Economy 22 March 2019 Global Trade Bellwether Crashes

“South Korean exports, seen as a bellwether for global trade, fell nearly 5%in the first 20 days of March…

“Exports to China and Japan fell by more than 10%. Shipments of microchips, oil products, and telecoms devices were all down.

“These data bode ill for [the first quarter],” said Freya Beamish, chief Asia economist at Pantheon Macroeconomics. She says the decline suggests an annualized plunge of 27.6% for the full month, a far sharper contraction than the 9.7% fall in the fourth quarter of 2018.

“The nation’s 20-day exports shrunk 11.7% in February, and there could be worse to come. “Leading indicators suggest the floor is not yet in sight,” Beamish said.

“South Korea’s export data is one of the first major economic indicators released each month… The latest downswing will fan fears of slowing growth in China and recession in Japan.”

“In 2009, China launched a $600 billion (€528 billion) stimulus program in an attempt to shield itself from the worst effects of the global financial crisis. Through its system of regional banks, the government offered cheap loans to thousands of state-run industrial enterprises, including steel, aluminum, cement and coal producers…

“A decade on, many of the estimated 10,000 zombie companies — including more than 2,000 funded by the central government — are losing money hand over fist, partly as a result of their own massive excess capacity.”

“Let’s be very clear what Wednesday’s full-frontal capitulation by the Fed means: It’s coming. The next recession that is. It’s just a matter of the how and the when… the Fed will never, ever overtly tell you a recession is coming.

“They can’t. Their underlying primary mission is to keep confidence up. A Fed predicting a recession would cause all kinds of havoc in capital markets and almost certainly bring about a recession. So they won’t tell you, but their actions speak loud and clear.”

“Federal Reserve Chairman Jerome Powell’s assertion this week that the U.S. economy remains strong is facing a stern test from the bond market.

“In fact, government fixed income yields are delivering, by one measure, a possible recession indication that hasn’t happened since 2007.

“The spread, or yield curve, between the 3-month and 10-year Treasury notes just broke the longest streak ever of being above 10 basis points…”

“The six-month outlook for manufacturing in America’s mid-Atlantic region slumped to a three-year low, another sign that expectations for weaker global growth may be weighing on producers.

“The Federal Reserve Bank of Philadelphia’s index for future activity fell 9.5 points to 21.8 in March, dragged down by lower readings for expectations for shipments and new orders…”

“Ten years into a bull market, Americans are getting jittery about when the music will stop and the next recession will tear through the economy… last month it was a spike in auto delinquencies that spooked market participants.

“The Federal Reserve reported the number of borrowers with auto loans more than 90-days delinquent shot up by 1.5 million in the fourth quarter, reaching a total of 7 million — the highest mark ever in absolute numbers.”

“The pound had its worst day in two months as traders suddenly awoke to the prospect of a no-deal Brexit. Sterling plunged as much 1.5 percent against the dollar Thursday as U.K. Prime Minister Theresa May gambled on getting her plan over the line with just over a week to go before the exit.

“Cable crumbled after the European Union told May that she can only have a short extension to delay Brexit if Parliament ratifies the divorce deal in a vote she wants to hold next week.”

“Uh oh, are the wheels starting to come off again?

“The prints here are rather poor as they all fall into contraction territory (below 50.0). Markit notes that French business recovery is running out of steam in the face of deteriorating demand and that “there is definitely a risk of renewed downturn in France”.”!/france-march-flash-manufacturing-pmi-vs-514-expected-20190322

“Germany’s manufacturing slump deepened this month amid tensions in global trade. IHS Markit’s Purchasing Managers’ Index for the sector fell to 44.7, the lowest since 2012 and well below economists’ expectation of 48.

!That’s the third consecutive reading below 50, which indicates contraction. Gauges for new orders and employment declined.”

“Mexico’s deputy finance minister said on Thursday the government was considering using part of a $15.4 billion public income stabilization fund to pay some debt obligations for heavily leveraged state oil company Pemex… Pemex has some $16 billion of debt payments due by the end of next year.”

