Posts Tagged ‘recession’

Brazil opens huge swathe of Amazon rainforest to mining

August 24, 2017

President Michel Temer has signed a decree abolishing a rainforest reserve that straddles Brazil’s northern states of Pará and Amapá, and opening the area to mineral exploration and commercial mining.

Brasilien Entwaldung des Urwaldes (picture-alliance/Demotix/K. Hoffmann)

A decree from President Michel Temer published Wednesday abolished the protected status of the National Reserve of Copper and Associates (Renca) – an area that is bigger than the size of Norway.

The reserve, which was established in 1984, covers about 18,000 square miles (46,610 square kilometers) and is thought to be rich in minerals such as copper and gold.

The government framed the decision as an effort to bring new investment and jobs to a country that recently emerged from the longest recession in its history. It also said that just under a third of the reserve would be opened up to mining, and that permissions would only be granted in specific areas.

“Permission to develop research and mining applies only to areas where there are no other restrictions, such as protection of native vegetation, conservation units, indigenous lands and areas in border strips,” a statement by the government said.

Wednesday’s decree comes as the country reported a 21-percent fall in deforestation rates within the country’s Legal Amazon region, which includes Amapá and Pará, in the two years from August 2015.

Diverse tropical rainforest

In July, Brazil announced a plan to revitalize its mining sector, and increase its share of the economy from four percent to six percent. The industry employs 200,000 people in a country where a record 14 million are out of work.

However, activists argue that the move could damage the world’s largest and most diverse tropical rainforest. Opposition politician Randolfe Rodrigues called it “the biggest crime against the Amazon forest since the 1970s.”

Brazilian public policy coordinator of the World Wide Fund for Nature (WWF), Michel de Souza, described the announcement as a “catastrophe,” which failed to consult the public and could leave the region vulnerable to corruption and conflict.

A report released by the WWF last week also warned that mining in the area would cause “demographic explosion, deforestation, the destruction of water resources, the loss of biodiversity and the creation of land conflict.”

The Amazon rainforest covers an area of 1.2 billion acres and produces 20 percent of the world’s oxygen. But deforestation and mining have destroyed it at an alarming rate. Non-profit organization The Rainforest Foundation estimates that about one acre (4,046 square meters) is wiped out every second, and an estimated 20 percent of the rainforest has been destroyed over the past 40 years.

http://www.dw.com/en/brazil-opens-huge-swathe-of-amazon-rainforest-to-mining/a-40225550

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Brazil President Weakened by Graft Charge, Losing Fiscal Battle

August 12, 2017

Aug. 11, 2017, at 3:29 p.m.

Reuters

Image may contain: 1 person, sky and closeup

Brazil’s President Michel Temer reacts during a ceremony in Sao Paulo, Brazil August 8, 2017. REUTERS/Leonardo Benassatto REUTERS

By Anthony Boadle

BRASILIA (Reuters) – Brazilian President Michel Temer has burned through political capital fighting corruption charges and is struggling to push forward his economic agenda meant to rein in a gaping budget deficit.

Even allies in Congress now doubt he can achieve anything but watered-down measures, likely delaying any fix to Brazil’s fiscal crisis until the economy recovers from deep recession.

With continued deficits, Brazil risks further downgrades in its credit rating. It lost its investment grade two years ago, adding to the cost of financing mounting public debt.

In a sign of Temer’s failure to restore fiscal health, the government is expected to revise upward its 2017 and 2018 deficit targets on Monday due to falling tax revenues in an economy that is barely growing.

More pessimistic analysts worry the insolvency already faced by some Brazilian states that cannot pay employees or provide basic services will reach the federal government.

Temer had a window to pass a pension overhaul earlier this year, but it closed in May when allegations emerged that he condoned bribes in a taped conversation with the then CEO of the world’s largest meatpacker JBS S.A..”We are dancing samba at the edge of the precipice,” said Sao Paulo-based wealth manager Fabio Knijnik. “I don’t see the political class at all concerned with resolving this.”

The deeply unpopular president won enough backing in Congress on Aug. 2 to block a corruption charge that could have led to his suspension pending trial by the Supreme Court. To survive, he approved about $1.5 billion in pork barrel spending to keep lawmakers happy.

His closest ally in Congress, the center-right Democrats Party of Speaker Rodrigo Maia, does not believe Temer has the 308 votes, or three-fifths of the lower chamber, needed to pass pension reform, the key measure in his fiscal rescue plan.

Speaking in Rio on Friday, Maia said Temer’s political troubles and lower-than-expected tax revenues had created the crisis. He said Brazil had no alternative but to seek whatever pension fix it could, given Congress would not raise taxes.

Congressman Efraim Filho, the Democrats whip, told Reuters Temer must dilute the pension bill to get it past Congress. He said the measure had to be stripped down to its most important provision, a minimum age for retirement of 65 years for men and 63 for women in a country where people only work on average until age 54.

CRUMBLING COALITION

Temer’s government coalition is in disarray. Parties who stood by the president are now demanding they be rewarded with cabinet positions, such as the big-budget Cities Ministry. It is now controlled by the Brazilian Social Democracy Party (PSDB), which split over whether to abandon the scandal-plagued president.

Until they get their way, the allies at the core of his coalition have said they will not put his proposed pension bill to the vote. Maia said the “climate” was not right to move to a floor vote and the bill could languish and miss a legislative window likely to close in December as an election year approaches in 2018.

The government has already made concessions on the pension bill provisions that will reduce planned fiscal savings by up to 25 percent in 10 years and nearly 30 percent in 30 years, according to Finance Minister Henrique Meirelles.

The pension overhaul is vital for Brazil to comply with a 20-year spending cap that was Temer’s first move to restore fiscal discipline, albeit without a full impact on accounts until 2019.

“That ceiling was like saying you are going on a diet two years from now,” said Daniel Freifeld of Callaway Capital, a Washington D.C.-based investment firm.

(Reporting by Anthony Boadle; Editing by Andrew Hay)

Optimism in Financial Markets Fails to Show in Real Economy

July 15, 2017

“Hopes for a prolonged period of 3% GDP growth sparked by Trump’s victory have largely vanished.”

