Thursday 21 March 2019

Recession Dead Ahead?

Baltic Dry Index. 709 -03    Brent Crude 68.58

Car Crash Brexit 8 days away, maybe.  Day 111 of the never-ending China trade talks.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.
John Kenneth Galbraith

Between President Trump's never-ending trade wars, an EUSSR now pushing for a no deal Brexit, and a severe growth slowdown underway in China and Euroland, the US central bank all but said yesterday that a new global recession is at hand.

Though central banksters don't do panic, yesterday's Fed came about as close as they get. Given that they have access to inside information not shared with the public, what do they know that we don't?

If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.

John Maynard Keynes

Asian shares up on accommodative Fed; growth concerns linger

March 21, 2019 / 12:50 AM
SHANGHAI (Reuters) - Shares in Asia rose on Thursday after the U.S. Federal Reserve took a more accommodative stance at its policy meeting, but concerns over U.S.-China trade talks and slowing global growth capped broad gains and pulled some markets lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5 percent.

Chinese blue-chips, which spent the morning swinging between small losses and gains, were flat, while Seoul’s Kospi added 1 percent as regulators announced plans to cut the stock transaction tax this year.

Australian shares, which had risen earlier in the session, turned lower, dropping 0.5 percent.

Markets in Japan are closed on Thursday for a public holiday.

Gains in the broad Asian index followed a wobbly session on Wall Street overnight, after a move toward risk taking sparked by the Fed’s dovish shift was overtaken by growth and trade concerns.[.N]

U.S. President Donald Trump on Wednesday warned that Washington may leave tariffs on Chinese goods for a “substantial period” to ensure Beijing’s compliance with any trade deal.

China-U.S. trade talks are set to resume next week.

Trump’s comments had more of an effect on U.S. shares than their Asian counterparts, said Sean Darby, chief global equity strategist at Jefferies in Hong Kong, adding that a move lower in U.S. rates “actually has a far bigger impact or efficacy in EM and Asia than in the United States itself.”

---In comments at the end of a two-day policy meeting Wednesday, the Fed abandoned projections for any interest rate hikes this year amid signs of an economic slowdown, and said it would halt the steady decline of its balance sheet in September.

But while investors cheered the Fed’s new approach, the reasons behind it are creating concern.

“What the Fed is doing is trying to engineer a soft landing. What the market is hearing though is things have gotten so weak so quickly ... and the earnings outlook is so dire that real money managers don’t want to chase this rally,” Greg McKenna, strategist at McKenna Macro wrote in a morning note to clients.
more
https://uk.reuters.com/article/us-global-markets/asian-shares-up-on-accommodative-fed-growth-concerns-linger-idUKKCN1R2025

Trump Today: President says he’ll keep China tariffs in place for ‘substantial period’ and renews attack on McCain

By Robert Schroeder Published: Mar 20, 2019 4:28 p.m. ET

President Donald Trump said Wednesday he wants to keep tariffs on China until he makes sure Beijing complies with any trade deal it makes with the U.S., as he visited the battleground state of Ohio and renewed an attack on the late Sen. John McCain.

CHINA TARIFFS

Trump told reporters as he departed for Ohio that “we’re not talking about removing [tariffs]. We’re talking about leaving them for a substantial period of time, because we have to make sure that if we do the deal with China that China lives by the deal.”

Trump spoke ahead of a scheduled visit to Beijing next week by U.S. trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, for the next round of trade talks. Trump added that the Chinese have “had a lot of problems living by certain deals” but said a deal is “coming along nicely.” U.S. stocks DJIA, -0.55%   ended slightly lower Wednesday as traders focused on Federal Reserve policymakers signaling they would deliver no rate increases this year.
 
https://www.marketwatch.com/story/trump-today-president-says-hell-keep-china-tariffs-in-place-till-beijing-is-seen-complying-with-a-trade-deal-2019-03-20?mod=mw_theo_homepage

EU Pushes U.K. to Brink of No-Deal Brexit

Alex Morales and Tim Ross
20 March 2019, 20:03 GMT Updated on 21 March 2019, 05:00 GMT

Theresa May gambled on a desperate bid to get her Brexit deal approved by Parliament, as a standoff with the European Union drove Britain to the brink of an economically disastrous no-deal divorce.

The premier heads to the European Council meeting in Brussels on Thursday to push a demand her EU counterparts have already said she can’t have until she persuades the U.K. Parliament to support the Brexit deal they struck with her: a one-off, three-month delay to Britain’s departure.

The deadlock over how long to delay the U.K.’s exit from the EU plunges the country deeper into a political crisis that now seems likely to push the Brexit endgame into the final hours before next week’s deadline.

Under pressure from euroskeptic Conservatives, the prime minister formally proposed delaying Britain’s exit from the EU until June 30. But the bloc warned if she can’t persuade members of Parliament to vote for her deal in the next nine days, the choice will be a prolonged extension or leaving without a deal.

In a address to the nation from her 10 Downing Street office on Wednesday, May hinted she could even resign rather than agree to a lengthy postponement that would keep the U.K. in the bloc beyond the middle of the year.

