Britain is looking at its third "recession" in 5 years. Warnings are in the wind.
Global
Leading Indicator Plunges To Economic "Slowdown", Goldman
Warns
21
September, 2014
Just
two short months ago, Goldman Sachs was exuberant over the
'expansion' signals that the firm's Global Leading Indicator
Swirlogram was exhibiting as it confirmed their 'economists'
expectations that the Keynesian hockey-stick of hope would once again
re-appear majestically in H2 2014 and lift America (and the world) to
escape velocity. That dream is over. Confirming
the collapse
of world GDP expectations,
Goldman's GLI has plunged into 'slowdown' with momentum starting to
slow.
Perhaps, just perhaps, as
we noted previously, this time is not different and the annual cycle
of extrapolating early-year hope is rapidly turning to late-year
disappointment.
As
Goldman explains...
Our
September Advanced GLI came in at 3.0%yoy, down from last month’s
reading of 3.1%yoy. Momentum decreased to 0.25%mom from 0.29%mom last
month.
The
September Advanced reading places the global cycle in the ‘Slowdown’
phase,
characterised by positive but decelerating momentum.
Which
explains this...
For
the past five years there has been a very clear and significant cycle
to US macro data
- a slight rise to start the year, notable weakness into the middle
of the year, a rapid recovery into the fall, then generally flat to
year-end. A
year ago, we explained this cycle appears to be created by government
agencies need to spend, spend, spend their budgets out ahead of
fiscal year-end
(Sept).
This
year has been no different, aside from the knee-jerk higher in macro
data - somewhat shocking in its magnitude to 'every' economist with
3, 4, and 5-sigma beats in many data - came a little earlier but to
the same level of past year's exuberance (as perhaps Ex-Im concerns,
Fed concerns, and election concerns sparked earlier-than-usual
spend-down by agencies).
*
* *
Of
course, if this plays out... it's 'perfect' for the Fed to extend
dovish language and investors to pile on into stocks on the back of
the bad news... or without QE, is Fed talk no longer enough?
Two
days after the election. There goes Key's “rock star economy”
Consumer
confidence dips as rising rates dim outlook
22
September, 2014
New
Zealand consumer confidence fell in the third quarter amid signs
rising interest rates and a slower pace of economic growth are
dimming the outlook and kiwis' spending plans.
The
Westpac McDermott Miller Consumer Confidence Index fell to 116.7 in
the September quarter, from 121.2 three months earlier and from a
nine-year high of 121.7 in the March survey. A reading above 100
indicates more optimists than pessimists.
The
Reserve Bank has signalled a pause in its tightening cycle after
lifting the official cash rate to 3.5 per cent, but economists see
further hikes to the OCR from early 2015, driving up borrowing costs.
That may be reflected in consumers' attitudes toward their current
and future finances and appetite to buy a major household item, which
all weakened.
"Consumer
sentiment shifted down a gear in the September quarter, on the back
of less exuberant economic news, rising interest rates and, possibly,
a bout of uncertainty ahead of the election," said Westpac chief
economist Dominick Stephens.
The
drop in those deeming it a good time to buy a household item "may
be an early sign of consumers becoming a touch more cautious with
their spending."
The
present conditions index fell to 113 from 116.8 three months earlier
and the expected conditions index fell to 119.3 from 124.1.
Consumers' attitude to their current financial situation weakened to
- 0.1 from 2.1 and for their expected financial situation, slipped to
10.2 from 11.5.
Those
deeming it a good time to buy fell to 26.1 from 31.5. The one-year
economic outlook tumbled to 18.3 from 30.8, while the five-year
outlook recorded a more modest decline, to 29.3 from 30.1.
The
Dow And S&P 500 Soar To Irrational Heights – Meanwhile The
Ultra-Wealthy Rush To Buy Gold Bars
By
Michael Snyder
18
September, 2014
Did
you know that the number of gold bars being purchased by
ultra-wealthy individuals has increased by 243 percent so far this
year? If stocks are just going to keep soaring, why are they
doing this? On Thursday, the Dow Jones industrial average and
the S&P 500 both closed at record highs once again. It is a
party that never seems to end, and there are a lot of really happy
people on Wall Street these days. But those that are discerning
realize that we witnessed the
exact same kind of bubble behavior
during the dotcom boom and during the run up to the last financial
crash in 2007. The irrational exuberance that we are witnessing
right now cannot go on forever. And the bigger that this bubble
gets, the more painful that it is going to be when it finally
bursts. Those that get out at the peaks of the market are the
ones that usually end up making lots of money. Those that ride
stocks all the way up and all the way down are the ones that usually
end up getting totally wiped out.
To
get an idea of how irrational the markets have become, all one has to
do is to look at Twitter.
Would
you value "a horribly mismanaged company" that is less than
10 years old and that has never made a yearly profit at 31 billion
dollars?