Image may contain: 1 person, standing

By Ben Leubsdorf

The Wall Street Journal
July 14, 2017 3:08 p.m. ET

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Optimism in financial markets isn’t showing up in the real economy.

Though stocks have been hitting records and big U.S. banks reported stronger-than-expected earnings Friday, consumers pulled back their spending at midyear and became less optimistic about the future, while inflation on consumer purchases softened.

Taken together, the indicators pointed to an economy that is entering the ninth year of expansion steady and still creating jobs at a healthy clip, but without obvious additional momentum. President Donald Trump has set out an agenda to push economic growth beyond the 2% pace that has prevailed since the recession ended in 2009, but so far there is little sign of a real breakout happening.

Modest price pressures are a possible sign of slower underlying economic momentum and a headache for the Federal Reserve, which has struggled to reach its 2% annual inflation goal since the 2007-09 recession.

“To be sure, the data do not suggest an impending recession,” said Richard Curtin, chief economist for the University of Michigan’s consumer-sentiment survey. “Rather, the data indicate that hopes for a prolonged period of 3% GDP growth sparked by Trump’s victory have largely vanished, aside from a temporary snapback expected in the second quarter.”

On the positive side, factory output picked up in June, and domestic energy production is rebounding. Overall economic activity appeared to accelerate in the second quarter following a weak start to 2017, when gross domestic product expanded at a 1.4% annual rate during the first quarter.

For the recently ended second quarter, forecasting firm Macroeconomic Advisers on Friday projected 2.3% growth and the Federal Reserve Bank of Atlanta’s high-profile GDPNow model predicted a 2.4% growth pace.

Reports on Friday offered fresh insights into the state of the economy, a broadly healthy picture with some downbeat signals headed into the second half of 2017.

Several of the biggest U.S. banks released mixed reports that, while showing stronger-than-expected earnings, sent their shares lower.

J.P. Morgan Chase & Co., the largest U.S. bank by assets, reported record quarterly profit of $7.03 billion. But it also trimmed forecasts for growth in loans and net interest income.

Wells Fargo & Co. reported a $6.7 billion decline in average loans from the first quarter. The company’s chief financial officer, John Shrewsberry, noted “softness across the industry,” but also cited specific actions the bank has taken “primarily driven by our own risk discipline which have caused our growth to slow.”

The bank has pulled back, for example, in auto lending, part of an $11.1 billion drop in the San Francisco bank’s consumer loan portfolio from a year earlier.

Retail sales — a gauge of consumer spending at stores, restaurants and websites — decreased a seasonally adjusted 0.2% in June after falling 0.1% in May, the Commerce Department said. It was the first back-to-back sales drop since July and August 2016.

Sales excluding motor vehicles and gasoline fell 0.1% last month, the first decline for the measure in almost a year.

In the second quarter, total retail sales were up just 0.2% from the first three months of the year. But more broadly, sales rose 3.9% in the first half of 2017 compared with the year-earlier period.

Fed Chairwoman Janet Yellen told lawmakers this past week that growth in household outlays “continues to be supported by job gains, rising household wealth and favorable consumer sentiment.”

But the University of Michigan’s sentiment gauge dropped in July for the second straight month, with a preliminary July reading of 93.1 versus 95.1 in June and 97.1 in May. The decline was driven by weaker expectations for future economic gains, though the overall index was still 3.4% higher in June from a year earlier.

On inflation, the Labor Department said its consumer-price index was unchanged in June from the prior month. Excluding the often-volatile categories of food and energy, so-called core prices rose just 0.1% for the third straight month.

On an annual basis, overall inflation softened to a 1.6% annual gain in June, while core inflation was steady at 1.7% annual growth.

The Fed is tasked with achieving maximum sustainable employment and stable prices. With unemployment at 4.4% in June, it appears the Fed has closed in on half of its mandate. Inflation, however, remains well shy of its 2% target.

The Fed’s preferred inflation gauge, the Commerce Department’s price index for personal-consumption expenditures, poked above the central bank’s 2% goal in February for the first time in nearly five years. It has settled lower each month since. The most recent data, for May, showed a 1.4% year-to-year gain.

“We’re starting to see some signs of cyclical weakness,” said Laura Rosner, senior economist at research firm MacroPolicy Perspectives. She said recent soft inflation data “really raise questions about whether we will get to 2% on a sustained basis before the next recession, and I think that raises very thorny questions for the Fed.”

The Fed has penciled in one more increase for short-term interest rates this year, and also plans to begin shrinking its $4.5 trillion asset portfolio. Continued soft readings on core inflation could damp enthusiasm for higher rates, though Ms. Yellen has said she expects the current weakness will prove transitory and inflation will firm alongside a tightening labor market.

Speaking in Mexico City on Friday, Federal Reserve Bank of Dallas President Robert Kaplan reiterated he would like to see more evidence that inflation is moving toward the 2% target. The Fed’s policy-making committee is expected to remain on hold at its July 25-26 meeting, but Mr. Kaplan said the Fed should begin the process of shrinking its balance sheet “very soon,” as early as the U.S. central bank’s September policy meeting.

The industrial side of the economy looked a bit stronger last month. Industrial output — a measure of production by manufacturers, mining companies and utilities — grew 0.4% in June from May, the Fed said. Production rose 2% over the past year.

The rebound has been driven by mining output, which grew 1.6% in June and has risen nearly 10% over the past year as energy companies boost oil and gas extraction. Growth in manufacturing output has been more modest, with factory production climbing 0.2% in June and up 1.2% on the year

–Aaron Lucchetti, Jeffrey Sparshott, Josh Mitchell, Josh Zumbrun and Anthony Harrup contributed to this article.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

https://www.wsj.com/articles/optimism-in-financial-markets-fails-to-show-in-real-economy-1500059325

Related:

Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying

July 5, 2017

Today’s conditions expose vulnerabilities that make a recession or market meltdown more likely

Image result for janet yellen, photos

 

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Updated July 5, 2017 10:00 a.m. ET

 

If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.

In other words, it would look a lot like the present.

