The Last Recession
I say ‘last recession’ to suggest the possibility that the worlds governmetns and central banks have set up a Japan-like indefinite recession. Let’s look at some viewpoints. CBS Money Watch. “Hip hip, hooray for the U.S. economic recovery! Unemployment is down, consumer confidence is up and the ‘animal spirits’ that keep America Inc. hopping are finally reawakening. The Federal Reserve feels optimistic enough to have turned the page on the Great Recession earlier this month by raising interest rates for the first time since 2008. Phew, glad that’s over.”
“Or is it? Although most professional forecasters expect the U.S. economy next year to continue its slow trudge back to respectability, some experts see danger on the horizon. In a December report, Citi Research analysts put the probability of the U.S. entering a new recession — two consecutive quarters of shrinking economic growth — at 65 percent. That prediction is partly rooted in history. Looking at previous recessions in the U.S., U.K., Germany and Japan between 1970 and 2014, the bank found that the odds of a downturn cross 50 percent roughly five years into a recovery (see graph below). Notably, the U.S. is in year seven of its post-recession rebound.”
“Economist David Levy, chairman of The Jerome Levy Forecasting Center LLC, bluntly predicts that worsening global economic conditions in 2016 will pull the U.S. into a recession by the third quarter. ‘We’re really seeing emerging markets slowing a lot, with a few countries already in recession,’ he said, likening financial markets’ general apathy about the air whooshing out of these economies to the blinkered bullishness that prevailed in 2007 shortly before the U.S. housing bubble burst.”
“The main reason emerging economies are struggling, in a word: overcapacity.”
Dow Jones Business News. “Behind the biggest market meltdowns of 2015 were familiar culprits: central banks. And more volatility is likely to follow in 2016 as investors navigate the Federal Reserve’s gradual exit from easy- money policies after the U.S. central bank raised rates for the first time in nearly a decade. Rock-bottom interest rates and massive asset purchases designed to kick-start ailing economies have encouraged investors to push into ever-riskier assets in search of returns. That has left many markets vulnerable to sharp reversals when popular trades turn sour.”
“The tumultuous year has left many investors wary of the risks of placing too much faith in central banks. ‘Credibility, or rather confidence in central banks has diminished,’ said Jim Caron, global fixed income portfolio manager at Morgan Stanley Investment Management, which had $404 billion in assets under management at the end of September. ‘The consequence is that they may not be able to stabilize prices as effectively as they have in the past.’”
The Economic Times. “In the past 50 years, a global recession has on average hit once every eight years and lasted for about a year. However, with China’s debt still growing twice as fast as its economy, the next global recession could well bear the label ‘Made in China.’ The world economy is currently growing at its weakest pace since it began recovering in 2009, with global GDP growth for 2015 estimated at 2.5 per cent in real terms. But measured in nominal dollar terms, global GDP will likely contract by about 5 per cent this year. This would be just the third time that the global economy has shrunk in nominal GDP terms since 1980.”
“Much has changed since the global financial crisis of 2008. For the first time in recent history, an economy other than the US has emerged as the largest contributor to global growth, with China accounting for a third of the world’s growth, compared to a 17 per cent con tribution by the US. This is an exact role reversal by the two economies from the preceding decade. The contribution from the other giant economies, Europe and Japan, has fallen to less than 10 per cent.The key to global growth is now in Beijing’s hands.”
“The problem is that China’s recent economic rise has been facilitated by a massive and unsustainable stimulus campaign. No emerging nation has ever tacked on debt at such a furious pace as China has done since 2008, and a rapid increase in debt is the single most reliable predictor of future economic slowdowns and financial crises. Policymakers in Beijing have been trying to sustain an unrealistic and randomly selected growth target of 7 per cent by steering cheap loans into one bubble after another -first housing, and most recently the stock market -only to see each bubble collapse.”
“The China slowdown is hitting countries in the developing world the hardest. China is now the top export market for more than 40 developing countries, and that number is up fourfold since 2004. As 2015 draws to a close, the global economy is exhibiting few signs to suggest it is breaking out of a rut, with growth still stuck at around 2.5 per cent. With global recession defined as a growth rate of below 2 per cent, the world is just one shock away from drifting into recessionary territory. Another one or two-percentage point drop in debt-laden China’s growth rate could well deliver that jolt.”
