The last few weeks marked a turning point in the global economy. It’s more than the trade war. A sense of vulnerability is replacing the previous confidence—and with good reason. We are vulnerable, and we’ll be lucky to get through the 2020s without major damage. Let’s talk about the risks facing us in the next year or so and the economic environment in which we will face those risks.
Supply Shocks Ahead
In a recent Project Syndicate piece, NYU professor and economist Nouriel Roubini outlined three potential shocks, any one of which could trigger a recession:
- A slower-brewing US-China technology cold war (which could have much larger long-term implications)
- Tension with Iran that could threaten Middle East oil exports
The first of those seems to be getting worse. The second is getting no better. I consider the third one unlikely. In any case, unlike 2008, which was primarily a demand shock, these threaten the supply of various goods. They would reduce output and thus raise prices for raw materials, intermediate goods, and/or finished consumer products. Roubini thinks the effect would be stagflationary, similar to the 1970s….CLICK for complete article
The spread between 3m and 10Y yields has been inverted since mid-May and reached its most inverted since April 2007 this morning…and here is Bloomberg showing how the yield curve inverted in 1989, in 2000 and in 2006, with recessions prompting starting in 1990, 2001 and 2008. This time won’t be different.
Critically, as Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator, James Bianco, president and eponym of Bianco Research LLC notes today. On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal….CLICK for complete article
On Sunday, battered international investment bank Deutsche Bank AG announced it will be exiting the equities business and cutting 18,000 jobs as part of an aggressive restructuring plan.
Deutsche Bank said it will eliminate its trading business as part of a cost-cutting plan that will eliminate 6 billion euros ($6.7 billion) in expenses and reduce the bank’s headcount to 74,000 by 2022.
In addition to the restructuring plan, Deutsche Bank said it anticipates a 2.8-billion-euro loss when it reports second-quarter financials July 25.
Deutsche Bank has been struggling to compete with other global investment banks and has been hounded by regulators in recent years.
In 2017, Deutsche Bank paid the U.S. Justice Department a $7.2-billion settlement related to the bank’s mortgage-backed securities business that contributed to the 2008 financial crisis. Deutsche Bank was also fined $630 million related to allegations of Russian money laundering.
Several Wall Street analysts weighed in on Deutsche Bank’s new restructuring plan; here’s a sampling of what they have to say….CLICK for complete article
Despite the fact that the American economy is going strong, with high GDP growth and the lowest level of employment in 40 years, a survey from Bankrate.com shows that nearly 40 percent of Americans believe the next recession is already here or awaits us in the next 12 months. So, why do experts says the economy is good, if not excellent, when the Average Joe has an entirely different sentiment?
Indeed, the BankRate survey noted that 88 percent of “experts” say the economy is “good,” and 11 percent even describe it as “excellent. The disconnect between the two groups is difficult to understand at a time when the U.S. economy has achieved its longest growth record without recession. In fact, we’re looking at a 10-year growth spurt. In other words, 121 months of straight growth….CLICK for complete article
The only reason the S&P 500 is holding the 200-day moving average at 2,776 is because the 200 dma keeps sinking. That, of course, is also pulling the 50 dma lower and once it comes down we’re only a month or two away from a “Death Cross” and then we would be looking at a very long, very hard climb back for the senior index….CLICK for complete article
I’m not going to use the R-word here. All I’m going to say is that it might be time for investors to brace for a significant correction—especially with debt at record levels and the Federal Reserve left with very little firepower to combat a full-blown crisis….CLICK for complete article