Daily: Another global recession “becoming a genuine possibility”
The first article here highlights the tenor of recent economic data. The global economy continues to slow, with the US doing relatively better than Europe in the wake of the financial crisis that began five years ago. Nevertheless, slowing is clear in the data throughout the developed economies and emerging markets, leading Gerard Lyons to ask whether we are in for a second global recession.
In my view, only a recession in the US could make that outcome likely. That means that US growth is vital to continued global expansion. Further, US growth is very much dependent on a positive outcome to the fiscal cliff scenario that promises to add a negative impulse to the US economy via spending cuts and tax hikes. What’s clear now, as the Washington Post article below demonstrates, is that American psychology has turned to precautionary savings – amplified in my view by the need to save more due to lost interest income. If the US government reduces private income by raising taxes and cutting spending, a recession is inevitable.
Note, the number of different places in the world that are vulnerable from this crop of articles. It is testament to the lack of policy space and also the lack of substantive private sector deleveraging to reduce economic fragility.
Wary Americans saving more, even as government encourages risk – The Washington Post
Global economy: Europe’s woes deepen and China slows | Reuters
“”Is the global economy heading into another recession? This is now becoming a genuine possibility, given events in recent months,” said Gerard Lyons, chief economist at Standard Chartered in London, in a research note.
“The inability of European politicians to address their problems suggests that uncertainty about the euro area will persist, with the periphery remaining in recession.”A good gauge of economic growth, Markit’s Euro zone Composite PMI, fell to 46.1 in September from 46.3 in August.”
“Now Phoenix is on the rise.
Why?Apparently Canadians have been flocking there for the past few years and have been buying everything in sight.”
“Looking at borrowers whose first student loan payments came due between Oct. 2008 and Oct. 2009, a startling 22.7% of those who had gone to a for-profit college had defaulted by Sept. 2011. That’s more than double the 11% three-year default rate for students at public institutions and triple the rate (7.5%) for those who had gone to private, non-profit schools.”
Analysis: They’re back! Yield hunt pushes funds into CLOs, CDOs | Reuters
“Fund managers are increasingly eyeing riskier exotic assets, some of which haven’t been in fashion since the financial crisis, as yields on traditional investments get close to rock bottom.”
Another domino falls as Hollande pushes France into depression – Telegraph
What I have seen of the French budget is not austere. There may be high tax but what I have seen on spending is not deep cuts. Ambrose Evans-Pritchard says:
“If French President François Hollande thinks he can assuage the bond markets by dishing out tax-heavy austerity instead of genuine reform, he has been given very bad advice.”
This is a more balanced assessment of Hollande’s 2013 budget.
France Raises Taxes in Budget Push – WSJ.com
“According to documents presented at the weekly cabinet meeting Friday, the government aims to lift revenue from household income taxes by 23% next year, while revenue from business taxation is expected to rise almost 30%.”
House prices in UK fall as annual decline hits 1.4% | Money | guardian.co.uk
“It found prices in Northern Ireland were still furthest from peak, with prices down 53% compared with 2007 levels. Wales was also towards the bottom end of the scale, with prices currently 16% below their all time high.
In England, the southern regions have generally come closest to approaching the peak, in particular London and the area immediately around it. Prices in the capital are now just 2% below the level seen when the market was booming in 2007.”London continues to defy economic logic. To be just 2% below its peak in a paralysed economy is preposterous,” said Russell Quirk, director of online estate agents eMoov.co.uk.”
Australia cuts rates and warns on growth – Telegraph
Australia’s central bank cut interest rates by a quarter point to 3.25pc on Tuesday, their lowest level since the global financial crisis, and warned the growth outlook for next year had weakened.
Chinese manufacturing contracts for second month – Telegraph
“The government’s purchasing managers’ index (PMI) stood at 49.8 in September, a modest improvement on 49.2 in August, according to the China Federation of Logistics and Purchasing and the National Bureau of Statistics.
A PMI reading above 50 indicates expansion, while one below that mark points to contraction. The result came in below the median forecast of 50.2 in a survey of 11 economists by Dow Jones Newswires.”
Banks
Spanish banks will need up to €105bn, warns Moody’s – Telegraph
“Fears for Spain escalated after rating agency Moody’s warned that the country’s stricken banks may need almost twice as much capital as the official estimate and Catalan’s separatists stepped up their rhetoric against Madrid.”
