Skip to comments.The Next Recession Is Coming - Expect Around 0% Returns For The Next 7 Years
Posted on 07/29/2016 10:14:23 AM PDT by blam
Jul 29, 2016
The next recession is coming, and it will be severe.
My friend Ed Easterling of Crestmont Research just updated his Economic Cycle Dashboard and sent me a personal email with some of his thoughts.
Here is his chart (click on it to see a larger version).
The current expansion is the fourth longest since 1954 but also the weakest. Since 1950, average annual GDP growth in recovery periods has been 4.3%.
This time, average GDP growth has been only 2.1% for the seven years following the Great Recession. That means the economy has grown a mere 16% during this so-called recovery.
If this were an average recovery, total GDP growth would have been 34% by now instead of 16%. So, its no wonder that wage growth, job creation, household income, and all kinds of other stats look so meager.
I think the next recovery will be even weaker than this one (the weakest in the last 60 years) because monetary policy is hindering growth.
Now, combine a weak recovery with NIRP. Asset prices are a reflection of interest rates and economic growth. And both are just slightly above or below zero. So, how can we really expect stocks, commodities, and other assets to gain value?
The upshot is that traditional investment strategies will stop working soon.
(Excerpt) Read more at marketoracle.co.uk ...
"There you go."
"Happy Days Are Here Again."
I expect them to go full Cypress with haircuts for everybody except the too-big-to-fail types.
I think Obama is cooking the economic growth number to hide the fact we are in a recession. And even with the cooking he can’t get better than 1% after the revisions.
Watch. As soon as the Nationalist Trump takes over in January the globalist Fed will start increasing interest rates to “pull the QE money back.”. Watch.
My Cypress are already bald.
This is measured against bond interest rates.
But this traditional metric is against a backdrop of negative int rates in much of the rest of the world. This means several things.
One is, that foreign banks can reliquify themselves at zero risk buy buying US Tsys at *ANY* yield. If you are a German bank, or a German company or for that matter, the German government and you pay -.04% on a ten year bond, then you can take whatever deposits exist in your bank and buy 10 year Tsys ^TNX even near record lows of 1.5% and immediately create a risk-free spread of 1.5x%. US banks have reliquified themselves since the financial crisis by earning a mere .25% on their deposits with the Fed and of course their normal businesses.
This also means that for the foreseeable future, it will cost nearly nothing for US companies to borrow. This unfortunately has the effect of allowing tremendous malinvestment. If you have to earn say 5% to pay back your loans, then what you are borrowing that money for has to earn at least 5%. If you are a corporation paying a 3.5% dividend, then you should be buying US Tsys and buying back your stock so that you do not have to. Of course, this is not “creating anything” as we would like to see cos doing in a growing economy. But most stock market analysts will tell you that well over 50% of recent stock market gains have come from buybacks. I have read the number is closer to 70%.
This also means (and this is happening lately) that the same entities that are buying US Tsys can buy double their normal slug. They sell into the resulting ramp. They then buy US stocks that pay 3.5% or more. This means that essentially any time US stocks fall, they will almost certainly be bought. That means there is almost no downside for the US stock market. This is now happening on a rather rapid basis.
As long as this continues, I honestly see no downside for the US stock market. People are going to be forced into the market. It may very well end badly at some point but as we all know, as long as the punchbowl gets refilled, the party continues.
I think the ten year bond goes to 1%. And I think the market could get a fair amount higher over the next few years. Yes, it is overvalued on any traditional basis, but TINA. There Is No Alternative, and now we will have foreign investmnet blowing up US markets into what should be the largest bubble ever seen. The higher bonds are bid, the lower their return and the more people seeking yield will be forced into the stock market.
I don’t see how it ends but more importantly, why it should.
And if you subscribe to my newsletter will tell you how to profit during these bad times.
another recession.... beginning inside a 5 or 6 year long deep recession.....
Obama’s Great Depression....
even more ... and more Americans are gonna lose their jobs now....
But first, send me $100 so that I can tell you what to expect after you subscribe (hint: we’re DOOMED!).
Plus, next week when nobody is looking they will revise the numbers down like they always do.
People are such suckers.
Like those who listen to all these stock market experts who are trying so desperately to make us all rich! With endless seminars, info commercials, financial talk shows et al.
The truth is all these people have no desire to make anyone but themselves rich. Their only desire is to rope-in and loot those who dream of being rich.
I’d be happy with 0% returns, especially if Hillary wins. That would mean my capital would survive her terms intact.
Full on bond buying frenzy right now. Pay any price.
I have a multimillionaire friend who says that there is $2-3 trillion dollars (off-shore) just waiting to come ashore after Trump is elected.
He says the US economy will boom during a Trump presidency.
I think you nailed it pretty good.
I have not paid attention to stuff like this for years. My financial advisor says stay the course, and I have, and my returns have been very acceptable for a long time.
The thing that holds the 2 - 3 Trillion offshore is the repatriation tax.
I think that’s insane. The companies EARNED the money offshore and PAID TAXES on it in the places they did business. We should welcome that money as a source of reinvestment. It would be employed far more efficiently than if the government taxed and redistributed those funds.
That said, I acknowledge there’s an argument that some companies may have manipulated transfer pricing to push profits into low tax jurisdictions. While one part of me says “who can blame them”, another part says that sort of abuse should be monitored and discouraged.
Of course, the biggest discouragement of tax games is to institute a competitive tax rate for corporations in the US, so those accounting machinations would have no reason to take place.
The risk of currency fluctuations means it is not risk-free.