“Argentina’s economy sharply contracted in the fourth quarter while unemployment rose, potentially hurting President Mauricio Macri’s approval ratings as he seeks re-election later this year.

“Gross domestic product fell 6.2 percent from a year ago, the country’s statistics institute said on Thursday. It was the worst quarterly performance since 2009 after the global financial crisis, although Argentine economic data was considered unreliable until 2016. Analysts had forecast a 6.4 percent contraction.”

“The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.

“The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.”

“The stakes in Turkish elections this month could hardly be higher, if the behavior of local investors is anything to go by. Households and businesses scooped up another $4 billion of hard currency last week, the most since 2012, driving their holdings to a fresh record.

“Fueling the rush for foreign tender is inflation, which is eating away at their lira savings, and concern the government will double down on policies geared toward priming growth rather than reining in prices after municipal elections on March 31.”

Too much debt; too few tools“The IMF, central banks and politicians have warned about the proliferation of collateralized loan obligations (CLOs) and the threat they pose to the global financial system.

“Currency markets may be battered by breakneck volatility if a slowdown in global economic growth triggers a collapse in this fragile market.”

Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 21 March 2019 The Fed Sees Trouble Ahead

“The markets’ responses to the latest US Federal Reserve Board’s interest rate and balance sheet decisions were telling…

“The nature of the Fed’s announcements – a majority of the members of its Open Market Committee expect no rate increases this year and the Fed plans to end the shrinking of its balance sheet by the start of October – ought to have been positive for the stock market. Instead the Dow Jones index ended more than half a percentage point down…

“There is a fundamental reason why what might previously have been regarded as good news by the markets (equity investors don’t like rising interest rates because they make bonds more attractive) wasn’t embraced enthusiastically by the markets.

“That’s because the Fed’s expectations of where rates might be at the end of this year and, indeed, in 2020, are based on its assessment of the economic outlook for the US. It’s not bullish…

“The impact of the tax cuts for business and wealthy individuals is waning; the trade policies have punctured China’s growth rate, slowed growth in the global economy and damaged the profitability and competitiveness of trade-exposed US businesses; US companies used the tax cuts to buy back their shares rather than invest, and consumer confidence and spending are faltering.

“With Trump saying the US tariffs on China’s exports will remain in place “for a substantial period of time” until China shows it is complying with the terms of the trade deal now being negotiated, the likelihood an early end to the damage being down to the world’s two largest economies is receding.

“With the Federal funds rate set within an historically low range of 2.25 per cent to 2.5 per cent and the balance sheet massively expanded relative to pre-crisis levels, the US financial system remains awash with cheap liquidity.

“Those are not settings that would reflect the super-charged growth targets Trump said he could deliver. Instead the Fed’s sudden shift in thinking and policies ought to have him worried about his re-election prospects and the rest of us worried about an even more significant global slowdown.”

“The worst agricultural downturn since the 1980s is taking its toll on the emotional well-being of American farmers. In Kentucky, Montana and Florida, operators at Farm Aid’s hotline have seen a doubling of contacts for everything from financial counseling to crisis assistance.

“In Wisconsin, Dale Meyer has started holding monthly forums in the basement of his Loganville church following the suicide of a fellow parishioner, a farmer who’d fallen on hard times. In Minnesota, rural counselor Ted Matthews says he’s getting more and more calls.”

“Are you sitting down for this? According to a recent survey, one in five American adults have nothing saved for retirement or emergencies. A further 20 percent have squirreled away only 5 percent or less of their annual income to meet certain financial goals.

“Less than a third of all Americans have saved at least 11 percent or more.”

“US tariffs on Chinese imports could remain in place for a “substantial period of time”, even extending beyond the reaching of a trade deal between Washington and Beijing, US President Donald Trump said on Wednesday.

““We’re talking about leaving [the tariffs] 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 told reporters outside the White House.”

“China’s rising unemployment adds to the economic woes of a shrinking labour force, which had declined every year since its 2011 peak to 897.3 million in 2018, with 775.9 million people employed.

