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  • Will The BOJ Do Whatever It Takes? [View article]
    Chris; The central banks are desperately trying to achieve growth. This new article from Dr. Gordon of the CEPR suggests that growth for the U.S. may be over.
    http://bit.ly/QjuXbY
    Sep 18 01:19 PM | Likes Like |Link to Comment
  • Will The BOJ Do Whatever It Takes? [View article]
    Marc; Do you see any danger of a market pull-back this week based on profit taking and fading euphoria of the ECB and FED actions of last week turning into panic selling? Would that not cool BOJ to following suit or at least delaying any action?
    Sep 18 07:25 AM | Likes Like |Link to Comment
  • The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swans? [View article]
    Dr. Kwon; With all due respect I would like to question your statement that "The previous financial turmoil was not only unprecedented, but also all global central banks and governments to put preventive measures." First of all sir, the 2007-2008 event was not in any way unprecedented but rather a very common occurrence in the history of human financial activity as can be verified here.
    http://bit.ly/NturHC

    As to the ability of the central banks and governments to use preventive measures to intervene in a market that is contracting due to macroeconomic conditions would require an observer to believe that the law of diminishing returns can be repealed by near zero interest rates and increasing debt. The first two efforts in this direction failed to produce the desired and expected result and this final effort with the 'unlimited', 'all in' promise if it fails means economic collapse. The ES_10YR on this first day after the great euphoria of last week's promise is on its way back up toward 7%.
    http://bit.ly/PUJQkx

    Markets like voters move by promises made by central banks and governments. They will also move by promises broken. What is left to promise? Our economy is based on growth and consumers with money and jobs. There is no shortage of money. Why would business borrow money to expand production without consumers? Even the FED acknowledges that unemployment will remain high for years. Future productivity gains will simply create fewer jobs. How can a government, already saddled with unsustainable debt, create jobs and make transfer payments to a growing population of citizens dependent on safety net income? That is the death spiral afflicting all the developed markets at the moment.

    Conclusions:
    "In my research, I have discovered those critics who currently condemn the monetary system almost universally suggest that the only solution is to restore a gold backed currency. I don't think any readers of this timeline can be in any doubt, that such a system will be open to abuse by those very people who abuse it today. Indeed if we introduced a currency backed by chairs, I believe we would find ourselves with nothing to sit on!" ---By Andrew Hitchcock, 26 Feb 2006.
    Sep 17 02:18 PM | 1 Like Like |Link to Comment
  • The RED Spread: A Market-Breadth Barometer - Can It Predict Black Swans? [View article]
    Sir; I have two questions which come to mind immediately. In the preface to this article you state "A chance of having another financial turmoil like the one in 2007-08 is perhaps lower than one out of six-digit chances, but is still remotely possible because it is a part of our financial system which needs to adjust to a stream of distortions over time.'
    1. How do you compute the chance of another financial melt down as .000001? Is that a risk factor that is predicted by your system? Every metric is screaming that the U.S. and EU markets have been artificially propped up by central bank communication strategy. Now that they have gone 'all in' what will they use to intervene in the event the market begins to fall to fair market value?

    2. How far into the future can this system see? 1 year? 1 month? 1 week? 1 day? 1 hour? 1 minute? 1 second? 0.000001 second?
    Sep 17 10:36 AM | 1 Like Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Tomas;

    Let me respond to "I am not sure that the Goldman Sachs graph is news to anyone." It is not news to anyone. It graphically depicts what the article refers to as "The most daunting is headwind (4), the interplay between globalisation and modern technology, which accelerates the process of catching up of the emerging markets and the downward pressure on wages and real incomes in the advanced nations."

    Next: "On a relative basis it was extraordinarily free economically". Was is the operative word here. The U.S. is now the most repressive of upward mobility of all the developed markets. I will provide sources for this statement if desired.

    Next: "I think you are commenting on one of Thomas J's biggest concerns about a democracy and that is that people would vote for things that would be self serving and thereby bankrupt the government or at least misuse it." The same thing could be said and often is said here on SA concerning banks and Wall Street. In fact it is Wall Street and the banks who are generally held accountable for every financial disaster in history including the one in 2007 yo the present failed recovery. Blaming the 99% is like blaming the victim of a mugging.

    Next: "My observation based on history is that there will always be resentment of people who are richer whether it is by order of magnitude or incremental." That must have been the observation of Moses also as he wrote the 10 commandments, which mostly deals with coveting your neighbours stuff.