Well,
that is precisely how much the financial markets say that Twitter is
worth at this moment.
Even
though Twitter will probably never be much more popular than it is
right now, it continues to bleed money profusely. On a GAAP
(generally accepted accounting principles) basis, Twitter lost an
astounding 145
million dollars
during the second quarter of 2014...
Twitter’s
GAAP net loss totaled $145 million, up from $42 million a year ago.
On a GAAP basis, Twitter lost $0.24 per share. Investors, however,
were not expecting Twitter to be profitable by GAAP measurements, so
the loss isn’t too much of a drag.
Why
would anyone want to invest in such a money pit?
Currently,
Twitter (TWTR) is valued at $31 billion.That’s
18X revenue, but the catch is that the revenue in question is it’s
lifetime bookings over the 18 quarters since Q1 2010.
When
it comes to profits, the numbers are not nearly so promising!
For the LTM period ending in June, TWTR booked $974 million of
revenue and $1.7 billion of operating expense. That why
“NM” shows up in its LTM ratio of enterprise value to EBITDA. It
turns out that its EBITDA was -$704 million. In fact, its R&D
expense alone was 83% of revenues.
Of
course the truth is that Twitter should be able to make money.
And
it probably would be making money if it was being managed better.
The
following is what Silicon Valley venture capitalist Peter Thiel said
about Twitter on
CNBC
the other day...
"It's
a horribly mismanaged company — probably a lot of pot-smoking going
on there."
But
because Twitter is a "hot tech stock" investors are
literally throwing money at it.
And
there are many other tech companies that have similar stories.
Off the top of my head, Snapchat, LinkedIn, Yelp and Pinterest come
to mind.
Fueled
by the quantitative easing policies of the Federal Reserve, U.S.
stocks have enjoyed an unprecedented joy ride.
However,
as David Stockman recently told
Yahoo Finance,
the subsequent crash is likely to be enormously painful...
"I
think what the Fed is doing is so unprecedented, what is happening in
the markets is so unnatural," he said. "This is dangerous,
combustible stuff, and I don’t know when the explosion occurs -
when the collapse suddenly is upon us - but when it happens, people
will be happy that they got out of the way if they did."
The
behavior that we are observing in the stock market simply does not
reflect what is happening in the economy overall whatsoever.
In
many ways, U.S. economic fundamentals just continue to get even
worse. Small business ownership in the United States is
at an all-time low,
the labor force participation rate is the lowest that it has been in
36 years,
and the U.S. national debt has grown by
more than a trillion dollars
over the past 12 months.
But
on Wall Street right now, there is very little fear that the party is
going to end any time soon.
The
following is how Seth
Klarman
recently described the market complacency that he is seeing at the
moment...
To
put it a bit differently, writer and investor John Mauldin is right
when he says that there is “a
bubble in complacency.”
Fear has effectively been banished. The
members of the Fed know it. Stock traders who chase the market to new
highs almost daily know it.
Implied volatilities (and realized volatilities) are historically low
(the VIX Index recently hit a seven-year low), and falling. The Bank
for International Settlements recently cautioned that financial
markets are euphoric and in the grip of an aggressive search for
yield. The S&P has gone over 1,000 days without a 10% decline,
according to Birinyi Associates. Dutch and French 10-year government
bond yields are at 500 and 250 year lows, respectively; Spain, 225
years. Spanish debt yields were recently inside of U.S. levels.
But
as Klarman also observed, just because "investors have been
seduced into feeling good" does not mean that this current
bubble is any different from what we witnessed back in 2007...
It’s
not hard to reach the conclusion that so many investors feel good not
because things are good but because investors have been seduced into
feeling good—otherwise known as “the wealth effect.” We
really are far along in re-creating the markets of 2007,
which felt great but were deeply unstable when shocks started to pile
up. Even Janet Yellen sees “pockets of increasing risk-taking” in
the markets, yet she has made clear that she won’t raise rates to
fight incipient bubbles. For all of our sakes, we really wish she
would.
Meanwhile,
the ultra-wealthy are making moves to protect themselves from the
inevitable chaos that is coming.
For
example, the
Telegraph
recently reported that sales of gold bars to wealthy customers are up
243 percent so far in 2014...
The
super-rich are looking to protect their wealth through buying record
numbers of "Italian job" style gold bars, according to
bullion experts.
The
number of 12.5kg gold bars being bought by wealthy customers has
increased 243 percent so far this year, when compared to the same
period last year, said Rob Halliday-Stein founder of BullionByPost.
"These
gold bars are usually stored in the vaults of central banks and are
the same ones you see in the film 'The Italian Job'," added
David Cousins, bullion executive from London based ATS Bullion.
Do
they know something that we don't?
The
ultra-wealthy are able to stay ultra-wealthy for a reason.
They
are usually a step or two ahead of most of the rest of us.
And
any rational person should be able to see that this financial bubble
is going to end very, very badly.
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