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Discussion in 'Money & Finances' started by Harry Havens, Jun 29, 2017.
Yeah, I saw the Dow went through the roof today!
I would guess it to be a short term reaction to Powell's remarks. The issue is China, imo, that still lingers as an issue for nearly all multinationals.
The Scariest Economic Chart In The World Right Now May Come From China
The impact in the U.S. should be minimal, however consumer confidence weighs heavily on our nation's economic health. The Dow, S&P, as well as other gauges taking a beating... as well as negative financial reports increasing in the news, can potentially erode that confidence and send us into a tailspin.
Make no mistake about it... the media will highlight all the negative news going forward into the 2020 election.
Recently the Bank of England released their projections for Brexit under 4 different scenarios. The press seemed to jump on the vast difference between the May 2016 trend (gray line) and the resultant 4 scenarios. Quite a large difference, although some UK outlets gave mention to the "latest forecast" (black line), which being lower... still indicates a sharp drop in the UK economy, as related to Brexit.
The BOE has been both praised and bashed as result of this report, which I am led to believe was done per Parliament request.
I have no doubt a drop should be expected, however the terms "trends" and "latest forecast" seem problematic to me. Clearly the "2016 trend" was based on 2.1% growth of the preceding year, being projected out to 2024, while ignoring the slowing of growth from previous years. The "latest forecast" is based on the the previous year's growth of 1.48%, again projected out to 2024.
Nothing wrong with any of this, but as can be plainly seen... UK's growth trends are definitely slowing. One other item... The BOE, like nearly all central banks, rely on global growth numbers to assist in their forecast assessments.
From the IMF...
Which way is that trend moving?
Bonds and inverted yields are becoming a frequent topic. As a harbinger of recession, inverted yields do seem to be a useful forecasting tool, as every recession was preceded by "inverted" yields. However, not all periods of inverted yields have preceded a recession. It reminds me of the TV show TBBT. "All thumbs are fingers, but not all fingers are thumbs". Going forward, IF the 2/10 yields invert it appears to still be several months away, so even then should not be viewed as a guarantor of recession.
Where concern should focused, is with corporate bonds and possible impacts on the market. A substantial amount is slated to be rolled over in 2019. That it will likely be rolled over at lower rates than previous is almost a given. However, those rates will also be higher than anticipated in those forward earnings statements. Slips in efficiencies generally have outsized impacts on bottom lines. Earnings growth contributes to stock price levels.
While it might seem the sky is falling as related to stocks, it should be remembered that nearly all indexes are up 30%+ since early 2016. But a herd of bulls can be spooked and if a cliff is nearby... it becomes a follow the leader mentality. This is sometimes referred to capitulation. We ain't there... yet.
Stress tests and their value. There are several kinds of stress test, one being where you get some stuff injected in your system, get on the treadmill, huff and puff... in between a couple of scans. Passing this stress test, does not mean there are no blockages, just that blockages are not sufficient to stop flow of blood or something to that effect. I think I heard the threshold for pass/fail was around 50%. Don't know for sure and this is not important to the subject at hand.
Bank stress tests. This comes to mind following reading an article about Bernanke/Geitner/Paulson and their thoughts about the financial crisis and how serious it could have been and could it happen again... yada yada. Naturally it made mention of how much worse it could have been had they not stepped up to the plate. Again... yada yada.
As to the future of the financial world stability, the pass/fail standards for banking soundness (stress tests) have certainly toughened and therefore the soundness of the banking system is better prepared to weather another crisis such as 2008. Until you bring up how both Lehman and Bear Stearns would have passed today's standards in late 2006. It should be noted that any banking institution can be brought down, if investors and/or depositors lose confidence in that institution.
Bear Stearn's was salvaged by engineering a takeover by JPMorgan. The engineer being Bernanke. The reason given was the failure of Bear Stearns would ripple throughout the financial world with damaging consequences. Yet Lehman was left alone and the impact was immediate.
Of course a bailout of Lehman was unthinkable at the time, given the blowback from the Bear Stearns deal. Yet it was confidence in the FED that provided some semblance of confidence in the overall market, until the FED reversed course and let Lehman fail. A floundering system was in trouble until the FED threw out a life jacket with a rope attached, which was the equivalent of the Bear Stearns deal. Tying an anchor to the other end and pitching it overboard was the equivalent of the Lehman collapse. Confidence was thoroughly trashed.
How would the outcome have been affected if Lehman and Bear Stearns had been given the same consideration?
In any case, this should serve as a cautionary tale when chest thumping about passing "stress tests".
The CPI for November was released this morning.
The headline CPI (CPI-U) adjusted was flat month to month with unadjusted -0.3%. Annually un-adjusted at 2.2%
CPI-W increased annually at 2.2% and for the month: -0.4%. Both unadjusted
The C-CPI-U before adjustments was 2.0% annually and -0.3% for the month.
The drop in gasoline prices accounted for nearly all of the unadjusted drop (95%).