    The article is describing an evolutionary process that is and has been occurring which has resulted in the U.S, economy entering a negative growth phase that might be best expressed by "Money goes where it is treated best."
    Sep 15 11:09 PM | 1 Like Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Brendan; The article never mentions peak oil but your point is taken. As a chemist you are familiar with the equation which describes efficiency as energy return on energy invested. If the energy source is finite and if it takes ever increasing amounts of energy invested to locate and exploit it then the ratio will continue to decline toward 1:1. In practice exploitation usually stops when the ratio is about 3.5:1 due to overhead cost. In the early days of discovery about 1900 it was common to have a ratio of 100:1. In the past 100 years that ratio has dropped to less than 20:1 (in fact I think it may now be in the order of 10:1). The point being is that it functions as a vise on the economy or as it is sometimes expressed as 'diminishing returns'.

    However, the oil or gas will never run out, it will just simply become inefficient to produce. The ever decreasing ratio of ERoEI acts as a drag on the economy. You and I will indeed be long dead and gone before the last tea cup is pumped.

    As I have indicated this paper does not mention oil or gas as the cause of this negative growth. The reason that this exact moment in time has caused the paper to be written is that economist have noticed that the U.S. economy has turned negative to the extent that we are now into the third experiment in 12 months to try to turn it around. This last action is extra-ordinary in that it has the smell of fear and panic about it as all the central banks are using terms like 'unlimited' and 'all in' implying that they are going to throw everything into the fire including the 'kitchen sink'.

    I know I have every hope it works as I am sure the author of the paper does, however I would not want to engage in 'happy talk' as we all go whistling past the graveyard.
    Sep 15 10:20 PM | 1 Like Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Tomas; The freedom you are referring to was inaugurated 237 years ago before the 3 industrial revolutions which precipitated the phenomenal growth this paper refers to. At that time there was virtually no economic growth before 1750. American style democracy is an artefact of the industrial revolutions and likely will not survive in a negative growth environment for many of the same reasons you mention. Poor and old people use their vote to elect politicians who will make unsustainable promises to benefit them much to the chagrin of the ruling class who are taxed to fulfil those promises.

    This paper does not suggest that everyone should be dirt poor and miserable. There has never been a time in history that I can think of when there has not been an extremely rich and extremely poor population and no reason to think that would change.

    The change is being described is a transformation of the world economy as depicted here in this graph from Goldman Sacks recently.
    http://bit.ly/LZVYyw
    Sep 15 08:29 PM | 3 Likes Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    RJKRJK; If you mean like believing the earth is the centre of the universe, that the earth is flat, that economic growth has been regarded as a continuous process that will persist forever, that the forest the early settlers found in America would last forever, that electricity when first discovered was believed would be to cheap to meter, or the CEO of IBM saying he thought there might eventually be a market for about 5 computers in the whole world, or Bill Gates comment that 64K of floppy disk space should be enough for any one. Is that what you mean by being wrong by a country mile?

    We as a specie have always been overly optimistic and wrong about just about everything. We disregard natural forces such as entropy, the laws of thermodynamics and diminishing returns. It is not just academia but politicians, clergy, royalty all buying in to ideas that are wrong and in hindsight foolish. We have a long history of burning people at the stake who challenge these long held beliefs.

    I hope that answers your question sir.
    Sep 15 07:51 PM | 3 Likes Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Tack; Robert J. Gordon is Stanley G. Harris Professor in the Social Sciences and Professor of Economics at Northwestern
    University. He is one of the world's leading experts on inflation, unemployment, and productivity growth. His recent
    work on the rise and fall of the New Economy, the revival and “explosion” of U. S. productivity growth, the stalling
    of European productivity growth, and the widening of the U. S. income distribution, have been widely cited. Gordon
    did his undergraduate work at Harvard and then attended Oxford University on a Marshall Scholarship. He received
    his Ph.D. in 1967 at M.I.T. and taught at Harvard and the University of Chicago before coming to Northwestern in
    1973. He is a Research Associate of the National Bureau of Economic Research, a Research Fellow of the Centre for
    Economic Policy Research (London) and the Observatoire Français des Conjunctures Economiques (OFCE, Paris),
    and member of four U. S. government academic advisory committees.

    Hardly the type of person who would publish nonsense for peer review this month.

    The Centre for Economic Policy Research, founded in 1983, is a network of over 800 researchers based mainly
    in universities throughout Europe, who collaborate through the Centre in research and its dissemination.The Centre’s
    goal is to promote research excellence and policy relevance in European economics. Because it draws on such a large
    network of researchers, CEPR is able to produce a wide range of research which not only addresses key policy issues,
    but also reflects a broad spectrum of individual viewpoints and perspectives. CEPR has made key contributions to a
    wide range of European and global policy issues for almost three decades. CEPR research may include views on policy,
    but the Executive Committee of the Centre does not give prior review to its publications, and the Centre takes no
    institutional policy positions. The opinions expressed in this paper are those of the author and not necessarily those
    of the Centre for Economic Policy Research.

    Not what you would call a part of the 'lunatic fringe'.

