrees

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‘The economy is going to collapse,’ says Wall Street veteran Novogratz. ‘We are going to go into a really fast recession.’

‘The economy is going to collapse,’ says Wall Street veteran Novogratz. ‘We are going to go into a really fast recession.’

Veteran investor and bitcoin bull Michael Novogratz’s economic outlook is not rosy

Michael Novogratz, founder and chief executive officer of Galaxy Digital Capital Management LP, spoke with MarketWatch on Wednesday ahead of a historically aggressive Fed rate hike.

Veteran investor and bitcoin bull Michael Novogratz doesn’t have a rosy outlook on the economy, which he described as headed for a substantial downturn, with the likelihood of a “fast recession” on the horizon.

“The economy is going to collapse,” Novogratz told MarketWatch. “We are going to go into a really fast recession, and you can see that in lots of ways,” he said, in a Wednesday interview before the Federal Reserve decided to undertake its biggest interest-rate hike in nearly three decades.

“Housing is starting to roll over,” he said. “Inventories have exploded.”

“There are layoffs in multiple industries, and the Fed is stuck,” he said, with a position of having to “hike [interest rates] until inflation rolls over.”

Central-bank policy makers agreed to deliver an unusual 0.75-percentage-point rate increase, concluding a closely watched two-day policy meeting with a move that would push the Fed’s benchmark federal-funds rate rising to a range between 1.5% and 1.75% as it steps up the effort to quell an inflation rate that is hovering around a 40-year high.

It was the largest increase in the central bank’s policy rate since November 1994.

Before the Fed announced its decision, Novogratz speculated — accurately, it turned out — that the central bank would lift interest rates by 75 basis points and that the market would rally on that news. He also predicted that stocks will sell off in the coming days.

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

Walking backward into the storm

Walking backward into the storm

Are we in a recession?  It is an interesting question because nobody can know for sure.  A recession is defined as two successive quarters of negative growth.  Okay, but how do we know if, in the quarter we are in, the economy is shrinking?  Again, we cannot know this.  This is because the latest data we have is for February 2022… and it showed an unexpected fall in growth to just 0.1 percent.  In the event that growth turned sufficiently negative in March 2022, then the first quarter of 2022 as a whole might have been negative.  And in the event that this negative trend continued through April and on through May and June 2022, then we would indeed be in a recession… but we will only know for sure when the data is published in August.

It is on this kind of uncertainty that economic policy is set.  On top of the slowdown in growth – which may have improved or worsened, but nobody knows yet – comes data for March showing a dramatic fall in retail spending, largely resulting from rising food and fuel prices.  Is this because households and businesses can no longer afford to buy, or are they reining in their spending in anticipation of higher prices in future?  Again, we do not know.  Certainly, food and energy retailers have warned that prices will have to rise in future.  At the same time, households and businesses face higher local and national taxes and utility bills.  And so, falling sales is likely a combination of both prices that have already risen and the expectation of price rises to come.

Crucially though, the lens through which economic policy makers are viewing the economic clouds gathering on the horizon is a financial lens which looks back fondly on the sunlit uplands of the pre-2008 years as some kind of normal…

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

The Inflation Blame Game

The Inflation Blame Game

Now inflation is Russia’s fault. Or is it greedy businesses pushing up prices? Maybe a combination of the two.

It seems that government officials and central bankers are looking everywhere for a place to pin the blame for inflation except the one place they need to look — in the mirror.

I’m already seeing headlines about how Russia’s invasion of Ukraine is causing inflation. CBS broadcast this storyline on the first day of the invasion. As Peter Schiff put it in a recent podcast, Russia is the latest “excuse variant” for inflation.

It is true that the Russian invasion and economic sanctions have caused some prices to spike. Oil was over $130 a barrel over the weekend. Copper hit record highs. The price of wheat surged. But this is not necessarily inflationary. Inflation causes a general rise in prices across the board. In this situation, some prices will rise while others fall. As consumers spend more on food and energy, they will cut spending on other goods and services. Ostensibly, those prices will drop.

Inflation — an increase in the money supply — causes prices to rise more generally. It’s the result of more dollars chasing the same number of (or fewer) goods and services. As Peter explained, the culprit is the central bank.