Those of us who have lived through economic mayhem before feel our muscle memory twitch at times like this. Consider the worrisome absence of worry. “Implied volatility” measures the cost of hedging against big market moves via options. When fear is pervasive, options are expensive so implied volatility is high. At present, implied volatility in bonds, stocks, currencies and gold sits near its lowest since mid-2007, the eve of the financial crisis, according to a composite measure maintained by Variant Perception, a London-based investment advisory.

The economic expansion is now entering its ninth year and in two years will be the longest on record. The unemployment rate sits at 4.3%, the lowest in 16 years, suggesting the economy has reached, or nearly reached, full capacity.

Expansions don’t die of old age, economists like to say. On the other hand, should we really assume this one will be a record breaker? From a level this low, unemployment has more room to go up than down. Another ominous sign: Central banks are tightening monetary policy, which has preceded every recession. The Fed has raised rates three times since December and last week central banks in Britain, the eurozone and Canada all hinted that years of easy money were coming to an end.

Still, the presence of recession preconditions isn’t enough to say one is imminent. To understand implied volatility, think of hurricane insurance. Right after a storm, homeowners are more anxious to have coverage, even as insurers withdraw, which of course means premiums spike. As years go by without another hurricane, homeowners let their coverage lapse, insurers return and premiums drop. Similarly, implied volatility is low today because years without a financial calamity have sapped demand for hedging while enticing sellers with the prospect of steady income in exchange for potentially huge losses. But just as hurricane premiums don’t predict the next hurricane, low implied volatility tells us nothing about whether or when a downdraft will actually come.

Similarly, when unemployment got nearly this low in 1989 and again in 2006, a recession was about a year away; but in 1998, it was three years away, and in 1965, four years. A narrowing spread between short-term interest rates and long-term rates comparable to the present has happened 12 times since 1962, and only five times did recession follow within two years.

But if today’s conditions don’t dictate a recession or a market meltdown, they expose vulnerabilities that make either more likely in the face of some catalyzing event.

When growth is steady and interest rates are low for years, investors and businesses behave as if those conditions will last forever. That’s why even with muted economic growth, stocks are trading at a historically high 22 times the past year’s earnings. It’s also why home prices have returned to their pre-crisis peaks in major American cities. Real estate has scaled even greater heights in Australia, Canada and parts of China, which exhibit some of the same lax lending and wishful thinking that underlay the U.S. housing bubble a decade ago.

Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.

When everyone acts as if steady growth and low volatility will last forever, it guarantees they won’t. Once asset prices fall, the flow of credit that sustained them dries up, aggravating the correction. Corporate leverage is at levels that in the past led to weakening corporate bond prices and greater equity volatility, says Jonathan Tepper, founder of Variant. “A high proportion of companies won’t be able to pay back debt.” A selloff in corporate bonds and stocks could become self-reinforcing as those who insured against such a move sell into it to limit their own losses.

Of course, some things are different this time. The postcrisis regulatory crackdown means if asset prices fall, they probably won’t take banks down with them. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators. “Elevated asset valuation pressures today may be indicative of rising vulnerabilities tomorrow,” Fed vice chairman Stanley Fischer warned last week.

Inflation is uncomfortably low rather than too high as in previous cycles, which makes it less likely central banks will have to raise interest rates sharply or rapidly. But in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt, and interest rates will bite at lower levels than before. This confronts the Fed with a dilemma. If bond yields remain around 2% to 2.5%, the Fed may be playing with fire by pushing rates to 3%, as planned. If it backs off those plans, it could egg on excesses that make any reversal more violent.

Ms. Yellen and Mr. Fischer, both veterans of past mayhem, need to be on guard for a repeat. So should everyone else.

Write to Greg Ip at greg.ip@wsj.com

Corrections & Amplifications

This story was corrected at 10:03 a.m. ET because it misspelled the name Variant in the 11th paragraph.

If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.

In other words, it would look a lot like the present.

Those of us who have lived through economic mayhem before feel our muscle memory twitch at times like this. Consider the worrisome absence of worry. “Implied volatility” measures the cost of hedging against big market moves via options. When fear is pervasive, options are expensive so implied volatility is high. At present, implied volatility in bonds, stocks, currencies and gold sits near its lowest since mid-2007, the eve of the financial crisis, according to a composite measure maintained by Variant Perception, a London-based investment advisory.

The economic expansion is now entering its ninth year and in two years will be the longest on record. The unemployment rate sits at 4.3%, the lowest in 16 years, suggesting the economy has reached, or nearly reached, full capacity.

Expansions don’t die of old age, economists like to say. On the other hand, should we really assume this one will be a record breaker? From a level this low, unemployment has more room to go up than down. Another ominous sign: Central banks are tightening monetary policy, which has preceded every recession. The Fed has raised rates three times since December and last week central banks in Britain, the eurozone and Canada all hinted that years of easy money were coming to an end.

Still, the presence of recession preconditions isn’t enough to say one is imminent. To understand implied volatility, think of hurricane insurance. Right after a storm, homeowners are more anxious to have coverage, even as insurers withdraw, which of course means premiums spike. As years go by without another hurricane, homeowners let their coverage lapse, insurers return and premiums drop. Similarly, implied volatility is low today because years without a financial calamity have sapped demand for hedging while enticing sellers with the prospect of steady income in exchange for potentially huge losses. But just as hurricane premiums don’t predict the next hurricane, low implied volatility tells us nothing about whether or when a downdraft will actually come.

Similarly, when unemployment got nearly this low in 1989 and again in 2006, a recession was about a year away; but in 1998, it was three years away, and in 1965, four years. A narrowing spread between short-term interest rates and long-term rates comparable to the present has happened 12 times since 1962, and only five times did recession follow within two years.

But if today’s conditions don’t dictate a recession or a market meltdown, they expose vulnerabilities that make either more likely in the face of some catalyzing event.

When growth is steady and interest rates are low for years, investors and businesses behave as if those conditions will last forever. That’s why even with muted economic growth, stocks are trading at a historically high 22 times the past year’s earnings. It’s also why home prices have returned to their pre-crisis peaks in major American cities. Real estate has scaled even greater heights in Australia, Canada and parts of China, which exhibit some of the same lax lending and wishful thinking that underlay the U.S. housing bubble a decade ago.

Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.

When everyone acts as if steady growth and low volatility will last forever, it guarantees they won’t. Once asset prices fall, the flow of credit that sustained them dries up, aggravating the correction. Corporate leverage is at levels that in the past led to weakening corporate bond prices and greater equity volatility, says Jonathan Tepper, founder of Variant. “A high proportion of companies won’t be able to pay back debt.” A selloff in corporate bonds and stocks could become self-reinforcing as those who insured against such a move sell into it to limit their own losses.

Of course, some things are different this time. The postcrisis regulatory crackdown means if asset prices fall, they probably won’t take banks down with them. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators. “Elevated asset valuation pressures today may be indicative of rising vulnerabilities tomorrow,” Fed vice chairman Stanley Fischer warned last week.

Inflation is uncomfortably low rather than too high as in previous cycles, which makes it less likely central banks will have to raise interest rates sharply or rapidly. But in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt, and interest rates will bite at lower levels than before. This confronts the Fed with a dilemma. If bond yields remain around 2% to 2.5%, the Fed may be playing with fire by pushing rates to 3%, as planned. If it backs off those plans, it could egg on excesses that make any reversal more violent.

Ms. Yellen and Mr. Fischer, both veterans of past mayhem, need to be on guard for a repeat. So should everyone else.

Write to Greg Ip at greg.ip@wsj.com

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Iceland: Spectacular growth of 7.2 percent in 2016 — Key interest rate at 5.0 percent — “We learned our lesson in 2008”

March 16, 2017

AFP

© AFP / by Jérémie RICHARD | Spending by tourists in love with Iceland’s dramatic landscape has helped fuel an economic boom
REYKJAVIK (AFP) – Iceland’s economy is booming and may overheat but there will be no repeat of the crash that plunged the country into a major financial crisis in 2008, central bank governor Mar Gudmundsson told AFP in an interview.

The North Atlantic island posted spectacular growth of 7.2 percent in 2016, one of the strongest rates in the world, on the back of a tourism boom. Wages are rising, as are investments, and real estate projects are flourishing.

But Gudmundsson is not concerned about the possibility of another crash.

“There might be an overheating. That is why we have a somewhat tight monetary policy and we should have a tight fiscal policy and other tools to deal with that,” he said on Wednesday.

“But if there is overheating, the adjustment will not be a financial crisis or anything of that kind.”

The banking sector’s excesses in the 2000s remain fresh in the memory of Icelanders.

In October 2008, the country’s three main banks collapsed after borrowing beyond their means to fund ambitious investments abroad. Before their collapse, their liabilities amounted to more than 10 times Iceland’s total GDP.

The banks’ collapse led to an unprecedented financial crisis, a deep recession and a bailout from the International Monetary Fund.

For the central bank governor, there is no way that scenario will be repeated.

This time around, the growth is tangible, not speculative, stemming from the hordes of tourists spending money to admire the country’s breathtaking landscapes.

“The banks are in much, much better shape, they are not (involved) in an international activity, the foreign exchange on the balance (sheet) of the banks is very tightly regulated, he explained, adding: “They have very high capital levels, they have very good liquidity.”

“This growth that we’re seeing, the boom we are seeing, is not credit-driven,” he stressed.

On Wednesday, the central bank left its key interest rate unchanged at 5.0 percent, recalling that it was keeping a close eye on inflation, which in February was moderate at 1.9 percent.

The interest rate makes the return on the Icelandic currency, the krona, particularly attractive to foreign investors from countries where interest rates are closer to zero.

But Iceland, which learned its lesson from the excessive capital movements of the 2000s, still limits foreigners’ ability to speculate on its markets.

“Our concern is not on that side. Our concern is more that the labour market will become far too tight, the housing market becomes far too tight and you have a kind of a difficult adjustment in the real economy,” Gudmundsson said.

“It is quite clear that the tourism boom is behind a lot of that growth. It is also the main reason why the krona has been appreciating, and that is putting pressure on other export industries. We cannot do anything about that,” he acknowledged.

by Jérémie RICHARD

“The Reality Is, Half Of Americans Can’t Afford To Write A $500 Check”

March 7, 2017

The CEO of Assurant appeared on Bloomberg TV to explain why demand for his services is likely to increase: the chief executive of the mobile phone insurer said he expects a surge in demand as carriers charge customers more to replace their devices. “If you think back five years ago, you as a consumer didn’t know how much that phone cost, you thought it was free or close to free,” Assurant’s Alan Colberg said Monday..

“Now you’re paying $600, that’s a lot. So we’ve actually seen the attachment rate, or the number of people buying the product, going up a little bit in the last couple of years.”

He then proceeded to give Bloomberg his traditional sales pitch: Assurant is counting on growth at its business covering phones and appliances to help counter a decline in the segment that insures foreclosed homes for lenders. While improvement in the real estate market has limited the number of vacant homes, Colberg said there are still many cash-strapped consumers.

It is what he said next that caught our attention: “The reality is, half of Americans can’t afford to write a $500 check,” Colberg said. He spun that stunning statistic by saying that when US customers sign up for a cellular plan, they’re willing to buy protection in case “they lose that phone or something happens to it.”

In other words, there are millions of Americans who don’t have $500 in the bank but are willing to dish out more than that on a cell phone, and then are stupid enough to make monthly payments that ultimately end up being far higher than $500 to protect their purchase… which they clearly couldn’t afford in the first place.

* * *

That said, we decided to look into the CEO’s claim about the woeful state of US finances. What we found is that according to a recent Bankrate survey of 1,000 adults, 57% of Americans don’t have enough cash to cover a mere $500 unexpected expense. Turns out the CEO was right. And while that may appear dire, it is a slight improvement from 2016, when 63% of U.S. residents said they wouldn’t be able to handle such an expense.

The survey’s findings have shed light on how the so-called recovery of the past 8 years has skipped about half of the US population, which literally live paycheck to paycheck, and reflects a country in which many households continue to struggle with their basic finances more than seven years after the official end to the recession.