    What is being described here is a potential natural disaster for the world as we know it. It is not a question of politics or investment philosophy any-more than a discussion of a huge asteroid discovered to be heading our way would be. There is substantial evidence that civilization is being transformed from a fossil fuel economy into a 'sunshine economy'.

    This is not a conspiracy of the left or right. Whether we are governed by socialist or fascist will not make much difference to the 99%, most of whom will in one way or the other be asked to 'self-deport'.
    Sep 15 07:05 PM | 2 Likes Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Tack; What is it exactly that you think is nonsense? Do you disagree with any or all of the six headwinds Professor Gordon describes in his paper? As far as I can tell all of the six are covered extensively in the news and here on SA daily and almost universally acknowledged to be problems with the economy.

    If you accept the six as problems facing the economy which of them do you feel can be solved by money printing and adding debt?

    If you are a part of the 1% you will be sitting around in your castle while the 99% tend to your gardens very much like the early 20th century in the U.S. Not so long ago.
    http://bit.ly/S03HCm
    Sep 15 06:09 PM | 3 Likes Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Sailing Against The Headwinds On The QE Three

    Many people, use the 150 year U.S. annual growth rate in output per capita of 2%. The growth rate for the two decades from 1987-2007 was 1.8%.

    Professor Robert J Gordon of Northwestern University and CEPR research fellow in his Policy Insight No. 63 paper entitled "Is US economic growth over? Faltering innovation confronts the six headwinds". He is one of the world's leading experts on inflation, unemployment, and productivity growth. The full text can be downloaded here. http://bit.ly/OPxv12
    or a shorter abstract here: http://bit.ly/QjuXbY

    The six headwinds referred to in the title are:
    1. The end of the "demographic dividend".
    2. Rising inequality.
    3. Factor price equalization stemming from the interplay
    between globalization and the internet.
    4. The twin educational problems of cost inflation in
    higher education and poor secondary student performance.
    5. The consequences of environmental regulations and taxes
    will make growth harder to achieve than a century ago.
    6. The overhang of consumer and government debt.

    He goes on to explain the reasons for the slowdown and why it will continue with an exercise in subtraction.

    September 2012: An exercise in subtraction.
    "The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six "headwinds" buffeting the US economy, some of which are shared in common with other countries and others are uniquely American. Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99% of the income distribution will be even slower than that."

    How large might be the numerical effect of the six headwinds? A plausible set of numbers can be constructed to reduce the growth rate of real per-capita consumption of the bottom 99% of the income distribution down to 0.2% per year,

    "Baby-boomer retirement (the reversal of the demographic dividend) brings us down to 1.6% and the failure of educational attainment to
    continue its historical rise takes us to 1.4%. If inequality continues to rise as it did in the last two decades, income for the bottom 99% of
    the income distribution will grow about half a point slower than 1.4%, bringing us down to 0.9%. Globalization could continue to hollow out middle-level jobs, bringing the rate down to 0.7%. Higher energy taxes could bring the rate down to 0.5%. And a combination of consumer debt repayments, income tax increases, and reduced transfer payments, could plausibly reach the 0.2% annual rate."

    Why 0.2% you may ask. According to his paper he explains, "The particular numbers don't matter, and there is no magic in the choice of 0.2% as the long-run growth rate. That was chosen for "shock value" as the rate of growth for the UK between 1300 and 1700. Any other number below 1.0% could be chosen and it would represent an epochal decline in growth from the US record of the last 150 years of 2.0% annual growth rate in output per capita.

    The insights presented in this paper could very well explain why the FED is "agog" that the inflationary policies of QE1 and 2 have failed to produce the desired and expected results, and why the "all in" and "unlimited" QE3 will also fail as they do not address the real systemic problem.

    Professor Gordon makes a compelling case that the economy of the past 150 years is and was a singular event in human history, a 'pulse' as it were and is now in the process of reverting to its historical mean average of 0.2% without so much as a courteous "by your leave, sir".

    The most frightening aspect of this journey back to medieval times is that we will be taking 19000 nuclear warheads with us which is playing out as a preview of "Coming Attractions" on a television set near you. The sad fact that we still have unresolved racial, ethnic, religious, and financial inequities will make the journey more dangerous.
    Sep 15 03:57 PM | 7 Likes Like |Link to Comment
  • "Do you know what the loss would be on a 30-year Treasury if it went back ... just to the yield in force in 2011?" asks Jeff Gundlach, incredulous anybody would buy one (answer: 37%). If you need safety and yield, he says, buy Campbell Soup (CPB) instead. Listen to why the hot-shots at his firm would rather day-trade Facebook than divine the Treasury market. [View news story]
    Mine too, in fact they are advertising on tv here inviting applications for jobs in the safety net industry of shelters and food banks.
    Sep 15 03:49 PM | 2 Likes Like |Link to Comment
  • Banks, Collateral And Leverage [View instapost]
    Many people, including Tom Armistead the author of many articles on SA, use the 150 year U.S. annual growth rate in output per capita of 2%. The growth rate for the two decades from 1987-2007 was 1.8%.