How Oliver Wyman Manipulated The Spanish Bank Bailout Analysis | ZeroHedge
“What Oliver Wyman is suggesting is that Spanish banks can plug capital shortfalls, modestly in the base case, massively in a worst case environment, by selling hundreds of billions of the very debt they use to pledge as collateral with the ECB! “
Bear Stearns accused of fraud but sceptics question target and timing | Business | guardian.co.uk
I certainly do question the timing. Very cynical
Banks should learn to say “Just Go” | Hugo Dixon
“Shortly after last year’s bonus round I was having lunch with the boss of an investment firm. He told me how he heard a handful of staff had been grumbling about what, by most people’s standards, were still extraordinary pay packages. He called them into his office and told them that, since they were unhappy, they should “Just Go”.
Most of them packed their things and left the firm. But the next day one came back and said he had been misunderstood. My interlocutor said he hadn’t misunderstood him at all. The employee clearly felt he was worth more than he was paid. He should take his luck and go elsewhere as he clearly didn’t have his heart in his current job. He should “Just Go”. And he duly did.”
Telling people to leave finance « mathbabe
“I used to work in finance, and now I don’t. I haven’t regretted leaving for a moment, even when I’ve been unemployed and confused about what to do next.
Lots of my friends that I made in finance are still there, though, and a majority of them are miserable. They feel trapped and they feel like they have few options. And they’re addicted to the cash flow and often have families to support, or a way of life.”
U.S. expands criminal case against 5 ex-Madoff employees | Reuters
More prosecutions to make you think justice is being served, nothing more.
NY sues JPMorgan over Bear Stearns mortgage securities | Reuters
At this point in the cycle since the crisis, you know this is more for show and potential future political gain than anything real. We’re talking about events from a half-decade ago or longer. The result will be a bunch of headlines for Schneiderman and a slap on the wrist.
“The Swedish model did the job it was designed to do. It fixed the banks, which is a lot more than can be said for what bailouts have done for our banking sector. The Swedish model didn’t create years of economic turmoil in Sweden. That was done by the real estate bubble bursting and the government’s other responses to it. At the same time, Sweden was not immune from the economic ups and downs happening in the rest of Europe and the world.
As for the US, we are up to QE3. Need I say more? The banks remain predatory and broken, and unemployment is improving only because so many are being definitionally “exited” from the labor force and the counts.”
Elsewhere
Cassandra Does Tokyo: No Wheelbarrows Required
“So it comes as some surprise that the eminent Johns Hopkins economist, advisor to TheGoldStandardNow.Org, and renowned specialist in Global Hyperinflation(s) Professor Steve Hanke, in an interview with Massar & McKee over at Bloomberg not only completely dismissed the idea that hyperinflation (or Hyperinflation) is lurking around the corner or ready to pop-up its head like a angry gopher, but explained that contrary to the popular belief that an excess of money is resulting from all the QE exercises – the alleged money that has caused paranoid chicken-littles to make a beeline to Home Depot and purchase a wheelbarrow for imminent use – Dr Hanke suggests that there is not enough money, and that it’s this shortfall (not its price) which is holding back the growth of the economy.
Hanke’s argument rests upon the fact while the Fed’s balance sheet has indeed grown this “State Money” (as he terms it) is a small fraction of the overall money supply – which he terms Private Money, conjured privately by financial institutions, it has grown much less than the overall money supply has shrunk. So not only does Dr Hanke NOT fear hyperinflation, he believes the balance of risk remains DEFLATION, and that under the circumstances the Fed is not doing enough. “
Lee Boyd Malvo, 10 years after D.C. area sniper shootings: ‘I was a monster’ – The Washington Post
“In October 2002, John Allen Muhammad and Lee Boyd Malvo began a shooting spree in the Washington region that left 10 dead and three wounded. The duo paralyzed the region for more than three weeks before getting apprehended at a truck rest stop in Myersville, Md.”
How to Respond to Negativity – Peter Bregman – Harvard Business Review
“Countering someone’s negativity with your positivity doesn’t work because it’sargumentative. People don’t like to be emotionally contradicted and if you try to convince them that they shouldn’t feel something, they’ll only feel it more stubbornly. And if you’re a leader trying to be positive, it comes off even worse because you’ll appear out of touch and aloof to the reality that people are experiencing.”
The other instinctive approach — confronting someone’s negativity with your own negativity — doesn’t work because it’s additive. Your negative reaction to their negative reaction simply adds fuel to the fire. Negativity breeds negativity.So how can you turn around negativity?
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