This Is Money. “Robert Shiller may be a Nobel prize winner with an impeccable mathematics background but it is human behaviour and the real world which drives his thinking. He is a great believer in free markets but warns that the economic system ‘is filled with trickery’ and thinks everyone should know that. As a new year gets under way Shiller fears that advanced economies could be on the cusp of another stock market and property bubble that could end in tears.”
“Shiller is concerned that once again markets may be showing over-exuberance. ‘I’ve tried to inquire why we are having these booms right now at a time of so-called secular stagnation with low interest rates, and arrived at the thought that low interest rates are promoting these bubbles. Central banks caused them but that’s only part of the truth. There are other things happening that may contribute to a high stock market and a high housing market.’”
From Reuters. “The story of two Iowa cousins - one a retired teacher, the other a laid-off Deere & Co worker - shows who benefits, and who doesn’t, in the vast money-go-round powered by the chase for higher investment yields. The Iowa cousins’ Wall Street connection is a single, small strand in a vast web of massive financial flows, woven in the easy-money environment the U.S. Federal Reserve has maintained for years.”
“St. Louis, Missouri-based agrochemical giant Monsanto Co, for example, is caught in the same commodities downturn as Deere. It said in October that it would slash 2,600 jobs as commodity prices slump. But it has increased debt by $7 billion since 2013, helping to fund $8 billion in share buybacks in the same time frame. San Diego-based chip maker Qualcomm Inc said in July that it would cut 4,500 full-time staff, or 15 percent of its workforce, as foreign competition pinches sales. The company raised $11 billion in debt this year, helping to finance $11.25 billion in buybacks for the year.”
“And Atlanta-based beverage maker Coca-Cola Co said in January that it would cut at least 1,600 white-collar jobs as it faced sluggish soda sales. It has added $9 billion in debt since the end of 2013 and bought back $6.13 billion of its shares in that time. ‘Basically what you’re seeing in the stock market is a slow-motion leveraged buyout of the entire market,’ said Ed Yardeni, founder of Yardeni Research.”
“Matt Happel came to Deere after he got laid off from a local printing company during the depths of the last recession. He initially ruled out going back to school after Deere cut him, he said, because he knew it would mean at least two years of financial hardship — and he worried what that would do to his current relationship and his children. Deere for a decade was riding high on a global surge in commodities. Farmers from India to Iowa eagerly snapped up Deere’s machines — many of which can sell for $250,000 or more — as they rushed to meet the world’s growing demand for corn and soybeans. The company also makes construction and forestry equipment.”
“But that boom has gone bust as growth in China and other emerging economies cooled over the past several years. Deere said in January that it would cut more than 900 workers in Iowa and Illinois, including 565 in Waterloo, as it rushes to curb output. The layoffs came on top of 1,100 job cuts last year.”
“He still worries. His fiancée is an information technology specialist for an insurance company. A few days earlier, he said, she was called in for a meeting where the company announced cutbacks. Her job is safe, he said, ‘but it’s a scary thing.’ He paused for a moment, and then asked: ‘We’re not supposed to be in a recession now, are we?’”
This article is worth reading in full:
‘The Iowa cousins’ Wall Street connection is a single, small strand in a vast web of massive financial flows, woven in the easy-money environment the U.S. Federal Reserve has maintained for years’
This was the money line for me:
I know what he means but on the whole it’s absurd.
Precisely. It’s the bizarre and ludicrous that slips by that goes unchallenged.
“Using debt to finance buybacks can produce tax or accounting benefits. The buybacks provide an alternative to capital investment or research spending when business conditions don’t justify making long-term bets. Instead, buybacks return profits to shareholders – and often enhance executive pay …”
Using borrowed money to buy back stocks as the company sales and profits tanks. It’s a hollowing out on a grand scale and they call it returning profits to shareholders.
Why not just give them a dividend? Oh, that would be taxed twice, and maybe there weren’t any profits at all, so let’s borrow some. Tax code stupidity strikes again. All this ties into what Stephen Roach pointed out in the desk clearing post; an asset economy. Using asset prices for growth. Why? Because the real economy is in bad health. Instead of fixing the problems, they’ve taken the easy and unsustainable way out.