Putting the numbers in context: despite steady job growth during the Obama administration – which have been focused on minimum wage industries – wages have been predictably slow to recover, with the typical American household still earning 2.4% below what they brought home in 1999, when income peaked. Meanwhile, costs for essentials such as housing and child care have surged faster than the rate of inflation, placing stress on household budgets and making the accumulation of wealth, i.e., savings, impossible.

The bottom line:  About four out of 10 Americans said they had enough in savings to cover a surprise $500 expense. Another 21% said they would rely on a credit card, while 20% said they’d cut back on other expenses. Another 11% said they’d turn to family or friends for the money.

What is even more striking is that among Americans who earn more than $75,000 per year – a third more than the typical U.S. household earns – almost half also said they wouldn’t be able to cover a $500 surprise expense. Ironically, Millennials represent the generation most equipped to handle an emergency cost, with 47 percent saying they have enough in savings to cover one.

The Bankrate survey findings echoed research published last year by the Federal Reserve, which found that 46% of respondents said they would be challenged to come up with even less, or $400, to cover an emergency expense, and would likely borrow or sell something to afford it. When the Fed asked what types of emergency expenses Americans had actually faced in the last year, more than one out of five cited a major unexpected medical expense. The average expense: $2,782, or almost seven times higher than the Fed’s hypothetical $400 surprise bill.

How do cell phones fit in all of this? When it comes to reducing spending, dining out is the first place where consumers would cut back, with 6 out of 10 respondents saying they would eat out less. What is the “stickiest” expense? According to Bankrate, the least likely expense to face the chopping block are mobile phone plans, with the survey finding that only 35% said they would cut back on their wireless plans to save money.

In other words, Americans would rather be hungry than cell phone free. In retrospect, it may turn out be that Assurant’s CEO, whose business model is a big bet on human stupidity, just may have a goldmine on his hands.

 http://www.zerohedge.com/news/2017-03-06/half-americans-cant-write-500-check

Delaying Trump’s tax cuts is a huge risk

February 6, 2017

Editorial
The New York Post

Image may contain: 4 people, people sitting

Bad news: Congress is putting tax cuts on the back burner for now — a big risk.

House Speaker Paul Ryan says lawmakers will focus first on replacing . . . er, “repairing” ObamaCare and on President Trump’s infrastructure plans, and only take up tax bills sometime in the spring.

That means Trump won’t be able to sign anything until before the fall — at the earliest, if no other delays pop up.

Yes, the president’s early moves on deregulation and energy should boost growth, and a few industries are salivating at the thought of big infrastructure spending.

But Trump also clearly means his promises on trade and immigration, too — which has other industries nervous.

No automatic alt text available.

The absence of any big supply-siders in the president’s economic team is further cause for concern, as is the way the White House has taken to talking about “tax relief” rather than “tax reform.” The hunger for some details — will the cuts be retroactive to Jan. 1? — adds to the uncertainty, which is always bad for business.

Yes, the Dow is up, thanks to optimism over the Trump program. But major tax cuts were a big part of that program — and if they don’t land in good time, or turn out not to be major, pessimism can quickly return.

If Hillary Clinton had won, the US economy would probably be facing recession soon: The Obama recovery, weak though it is, has been going on that long. It’s going to take serious change to produce a boom.

Recall the early 1980s: President Ronald Reagan got his tax cuts passed, but allowed years for them to phase in. The economy didn’t take off until 1983 — and hit recession first. In ’82, Republicans lost 26 House seats.

Similar results in 2018 could make Nancy Pelosi the speaker — and block any further reform, while empowering Democrats to launch endless investigations to gum up the Executive Branch and feed the press a heavy diet of administration “scandal.”

Above all else, Trump promised “jobs, jobs, jobs,” and the American people expect him to deliver. If he doesn’t, they’ll start looking elsewhere for answers.

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Existential Threats to World Economic Order Cloud IMF Talks — Policy-making elites converge on Washington this week To Embrace Globalization

October 4, 2016

By  and Bloomberg

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October 4, 2016 — 12:00 AM EDT Updated on October 4, 2016 — 9:43 AM EDT

Is Canada’s Economy on the Verge of a Financial Crisis? …. Anti-globalization backlash poses economic, market risks …. World economy likened to driverless car stuck in the slow lane

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Policy-making elites converge on Washington this week for meetings that epitomize a faith in globalization that’s at odds with the growing backlash against the inequities it creates.

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From Britain’s vote to leave the European Union to Donald Trump’s championing of “America First,” pressures are mounting to roll back the economic integration that has been a hallmark of gatherings of the IMF and World Bank for more than 70 years.

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Fed by stagnant wages and diminishing job security, the populist uprising threatens to depress a world economy that International Monetary Fund Managing Director Christine Lagarde says is already “weak and fragile.”

The calls for less integration and more trade barriers also pose risks for elevated financial markets that remain susceptible to sudden swings in investor sentiment, as underscored by recent jitters over Frankfurt-based Deutsche Bank AG’s financial health.

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“The backlash against globalization is manifesting itself in increased nationalistic sentiment, against the outside world and in favor of increasing isolation,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong and a former IMF official. “If we lose consensus on what kind of a world we want to have, the world will probably be worse off.”

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Lagarde said last week that policy makers attending the Oct. 7-9 annual meeting of the IMF and World Bank have two tasks. First, do no harm, which above all means resisting the temptation to throw up protectionist barriers to trade. And second, take action to boost lackluster global growth and make it more inclusive.

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The fund, in its latest World Economic Outlook released Tuesday, highlighted the threats from the anti-trade movement. “Concerns about the impact of foreign competition on jobs and wages in a context of weak growth have enhanced the appeal of protectionist policy approaches, with potential ramifications for global trade flows and integration more broadly,” the report stated. The global economy will expand 3.1 percent this year and 3.4 percent in 2017, the report stated, continuing at a “subdued” pace.