“That puts pressure on the government to create 11 million new jobs this year to cap the surveyed urban unemployment rate at around 5.5 per cent and registered unemployment rate within 4.5 per cent.”

“Iranian leaders vowed on Thursday to control soaring prices, bring stability to the national currency and create jobs as the nation marked the end of a year of economic crisis fuelled by renewed U.S. sanctions.

“Iran’s Supreme Leader Ayatollah Ali Khamenei said in a new year speech that the Islamic Republic successfully resisted the U.S. sanctions, and called on the government to boost national production to face enemy pressures.”

“The United Nation’s high commissioner for human rights said Wednesday that recent U.S. sanctions that are aimed to topple Venezuelan President Nicolas Maduro threaten to deepen the nation’s crisis.

“Commissioner Michelle Bachelet told the Human Rights Council of the U.N. that Venezuela’s “pervasive and devastating economic and social crisis” started before the U.S. first levied sanctions.”

“Rates have been at the historic low for a year and the bank gave no indication of plans to cut them any time soon despite slowing growth. The decision disappointed the powerful National Confederation of Industries, which issued a statement saying “the weak performance of economic activity shows that Brazil must reduce rates.”

“Brazil’s economy is still bearing the scars of the record recession in 2015-2016, with growth barely above one percent in the past two years. Recent economic indicators, though, show signs of a contraction in 2019.”

“Rolling power cuts that are blighting South African business and bringing the country’s streets to a grinding halt may continue indefinitely, the minister responsible for the nation’s bankrupt power company has warned.

“Lengthy blackouts were imposed across Africa’s most industrialised economy for a sixth day as the demand for power outstripped supply. Pravin Gordhan, the public enterprise minister, admitted to “a huge struggle ahead of us to overcome this crisis”.”

“The political wrangling over the past months has alarmed donors who have kept Tunisia afloat with loans granted in exchange for a promise of reforms such as cutting a bloated public service. The president’s son has accused Chahed of failing to tackle high inflation, unemployment and other problems.

“…since 2011, nine cabinets have failed to resolve Tunisia’s economic problems, which include high inflation and unemployment, and impatience is rising among lenders such as the International Monetary Fund.”

“Amid Haiti’s ongoing political and economic crisis and a mere six months after the government of Prime Minister Jean Henry Céant was sworn into office, the lower chamber of deputies dismissed the newly formed government by a vote of 93 in favour, six against, while three abstained.

“Lower Chamber President Gary Bodeau noted that neither Céant nor any of his cabinet ministers were present.”

“As Yemen’s war grinds into its fifth year with peace efforts stalling, ten-year-old Afaf’s father sees little hope he will be able to give his starving daughter the food or healthcare she needs.

“Across Yemen’s remote mountain villages, the country’s war-induced economic crisis has left parents like Hussein Abdu destitute, hungry and watching their children waste away from malnutrition and unclean water.”

“One of the UK’s major toilet tissue importers has been stockpiling to ensure it can maintain supplies in the event of a no-deal Brexit. German-owned Wepa has stockpiled an extra 600 tonnes of finished product, or about 3.5m rolls, in UK warehouses.

“UK boss Mike Docker said Wepa was now chartering ships to import materials, rather than use trucks. Last week, Morrisons’ chief executive said the supermarket had seen an increase in demand for toilet paper. David Potts speculated it might be related to people stockpiling goods ahead of the end of the March deadline for the UK to leave the EU.”

“Banks and other financial companies are shifting more assets and jobs out of the United Kingdom as the country lurches towards Brexit.

“Financial services companies in Britain have announced plans to move £1 trillion ($1.3 trillion) into the European Union, according to consultancy EY. That’s up from an earlier estimate of £800 billion ($1.1 trillion).”

“The European Union now has the lowest average number of primary dealers since the global financial crisis, trading body AFME said on Wednesday, as falling turnover in government bond markets have depressed trading revenues.”