It seems like Bernanke played “pass the trash” on his successors.
Borrowing is pretty much always passing the trash to the future.
Thanks for that; it was interesting.
“Buybacks fueled by cheap credit leave workers out of the equation”
That headline speaks volumes about the cumulative economic impact of QE1, QE2, QE3 and ZIRP.
“Matt Happel, who was laid off from his job at a Deere & Co factory in April, is now studying to become an actuary at the University of Northern Iowa.”
His income might go up quite a bit if he succeeds in his efforts to become an actuary.
Does this imply that a stock market crash is baked into the cake when and if the Fed ever normalizes interest rates?
why would they- all the free hc countries currencies have tanked so the dollar is supreme= print forever !
“There is a cash call on cities and towns. Instead of hiring cops or teachers, more money gets diverted to the pensions from the city.”
This is another facet of ZIRP. Pension promises made back when significantly positive returns on assets were available without resorting to high-risk investing gambles can only be fulfilled in the present low-rate environment by increasing the current contribution rate.
Not entirely true where I live, to 50% pension increases enacted a decade or so ago are partly financed by an extreme cutback in road maintenance among other things…meanwhile the county is sliding towards bankruptcy. FWIW the sad tale is at http://sonomacountytaxpayers.org/category/public-employee-pensions/
and is probably similar to many other counties in California and elsewhere.
Filing bankruptcy is one option for dealing with unsustainable pension and other local governance costs. With luck, a critical mass of other municipalities will go bust at the same time, resulting in a too-big-to-fail federal bailout.
Are U.S. territories, states and municipalities too big to fail?
Terry Savage
December 9, 2015
For the past two decades, an average of more than a million Americans have filed for bankruptcy every year.
There’s a legal cottage industry in helping debtors “wipe the slate clean,” although personal bankruptcy stays on your credit report for 10 years. And not all debts are wiped away in bankruptcy, such as most debt to the IRS and federal student loan obligations. Some forms of bankruptcy require payback of a portion of loans. But for the most part, the businesses and credit card companies swallow the losses, passing the costs on to consumers. Few individuals, with perhaps the exception of Donald Trump, are too big to fail.
Individuals are not the only ones who file for bankruptcy. Major corporations have also used the bankruptcy laws to “reorganize,” wiping out shareholder equity and even forcing their lenders (the bondholders) to receive less than they had been promised. Almost every major airline today has a bankruptcy in its history. General Motors and Chrysler both filed for bankruptcy, as did Lehman Brothers and Washington Mutual, and energy giants Texaco and Enron.
Governments in trouble
But what happens when a city or state finds its finances in dire straits? Several cities have taken the bankruptcy route, notably Stockton, Calif., and Detroit. The provisions of the bankruptcy code for cities depend on state laws. In 1934, Congress passed the Municipal Bankruptcy Act (revised in 1937), which said state would make laws overseeing all municipal bankruptcies. A subsequent 1978 revision of the Federal bankruptcy code created Chapter 9, for reorganization of municipalities.
In recent years, in the municipal bankruptcies that have been filed, the parties involved — employees, taxpayers, business creditors, lessors of public buildings to the municipality and the general lenders — have all been forced to make adjustments. But, with some exceptions, those currently receiving pensions from municipalities have mostly been spared, although health care benefits for retirees have been reduced or cut.
States cannot declare bankruptcy, because states are sovereign governments. And since states can increase taxes on residents in order to pay their obligations, they cannot evade those debts by filing for bankruptcy. That means even states like Illinois, which owes more than $110 billion to the state’s pension funds, and has $7 billion in unpaid bills to service providers, cannot file for bankruptcy. It must first cut expenses — or increase taxes. It’s eventually a self-defeating strategy, because state residents leave! People are smart enough to figure out the best place to live based on state income taxes and sales taxes, as well as the educational system (and the weather!). Many simply relocate when the tax burden becomes too great.