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Achieving even those modest objectives may prove elusive. Free trade has become polling poison in the U.S. presidential campaign, with Democratic nominee Hillary Clinton now criticizing a trade deal with Pacific nations, which isn’t yet ratified in the U.S., that she had praised when it was being negotiated. Republican challenger Trump has lashed out at Mexico and China, threatening to slap big tariffs on imports from both nations.

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Rattled by the U.K.’s June vote to leave the EU, European leaders know it may just be the start of a political earthquake that’s threatening the continent’s old certainties. Next year sees elections in Germany and France, the euro area’s two largest economies, and in the Netherlands. In all three countries anti-establishment forces are gaining ground.

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With growing resentment of the EU from Budapest to Madrid, policy makers have described the current surge in populism as the greatest threat to the bloc since its creation out of the ashes of World War II.
Theresa May.

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Theresa May. Photographer: Leon Neal/Getty Images

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Hard Exit

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There are also growing signs that the union and Britain are heading for a so-called “hard exit” that would sharply reduce the bloc’s trade and financial ties with the island nation. U.K. Prime Minister Theresa May said on Oct. 2 that she’ll begin her country’s withdrawal from the EU in the first quarter of next year.

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Perhaps the biggest beneficiary of free trade over the past generation, China, still restricts access to many of its key industries, with economists worried about increasingly mercantilist policies. It’s also seeking a larger role in the existing global framework, with entry of the yuan into the IMF’s basket of reserve currencies on Oct. 1 the most recent example.

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An all-out trade war would be a disaster for China’s economy, with Trump’s threatened tariff potentially wiping off almost 5 percent of its gross domestic product, according to a calculation by Daiwa Capital Markets.

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Waning Support

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John Williamson, whose Washington Consensus of open trade and deregulation was effectively the governing ethos for the IMF and World Bank for decades, said the 2008-09 financial meltdown had undercut support for economic integration.

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“There was agreement on globalization before the crisis and that’s one thing that’s been lost since the financial crisis,” said Williamson, a former senior fellow at Peterson Institute for International Economics who is now retired.

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The growing opposition to economic integration has been fueled by a sub-par global recovery.

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“Perhaps the most striking macroeconomic fact about advanced economies today is how anemic demand remains in the face of zero interest rates,” former IMF chief economist Olivier Blanchard wrote last week in a policy brief for the Peterson Institute.

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The world economy is getting some lift after rising at an annual rate just shy of 3 percent in the first half of this year, according to David Hensley, director of global economics for JPMorgan Chase & Co. in New York.

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Driverless Economy

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But much of the boost will come from a lessening of drags rather than from a big burst of fresh growth, said Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York and a former Federal Reserve official.

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Recessions in Brazil and Russia are set to come to an end, while in the U.S. cutbacks in inventories and in oil and gas drilling will wane.

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“I’m characterizing the global economy as something akin to a driverless car that’s stuck in the slow lane,” said David Stockton, a former Fed official and now chief economist at consultants LH Meyer Inc.

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“Everybody feels like they’re being taken for a ride but they’re pretty nervous because they can’t see anybody in control.”

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Upside Risk

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Still, for the first time in the past few years, Stockton said he sees a real upside risk to his forecast of continued global growth of around 3 percent next year. And that’s coming from the possibility of looser fiscal policy in the U.S. and Europe.

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In the U.S., both Clinton and Trump have pledged to boost infrastructure spending on roads, bridges and the like.

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In Europe, rising populism provides a powerful incentive for governments to abandon austerity ahead of the elections next year — and perhaps beyond.

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Whether such a shift will be enough to mollify those who have been on the losing side of globalization for decades is debatable, however.

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“The consensus in policy-making circles was that more trade meant better economic growth,” said Standard Chartered head of Greater China economic research Ding Shuang, who worked at the IMF from 1997 to 2010. “But the benefits weren’t shared equitably, so now we see a round of anti-globalization, anti-free trade.

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“Globalization will stall for the moment, until we can find a way to share those benefits,” he added.

http://www.bloomberg.com/news/articles/2016-10-04/existential-threat-to-world-order-confronts-elite-at-imf-meeting

Nigeria Claims Oil Majors Illegally Exported Crude

September 30, 2016

Government says several multinational oil companies failed to properly declare $12.7 billion in crude exports to U.S.

An employee talks on a radio aboard the Agbami floating oil production, storage and offloading vessel operated by Chevron Corp. in the Niger Delta, Nigeria, on Dec. 2, 2015.
An employee talks on a radio aboard the Agbami floating oil production, storage and offloading vessel operated by Chevron Corp. in the Niger Delta, Nigeria, on Dec. 2, 2015. PHOTO: BLOOMBERG NEWS

Nigeria’s cash-strapped government is suing some of the world’s biggest oil companies on claims they were involved in illegally exporting $12.7 billion of the country’s crude to the U.S. between 2011 and 2014.

The allegations relate to shipments by companies including Chevron Corp., Royal Dutch Shell PLC and Italian oil firm Eni SpA. Chevron said the claims lack merit and that its Nigerian unit complies with local law. Shell likewise said it adheres to Nigerian law. Eni said the allegations are groundless.

In documents filed in a Nigerian court in March, the Nigerian government claims those oil companies and others failed to properly declare 57 million barrels of crude they exported to the U.S. between 2011 and 2014.
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The government “has suffered huge and enormous financial loss as a result of the defendants’ under-declaration of the value of the crude oil they lifted and exported to the United States of America,” government lawyers wrote in a court filing.

The government is asking for nearly $407 million in lost revenue from Shell and almost $463 million from Chevron, as well as 21% interest a year from the companies until the purported lost revenue is paid.

The suit comes amid a broader campaign by Nigeria to crack down on perceived wrongdoing at companies operating there. Nigerian President Muhummadu Buhari also has pledged to fight corruption in the country, which is struggling through an economic crisis.

Last year, the government fined South African telecom giant MTN Group Ltd. $5.2 billion, alleging that it missed a deadline to deactivate more than five million unregistered SIM cards under regulations meant to combat terrorism. The company eventually agreed to pay a roughly $1.7 billion fine over three years. MTN said its Nigerian unit would “always ensure full compliance with its license terms and conditions as issued by Nigerian Communication Commission,” when it settled with the government in June.