“Economic conditions around the globe are steadily getting worse, and FedEx has slashed its revenue forecast for the second time this year with its Chief Financial Officer directly citing the faltering global economy…

“…as the global economy continues to deteriorate, we could quickly have a giant mess on our hands, because the global financial system is far more vulnerable today than it was in 2008.”

Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 20 March 2019 What Happens When the Food Runs Out?

“…it doesn’t take a catastrophe like war or drought to disrupt [food supplies]. In Venezuela, a country blessed with rich oil reserves, a political crisis driven by rocketing inflation has led to shortages of food and medicine, forcing families to live off rotten meat and leading millions to leave the country all together. The Eurozone crisis that sent Greece’s economy to the brink of collapse also brought food shortages to the struggling country.

“Meanwhile, disease, poor weather and rising prices have led to shortages of a number of popular crops in recent years. Soaring rice prices led to panic buying in the Philippines and other Asian countries in 2008, causing a supply crisis for this staple food. Bad weather in Europe in 2017 saw prices of many vegetables rise while there also were worldwide shortages of avocados after several countries were hit by poor harvests.

“The fuel protests that hit the UK in 2000, where farmers and hauliers blockaded oil refineries and fuel depots, led to supermarkets rationing food as they struggled to get deliveries to restock their shelves. Even the stockpiling of food by schools, care homes, hospitals and pessimistic shoppers in the UK ahead of Brexit show what effect even the mere rumour of food shortages can have…”

“The EU’s chief Brexit negotiator Michel Barnier said Tuesday that the bloc was prepared for a no-deal Brexit scenario.

“Barnier acknowledged that the UK’s House of Commons had voted against leaving the EU without a deal last week but cautioned: “Voting against a No Deal does not prevent it from happening.” His advice then followed: “Finalise all preparations for a no-deal scenario.””

“Trade body Oil and Gas UK has released its 2019 business outlook, setting out that new exploration is expected bounce back from last year, which saw lowest levels since the 1960s, while production is also on the rise.

“Meanwhile drilling activity is at a “record low rate” and supply chain firms remain under “significant financial stress”.”

“There was an important piece of economic news this month that most Irish people probably considered a good development. Mario Draghi, the governor of the European Central Bank, promised to keep the ECB base rate of interest at zero for at least the rest of the year…

“It was widely believed that the ECB would want to raise rates here, if only to build up some space for a cut before the arrival of the next recession, when it will be needed.”

“When Deutsche Bank and Commerzbank confirmed they are holding formal talks about a merger, critics were quick to question a tie-up that may lead to tens of thousands of job losses and the potential failure of a plan that may do little to address underlying problems at both banks.

“Now, the European Central Bank is adding its criticism to the mix.”

“That the region’s financial institutions, including some of the biggest, are in a state of grinding decline is a grave cause for concern—and not just for their stockholders and bondholders. Europe relies heavily on its lenders to fuel growth. Banks provide about three-quarters of financing to companies and nine-tenths of credit to households. In the U.S., corporations rely on capital markets—selling bonds and shares—for the bulk of their financing.

“BOTTOM LINE – Europe is even more dependent on strong banks to fuel its economy than the U.S. Yet the continent’s lenders can’t seem to find healthy profits.”

“Germany’s top economic experts have slashed their growth forecast for 2019 from 1.5 per cent to 0.8 per cent…”

“Indian women, especially those working in precarious informal sectors, are at the sharp end of what economists and opposition politicians describe as a jobs crisis in India.

According to the private Centre for Monitoring Indian Economy (CMIE), 90 percent of around 10 million jobs lost last year were held by women.”

“Confidence among Japanese manufacturers hit its weakest in two-and-a-half years in March, a Reuters poll showed, as global trade friction fuelled concerns that a postwar record growth cycle driven by Abenomics may be over…

“The central bank will closely read the results of its official tankan due out April 1…”

“Chief financial officers and even average U.S. citizens have been bracing themselves for a recession, either this year or next… A potential economic slowdown could convince the Federal Reserve to put off another interest rate hike, according to the poll. In January, 78% of respondents expected a rate hike sometime this year. That is down to 60% now.”