…
It’s turtles all the way down (again!)…
in fx co gov workers retire at 55 w 75% of pay
see url above and join your local watchdog group
the employees get paid- taxpayers take it up the azzzz
401k for everyone
“The pension switched from calculating retirement pay based on the average of her three highest-earning years to the five highest, which nudged down the number.”
Sounds illegal.
“Being part of a big family eases the strain. His family still owns the 1,200-acre farm that was homesteaded by his great-grandfather and is now operated by his father and brother.”
Oh bugger…
Your Precious Land
By: Mike Walsten
Mike Walsten has covered major business trends in agriculture for more than 40 years.
Iowa Farmland Values Slip nearly 4%
Dec 14, 2015
The value of an average acre of Iowa farmland declined $310, or 3.9%, an acre to a value of $7,633 an acre, according to the 2015 Iowa Land Value Survey. The survey was conducted by Iowa State University’s Extension Economist Wendong Zhang. This year’s decline marks the second consecutive decrease, following an 8.9% decrease in 2014.
…
The price of corn has dropped about 50%. Longer term trend is about 50% below where it is now. It’s a proxy for oil. The “value” of the homestead will follow. Recovery is on its way.
Fire sale prices are on the way, too.
Maybe, but don’t consider a huge drop in land prices to necessarily be a fire sale. Lease rent for an acre of corn land in Iowa was $250 last year. Supposedly, as of last spring, there was little to no profit to be had at that level by the actual farmer. At $300 corn (2011-13), maybe your harvest would be worth $900 gross. At $160/ton (2015) it is less than $500 gross and there is no profit. So much for making the payments on that $250,000 tractor.
Trend is well below $100/ton corn. The tillable land isn’t worth more than $1,000 as a pure business proposition. Pasture land even less. The rest is Bubble.
Just for reference:
http://dreamdirt.com/iowa-farmland-rents-fall-in-2015/
A former aquaintence of mine and his brother owned a lot of Iowa farmland, with forest on it for timber. He kept bragging how his land value was going up. I dropped him as a friend in 2010 and ended communication then. I expected his farmland to be cyclic anyway. When I told him I buy metals, savings bonds and t bills he would say I invest like an old man, actually I liked that and did not take it as an insult. He would describe his timber as “tree bills.” I think they were 90% into real estate those days. With condo they rented out in Biscayne Bay. Another idiosyncrasy was his religious devotion to Bob Brinker. I kept scoffing about how one man can do market timing. I keep promoting dollar cost averaging and diversification among various asset classes. I like REITS because you can dollar cost average to them. But I otherwise don’t have any respect for small landlords. So little that I make a point of renting only from large corporate-owned apartment complexes.
As for recession, I am not convinced yet. I don’t see jobs declining in my field. A recruiter from a large chip maker in Arizona contacted me this week about a position in Phoenix that I am a great fit for. He emailed me again after I turned it down and he asked me to reconsider. My sister works for that company as a consultant and says the problem is you are rated by your peers at performance appraisals and they have to get rid of people in downturns, so the poor engineer with the least popularity gets voted out. It’s all subjective and not necessarily based on performance - I know how that goes.
OTOH a recession could happen this year. The stock market dismal performance sometimes precedes recessions and may perform well during recessions. I think this could be a good year for domestic stocks and an even better year for Japanese and European stocks, though we could see the job market going bad and moe outsourcing of white collar jobs.
“tree bills.”
Poorly diversified investment choice!
Timber, mining projections face challenges in 2016
Montana Resources new truck
Susan Dunlap, The Montana Standard
December 20, 2015 12:30 am
Timber and mining insiders predict another tough year ahead for southwest Montana in 2016.
For both industries, the global economy appears to be the primary cause of the negative impact felt here at home. Depressed prices already felt in both industries in 2015 appear to be leading to another sluggish year likely ahead.
…
“Rock-bottom interest rates and massive asset purchases designed to kick-start ailing economies have encouraged investors to push into ever-riskier assets in search of returns. That has left many markets vulnerable to sharp reversals when popular trades turn sour.”
The expectation for future bailouts is fully reflected in today’s irrationally exuberant share prices.
I don’t agree with everything he says, but I can’t think of anyone I do agree with on everything. He called the housing bubble, has been warning about current bubbles.