What makes the prices go up is when the central bank responds to rising energy prices or rising food prices by printing more money, which is what they are going to do. Because as consumers have to tighten their belts because food is so expensive, because home heating oil and gasoline are so expensive, and they cut back spending on everything else, that causes a recession. And that results in the Fed printing more money, and that’s what’s inflationary.”

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

Will There Be a 2024 Presidential Election?

WILL THERE BE A 2024 PRESIDENTIAL ELECTION?

“All tyrannies rule through fraud and force, but once the fraud is exposed, they must rely exclusively on force.” ― George Orwell

Vanessa E. Thompson on Twitter: "Just a reminder..." / TwitterEvil Assad, Evil Gaddafi, Now Evil Putin: How the West Sells War (and Makes a Killing) | Groupe Gaulliste Sceaux

“Every war when it comes, or before it comes, is represented not as a war but as an act of self-defense against a homicidal maniac.” ― George Orwell

The smell of tyranny is in the air. The level of propaganda, disinformation, and mistruth has reached astounding heights, as the ruling oligarchy/Deep State/globalist cabal are thrashing about violently because their frauds are being exposed on a daily basis. This shift to the tyranny of force has massive implications for everyone on the planet. When every quote from Orwell’s 1984 applies every day to everything swirling around us, you begin to realize we are in the midst of a dystopian nightmare which gets more ghoulish by the day.

The last two years have been a fraud of epic proportions, conducted by a cadre of evil money titans, their financial, media, and medical apparatchiks, with the objective of tearing down our existing social and economic structure and “resetting” the world where they own everything and you own nothing, eat bugs, and provide the slave labor needed to keep society functioning. Of course, this will be after they dispose of tens of millions of useless eaters through their Covid/Vaxx scheme, global war, and mass starvation.

The past two weeks have denoted a remarkable transformation in the pushing of the fraudulent fearmongering narrative about a relatively non-lethal flu, vaccine mandates, masking and shaming those with the common sense to rely on their immune systems, to trying to provoke a world war over a border dispute with absolutely no relevance or strategic value to our country, other than to further enrich the military industrial complex and the parasites and leeches in government, finance, media and war making industry who live for and love war.

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

2022: Energy limits are likely to push the world economy into recessionIn my view, there are three ways a growing economy can be sustained:

2022: Energy limits are likely to push the world economy into recessionIn my view, there are three ways a growing economy can be sustained:

  1. With a growing supply of cheap-to-produce energy products, matched to the economy’s energy needs.
  2. With growing debt and other indirect promises of future goods and services, such as rising asset prices.
  3. With growing complexity, such as greater mechanization of processes and supply lines that extend around the world.

All three of these approaches are reaching limits. The empty shelves some of us have been seeing recently are testimony to the fact that complexity is reaching a limit. And the growth in debt looks increasingly like a bubble that can easily be popped, perhaps by rising interest rates.

In my view, the first item listed is critical at this time: Is the supply of cheap-to-produce energy products growing fast enough to keep the world economy operating and the debt bubble inflated? My analysis suggests that it is not. There are two parts to this problem:

[a] The cost of producing fossil fuels and delivering them to where they are needed is rising rapidly because of the effects of depletion. This higher cost cannot be passed on to customers, without causing recession. Politicians will act to keep prices low for the benefit of consumers. Ultimately, these low prices will lead to falling production because of inadequate reinvestment to offset depletion.

[b] Non-fossil fuel energy products are not living up to the expectations of their developers. They are not available when they are needed, where they are needed, at a low enough cost for customers. Electricity prices don’t rise high enough to cover their true cost of production. Subsidies for wind and solar tend to drive nuclear electricity out of business, leaving an electricity situation that is worse, rather than better. Rolling blackouts can be expected to become an increasing problem.

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

The hidden recession of 2020

The hidden recession of 2020

After 20 months of economy-wrecking lockdowns and restrictions, 2019 is fondly remembered as a period of prosperous calm.  Memories though, are deceptive.  And in the days before we learned what gain-of-function meant, things were not as rosy as they now seem.  Although the decade 2009-2019 was officially one of the longest periods of economic growth ever recorded, the rate of growth was anaemic – the media reporting on any quarter with more than 1.0% growth as if it heralded a return to the 1960s.  And what growth there was owed more to additional debt than to improvements in productivity.  The reality of the post-2008 years was of the mergence of an 80:20 economy in which the majority watched their prosperity evaporate, while a shrinking metropolitan salaried class fought a rear-guard defence of their income and status.