“Almost half of Americans carry a balance on their credit cards, a new survey finds, and paying it off is proving a challenge: Only about 30 percent of people with credit card debt say they’ll be able to wipe it out this year.”

“At 9%, or 5%, and certainly at 22% as back in the 1980’s, the Fed has plenty of room to lower rates. But at 2.4% or anywhere near that level, they don’t have much room above zero.

“THAT is one of the biggest threats to investors next time we do have a recession. And did I mention, we will have one at some point?”

Read the previous ‘Economy’ thread here and visit my Patreon page here.

Climate 19 March 2019 Seattle Has Warmest Winter Day on Record

“Hard to believe just five weeks ago we were shoveling snow; now we’re getting to get a taste of July!

“Temperatures zoomed well into the low-mid 70s Monday afternoon which not only knocked off the daily record high but a 75-degree reading at 2: 45 p.m. set a record for the warmest winter day ever recorded in Seattle! The only other time it’s been near this warm in winter was … last year. It hit 73 degrees on March 12, 2018. Huh.”

“”Temperatures upwards of 10 degrees above normal,” meteorologist Matt MacDonald said. “We’re going to be breaking several records and a lot of these records date back to the last 100 years. So this is quite an exceptional little heat spell.”

“The warmer-than-usual forecast comes a day after temperature records were broken across British Columbia, including a 72-year-old record in Pitt Meadows.”

“The governors of Nebraska, Iowa and Wisconsin have declared states of emergency. “This really is the most devastating flooding we’ve probably ever had in our state’s history, from the standpoint of how widespread it is,”

“Nebraska governor Pete Ricketts tweeted on Monday. “In 2011, it took 108 days for water to subside, and this year the water is 4-5 feet higher.””

“Add one more tornado to the total from Thursday’s severe weather. The National Weather Service in Birmingham said on Monday that it had confirmed that an EF0 tornado touched down March 14 in Calhoun County north of Ohatchee.

“That makes for a total of 16 tornadoes statewide. Fifteen of them struck central Alabama and one touched down in north Alabama.”

“California is preparing to mobilize National Guard troops to reduce the threat of wildfires by clearing hazardous dead trees…”

“Cyclone Trevor has slammed into the north Queensland coast with ferocious winds of more than 200km/h that are ripping trees from the ground.

“The powerful category three storm made “howling” landfall at 5pm just south of Lockhart River, one of a handful of towns on the Cape York Peninsula that has been urged to remain indoors until the storm passes.”

“The death toll from flash floods in Indonesia’s Papua region has risen to at least 80…

“People are frightened and some are blaming climate change according to Derek Windessy from Indonesia’s Red Cross. “Because it is still raining, raining and raining again. Last night still raining and some rivers throw up and flood through in the villages, so it’s hard,” he said. “Almost three days or four days. People cannot sleep well. And then they scare. So they need to move to the safety place now,” said Derek Windessy.”

“Davao City Government on Monday, March 18, conducted preemptive evacuation in several barangays ahead of Tropical Depression Chedeng, which has been forecast to make landfall over Davao Oriental or Davao Occidental.

“The Philippine Atmospheric, Geophysical and Astronomical Services Administration (Pagasa) has placed the entire Davao Region under Tropical Cyclone Warning…”

“Drought has been declared in the western Indian state of Maharashtra, despite an ambitious government scheme to replenish ground water supplies.

So what went wrong? BBC Marathi investigates. “This year we received rains for only two days. But this is unlikely to last us for the next 15 days. The government will have to provide us water via tankers,” says Nana Dudhare, the head of Akhatwada village in Khultabad district.”

“A gritty, quick-acting cop jumped into the menacing water current of Al Beeh Wadi to rescue three families – comprising Emiratis and Asians – stuck in the flash floods [in UAE], triggered by thunderstorms and heavy rainfall, in Ras Al Khaimah on Sunday night.”

“The Mesopotamian marshlands in southern Iraq were once the largest wetland ecosystem in Western Eurasia. But after years of drought and political turmoil, they’re in danger of disappearing.”