Raghuram Rajan | The global monetary non-system
‘Multilateral institutions like the IMF should exercise their responsibility for maintaining the stability of the global system’
‘How does one offset weak demand? In theory, low interest rates should boost investment and create jobs. In practice, if the debt overhang means continuing weak consumer demand, the real return on new investment may collapse. The neutral real rate identified by Knut Wicksell a century ago—loosely speaking, the interest rate required to bring the economy back to full employment with stable inflation—may even be negative. This explains central banks’ attraction to unconventional monetary policy, such as quantitative easing. The evidence that these policies boost domestic investment and consumption is mixed, at best.’
“One reason to press on is to fulfil past commitments. In the 1960s, industrial economies made enormous promises of social security to the wider public, later augmented by fiscally unsound commitments to public sector workers. ”
So what are they going to do ?
We’re in a downward ratchet, with each peak worse than the one before, and each trough lower as well.
For that reason, the thought of a recession from THIS not-so-high point has everyone terrified.
‘has everyone terrified’
Let’s use some context. I noticed sometime in the 1990’s that the Federal Reserve started talking about a recession as something that must be avoided. Recessions are as natural, in a central bank economy, as the sun coming up. It’s called the business cycle and it’s the result of central bank intervention. You can’t avoid it; if you are going to have a punch-bowl, you will have hang-overs. The problem is we’ve adopted the Japan model (remember they said, Japan is the model).
To his credit Greenspan popped the housing bubble with rate increases. Bernanke and Yellen have taken on a policy that attempts to erase the business cycle with Japanese actions and Japanese results. What did they do? Faced with fallout from epic stock and real estate bubbles, they moved bad loans into zombie corporations and entered ZIRP and QE like asset purchases. This continues to this day.
Before anyone says “oh the gloom!”, keep in mind Japan isn’t hell on Earth. But Japan had the advantage that the rest of the world was still chugging along, providing some markets which had demand. Where we are now is a post “unprecedented central bank policy” world where we find out what unprecedented turns out to be. Maybe it’ll all turn out fine; anything is possible. But nobody knows because we’ve never been here before.
Maybe it’ll all turn out fine; anything is possible. But nobody knows because we’ve never been here before.
If there is anything markets hate, it’s uncertainty.
Uncertainty helps keep prices aligned with reality.
By contrast, when everyone is certain that stocks, houses, junk bonds, or beanie babies are going to go up forever is when bubbles form.
“If there is anything markets hate, it’s uncertainty.”
I hate the fact there aren’t bushel baskets full of fifties and hundreds delivered to my house too.
1921 was the best a real cleansing
in 1921 we embraced deflation
“Let it all go” w Andrew Mellon
now everyone is a Keynesian poofter
‘If investors are bracing for their first annual loss on U.S. high-yield bonds since 2008, spare a thought for Japanese moms and pops who put their money into funds that bought the debt and mixed it with bets on emerging currencies. It’s proving to be a toxic cocktail.’
‘High-yield funds tied to the Brazilian real and sold to investors in Japan have lost 28 percent to 31 percent this year. That made them the 10 worst-performing Japanese mutual funds that buy speculative-grade debt, with a combined 237 billion yen ($1.97 billion) of assets as of Dec. 22. There are more than 1 trillion yen of high-yield mutual bond funds in Japan tied to currency wagers, which seek to lift returns by boosting risk, according to calculations by Bloomberg.’
‘Losses on so-called double-decker or layered funds highlight the dangers Japanese investors face as they venture into riskier investments in search of higher returns with the Bank of Japan pushing ahead with asset purchases. Japan’s pension funds and life insurers are also buying more overseas debt as they seek to meet payouts to the fastest aging population in the developed world with local sovereign bonds to three years paying negative yields.’
“People look in the paper and see advertisements with yields of 10 percent and 11 percent, and think it’s a good idea to buy because they don’t get any yield in Japan,” said Edwin Merner, the president of Atlantis Investment Research Corp. in Tokyo. “We can laugh but if somebody put money in, they are crying.”
‘… spare a thought for Japanese moms and pops who put their money into funds that bought the debt and mixed it with bets on emerging currencies. It’s proving to be a toxic cocktail.’
