Posts Tagged ‘us economy’
Breaking news: Bernanke slams U.S. economy! What to do …
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A momentous event just occurred this afternoon:
For the first time in many years, the Chairman of the Federal Reserve went before Congress, set aside his rose-colored glasses, dispensed with most of his sugar-coated platitudes and made some hard-hitting statements about the U.S. economy.
Bernanke on jobs:
“This is the worst labor market since the Great Depression.”
Bernanke on housing:
“The market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.”
Bernanke on fears about the future:
“Most … viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside.”
Bernanke on tight credit for small businesses:
“Bank loans outstanding have continued to contract. Small businesses, which depend importantly on bank credit, have been particularly hard hit.”
And never forget: All this is coming from a man whose job invariably makes him extremely reluctant to admit to negative trends in any sector at any time — if Bernanke is saying things are bad, you can bet your bottom dollar they’re actually far worse.
Our recommendation:
- Act on our warnings to greatly reduce your exposure to the stock market, especially in the sectors we’ve been pinpointing as vulnerable to a double-dip recession: Housing and construction, retail, manufacturing, banking and more.
- Keep most of your money safely tucked away in short-term Treasury bills or equivalent. The return on your money (no matter how low) is not nearly as big of an issue as the return OF your money.
- To hedge against any threat to the purchasing power of your dollars, maintain a core position in gold — through bullion, a gold ETF or both.
- Above all, stay safe!
Good luck and God bless!
The Next Bust: The “Risk Trade”
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A lot of focus was given to the central banks’ meetings this week.
That’s because a lot of people would really like to see target rates start moving up from their low levels.
Some argue for higher rates because they think the world is returning to normal and the emergency policy responses need to be removed sooner rather than later to avoid a date with inflation.
Others are concerned that all of the ultra-easy money will result in asset price inflation, another bubble and ultimately another bust.
But clearly, the central banks have different concerns. This week …
- The Federal Reserve kept rates unchanged and made no material change to its statement. The markets were looking for some language change that would open the opportunity for an earlier rate hike. But the Fed did not oblige. Result: Dovish.
- Next it was the Bank of England. The BOE kept its benchmark rate unchanged and went further in the easy money hole by expanding, for a second time, its asset purchase program. Result: Dovish.
- And finally the European Central Bank followed suit and left rates unchanged and its bank liquidity program intact. Result: Dovish.
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| This week, central banks, including the BOE, maintained their dovish positions. |
To sum it up, the central banks continue to position themselves to accomdate the challenges in the real economy.
Now, for those who have been pleading for higher interest rates …
While I disagree with the first crowd, the one that thinks economies are returning to normal, I don’t completely disagree with the second crowd, those concerned about asset bubbles.
First, the U.S. economy and major global economies are nowhere near reaching a point of sustainable growth, much less normalcy. In fact the European Central Bank President, Jean-Claude Trichet, put it very plainly …
“I am a little a bit uneasy when I see [reports of a self-sustaining recovery occurring], because we have some green shoots here and there.”
The U.S. economy just printed its first positive GDP number in five quarters and most of it was attributed to government spending. Indeed, the purpose of government spending is to get the economy moving. But the idea is that in the process you create jobs … new industries … demand. And that just hasn’t happened.
So the people who think we’re back to business as usual have their heads in the clouds.
Now, for the second crowd …
Like I said, I don’t completely disagree with them. They fear another asset bubble. Some of my colleagues here at Weiss Research feel that way. And I think they’re dead right. It’s here. Stock markets, commodities, currencies … all 30 percent, 50 percent … even 100 percent higher in the past eight months!
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| I worry that another asset bubble is building in financial assets. |
Financial assets have rocketed from their March lows and for no fundamental economic reason. Is it because of the mountains of capital that have been plowed into the system through stimulus programs has ended up in financial assets?
In some cases, clearly yes …
Take China for instance. Its economy couldn’t absorb the massive half-trillion dollar stimulus and uber-aggressive bank lending. So that money found its way into investments like the Chinese stock market. So easy money can find its way into financial markets, for sure.
But can the major economies of the world, namely the U.S., afford to tighten up the belt to keep this under control? In my opinion, absolutely not! And that’s where I disagree with the second crowd.