“A deadly tropical cyclone has destroyed as much as 90 per cent of the Mozambique city of Beira, raising fears for more than 500,000 people.

“According to the Red Cross, Cyclone Idai left devastation in its wake after it hit the major coastal city of half a million people on Thursday night with winds of up to 177 km/h (106 mph), before moving to Zimbabwe and Malawi.”

“As water supplies in Ghana’s capital grew increasingly erratic, Ms Beatrice Kabuki stopped customers from using her grocery store’s washrooms and installed a plastic storage tank at her home…

“Cities and towns in several other African nations including Mozambique, Zimbabwe and Ivory Coast have been plagued by similar water shortages in recent months, manifestations of a global supply squeeze brought on by drought, population growth, urbanisation and insufficient investment in dams and other infrastructure.”

“Monsoon-like conditions in North Yorkshire caused water to run from field into shed full of sheep.

“Environmental officials have put 20 flood warnings and 28 flood alerts in place across England today. Majority of alerts are in Yorkshire and the Midlands – and more rain is expected today in western parts.”

“Climate change and a rising population mean that England is facing the ‘jaws of death’, where demand for water could surpass the supply available in the next 25 years.”

Read the previous ‘Climate’ thread here and visit my Patreon page here.

Economy 19 March 2019 Australian House Prices Falling Faster Than in GFC

“Australian property prices are falling at a faster rate than during the global financial crisis (GFC) with new figures showing the decline is widening outside the Sydney and Melbourne markets.

“The Australia Bureau of Statistics released figures today showing house prices in capital cities fell 2.4 per cent in the December quarter to record a total drop of 5.1 per cent in 2018.

This compares with the annual fall of 4.6 per cent in 2009 during the GFC.”

“Australia could be the “first domino to fall” in a global economic crisis for the first time in its 200-year history.

“That’s according to economist John Adams, Digital Finance Analytics founder Martin North and Irish financial adviser Eddie Hobbs, who argue Australia’s economy is looking increasingly similar to Ireland’s prior to the 2007 housing collapse…”

“Australian businesses are being warned that a blowout in invoice payment times in China could have a ripple effect here, given the massive trade links between the two countries.

“Figures by trade credit insurance provider Coface suggest that Chinese businesses are increasingly taking longer to pay their bills, as a trade war with the US and a general economic slowdown bite, coupled with a spike in the number of bankruptcy cases in China.”

“Wang Jingwu, head of the central bank’s financial stability department, expressed long-term concerns in an article in China Finance, a central bank publication.

““We need to pay high attention to the risk that the global economy will fall into a recession again in the medium- and long- term, and be alert to its gradual evolution that may trigger a new round of economic and financial crisis,” he wrote.”

“Asia’s exports slump is expected to deepen, with analysts saying regional trade is heading for its lowest point since 2015. Amid a slowdown in global demand, Asian exports will continue to decline until at least April, according to an index compiled by Nomura Bank.”

“The partnership at the heart of the OPEC+ alliance showed further signs of strain after Russia pressured the Saudi-led group to delay a decision on the future of their production cuts.

“The unusual recommendation to cancel next month’s scheduled meeting means the group probably won’t decide whether to prolong its supply curbs until late June, just days before they expire.”

“Brexit Secretary Stephen Barclay has played down the prospect of asking the Queen to shut down parliament after the government was plunged into a “major constitutional crisis”.

“Prime Minister Theresa May will gather her top ministers on Tuesday morning as they try to find a way past a bombshell ruling by Speaker of the House of Commons John Bercow. In a major intervention on Monday, Mr Bercow cited a centuries-old convention as he blocked Mrs May from bringing back her twice-defeated Brexit deal for a third vote…”

“ECB in its last Governing Council meeting, announced new projections, which suggest that 2021 will be the ninth calendar year in succession that the central bank will fail to meet is inflation objection in terms of the annual year average, notes Nick Kounis, head of financial markets research at ABN AMRO…

“The most likely policy tool is a restart of net purchases under a broad asset purchase programme.”