Was the availability of these toxic cocktail investments somehow limited to Japanese retail investors, or could anyone in the global economy who wanted a drink have stepped up to buy some?
“Much has changed since the global financial crisis of 2008. For the first time in recent history, an economy other than the US has emerged as the largest contributor to global growth, with China accounting for a third of the world’s growth, compared to a 17 per cent con tribution by the US. …
…
The key to global growth is now in Beijing’s hands.”
Slowdown in Chinese manufacturing deepens fears for economy
Factory activity cools for fifth month running as overseas demand for Chinese goods continues to fall
A cargo ship at a port in Weihai, in eastern China’s Shandong province
Export orders at Chinese manufacturers fell for the 15th month running in December. Photograph: Guo Xulei/Xinhua Press/Corbis
Katie Allen
Friday 1 January 2016 13.41 EST
Last modified on Friday 1 January 2016 17.01 EST
A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy.
The latest in a string of downbeat reports from (SIC) showed that activity at China’s factories cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall.
Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.
After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.
A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges.
Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November.
The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction.
“Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” Zhao Qinghe, a senior statistician at the national bureau of statistics, said in a online statement.
Analysts said the latest manufacturing PMI pointed to falling activity, but that some hope could be taken from the improvement on November’s three-year low.
The small rise “suggests that growth momentum is stabilising somewhat … however, the sector is still facing strong headwinds,” said Zhou Hao, the China economist at Commerzbank in Singapore.
“In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”
…
They never tell the teacher story
In my county they get a pension w Nov of about 2 million
The following numbers are from the Statistics Canada website:
At the end of September, 2015 the total debt outstanding in Canada (bottom line of the credit market summary data table) was $6.70 trillion.
At the end of September, 2014 the total debt outstanding was $6.17 trillion. In the one year period from the end of September, 2014 to the end of September, 2015 it increased by $530 billion. This is an increase of 8.5%.
The approximate beginning of the global financial crisis was June, 2007. At the end of June, 2007 the total debt outstanding was $3.99 trillion. In the last 8-1/4 years it has increased by $2.71 trillion. This is an increase of 67.9%.
Looking at the total debt outstanding in Canada of domestic non-financial sectors (17th line up from the bottom of the credit market summary data table):
At the end of September, 2015 the total debt outstanding of domestic non-financial sectors was $4.86 trillion.
At the end of September, 2014 the total debt outstanding of domestic non-financial sectors was $4.54 trillion. In the one year period from the end of September, 2014 to the end of September, 2015 it increased by $323 billion. This is an increase of 7.1%.
At the end of June, 2007 the total debt outstanding of domestic non-financial sectors was $2.84 trillion. In the last 8-1/4 years it has increased by $2.02 trillion. This is an increase of 70.9%.
The start date of the Statistics Canada data table can be changed by clicking on the “add/remove data” tab at the top of the page.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122
Commodities - Ending of China’s super-boom spells pain with no end seen yet
http://finance.yahoo.com/news/ending-chinas-super-boom-spells-055617330.html
From the Shiller piece: “We found in the boom cities the expectations for home prices was extraordinary. In Los Angeles we got an estimate of 22 per cent for the next ten years!” he recalls.
Yankee fundamentals. Hehe.
Record Federal Reserve auction suggests more problems for credit, mutual funds in 2016
‘Third Avenue Focused Credit fund didn’t make it to the new year, shuttering its doors after its assets shrank to $789 million, down from $3 billion at their peak. Investors won’t get any of the remaining money until December, 2016 at the earliest. Janet Yellen weighed-in on the matter at her last press conference. “[Third Avenue] had very concentrated positions in especially risky and illiquid bonds, and it had been facing very significant redemption pressures,” said Yellen.’
‘She also characterized the fund as “unusual.” However, recent record redemptions in not only high-yield mutual funds, but also investment grade funds, tell a different story.’
‘It is possible that mutual funds loaded with distressed debt could use another repo market, the tri-party repo market, to offload their underperforming assets in exchange for cash. This cash could then be used to temporarily buy high quality collateral from the Fed through a reverse repo. At year-end, their balance sheets would appear to be composed of higher quality assets with a higher quality counterparty than would otherwise be the case.’
