Contributed by Stephan Davied
The world seems to be in the throngs of something very strange. Are we in a recession or are we in a depression or are we in a 10 year period of just super low growth? The world has never coined a term to describe years and years of low growth, probably because it does not happen much.
Generally countries, businesses, schools and even humans go through cycles. The human normally sleeps at night and is awake during the day. This cycle is critical to our survival as we need the proper amount of down time to support our up time. Businesses go through cycles. Retailers are super busy during the holiday season and other times they are less busy. This is a retailers yearly cycle. Bigger than that are economic cycles. During times of robust business activity business struggle to keep up with demand so in turn they invest For example in times of robust growth a concrete company who can’t meet the demand of its customers might build another concrete plant.
I can already tell NFTRH 368 is going to be a flowing thing because there is a lot of on-point material to talk about. So the usual standard charts will be minimized in favor of trying to get a good read on what is in process in the markets, in policy and in the economy.
Specifically, given the October Payrolls data, its effect on interest rates and the US dollar we seem to be back to a point similar to where we were 1 year ago when we used a strong USD (and corresponding weak Yen and Euro) to plot bullish trade possibilities in Japan and Europe, and a bearish environment for US exporters.
But first, with the help of the highly recommended Floatingpath.com let’s continue to break down the particulars of the Payrolls report (we reviewed monthly ‘jobs’ growth by industry in a post at nftrh.com): Inside Jobs.
With all the grousing and grumbling I do here, I thought I’d change my tone and write up a genuinely positive, optimistic post. This has to do with an element of what I think will be a tectonic shift over the next twenty years: transportation.
As dull as that sounds, I think the changes that take place in how we get people (or cargo) from point “A” to point “B” are going to be more profound that Amazon, Facebook, and the iPhone put together. My insight, if you want to be generous enough to call it that, is spawned from a couple of (as is typical for me – – negative) observations I make on a periodic basis.
It may sound counter-intuitive, but the United States needs a recession. I don’t say that to wish ill will on our nation. I say it for our good. Recessions are the market’s form of cleansing the excesses, and generating new innovations that only pressure can bring. Just as nature protects against major forest fires by having smaller fires from time to time, our economy needs to retreat from time to time to cleanse itself.
Obviously, the Federal Reserve over the seven years has been doing everything in its power to prevent even the smallest retreat in economic activity through an unprecedented expansion of the monetary supply. Distortion is not creation, and printing money does nothing to expand genuine economic activity. On the contrary it leads to mal-investment and greed, two things our nation and economy needs to be cleansed of.
This can best be seen in the energy sector. Contrary to what the public may believe, the world has been drowning in oil for the past few years. The oil market has been badly over-supplied in recent years, as more oil has been coming out of the ground than the world can use or even store.
According to the amalgamation of ‘Leading Indicators’ to the economy, it is time for a rate hike. Here is the graph of LI and Fed Funds, from Wisdom Tree’s post on the subject.
It is and has been also time to hike based on employment numbers. This was supposed to be the last thing to get squared away before normalization, wasn’t it? LI is thought to lead inflation in the economy, which has thus far been held in check by a global deflation that is devouring funny munny sprayed from global policy hoses.
Excerpted from the September 13 edition of Notes From the Rabbit Hole, NFTRH 360…
I am personally not yet convinced an ultimate bull market top is in despite the obvious similarities of the recent interim top to 2007 [the first sign in this regard would be a loss of the October 2014 and August 2015 lows]. It could also be a 1998 clone, as we have noted by chart similarities and by global financial similarities (China/Asia). However, in 2007 the stock market did a good job of forecasting the coming “Great Recession” (a sanitized way of saying ‘impulsive unwinding of leverage’). Here is what economists think today (ref. Bloomberg article): http://www.bloomberg.com/news/articles/2015-09-11/here-s-when-economists-expect-to-see-the-next-u-s-recession. 2018 it is, according to a majority of buttoned down dart throwers.
What were they saying in December 2007? Let’s take a look, also from Bloomberg…
(Dec. 17, 2007): No Recession, But… http://www.bloomberg.com/bw/stories/2007-12-19/no-recession-but. (more…)
Our Highest-Ranked ETF is a Bet Against Oil – And The Global Economy
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SCO had a potential return of 19%, which was 5th overall, but the highest of any ETF in our system. Here’s a way an investor who wants to bet against oil (and, by extension, much of the global economy) can own SCO while limiting his downside risk to a decline of no more than 15% if SCO moves against him. The best part is, the cost of this hedge is negative, so our investor would essentially be getting paid to hedge.
Getting Paid To Hedge SCO (more…)