“The broker of this marriage appears to be the German government, which has ideas about creating a national bank large enough to compete with American investment banks.

“But it is not at all clear that a merger would solve the banks’ problems, let alone create a “national champion. Both banks are zombies…”

“As part of a European business restructure announced in January, Ford is reorganising its workforce in the region by up to 5,000 jobs. “The goal is to significantly decrease structural costs, reduce bureaucracy, empower leaders and managers, and eliminate less value-added work,” the automaker said in a statement.

“It has now offered “voluntary separation” programmes for employees in Germany and the UK…”

“President Donald Trump ramped up his public attacks against both General Motors and an Ohio union leader to try get an Ohio auto plant reopened.

“The factory officially closed its doors March 6 despite pressure from Trump, both Ohio senators, and United Auto Workers members to save some 1,500 jobs in the Lordstown plant.”

“The White House released proposals to reform higher education in the United States Monday, including limits on grad student and parent loans meant to encourage universities to lower their tuition.

“U.S. student loan debt, which reached nearly $1.5 trillion last year, has become a national epidemic as the cost of higher education continues to rise.”

“Federal Reserve officials say they’re willing to tolerate an overshoot of their inflation goal. If the opposite happens, the plan is less clear. Core inflation, excluding energy and food prices, is currently just shy of the central bank’s 2 percent target.

“Most economists and policy makers see that lasting, though there’s no guarantee: Inflation expectations have been stuck on the low side, and a cooler housing market is among several factors that could weigh on future price pressures.”

“I first suggested the U.S. economy was headed toward a recession more than a year ago, and now others are forecasting the same. I give a business downturn starting this year a two-thirds probability. The recessionary indicators are numerous:

“Tighter monetary policy by the Federal Reserve that the central bank now worries it may have overdone. The near-inversion in the Treasury yield curve. The swoon in stocks at the end of last year. Weaker housing activity. Soft consumer spending… Then there are the effects of the deteriorating European economies…”

“Now it’s the third month in a row, and the red flag is getting more visible and a little harder to ignore about the goods-based economy: Freight shipment volume in the US across all modes of transportation – truck, rail, air, and barge – in February fell 2.1% from February a year ago, according to the Cass Freight Index, released today. The three months in a row of year-over-year declines are the first such declines since the transportation recession of 2015 and 2016.”

“As the world braces itself for an economic slowdown, countries cannot treat the darkening skies over the global economy simply as passing clouds.

“Nations will need more than a normal, cyclical policy response, said Singapore Deputy Prime Minister Tharman Shanmugaratnam in a exclusive interview with Chinese business magazine, Caijing, published yesterday.

“In the next two years, the United States is likely to experience a downturn, and so is the rest of the global economy. But the world is witnessing never-before-seen risks, said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.”

Read the previous ‘Economy’ thread here and visit my Patreon page here.

Economy 18 March 2019 Central Banks Can’t Fix Credit Exhaustion

“Having fixed the liquidity crisis of 2008-09 and kept a perversely unequal “recovery” staggering forward for a decade, central banks now believe there is no crisis they can’t defeat.

“China’s central bank created over $1 trillion in January alone to flood China’s faltering credit system with new credit currency.

“The pool of qualified borrowers who are willing to bet on another decade of central-bank goosed “growth at any cost” is shrinking rapidly.

“Thus will end the central banks’ bombastic hubris and the public’s faith in central banks’ godlike powers.”

“China’s spending spree during the global financial crisis helped pull the world economy out of recession. This time, Beijing’s stimulus might not pack the same punch…

“Behind the more modest growth push is a realization in Beijing that China’s traditional debt-driven growth model has reached its limit… China is getting less output from its borrowing than before.”

“As China’s $9.1tn shadow lending industry cools for the first time in a decade, private corporate defaults are on the rise… Shadow funds have been the lifeblood of private companies in China for years, because as state-owned banks tend to prefer to lend to government-controlled companies.