‘Data is scant with regard to the tri-party repo market, but the size of the year-end Fed auction tells the story. A healthy financial system should not need $475 billion in high quality collateral from a zero-risk entity, such as the Fed—unless there are problems with portfolio composition and counterparty risk bubbling beneath the surface.’
http://finance.yahoo.com/news/-475-billion-year-end-fed-auction-suggests-more-problems-in-credit–mutual-funds-023901085.html#
Is the Fed now taking cash out of the system? Half a Trillion in one month?
Fake capital purchased shares and created untrustworthy market prices supported by free money to a select handful of insiders.
What happens when this small handful panic ?
They appear to be gambling that they will be able to spot when interest rates start to hurt well in advance of the general market. Really !
Remember, one world event overnight could trigger a pin to break these bubbles.
We have more well educated people in business than ever before - MBAs by the truckload.
Why do they seem to think that the financial markets are more important than the shop floor ?
We all know that this bubble will break with higher interest rates. But when ?
Oh dear…
http://www.marketwatch.com/investing/index/shcomp?countrycode=cn&mod=MW_story_quote
Let’s put that right out in the open so AlbqDan can clearly see it (assuming he still lurks here):
Shanghai Composite Index 3,399.91
Change -139.27 -3.94%
Volume 145.84m
Jan 4, 2016, 11:30 a.m.
It’s still turtles all the way down in China.
Asian markets slide on fears of stalling Chinese economy
Published: Jan 3, 2016 10:32 p.m. ET
Shares tumble across region; oil futures rise on Saudi-Iran rift
Women wearing traditional kimono dresses ring in the new year at the Tokyo Stock Exchange on January 4, 2016.
By Chao Deng
Shares across Asia tumbled Monday, the first trading day of the year, after the latest signal that China’s economy is stalling.
The Shanghai Composite Index (SHCOMP, -3.94%) fell 3.4%, the smaller Shenzhen Composite (399106, -5.34%) is down 4.5% and Hong Kong’s Hang Seng Index (HSI, -2.33%) fell 2.1%.
Japan’s Nikkei Stock Average (NIK, -2.59%) was down 2.6% while South Korea’s Kospi (SEU, -1.46%) was down 1.6%.
Markets around the world were closed Friday for the New Year’s holiday.
The losses in the region deepened after a private gauge of Chinese manufacturing activity continued to weaken. The Caixin China manufacturing purchasing managers index fell to 48.2 in December from 48.6 the previous month. A figure under 50 indicates contraction.
“I think this will raise expectations of more government action to support the economy,” wrote Andrew Sullivan, managing director at Haitong International Securities, in a note, adding that manufacturers continued to trim their staff numbers.
…
It’s broken, but not everyone knows it yet.
ft dot com > Companies > Transport >
Shipping
January 3, 2016 4:17 pm
Shipowners rocked by sinking charter rate
Robert Wright in New York
China’s slowing growth and a glut of ships have hit earnings for vessels carrying coal and other dry bulk commodities so hard that owners face forced sales, emergency capital raisings and possible bankruptcy.
Charter fees are not covering vessels’ operating costs, let alone their financing, in the latest bad news for the many private equity firms that have invested in the sector.
Short-term charter rates for Capesize ships — the largest kind — were as low as $4,897 a day on December 23, down from more than $20,000 a day in August. Vessels typically cost around $13,000 a day to operate and finance.
The Baltic Dry index, which measures overall average charter rates, has been at its lowest levels since it started in 1985.
Basil Karatzas, a New York-based shipping consultant, said the market was “murder — a big mess”.
“There has been no improvement whatsoever in trading,” he said.
The slide partly reflected growth in the dry bulk fleet as vessels ordered in late 2013 and early 2014, many with private equity funding, were delivered. The net capacity of the world dry bulk fleet grew 3 per cent in the first 10 months of 2015, despite a spike in the number of older vessels being scrapped following the slump in rates.
The impact of the fleet’s growth has been all the more severe because China’s slowdown has reduced an expected increase in trade in dry bulk commodities from 5-6 per cent over 2015 to zero.
“As you combine that with the supply problem we already knew about, you get the worst conditions we’ve seen ever,” one senior industry figure said.
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