Now, the government says an investigation into declining revenue from oil exports revealed a significant discrepancy between the volumes of oil the companies delivered abroad and the export volumes they declared to the state.

For instance, the government claims shipping records show Shell docked a tanker named Authentic at the Port of Philadelphia in January 2013. On board was nearly 1 million barrels of crude, at the time worth almost $108 million, that the government says the company failed to properly declare.

In total, the government claims Shell under-declared nearly 3.7 million barrels of crude that it delivered to the U.S. between 2011 and 2014, underpaying Nigeria almost $407 million.

The government claims Chevron under-declared 4.2 million barrels of crude shipped to the U.S. worth almost $463 million.

Shell and Chevron said they were aware of the litigation.

“We continue to conduct our business in Nigeria in compliance with all applicable laws,” Shell said in an email.

Chevron said the allegations lack “any merit whatsoever and we will vigorously defend our rights. The operations of Chevron Nigeria Limited that are the subject of this lawsuit, are in compliance with all applicable laws and regulations in Nigeria.”

Eni said its Nigerian subsidiary had received a request for a payment of about $160 million last March, but said it “believes the claim has no ground and shall resist in court.”
Nigeria’s federal high court in Lagos on Friday struck down an effort by Chevron to get the case dismissed. Chevron claimed the government case lacked reasonable cause.

“It is premature to dismiss the case at this stage,” Justice Cecilia Olatoregun said in a ruling. The case has been adjourned to Oct. 25.

Nigeria’s parliament has set up a committee to investigate oil exports, claiming more than $3 billion of crude was also illegally exported to China and nearly $840 million to Norway from 2011 to 2014.

“As of today, the country has to its credit over $17 billion of recoverable shortfalls from undeclared crude oil exports to global destinations,” Representative Johnson Agbonayinma told Nigeria’s House of Representatives last week.

Nigeria’s oil minister, Emmanuel Ibe Kachikwu said he wants to bring in external auditors to review the evidence of the case.

“Times are very difficult right now for the oil industry, and this is not the time to rumple the water too much,” Mr. Kachikwu said in an interview outside of Washington, D.C., last week. “But that’s not to say that if people have in fact committed a crime that you will not go after it to try and recover.”

Until recently, Nigeria was Africa’s largest oil producer, but the country has been hit hard by the sharp drop in oil prices and longstanding instability in its oil-rich south that has reduced its output and helped push the economy into recession.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com and Sarah Kent at sarah.kent@wsj.com

http://www.wsj.com/articles/nigeria-claims-oil-majors-illegally-exported-crude-1475256018

The U.S. Economy: Bad Moon Rising — The US economy may not be as good as you think

September 3, 2016

Authored by Danielle DiMartino Booth,

April 1969 saw the release of what would soon become Credence Clearwater Revival’s second gold single. Bad Moon Rising’s popularity quickly secured it a permanent spot in rock history. But it was also headed somewhere else, if not everywhere else, to places the young rockers never saw coming. In hindsight, it can only be said that while their music was great, their lawyer was lousy.

Why is that? Because, for years now, writers for both the big and small screen and all manner of productions have found the song’s addictive rhythm and lyrics impossible to resist and as a bonus, easy picking. Listen and you’ll hear it in An American Werewolf in London, My Fellow Americans, Twilight Zone: The Movie, Blade, Sweet Home Alabama, My Girl, Man of the House, Mr. Woodcock and (in the personal favorite department), The Big Chill. As for television, you’ll recognize the tune in Supernatural, Cold Case, Northern Exposure, The Following, The Walking Dead, Teen Wolf, and not to be relegated to the back of the line, Alvin and the Chipmunks, who belt out their own immensely irritating rendition.

There’s no doubt about it. John Fogerty hit a home run when he wrote Bad Moon Rising. As to why he wrote it and its meaning, he’s been quoted as calling it a description of, “the apocalypse that was going to be visited upon us.” And what of all those bad scenes visited upon Fogerty’s lyrics?

“We had no power in our contracts to veto where our music went. It was everywhere,” lamented Fogerty on the ubiquity of the song in a 2014 interview. “For every good movie you’ve heard it in – for example An American Werewolf in London, which was a pretty cool movie – there were at least 10 more that were awful.” To this day, it’s hard to predict just where that bad moon might next be rising.

The same cannot be said for investors, who happen to have a perfect predictor with which to position themselves for their rendering of a bad moon rising, as in an imminent recession. It’s called the yield curve and when it inverts, it’s time to start pondering the ramifications of the apocalypse that’s about to be visited upon the economy. Is ‘perfect’ too perfect a word?

In one word, no. In a different 2014 setting, back when he worked for LPL Financial, Schwab’s Jeffrey Kleintop noted that the yield curve’s track record was seven-for-seven, as in perfect when it came to predicting recession. Business Insider caught his remarks.

In the event you’re unfamiliar with the contorted concept, visualize a curve on a graph. Plotted are the bond yields (assume U.S. Treasurys in this case) against the length of time that remains between now and their maturity date. In a normal world, the shorter the maturity, the lower the yield. Investors should naturally expect to be paid less and less as the period of time shrinks over which they’ve assumed the risk of a bond price declining. With me? Hold bond for longer, chance price decline occurs higher. Got it.

An inverted yield curve, however, signals an economy is about to be turned upside down. Longer term yields tend to decline when the market foresees weak economic activity on the horizon. The weaker the outlook, the flatter the curve. Actual inversion is thus a process; it might begin to manifest in five-or-ten-year Treasurys having higher yields than the Long Bond, the 30-year. A full blown inversion doesn’t occur until the yields on the shortest-maturity, commonly quoted bonds, say the two-year, are higher than that of the longest maturity bonds.

To borrow from Kleintop’s succinct explanation: “The yield curve inversion usually takes place about 12 months before the start of the recession, but the lead time ranges from five to 16 months.”