With access to shadow funds cut off, many private companies will face financial strain and defaults are expected to rise this year…”

“Japan’s exports fell for a third month in February in a sign of growing strain on the trade-reliant economy, suggesting the central bank might be forced to offer more stimulus eventually to temper the effects of slowing external demand and trade frictions.”

“Japan’s government debt in 2018 hit the US$10 trillion mark, an ominous milestone. In the same year the nation’s population saw a record decline. Despite all this, 10-year yields are -0.04%. Punters, in other words, are effectively paying Tokyo for the opportunity to hold its debt.”

“Treasurer Josh Frydenberg has warned Australia’s housing market collapse could destroy small businesses and hit family budgets ahead of the next federal election.

“House prices have plunged by around 15 per cent in parts of Sydney and Melbourne in recent months amid fears the fall will harm the wider economy. In particular, small business owners that took out loans against the value of their houses may be badly affected.”

“The [South African] utility, which is struggling to emerge from a severe financial crisis and suffered a series of unplanned breakdowns, began rolling blackouts last week because of a shortage of generating capacity.

The situation worsened on Saturday after it lost 900 megawatts of electricity imports from Mozambique, which is cleaning up after a powerful cyclone knocked out communications and electricity pylons last week.”

“British companies look set to cut investment by the most in 10 years in 2019 because of Brexit, even if Prime Minister Theresa May gets a deal to ease the country out of the bloc, an employers group said on Monday…

“Weak investment by companies drags on productivity which puts a brake on wage rises and weighs on the overall economy.”

“As for Germany, over-reliance on the auto sector has left the economy cruelly exposed to the slowdown in China, by far the industry’s biggest export market.

“For Germany, a decline of just 10pc in Chinese car sales, which is what has happened, is equal to the entire size of its UK market. It would be most unwise to count on this being just a temporary setback.”

“Deutsche, the largest bank in Germany, Europe’s biggest economy, emerged unscathed from the financial crash but later lost its footing. In 2016, the International Monetary Fund called the bank the world’s biggest potential risk among peers to the financial system because of its links to other banks.

“German officials fear that a recession or big fine, for example, could derail the bank’s fragile recovery.”

France is sounding an alarm for the world’s advanced economies: capitalism is tearing them apart.”

“At one point during this partnership, Cuba was receiving more than 100,000 bpd of Venezuelan crude, an analysis by Oliver Pieper for Deutsche Welle said. Now, however, this is probably down by a half as Venezuela struggles to keep its fields producing.

“Even so, Venezuelan crude is an important part of Cuba’s energy mix and its elimination from this mix would almost certainly lead to power outages for Cuba as well.”

“It has been pointed out that extended periods of ultralow interest rates can have adverse effects. One of these is an increase in global debt. According to the Organisation for Economic Co-operation and Development (OECD), global outstanding debt in the form of corporate bonds issued by non-financial companies stood at almost 13 trillion U.S. dollars at the end of 2018 — more than double the amount outstanding in real terms before the 2008 global financial crisis.

“If investor sentiment turns around and a full-scale increase in interest rates resumes, then there is a risk that many companies will find it impossible to service and pay back this debt.”

“Here’s another disaster waiting to happen: Globally, financial markets today are seeing a rebirth of “collateralized loan obligations” (CLOs), instruments broadly similar to the “collateralized debt obligations” (CDOs), which helped to blow up the financial system in 2008.

“CDOs were asset-backed instruments, a “blended” security comprised of risky mortgage-backed bonds and much of the rest from theoretically safer tranches. The theory underlying them was that the lower the investment quality, the higher the compensating yield, but in reality most turned out to be toxic junk. What distinguishes CLOs from their CDO “cousin” is that instead of repackaging mortgages, subprime and otherwise, CLOs repackage corporate loans, and consumer credit, such as car loans.

“Unfortunately, in yet another instance of lessons unlearned from 2008, the collateralized loan obligations, like the CDOs, have virtually non-existent investor protection, “with over 70 percent lacking any covenants that would allow monitoring of financial condition and early intervention to manage problem borrowers.”

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