----European Council President Donald Tusk said such a short Brexit extension would only be possible if Parliament agrees to enact the existing divorce deal -- which it’s twice overwhelmingly rejected -- by the existing exit day of March 29, giving May just over a week to convince members of Parliament to change their minds and vote for her plan.
more
https://www.bloomberg.com/news/articles/2019-03-20/eu-pushes-u-k-to-brink-of-no-deal-brexit-as-may-seeks-delay?srnd=premium-europe

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith

Crooks and Scoundrels Corner


The bent, the seriously bent, and the totally doubled over.

If the Fedster's fear recession is in the air, never fight the Fed. But the next recession will trigger a credit bubble bust of unprecedented proportions, thanks to a decade long credit bubble misjudgement by the Fed and the other leading central banks.

In any great organization it is far, far safer to be wrong with the majority than to be right alone.

John Kenneth Galbraith.

The most accurate recession indicator is closer to flashing red after the Fed’s ‘dovish double-down’

By Sunny Oh Published: Mar 20, 2019 6:50 p.m. ET

Even for a bond market bracing for an accommodative Federal Reserve, policy makers’ moves on Wednesday were a stunner, raising the specter of recession.

In particular, analysts said bond investors were taken aback by the sharp reduction of interest-rate-hike projections by the Federal Open Market Committee to zero from two back in December, as reflected in the central bank’s “dot plot” — a chart of Fed members’ projections for future rates.

On top of that, the Fed announced plans to end the runoff of its $4 trillion balance sheet in September and downgraded expectations for gross domestic product in 2019 to 2.1% from 2.3%.

Although the central bank held key rates at a range between 2.25% to 2.50%, as expected, the combination of other statements delivered a dovish jolt to fixed-income investors.

“This decision falls firmly on the dovish side of consensus as the about-face from ‘further gradual tightening’ has now reached a complete 180 degrees,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a Wednesday note.

Lyngen said Tuesday’s rally in the bond market was justified by the Fed’s “dovish double-down,” referencing the decision by the FOMC in January to adopt a more patient policy after markets convulsed in late 2018.

Indeed, the market’s reaction to Fed policy maneuvers on Wednesday was sharp, with yields of all maturities falling briskly as investors picked up Treasury bonds.

----The bond-market rally had the effect of flattening the slope of the so-called yield curve, reflecting the spread between short-dated and longer-dated bonds. Some read that narrowing gap as a sign that investors are expecting a more pronounced economic slowdown.

Now, trading on the fed-fund futures market reflects a 50-50 chance of a rate cut in 2019, from a roughly 37% chance of one, according to Tuesday data.
more
https://www.marketwatch.com/story/the-feds-dovish-double-down-has-taken-the-most-accurate-recession-indicator-closer-to-flashing-red-2019-03-20

Opinion: When the U.S. falls into a recession, a credit bubble will explode

By John Mauldin Published: Mar 20, 2019 10:49 a.m. ET

The European Central Bank this month said it would keep record-low interest rates for longer. The news comes shortly after the U.S. Federal Reserve gave in to the stock market and held off on further interest-rate increases.

While investors celebrate the policy reversal, they might soon regret it.

This stimulus may indeed buy the market an additional year or two. But postponing the inevitable downturn with artificially low rates will come at a cost. The cost is a massive credit bubble that is already of biblical proportions. Its implications chill me to the bone.

Credit cycles

Here’s a quote from my friend Peter Boockvar, chief investment officer of Bleakley Advisory Group, a $3.5 billion wealth-management firm, which drew an enormous amount of interest: “We no longer have business cycles; we have credit cycles.”

This is critical to understand, so let’s cut that small but meaty sound bite into pieces.

What do we mean by “business cycle,” exactly?

A growing economy peaks, contracts to a trough (what we call “recession”), recovers to enter prosperity and hits a higher peak. Then the process repeats. The economy is always in either expansion or contraction.

This pattern broke down in the last decade. We had an especially painful contraction followed by an extraordinarily weak expansion. Gross domestic product (GDP) growth should reach 5% in the recovery and prosperity phases. It’s been around 3% (at best) since 2008.

Peter blames the Federal Reserve’s artificially low interest rates. Here’s how he put it:

“To me, it is a very simple message being sent. We must understand that we no longer have economic cycles. We have credit cycles that ebb and flow with monetary policy. After all, when the Fed cuts rates to extremes, its only function is to encourage the rest of us to borrow a lot of money and we seem to have been very good at that. Thus, in reverse, when rates are being raised, when liquidity rolls away, it discourages us from taking on more debt. We don’t save enough.”

The problem is that over time, debt stops stimulating growth. Hence, the flat-to-mild recovery years.
more
https://www.marketwatch.com/story/when-the-us-falls-into-a-recession-a-credit-bubble-will-explode-2019-03-20?mod=MW_story_top_stories

If all else fails, immortality can always be assured by spectacular error.
 

John Kenneth Galbraith

Technology Update.

With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

No technologyupdate today, back tomorrow.

The monthly Coppock Indicators finished February


DJIA: 25,916 +68 Down. NASDAQ: 7,533 +109 Down. SP500: 2,784 +62 Down. 

Normally this would suggest more correction still to come, but with President Trump wanting to be judged by the performance of the stock market and the Fed’s Plunge Protection Team now officially part of President Trump’s re-election team, probably the safest action here is fully paid up synthetic double options on most of the major indexes.

No comments:

Post a Comment