The political dam broke in 2016, with “the revenge of the places that didn’t matter” – aka Brexit and the election of Donald Trump.  But few in the salaried class understood the economic decline which had spilled over into the political arena; preferring instead to blame it all on Russian bots.  Nevertheless, whether the elites and their salaried lapdogs chose to understand the economic situation or not, the process of decline continued.

In the UK, Christmas 2018 had been the worse on record… until Christmas 2019 rolled around.  And whereas Christmas 2018 had seen a big decline in discretionary spending, Christmas 2019 produced the first indicators of a decline in borderline essential spending too.  We might choose to regard the humble Christmas pudding as something which can be lived without – although those who lived under Cromwell’s puritanical dictatorship might beg to differ – but a decline in sales – along with those of turkey and seasonal biscuits – points to a nation which was reining in its spending long before SARS-CoV-2 embarked upon the European leg of its world tour.

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

 

The next recession: Here’s when the ‘everything bubble’ will burst

The next recession: Here’s when the ‘everything bubble’ will burst

In October 20XX. That’s not a typo. To reach the best guesstimate of when the next recession will begin, we need to understand how the Federal Reserve creates unsustainable booms and why the next bust may be just around the corner.

A caveat is in order. As physicist Niels Bohr exclaimed, “Prediction is very difficult, especially if it’s about the future.” Nevertheless, I will weigh in fearlessly with my 10 cents. The Fed’s inflationary policies have increased my two cents fivefold. Maybe the next cryptocurrency is on the horizon: My 10 Cents.

If a dog can have a crypto, why can’t a retired finance professor who warned the public that prices were about to accelerate due to the Fed’s inflationary policies in the spring of 1976 have one?

Consumer prices rose 5.7% in 1976, 6.5% in 1977, 7.6% in 1978, 11.3% in 1979 and 13.5% in 1980. Talk about being right on the money!

As inflation was galloping throughout his presidency, then President Jimmy Carter appointed Paul Volcker, a former banker and U.S. Treasury official, in 1979 to halt the multiyear price spiral. Volcker succeeded spectacularly. Consumer prices rose 10.3% in 1981, revealing how inflation momentum can continue for a while before the Fed’s tight money policies slay the inflation dragon. In 1982, prices rose 6.1%, 3.2% in 1983, and (miracle of miracles) only 1.9% in 1986, a year before Volcker stepped down as Fed chairman and was replaced by Alan Greenspan.

To accomplish what was considered at the time improbable due to high inflation expectations, the Volcker-led Fed raised the Fed Funds Rate–the rate banks borrow from each other for overnight loans–to 22% by December 1980. The cost of Volcker’s tight monetary policies necessary to halt the dollar’s slide was back-to-back recessions: a short downturn 1980 and then another one, 1981-1982. A case can be made that one long recession occurred that in effect lasted three years, from January 1980 to November 1982.

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

A red light on the dashboard

A red light on the dashboard

On New Year’s Eve 2006-7, something unexpected happened.  For most of the previous two decades, most of the pubs where I live had operated a system where they gave tickets to regular drinkers in order to limit the number of people seeking entry.  This was a problem because one couldn’t secure tickets for guests.  And since my relatives only stayed over for the holidays, it left us to seek out the few pubs that did not operate a ticket policy.  And in most years, these pubs would be packed to the rafters.

When we set out in the last couple of hours of 2006, we fully expected the same crowds as the year before.  So did the pubs, apparently, because they had hired security to control entry – something that was common for British nightclubs but rare for pubs.  What none of us had anticipated though, was that the pubs would be almost empty!  Nor was it just one or two pubs.  Everywhere we went it was the same story.  Indeed, on one occasion the security staff hired to keep the masses out tried hard to encourage us to come in.  Quite simply, tens of thousands of people who had previously gone to pubs to celebrate New Year, stayed at home in 2006.

To me it was a warning sign that something unpleasant and dramatic was about to happen to the economy.  It wasn’t that the beer had risen in price – although supermarket beer had long been cheaper than pub beer.  It was an indicator of something much more profound.  Coming on the heels of rising fuel prices and the central bank decision to begin jacking up interest rates, it was a signal that people’s standard of living had been impacted to the point that discretionary spending was being seriously curtailed.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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