As for the lead time leading up to the lead time, the U.S. Treasury curve began to flatten at the start of 2014. You may recall that in December 2013 the Fed announced it would begin to taper its purchases of securities, which at the time were $85 billion a month, and in doing so reduce the pace at which it was growing its balance sheet. Despite it being well past the time to start weaning the market, it didn’t take long for the worry to set in. Investors began to digest the prospects for the U.S. economy without the Fed blowing up its balance sheet in an attempt to stimulate the growth that eludes to this day – and they didn’t like what they saw.

The second volley arrived last December when the Fed finally hiked rates for the first time, triggering a further flattening in the yield curve. But wait. Wasn’t it just one teensy quarter of one percentage point? Well, yes. But as far as the bond market was concerned, starting points and deltas mattered.

The latest kick to the curve started with New York Fed President Bill Dudley’s and Federal Reserve Board Vice Chairman Stanley Fischer’s complacency castigations. The crescendo arrived with Janet Yellen echoing her two top lieutenants in sounding a bit more hawkish than she would have otherwise. The camaraderie on full display captured in images of the threesome emerging from the Jackson Hole meeting was the proverbial icing on the cake. It was sufficient to send the difference between the 10-year and two-year Treasury to 75 basis points, or hundredths of a percentage point, about where it is today.

In the event you’re still wondering what all the fuss is about, I’ll let Kleintop sum it up: “The peak in the stock market comes around the time of the yield curve inversion, ahead of the recession and accompanying downturn in corporate profits.”

But wait, you might be saying – we’re already in a full blown, protracted profits recession. Recall that Kleintop made his observations in 2014, long before the heat of the currency war really set in, triggering a race to the bottom of the unconventional monetary policy barrel. You just thought Quantitative Easing (QE) had long since ended. That’s true, but only as it pertains to the Fed.

In fact, you might not know it, but a two-year anniversary is upon us. Surely those in the Fed will raise a glass this October 29th to commemorate the end point of their ambitious exercise to expand the bank’s balance sheet. That is, unless they’re already contemplating Blowing Up the Balance Sheet, Part II.

(Don’t misunderstand. Those firmly in charge have always maintained that they would never dare allow the assets on the balance sheet to run off until rates were normalized and they pretty much knew that would never happen. In fact, the current campaign aims to move even those goalposts so the stated goal of normalization is that much more impossible to attain. What few appreciate is this is where the real action has been in recent years, the very source of animated discussions around that big conference room in the Eccles Building. Reinvestment, baby. That’s where it’s at. Pardon the lengthy digression.)

Getting back to the point of the yield curve, or what’s left of it, over the past two years, other central banks have more than made up for the Fed’s exit from the QE game. Aggregate purchases are nearing $200 billion per month creating a vacuum across other countries’ yield curves as the supply of eligible securities with positive yields dwindles.

According to the Financial Times’ math from earlier this month, “Three years ago the difference between two- and 10-year Treasurys, gilts (U.K.), Bunds (Germany), and Japanese government bonds was about 228 basis points (bps), 201 bps, 150 bps and 65 bps respectively. Despite a slight reversal, the same spread now stands at 87 bps, 61 bps, 55 bps and just 9 bps.”

The relative flatness of other major sovereign’s yield curves helps explain the rush into our Treasury market, all to secure some semblance of yield vis-à-vis the increasing number of countries whose sovereigns sport not just low, but increasingly negative yields. According to Bank of America Merrill Lynch data, at last count, we’re talking some $13 trillion, or roughly a third of the global fixed income debt market. (In case you missed it, that was a WOW moment.)

You may be wondering at this point — hopefully you are — why on earth the Fed would be trying to beat the band to hike rates when all they’ve got to work with is roughly 75 bps, give or take?? These days that question is raised just about every minute of every day, namely because so few can come up with a credible answer.

As for the incredible realm, one explanation is that the Fed is scared stiff it has nothing left in its toolbox to combat the next recession. Few major downturns have begun with the fed funds rate so perilously close to zero.

The ultimate Catch 22 is that the flatness of the yield curve makes any fantasy of a Fed rate hike all too real for a dead breed the world once knew as ‘bond market vigilantes.’ It’s altogether possible that one more hike would be all it takes to invert the yield curve. The rest, as history has never failed to repeat, would be just that – history. Should the Fed decide to ignore the warning flashing in the flattening yield curve, there could indeed be a bad moon on the rise over the U.S. economy.

http://www.zerohedge.com/news/2016-09-02/us-economy-bad-moon-rising

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The US economy may not be as strong as it looks

With the Federal Reserve stepping up its rhetoric about a possible interest-rate hike, market watchers are using the opportunity to take a look at the health of the US economy.

Thus, the UBS macro strategy team put together a chart of major indicators for the US economy and where they stand compared with the most recent time the Fed raised rates in December and where they were two years ago.

Overall, the chart from Daniel Waldman and company does not make the US economy look very encouraging.

UBS’ argument is that for the Fed to raise rates, the economy has to look substantially better or at least not worse than it did when the Fed most recently hiked. Thus, the Fed should stay on hold (and the UBS team thinks it will).

Screen Shot 2016 09 01 at 11.04.01 AMUBS

The strategists believe that a strong jobs report on Friday could help cover the Fed if it does want to hike rates in September but that the rest of the economic data isn’t that good.

“Although labor market data is key, one additional positive employment report is unlikely to completely change investor sentiment on US growth, which has softened relative to both late 2014 (when the dollar started to rally) and late 2015 when the Fed last hiked,” Waldman and co. said.

A few caveats here. First, UBS analyzed just a handful of indicators. Wage growth, personal consumption, new home sales, and other indicators of economic strength have set cycle highs since the most recent Fed meeting.

Second, payroll growth is expected to slow as the labor market nears full employment because the number of available workers declines. So a headline decline isn’t a terrible disappointment.

Third, there’s an argument to be made that inflation has been weighed down by temporary factors.

Fourth, the manufacturing number is actually worse than the chart indicates, with the latest reading coming in at 49.4 on Thursday, which is back in contractionary territory. So the UBS chart doesn’t look great, but it isn’t the fullest of pictures either.

Regardless, it’s not as if the economy has been gangbusters since the last time the Fed hiked rates, and that may keep it on hold.

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