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No saviour in sight as world credit cycle rolls over - (www.telegraph.co.uk) This may be as good as it
gets for the world economy. The HSBC index for the global business cycle hit a
three-year high around Easter, and has since rolled over. Any country that has
failed to lock in a self-sustaining recovery by now must expect to pay the
price for the failings of its policy establishment, and some risk a slide into
outright deflation. “We see building evidence of a cyclical downturn,” said
Fredrik Nerbrand, HSBC’s global asset guru. “We find it highly troubling that
the eurozone is still marred in a recession at the same time as our cyclical
indicators appear to have peaked.” The bank said there is a market “disconnect”
between the world’s gloomy outlook and talk of tapering by the US Federal
Reserve, the supposed moment when it starts to wind down its $85bn of monthly
bond purchases. It is surprising to me that HSBC’s leading indicator has taken
so long to buckle, since commodities topped in September and the Dutch CPB
index of world trade contracted over the February-March period. Rarely has
there ever been such an equity boom on such quicksand.
How a Big-Bank Failure Could Unfold - (www.nytimes.com) It was no small matter for
the ILM Group’s executives when they froze the pension plan that has provided
retirement security for the firm’s employees since 1947. The financial pressure
of maintaining the plan had been mounting on the small insurer for years. But
until March, ILM had not given in, even as tens of thousands of other employers
did. It held on when the Sept. 11, 2001, terrorist attacks rocked the economy,
flat-lining the stocks that fund the pension payments. It also kept the plan
intact when the Great Recession shrank its holdings by 29 percent. What finally
did the plan in? Rock-bottom interest rates. The very rates, in fact, that
helped fuel a stock-market rally and brought ILM double-digit returns on its
pension-fund investments in each of the past three years. But because of an
accounting twist, the near-zero rates also caused ILM’s projected pension
obligations — like those of every other private company that still provides a
traditional pension — to spike, overwhelming the stock-market gains.
Bernanke dares you to buy stocks - (www.marketwatch.com) Federal Reserve Chairman Ben
Bernanke reiterated this week the message he has been sending for months about
interest rates, the economy and the stock market. Oh, it was couched in
rhetoric and Fed-speak, but his message to average investors came through loud
and clear: “I dare you to invest in stocks.” No, Bernanke did not use those
words, but the Fed’s actions and the chatter around them make that message
unmistakable. Combine an interest-rate environment where savers get virtually
nothing with a stock market at all-time highs and a general nervousness about
what will happen to that market when the Fed finally stops stepping in to prop
up the economy and you have to wonder if investors have the nerve to throw more
money at stocks. Then add in Bernanke’s hint that the Fed’s rate of bond
purchases could slow “in the next few meetings” and he just double-dog dared
you to put more money in the market, knowing that the market will react to the
end of quantitative easing the way most of us respond to food poisoning.
Prepare for another round of wealth destruction - (www.marketwatch.com) According to my longer-term
macroeconomic analysis, called the Investment Rate, we are in a naturally weak
economic environment that has direct correlations to the Great Depression and
stagflation. The trillions of dollars of infusion offered by stimulus programs
and bailouts saved the economy from what would have been a Greater Depression.
It is those infusions that have influenced assets higher, it is those that has
made some people feel sanguine, but that is exactly the opposite of what they
should feel. The true underlying nature of our economy is not only weak, but it
is weakening faster now than it has at any point since the credit crisis began.
I am not talking about knee-jerk reactions here; I am talking about the natural
rate of economic growth as that is measured by The Investment Rate. We are
still in the third major down period in U.S. history. In my opinion, it is not
likely to end any time soon, and there is nothing anyone can do to stop it. The
idea of it being a Greater Depression may be pushing it a little too far, but
another round of wealth destruction looks as clear as day to me. It is coming,
this asset bubble will eventually burst, and it may be starting to happen now,
we cannot be sure.
Mortgage rates surge as Fed tapering fears mount - (finance.yahoo.com) Worries the Federal Reserve
may begin to slow its stimulus efforts sent U.S. mortgage rates last week to
their highest level in a year, drying up demand for home refinancings, data
from an industry group showed on Wednesday. The Mortgage Bankers Association
said interest rates on fixed 30-year mortgage rates surged 12 basis points to
average 3.90 percent in the week ended May 24. It was the highest level since
May of last year and the biggest jump in 14 months. The rise sent the
seasonally adjusted index of mortgage application activity down 8.8 percent as
refinancing applications tumbled 12.3 percent. It was the biggest drop in
refinance applications this year as demand fell to the lowest level since
December.
OECD warns Europe’s
economy to worsen this year, threatening global recovery - (www.washingtonpost.com)
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