Financial asset bubbles are one thing, and they are a risk. But most of the risk, at this stage, is to investor and consumer confidence. A bust that would bring financial assets back in line with the fundamentals of the economy would be another major blow to sentiment. And that could be the trappings for another recession — even a depression.
But the guaranteed danger right now is the real economy, real asset deflation, and evaporated demand. The threat of a sharper deterioration in the real economy leads to a complete stand-still in economic activity … i.e. a date with depression. That’s the battle central banks are most worried about.
If you’ve concluded that this looks like a lose-lose scenario for the U.S. and the highly interconnected global economy — I’m afraid you’re right.
A likely best-case scenario is a very slow and painful rebuilding period, where weak demand and lower standards of living rule.
The worst-case scenario: A bout with global depression.
As for bubbles in the financial markets, better known as the “risk trade,” that day of reckoning is coming when prices revert back to fundamental sanity. And the time might be closer than many people think …
Regards,
Bryan
P.S. I’m now on Twitter. Follow me at http://www.twitter.com/realbryanrich for frequent updates, personal insights and observations from my travels around the world.
Chicago Fed Index Still Signals Subpar Economy
Wall Street Journal
The Federal Reserve Bank of Chicago’s National Activity Index worsened in August, but its three-month moving average rose above its level from a year earlier, in August 2008 just before the financial crisis deepened.
The three-month average stood at -1.09 in August, below the recessionary threshold of -0.7. An index reading of zero signals a trend rate of growth (usually defined as around 3%).
The index tracks national economic activity through monthly 85 data series. In a new Chicago Fed Letter released this morning, Fed economist Scott Brave explains that the index’s three-month average (as of August) indicates that economic activity is now finally above the trough of the 2001 and 1990-91 recessions.
“It appears likely that recovery from the current recession had not yet reached full swing as of August 2009, but early signs of recovery are apparent,” he says.
Obama Touting U.S. Economy
By Joseph Spector
USA Today
President Obama visited an Albany-area community college this morning to discuss the economy and promote hi-tech investments as a way to boost business growth in the country.
The president, in his first trip to upstate New York since he was elected, outlined his innovation strategy, which uses more than $100 million in federal stimulus funds to support education and new infrastructure. The stage at Hudson Valley Community College in Troy, Rensselaer County, where the president spoke has a backdrop of computer chips and other high-tech equipment behind the podium.
Obama talked about how in Troy and upstate New York, the area has long suffered from a decline in manufacturing jobs and loss of young people because of a lack of jobs. He offered hope that the region can turn around, citing the Erie Canal and Thomas Edison, who started General Electric in nearby Schenectady.
“We know that upstate New York can succeed,” he said. “We know that in a global economy where there is no room for error and there is certainly no room for wasted potential America needs you to succeed.”
He continued, “As we emerge from this current economic crisis, our great challenge will be to ensure that we do not simply drift into the future, accepting less for our children and less for America. We have to choose to do what past generations have done: shape a brighter future through hard work and innovation.”
The Democratic president toured a college classroom and was joined by Dr. Jill Biden, a community college professor in the Washington D.C., area and wife of Vice President Biden.
The president arrived at Albany International Airport at about 11 a.m. and started his speech shortly before noon. He is headed to New York City to tape an interview on David Letterman’s Late Show. He will begin three days of meetings at the United Nations on Tuesday.
Obama’s visit to upstate comes amid involvement by the White House in recent days to advise Gov. David Paterson to not run for election next year. While no one-on-one meeting is planned between the two, Paterson met Obama at the airport and traveled in the president’s motorcade to the event.
Obama offered praise to Paterson in his remarks, calling him a “wonderful man.” He also praised Attorney General Andrew Cuomo, who may run for governor next year, as well as other elected officials in the audience.
The president vowed that by 2020, the country will have the highest percentage of college graduates in the world.
Obama proposed using $80 billion the banks currently get and use it to make grants larger for college students. He also said that FCC Chairman Julius Genachowski will announce efforts to create an “open Internet in which all Americans can participate and benefit.” His said his budget makes tax credits for research and experimentation permanent.
He also spoke briefly about health care, saying that the country needs to bring down health-insurance costs so businesses can thrive.
“This generation has an unparalleled opportunity that we are called upon to seize,” Obama said. “That is what you are doing at Hudson Valley Community College. And that is what we will do as a nation.”
SOURCE: http://www.usatoday.com/news/washington/2009-09-21-obama-newyork-speech_N.htm