    Professor Robert J Gordon of Northwestern University and CEPR research fellow in his Policy Insight No. 63 paper entitled "Is US economic growth over? Faltering innovation confronts the six headwinds". He is one of the world's leading experts on inflation, unemployment, and productivity growth. The full text can be downloaded here. http://bit.ly/OPxv12

    The six headwinds referred to in the title are:
    1. The end of the “demographic dividend”.
    2. Rising inequality.
    3. Factor price equalisation stemming from the interplay
    between globalisation and the internet.
    4. The twin educational problems of cost inflation in
    higher education and poor secondary student performance.
    5. The consequences of environmental regulations and taxes
    will make growth harder to achieve than a century ago.
    6. The overhang of consumer and government debt.

    He goes on to explain the reasons for the slowdown and why it will continue with an exercise in subtraction.
    September 2012: An exercise in subtraction.
    "The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six “headwinds” buffeting the US economy, some of which are shared in common with other countries and others are uniquely American. Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99% of the income distribution will be even slower than that."

    How large might be the numerical effect of the six headwinds? A plausible set of numbers can be constructed to reduce the growth rate of real per-capita consumption of the bottom 99% of the income distribution down to 0.2% per year,

    "Baby-boomer retirement (the reversal of the demographic dividend) brings us down to 1.6% and the failure of educational attainment to
    continue its historical rise takes us to 1.4%. If inequality continues to rise as it did in the last two decades, income for the bottom 99% of
    the income distribution will grow about half a point slower than 1.4%, bringing us down to 0.9%. Globalisation could continue to hollow out middle-level jobs, bringing the rate down to 0.7%. Higher energy taxes could bring the rate down to 0.5%. And a combination of consumer debt repayments, income tax increases, and reduced transfer payments, could plausibly reach the 0.2% annual rate."

    Why 0.2% you may ask. According to his paper he explains, "The particular numbers don’t matter, and there is no magic in the choice of 0.2% as the long-run growth rate. That was chosen for “shock value” as the rate of growth for the UK between 1300 and 1700. Any other number below 1.0% could be chosen and it would represent an epochal decline in growth from the US record of the last 150 years of 2.0% annual growth rate in output per capita.

    The insights presented in this paper could very explain why the FED is "agog" that the inflationary policies of QE1 and 2 have failed to produce the desired and expected results, and why the "all in" and "unlimited" QE3 will also fail as they do not address the real systemic problem.

    Professor Gordon makes a compelling case that the economy of the past 150 years is and was a singular event in human history, a 'pulse' as it were and is now in the process of reverting to its historical mean average of 0.2% without so much as a courteous "by your leave, sir". The most frightening aspect of this journey back to medieval times is that we will be taking 19000 nuclear warheads with us which is playing out as a preview of "Coming Attractions" on a television set near you.
    Sep 15 01:06 PM | Likes Like |Link to Comment
  • A check back to QE2 found stocks rising on speculation of an announcement, and spiking on the day of the announcement - very similar to this time around. The next month, however, saw a sizable sell the news downturn before the effect of the Fed action kicked in, sending stocks on a big multi-month rally. [View news story]
    Take a look at this for a possible explanation of why there has been no real growth for over a decade.
    http://bit.ly/QjuXbY
    Sep 14 02:08 PM | Likes Like |Link to Comment
  • S&P futures +0.25%, giving up some premarket gains following the retail sales and CPI reports. Higher prices at the pump (absent wage growth) just suck consumer dollars from spending elsewhere. Backing out gasoline and autos, retail sales rose just 0.1%. (full report, .pdf) [View news story]
    Despite signs that the economy is recovering, research firm ECRI has held to bearish predictions for the U.S. economy.

    ECRI co-founder Lakshman Achuthan spoke to Bloomberg's Tom Keene this morning to defend his recession call amid an onslaught of criticism.

    Achuthan provided a deeper look at how exactly ECRI makes its predictions, saying that it focuses on year-over-year indicators for output, employment, income and sales, and the consumer confidence index.

    In particular, he pointed to the relationship between year-over-year consumption and employment as perhaps the clearest sign that the U.S. is headed back into a recession.

    "People need to understand the sequence," he said. "I think the hope is that jobs growth will increase consumption in coming months, but in fact jobs growth follows consumption...There are many instances in which job growth precedes a recession."

    If we look at a graph of these two indicators, it is clear that past U.S. recoveries have virtually all relied on consumption growth... and that consumption growth is slowing down.

    Read more: http://read.bi/OMPDsB
    Sep 14 01:00 PM | Likes Like |Link to Comment
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